These disruptors may make better allies than you realize.
This article appears in the May/June 2018 issue of HealthLeaders magazine.
When the formal announcement came in January that Amazon had begun assembling a team to fix healthcare's most vexing problems, the healthcare industry seemed to hold its breath.
The details of Amazon's plan were nowhere in sight—and they remain scant to this day—but its history of industry-morphing success and its deep-pocketed partners were enough to knock health stock prices down a notch and incite a barrage of speculation on how the company might lay waste to the status quo.
Then came Walmart. Not to be outflanked by its biggest online competitor, the retailer best known for its chain of superstores reportedly struck up preliminary talks to acquire insurer Humana. The news could foretell the combination of a pharmacy benefit manager (PBM), pharmacies, and insurance under a single corporate umbrella—an arrangement similar to major deals pending between traditional healthcare players as well.
The emergence of these two titans is no doubt unsettling to some healthcare incumbents. Walmart and Amazon have each revolutionized other industries: What's to keep either or both of them from turning healthcare on its head, dethroning the sector's traditional powerbrokers in the process?
But healthcare executives and industry analysts alike say greeting these disruptors with blanket resistance would be counterproductive, largely because hospitals and health systems seem to need what these retailers have to offer.
"This was bound to happen. When we can't disrupt ourselves, others are going to come in," says Christopher Cornue, MSHSA, FACHE, chief strategy and chief innovation officer for Navicent Health, which is based in Macon, Georgia, and licensed for 970 beds across all facilities.
"That doesn't mean that we need to panic or that healthcare systems need to be in a state where they're worried about their long-term viability," Cornue adds. "I think that in healthcare, we need to be focusing on what we know and what we can do really, really well and then partnering with some of these other organizations who have proven themselves very successful."
Even though Walmart, Amazon, and other companies eyeing healthcare from the outside are potential partners to traditional providers, they still pose a threat.
Brian Flanigan, MBA, who leads Deloitte's Value Based Care Integrated Offering, says healthcare leaders should be moving methodically but with urgency.
"I believe that inaction in this era of business model and technology disruption would be a grave mistake," Flanigan says.
Discern friend from foe
Business leaders often use the phrase "disruptive innovation" to describe the major shifts that have restructured their industries. But it can be a nebulous expression, especially when applied in anticipation of near-future trends.
That's why Navicent Health has opted to assess both "disruption" and "innovation" as distinct but interrelated concepts, Cornue says. Disruption is defined as any force—from outside or inside the organization—that can fundamentally change a business or clinical model.
"With that definition, what we're able to do is make sure that we are aligning our organization with what possibly may end up being a disruption, and we can end up disrupting ourselves as opposed to being disrupted," Cornue says.
To that end, Navicent Health launched its Center for Disruption & Innovation two-and-a-half years ago, with three primary objectives: to optimize and equalize healthcare delivery, to apply research that leads to disruptive innovation, and to develop and commercialize new products. The center is part of Navicent Health's effort to systematically identify and respond to incoming threats like those posed by Walmart
"There's a focus on horizon- scanning, making sure that we know what's coming at us," Cornue says. "And when we know something is coming at us, we discern whether or not we partner with it or we come up with something that competes with it."
Provide care in nontraditional spaces
Health systems have been relatively successful in operating hospitals, though they have struggled in other settings, says John Matthews, KPMG Strategy leader for healthcare & life sciences. That's one of the areas in which partnering with a newcomer may help.
"I think that there's a real opportunity for a place like Walmart to start building healthcare delivery in lower-acuity settings that move beyond the kind of clinics inside the stores where you're basically doing flu shots … and relatively simple, straightforward stuff," Matthews says. "I think you could start moving to more of an urgent care model, where you start dealing with patients that have somewhat more complex but still basically primary care needs."
Walmart's accessibility and its rapport with a wide range of consumers, especially among aging populations, could make it a logical partner for some providers. It could even be helpful in developing chronic care models, Matthews says.
"Smart health systems could figure out ways to partner with a place like Walmart and Humana to build that," he adds. "I think other ones might feel a little bit threatened and see some patient volume siphoned off as a consequence."
Phyllis Simpson Sherard, PhD, chief strategy officer and vice president of population health and governmental affairs for Cheyenne Regional Medical Center, which is licensed for 222 beds, in Wyoming, says her organization would be open to discussing the possibility of partnering with Walmart, noting that the retailer enjoys major advantages in scale and purchasing power.
Though located in the state's capital and its biggest city, Cheyenne Regional serves a five-county area with significant rural and aging populations, Sherard says.
Patient care services seem poised to continue their industrywide shift from centralized medical centers to less expensive, more convenient outpatient care settings, putting particular pressure on hospitals in lower populated areas.
Even so, Cheyenne Regional, which has been serving the community in one form or another for more than 150 years, sees strategic partnerships as an indispensable survival tactic for the road ahead.
"We're proven innovators, and we have survived in large part because our mission has always been about taking care of this community," says Sherard.
"This really is the time to face that fear and adapt," she adds. "That adaptation starts with really knowing your system and knowing your sweet spot."
Sherard expresses a sense of confidence in Cheyenne Regional's future, though she acknowledges the organization may look and operate differently five years from now than it does today.
For consumers in the most rural areas, that future could include much more reliance on telemedicine for lower-acuity care in nontraditional virtual spaces, industry analysts say.
Make digital enhancements
While there has been a lot of talk about the extent to which telemedicine will change healthcare, it's important for providers to remember that a potential partnership with technology-focused firms could offer a competitive edge by bringing more subtle change behind the scenes.
"We've been, in healthcare, bedeviled for years about how to really do advanced data and analytics. In part, that's because of the fragmentation of the data sets we have,"
says Matthews, from KPMG. "It's really hard for EMRs to talk to PBM data in the pharmacy, and that's really hard to talk to claims data, and that's really hard to sync up with
If any company has proven its mettle in harnessing the power of data, it's Amazon and perhaps a few of its peers, including Apple and Google. These tech giants specialize in reducing friction, says Rich Roth, chief strategic innovation officer at Dignity Health, which is based in San Francisco and operates 39 hospitals and more than 400 care centers across three states.
"When these organizations lean in, we want to be part of it," Roth adds.
Apple announced an initiative in January that relies on the iPhone as a tool to give patients control of their medical files, synthesizing disparate documentation from multiple providers into a centralized location: the consumer's own palm. Dignity Health was among 39 health systems that began using Apple Health Records in March.
Source: Annual Industry Outlook: Exploring Investments and ROI, HealthLeaders Media Intelligence Report, February 2018.
While Apple is banking on the iPhone, another company might push healthcare innovation around its own signature product, such as a search bar or smart speaker. Whatever the next big thing in the development pipeline is, you should seek to be part of it sooner rather than later, Roth says.
"I think when these systems are designing and prototyping these types of things, you want to be involved," he says. "Ultimately, if you're not involved, you don't have a chance to partner and influence."
Differentiate your brand
Nashville-based Vanderbilt University Medical Center, which also was among the systems to pilot Apple Health Records, has used Amazon for web services and partnered with Verily, a research organization owned by Google parent company Alphabet Inc., says William W. Stead, MD, chief strategy officer for VUMC, which is licensed for more than 1,000 beds across its adult, psychiatric, and children's hospitals.
The key to determining whether to enter into each of these partnerships is understanding your own organization, Stead says.
"We really try not to build anything unless we're, for some reason, uniquely suited to do it. We're wired to get everything else we can through partnerships," he says. "Real partnerships take a great deal of work because both parties, in essence, have to take the time to get inside each other's head and figure out what they can do together [that] they cannot do equally well on their own."
Differentiating the Vanderbilt brand and building on its well-respected academic ties have enabled VUMC to both conduct large-scale pragmatic trials and build its business-to-business operations, says Stead.
Hospital systems that have established themselves as recognized destinations are well-positioned for the changes to come, says Vaughn Kauffman, U.S. Health Services and New Entrants Advisory Leader at PwC. "There's a differentiation there that's well-understood. I think their opportunity is to continue to say, 'How do I expand access and reach?' '' he says.
This brand differentiation is vital for providers seeking to partner with household names like Walmart and Amazon without losing relevancy to consumers.
Coupling a strong provider brand with that of a major retailer could be a hallmark of the most successful nontraditional partnerships moving forward, says Matthew A. Gibson, PhD, MSHA, MBA, FACHE, senior vice president and chief strategy officer for Chattanooga-based Erlanger Health System, which has 813 acute care beds.
"I think the best partnerships are going to center on co-branded products, or co-branding, facing to the market, so both organizations get that recognition," Gibson says.
"Some may say, 'Nope, I insist on my brand only,' " he adds. "That feels like that's a losing proposition with these national companies."
Gibson advises his fellow healthcare leaders to pursue partnerships at "a measured pace," though, carefully weighing what Walmart, Amazon, and others have to offer.
"As aggressively and constantly as you can, do your due diligence," he says. "Study from a variety of sources what these different new entrants are doing. Study their
history in other industries and in other aspects of healthcare."
"Don't feel obligated because of the rapid pace of entry of these companies," Gibson adds. "Don't necessarily feel obligated to do something reactionary and, for instance, abdicate your own position as a health system in your state or region or abdicate the leverage that you do have regarding your brand."
Embrace healthcare's consumerization
In pondering potential partnerships, it's important to recognize that retail giants are also themselves major employers. And employers are already in the healthcare business to some extent on behalf of their workers, says Jacques Mulder, MBA, U.S. Health Sector Leader at EY.
Since employers have a vested interest in both keeping their workers healthy and minimizing wasteful spending through employer-sponsored health plans, they make natural partners for some value-based care initiatives—such as Walmart's recent partnership with Emory Healthcare to establish an accountable care plan for Walmart's Atlanta-area workers.
In a statement announcing the partnership, Emory Healthcare Network CEO Patrick Hammond praised Walmart as "a progressive company dedicated to transforming health care and its delivery process" and noted that large self-insured employers are increasingly looking for ways to cut costs while boosting care quality for employees.
This shift toward value-based care is much deeper than any rubric of quality metrics a payer may use to modulate reimbursement rates. It's tangled up with a movement toward consumer-centric healthcare, which calls for treating patients like customers, earning their repeat business the way retailers do.
"These new entries into the market, quite frankly, are forcing us to either change and to become much more consumer-savvy or—at least in my professional opinion—many of us will not survive," says Donald H. Lloyd II, president and CEO of CHRISTUS St. Patrick Health System, based in Lake Charles, Louisiana, and licensed for 277 beds.
About three years ago, Lloyd says, he began noticing a shift in local consumer expectations. While patients continued to value quality care, they also seemed to be growing more insistent that the care be administered with efficiency,
accessibility, and convenience.
"Whether it's in a clinic setting or whether it's in an inpatient setting, consumers have extremely low tolerance for delayed or slow service delivery, and they will not hesitate to stand up, walk out of a space, and walk across the street to a competitor," Lloyd says.
His team has since conducted extensive market research to better understand what patients want.
"We did not want to get left behind, so we began rethinking our strategy and using focus groups, and, quite frankly, we spent an awful lot of time talking to consumers out there about how they make choices and what their expectations were," he says.
As a result, the overwhelming majority of the system's primary care practices accept walk-ins, operate with extended hours, and pursue what Lloyd calls a "high-touch, high-feel" service delivery model.
How well healthcare organizations adapt the retail tactics of Walmart and Amazon to suit patient care needs and expectations will likely play a significant factor in determining which hospitals and health systems survive and thrive through the possible disruption to come.
“These new entries into the market, quite frankly, are forcing us to either change and to become much more consumer-savvy or—at least in my professional opinion—many of us will not survive.”
Donald H. Lloyd II
Steven Porter is editor at HealthLeaders.
Hospitals and health systems seem to need what Walmart and Amazon have to offer.
Systematically identifying sources of potential disruption would be worthwhile.
Take advantage of the technological expertise of outside firms.
Differentiating your brand is necessary to partner successfully.
Value-based care and consumerization are growing more relevant to your bottom line.