Hospitals systems mergers and acquisitions happened at a blistering pace in 2015. It’s largely in response to uncertainty and the ultimatum to lower costs. Tom Baldosaro, CFO at South Jersey Healthcare Regional Medical Center summed it up: “Big is going to be better. Small is not going to survive.”
The idea is that scale can help providers plot a path of strategic advantage to help patients. Insurance companies are skeptical. They say hospitals are buying market leverage to drive referrals and raise prices, which hurt patients (or at least, insurance companies). Mounting evidence shows hospitals’ pricing power is rising thanks to rise of regional health mega systems, prompting calls for the Federal Trade Commission to step in. The squabble is largely over who controls the patient and the market.
This debate is zero-sum. Few economies of scale can be achieved via hospital mergers. Rarely considered is what the patient wants to achieve. But as patients gain more influence as direct payors, responding to their purchasing behaviors will become imperative. In order for healthcare executives to successfully navigate the future, shoring up market control cannot be a long-term strategy.
So how can health systems plan for a patient-driven future? By understanding the “jobs to be done” consumers have that cause them to make healthcare purchasing decisions. There’s a lot of nuance here, but the The Innovator’s Prescription summarizes these into two major “jobs” that patients are looking for help on:
- “I need to know what the problem is, what is causing it, and what I can do to correct it,” and subsequently,
- “Now that I know what needs to be done to fix my problem, I need it to be done effectively, affordably, and conveniently.”
Why is this critical? From a health systems’ perspective, the people, machines, processes, revenue model and all other business functions to do the first job are actually very different from those necessary to do the second. In fact, in order to do one or the other effectively, The Innovator’s Prescription goes so far as to say that providers must act in a separate business unit with different processes and profit formulas from providers trying to do anything else. Without this focus, trying to do both jobs creates business incoherence. On the flip side, solving one job very well is a tremendous competitive advantage.
The first “job to be done” can only be effectively addressed in a solution shop business model. It’s a business model that optimizes for problem solving. In healthcare, this means the diagnosis and hypothesis-based treatment of complicated medical conditions like most cancers and rare diseases. This is an inherently costly business model with high overhead requiring a great deal of intuitive expertise and problem solving. Because characterizing best practices and predicting outcomes is very difficult, regulating this type of business model should focus on providers’ qualifications, but not on rigid clinical guidelines. Many academic medical centers and general hospitals should refocus on this type of business model, because they in many cases already have the expensive equipment and highly trained staff to deliver good results around the first job: “Help me figure out what’s wrong.”
The second “job to be done” is very different and is associated with the evidence-based management of diseases that are easier to treat. When a patient first has a problem, it needs to be diagnosed and understood, requiring a focused solution shop model. Upon definitive diagnosis, the treatment can be shifted to a different business model called a value-adding process (VAP) shop. VAP providers do the same handful of things over and over. They focus on treating just a few ailments using best practices. They generate value via processes, not ingenuity. This means their employees require less lengthy training and don’t need the full suite of cutting edge diagnostics. VAP shops have much lower overhead costs than solution shops, and are much more effective at getting consistent results. Applying process improvement and “lean” principles makes a lot of sense in this type of business model, because they practice precision medicine, or the treatment of causes of disease (as opposed to just guesses).
When a disease is well understood, it can be moved from a solution shop to a VAP shop. For example, Keck Medicine is shifting orthopedic, endoscopy and urology procedures to joint venture surgical centers with Surgical Care Affiliates – and it makes business sense. Repairing skeletal and connective tissues, removing kidney stones and performing endoscopies are, in most cases, well-characterized procedures bound by clear best practices. These will end up costing less and (counterintuitively) produce superior outcomes.
Provider systems are scrambling to gain competitive advantage in an uncertain era. For executives, understanding their organizational capabilities and matching them to a focused “job to be done” is much more important to long-term survival than achieving scale, lowering costs or any number of short-term strategies. Disruptive innovators thrive on unmet “jobs to be done” and the advent of a powerful consumer market will only increase the pressure on established providers to evolve as a competitive response. Health executives can adopt “jobs to be done” and business model thinking first, giving them a a leg up and a clear strategy for the future.