There is a tetralogy of novels, the Alexandria Quartet, in which the same basic story is told from four different points of view. The reason I share this with you is having different points of view does not change the reality of what happened, or what will happen. We each have different points of view as to what will happen to the business model of what I like to call large provider healthcare. Our various points of view will not alter the outcome—que sera sera—what will be will be. Let me propose a point of view which anticipates where the business model will be in a few years.
On this issue, I am of the Chicken Little, “the sky is falling” opinion. I believe the current large provider business models will self destruct. Others believe differently. Permit me to illustrate the logic with an example someone related to me.
- If you believe in God and there isn’t one, no worries
- If you don’t believe in God and there isn’t one, no worries
- If you believe in God and there is one, you win
- If you don’t believe in God and there is one, you lose
Now, let us look at this from the perspective of the large provider business model. Everyone has their own point of view about what the large provider business model must become to give it sustainability. Mine differs from most. There is nothing measurable about having a point of view, nothing right or wrong. There is however risk involved in betting on a point of view that does not come to pass.
- If you believe the model will self destruct and you change your business, and it does not implode, no worries
- If you don’t believe the model will self destruct and you do not change your business, and it does not implode, no worries
- If you believe the model will self destruct and you change your business, and it does implode, you win
- If you don’t believe the model will self destruct and you do not change your business, and it does implode, you lose
I cannot prove my point of view. As a student of mathematics, the dean of the department told me I was the type of student who could prove I was owed change from a purchase, but I could not be relied on to know how much change I would receive. One of the skills I learned was if you could not deductively prove a postulate, you might be able to inductively prove its converse.
Can that argument be made with regard to the future of the large provider business model? Many of the healthcare leaders with whom I have spoken believe:
- The model does not work very well in its present form
- Healthcare IT has contributed to its sustainability
- The empirical model has not changed much in the last fifty years
- Where it has changed, change has gone further away from the delivery of primary care services to numerous people, and more towards delivering extreme care to a handful of people.
The inelegance of a beaver dam is what gives it its strength. The inelegance of a business model is what makes it weak.
Let us compare the large provider business model to the models of US Air Express, United Airlines, and NASA. All three organizations fly people from one place to another. US Air Express does what United didn’t want to do, what their business model was not designed to support. NASA’s business model is so specialized that United could not participate in the same space—no pun intended.
Over time, the large provider model has mimicked pieces of all three models. The area where the business of healthcare has moved away from its model is has to do with the phrase, “We don’t do that.” One the low end, it has done away with many of the bread and butter services—services provided to many people, but which had a low margin. These services have been taken up by many smaller entrants. The smaller entrants don’t have to manage to the same high overhead, thus they are able to make higher profits than were the hospitals.
On the high end, large providers don’t like saying, “We don’t do that,” so they figure out a way to provide the necessary and costly services, services not needed by enough people to keep the model viable in the long run—a little like NASA. (That is the reason NASA is funded by the government. Should healthcare’s up-market services follow a similar model?) Part of what will cause the model to break down is the new entrants earning higher margins will begin to move up-market, taking additional services away from hospitals. As that happens, the large provider model will be even further on its way to falling victim to the 80:20 rule, offering twenty percent of the population a suite of services which comprise eighty percent of the costs.
If that is a reasonable point of view, can that model thrive in five years? Can it exist? There are a great many unknown external influencers of healthcare that will shape the answer to those questions. Among them are:
If healthcare leaders believe the present model to be dysfunctional, what does that say about its ability to sustain itself in five years? Healthcare IT is the one area that will be used to choreograph and help manage the impact of these unknown influences to the advantage of the hospital.
The large provider business model is a “Big Box” model. However, it’s not a Home Depot big box model. The box does not expand to enable more throughputs or more delivery of procedures required by the radial population. Expansion enables the box to deliver wonderfully enhanced procedures to a smaller percentage of the population. Each expansion and enhancement adds proportionally higher overhead. The increased overhead, when applied to the breadth of service offerings, makes low margin services—those capable of serving the largest population—more unattractive, and less sustainable under the current model.
That model, if left unchecked, will bring about its own obsolescence. Healthcare IT, built around a sustainable and flexible strategy, will serve as the foundation for whatever the large provider model must become.