Funnel Vision: Do Health Leaders Have Delivery-Model Myopia?

As most anyone who has ever taken a marketing class knows, one of the two grand gurus of the marketing discipline, Theodore Leavitt (the other one being Phillip Kotler), coined the famous phrase, "marketing myopia," to describe industries or firms that define their business too narrowly. Leavitt's seminal article originally appeared in the Harvard Business Review, and his then-reference point, which provides a sense of just how long ago the article was written, was the railroad industry. Leavitt maintained that railroads atrophied financially and strategically because they viewed themselves in the railroad business and not the transportation business.

According to Leavitt, businesses that stay viable and remain successful over the long run are those that continually broaden their vision, expand their scope of operation and influence, and, perhaps most significantly, focus on meeting consumer needs, and not on merely selling or delivering their products or services.

Following that logic and reasoning, given the nature of today's shifting healthcare landscape, one might ask, if healthcare leaders have defined their operating model too narrowly. Even more to the point, have we provincially focused our sights (and our capital) on a strategic emphasis—arguably a real estate emphasis—that is, in essence, yesterday's model?

In short, do we suffer from delivery-model myopia?

Given the planning focus and capital investment in so many systems and numerous markets throughout the country that overly emphasize expanding and/or enhancing the existing campus, one might be hard pressed not to believe otherwise.

Where have all the patients gone?
One study that brings this relevant yet arguably disconcerting trend to light is a recent report by the Advisory Board Company, Value at the Center. As the authors of this report point out, there has been an unrelentingly steady decline in the growth of inpatients that are admitted at the nation's hospitals over the past few years to where aggregate year-over-year growth has almost flat-lined.

So, where have all the patients gone?

Not surprisingly, many have migrated to more convenient and less costly alternatives, such as ambulatory surgery centers, outpatient imaging centers, and, retail healthcare settings such as convenient care clinics. The Advisory Board captures this troubling trend with the well-articulated, yet somewhat daunting question, "Are we on a glide-path to history?"

A good question, indeed, and one that the data seems to support. Nonetheless, these statistics seem to be counterintuitive, or at the very least, counter-conventional wisdom. After all, aren't these years—with baby boomers aging almost as rapidly as oil prices are rising—supposed to be the times of increased inpatient volumes, heightened hospital utilization, and more-than-ample patients crowding the hospitals throughout the nation, as the many avenues for patient referral funnel to the main campus?

Tell it to the data.

The reality is that the patients probably are there. They're just not flocking (or funneling) to the medical center campuses as was once expected and projected. The age of consumerism has ushered in other market phenomenon, like same-day convenience, focused delivery models and venues, and a rising tide of new competitors who do not have the same historical mind-set and delivery-model intransigence that might hamstring those of us who have been in this field almost long enough to remember when Leavitt first wrote about the railroads.

Show me the money: The capital of healthcare
If this doesn't sound like something that is all that applicable, consider this metric. Perhaps the best gauge of an organization's focus is the amount of capital it allocates and spends on its strategic initiatives. To observe the amount of capital now flowing into existing medical facilities or count the number of gargantuan building cranes that dot the major hospital campuses across the nation, one would think that the action is still with the hub of the healthcare wheel—the traditional medical campus. Yet the revenue streams, which could aptly be termed rivers in some markets, seem to be flowing away from the hospital setting. In reality, as many observers and strategists have noted for a few years, there has been a steady migration away from the main campus.

Although many of us have known this—either intuitively or by monitoring patient volumes at our facilities—recent information corroborates this migration trend toward the emerging venues that now dot the healthcare landscape across the nation.

All this before true consumerism
What is most interesting about this significant shift in healthcare volume and increasing migration away from the established delivery model is the fact that it is so pronounced prior to a significant (and substantive) embrace of what we might term "true consumerism." As some postulate, under a heightened consumerism framework, the patient will have more economic involvement and therefore increased decision-making responsibility. A few of the industry strategists who monitor such trends see this as a natural outgrowth of the current winds of change in the field; particularly given recent bills in Congress—such as the Wyden/Bennett Healthy Americans Act—which in essence combine a universal coverage stipulation within a market-based framework. This type of overarching healthcare reform model allows the consumer/patient greater access and provides more individual financial accountability.

Even if such "hybrid" legislation—universal coverage with market-based architecture—does not see the light of day for a few years (although there is good reason to believe it will), the fact is that more employers are already offloading the accountability, and the financial responsibility to their employees. That trend, which is bound to increase markedly with current and projected economic strains, means more of a move to consumer-directed and patient-involved healthcare. Heightened consumerism, in whatever form it takes, most assuredly means an increased shift away from established venues, as the elements of cost, convenience and access bear greater sway; and reduce the allure or traditional draw of the medical campus. In essence, for a number of converging/emerging factors, the magnetic force of the medical campus is losing its strength and power.

Future-state framework
So what does this look like in five to ten years? Could it be that the expected landscape that healthcare pundits and prognosticators like those who have advanced and advocated consumer-driven healthcare will have their day and the consumerism model will actually come to even greater realization? Will the commercially-branded (and questionably-named) "focus factories" become as ubiquitous as Starbucks, and cause the eventual diminution or even demise of the traditional medical campus?

Perhaps such a scenario might come to fruition in the long run, but not likely in the near future. Rather, given the long history and proven resilience of traditional health settings, we are more likely to see a hybrid model . . . one that is already playing out in early phases of its development in progressive markets. The blended model is still centered in the traditional medical campus setting, only with architectural add-ons that embrace the new wave of the modern medical state…with more convenience, less hassle, lower cost and heightened specificity.

These more consumer-friendly venues are located in close proximity to—perhaps even adjacent to—the medical mother ship, but have a different look, feel and framework, an attitudinal ambience, if you will. Savvy health executives are already developing these contemporized health-delivery settings in many markets, and finding both synergistic benefit and symbiotic reality between the old and the new.

The other framework that is taking shape is one that departs rather dramatically from the traditional model both geographically and programmatically. In this construct, the new-wave delivery model is deliberately distanced from the former foundational model. In this updated setting, there is an attempt to have both the architecture and the delivery model reflect the changing nature of the field, with electronic everything and a patient-centric focus.

The end stage of this model may very well take shape in what authors Joe Pine and Jim Gilmore have advanced as the need for authenticity to eventually get to a point of being an "experience enterprise." As they note in their explanation of this mounting market phenomenon—again, using Starbucks as the example—people are more interested in the experience they're having then the coffee they're drinking.

For healthcare, this obviously marks a sea change; yet some systems and hospitals are already recognizing the emerging market interest by hiring chief experience officers.

All that said, the key thing to keep in mind, is that under this model, health leaders do exactly what Ted Leavitt suggested for all businesses, which is to allow the consumer or patient to design—or at least co-design—the experience.

This is, admittedly radical thinking and dramatic departure, but given the imminence of heightened consumerism, the threat of mass-merchandized medicine (e.g. Wal-Mart) and the now-embryonic, but rapidly mounting interest in medical tourism, savvy leaders in the field will start down this path; if only to glean something from the perspective the path offers.

The service line solution
So how do hospital executives and industry leaders who are interested in re-framing their managerial model and their market orientation make the shift, and consider a different approach?

As with virtually all businesses in most industries, the answer varies by market and by mindset. Yet one approach that gets the organization and its leaders closer to the consumer/patient has been tested in multiple industries over many decades. That proven model—which is now on its third wave in healthcare—is a service line structure and approach. Service lines (or product lines as they are sometimes known) serve the purpose of not only more closely confronting the competition in the market, but more significantly, tapping into the need to closely align with the patient-consumer on his or her level and in his or her space. Procter and Gamble (and the entire consumer goods industry) recognized that need decades ago, as has virtually every other successful industry, and now progressive and successful hospitals and health systems.

By implementing a service line construct, hospitals give the assigned director or manager both the resources and the responsibility to manage his/her area as if they were a mini-CEO, fully accountable for the success or failure of the category. Once that mindset is in place, amazing things occur. Chief among the elements of the model's successful application is the ability to anticipate changes in the market; because the emphasis is very focused and "localized" on what is happening within the current environment and in light of the competitive framework.

In short, a service line model enables a hospital or health system to avoid the tendency toward delivery-model myopia, and enables the enterprise to move nimbly, adroitly, and strategically. Perhaps most important, the construct ensures greater sync with the consumer-patient. In these times of emerging competition and mounting economic pressure, such an approach is well worth consideration, and more often than not, the ongoing investment.