Hospitals and health systems are facing competitive threats from more angles than ever before. From innovative healthcare tech startups to traditional payers making inroads into the provider space, today's threats have multiplied.
For healthcare leaders to ignore them would be at their own peril.
As health systems attempt to pivot toward innovation to fend off a new generation of competitors that seek to dominate specialized pieces of the healthcare continuum, they are burdened with their legacy as high-cost conglomerates that provide everything from high-level ICUs to quick clinics co-located in drugstores.
Most healthcare organizations can't or won't move away from the mission of being all things to consumers, but neither will they ignore the imperative of finding ways to compete by lowering costs.
It may be that both are attainable—if they are smart about integrating both high- and low-acuity care options into a strategy that seeks to capture a greater share of patients' healthcare choices, and thus, their healthcare wallets.
Healthcare organizations are using a variety of strategies and tactics to thwart threats to their competitiveness. Following are four tactics many healthcare leaders think are key to lowering costs and improving efficiency.
1. Vertical consolidation
Vertical consolidation immediately suggests megamergers between large health systems, but that's a hammer in a toolbox that can also feature delicate, intricate tools to thwart lean, niche competitors.
Many of today's forward-thinking health system leaders are looking to bind patients into their ecosystem—in a sense, encouraging patients to think of that health system first for all their healthcare needs. That competitive strategy requires the system to provide a one-stop shop for the entirety of a patient's healthcare encounters, literally from cradle to grave.
The difference in healthcare's competitive landscape now is the influx of nontraditional competitors, says Rod Hochman, MD, president and CEO of Providence St. Joseph Health,
a seven-state, 50-hospital health system headquartered in Renton, Washington.
In his view, his competition is no longer just other hospitals, doctors, nurses, and clinics, as it has been in the recent past.
Instead, other huge players, such as drugstore chains, insurers, and even tech companies, are becoming direct competitors. Insurers are adding provider services to their portfolios.
UnitedHealth Group is one example of an insurer becoming a healthcare provider through its Optum subsidiary, which has bought physician groups that will compete head-to-head with traditional health systems like Providence St. Joseph.
Tech companies such as Amazon are joining with other large employers to cut healthcare expenditures by reducing variation and bringing their economies of scale into direct competition with healthcare providers.
"Competition has become more asymmetric," says Hochman. "It used to be that you knew who your competitors were in the local market. We fought over patients and shook hands at the end of the day. It's not that way anymore. The typical boundaries that we used to see in the past are no longer there."
To anticipate and counter these threats, Hochman says Providence St. Joseph and other health systems should first strengthen what they do well traditionally—that's hospitals, physician practices, and high-end care in general.
Second, these systems must ingrain themselves in their local communities as trusted managers of patients' care, from birth to death. At Providence St. Joseph, whose own health plan has a million members, that means managing care for most of the local population in all its markets.
Providence St. Joseph's population health division has payer contracting fully under its purview, and the medical group is also managed under its umbrella.
Third, Providence St. Joseph has organized a transformation group, which focuses on digital service elements such as direct-to-patient portals and electronic health record management through its Epic platform.
"For instance, we supply Epic to 50 hospitals and clinics we don't own," Hochman says. "Our transformation group is focusing on becoming a service company."
He compares the effort to "creating our own Optum at Providence Health. Fundamentally, they made a decision that staying exclusively in the insurance business is not sustainable. We've made a similar decision that staying only as a provider is not sustainable."
To that end, Providence St. Joseph is further extending its reach and scale by focusing on clinical research initiatives as well as funding and nurturing the startup companies that can sometimes result from that research.
"One way we're transforming ourselves is by managing clinical research across our seven states, which when we put them together is bigger than the Cleveland Clinic's research budget," says Hochman. "That's an example of how we use our scale as a $32 billion organization to create something unique and different."
Another way to leverage Providence St. Joseph's scale is by tackling cost and affordability on a coalition basis. Hochman anticipates building a coalition of hospitals, pharmacy providers, and independent providers to agree on ways to make healthcare more affordable.
"It's not fair to pin all that on these hospital organizations. Just last year we saved $110 million in costs over what Providence and St. Joe's would have had as separate organizations, and much of that savings came from services, supply chain, clinical excellence, and IT," he says.
"We're focused on reducing variability. As a physician, this is very important to me."
Another way to adapt to patients' desires to receive treatment closer to home and free up capacity at larger hospitals in the system is through so-called micro-hospitals.
Cynthia Hundorfean, president and CEO of Pittsburgh's Allegheny Health Network, an eight-hospital health system, sees micro-hospitals as a cornerstone of AHN's competitive strategy, and plans to initially open four in its region over the next two years.
Both of Hundorfean's sons-in-law are physicians in Texas, where micro-hospitals already are a growing presence. That's where she first encountered the concept, and where she began to think micro-hospitals would work well in AHN's region, where patients often must travel long distances to reach acute hospital services.
"The whole intent is to push care out to the community and try to make it so our patients don't have to travel for their care," she says.
She and her executive team, including David Goldberg, who helped develop micro-hospitals for Baptist Health System in San Antonio, will open the system's micro-hospitals under a joint venture with Emerus, an exclusive developer of micro-hospitals.
Each will feature 10–12 beds, operating suites and imaging, as well as an emergency department.
Goldberg says the new facilities won't negatively impact the bigger hospitals. In fact, they'll keep lower-acuity patients closer to home and make room for higher-acuity patients at the bigger hospitals, while enhancing the ability for doctors to manage care in the community.
He sees micro-hospitals as an integral piece of AHN's clinically integrated network, providing doctors and patients a new place for follow-up care.
"This is a population health strategy," says Goldberg, who joined AHN as an executive vice president in 2014, where he is also interim president of Highmark Home and Community Services. "This is a logical next step to broaden health in the populations we serve."
In fact, AHN officials describe the facilities as "neighborhood hospitals," not micro-hospitals. Hundorfean says AHN is on the cusp of a rapidly expanding concept for bigger hospital systems whose main hospitals are struggling with capacity issues.
"This is just starting to explode," she says. "My mom's local hospital in Kentucky is opening two. It will provide more access points for our patients. The future of healthcare is local."
Goldberg says the concept entered the San Antonio market in 2011–2012 and expanded rapidly, as Texas is not a certificate-of-need state.
Pennsylvania also is not a CON state, but the facilities still need Department of Health and CMS approval. Medical office buildings and EDs will also be included in the structures, he says.
AHN's micro-hospitals will feature the same EMR and emergency physician group that staffs the health system's larger facilities.
Further, the same group of hospitalists will rotate on patients in both hospital models, and other support services will come from the same pool as the larger hospitals.
"It will be a game-changer for those communities because they are affordable and scalable and will avoid driving up costs by overbuilding," says Goldberg.
3. Direct to Employer
Seattle's Virginia Mason Medical Center has put quality at the center of its long-term strategy for over a decade.
It developed its Virginia Mason Production System—based on Toyota's manufacturing system that aims to eliminate errors—so thoroughly that it can predict the likelihood of successful outcomes from various expensive interventions.
Virginia Mason has made that ability a cornerstone of a strategy that engages large employers with their healthcare spending tactics. In short, the health system employs a vast depth of analytics to prove that sending employees to Seattle for treatment can save employees money and improve patient outcomes.
It's difficult to convince employers to change their healthcare spending attitudes, but those that have chosen to do it, such as Walmart, Lowe's, and the state of Washington, are pleased. Because they can document better outcomes and cost savings, Virginia Mason's direct-to-employer contracting has become a key staple of its value proposition to the ultimate payers for healthcare services.
Yet uptake has been slower than they would like because employers are reluctant to treat healthcare spending with the same discipline they exercise with other supply chain functions.
"The market is slow, and that's just kind of the reality," says Suzanne Anderson, president of Virginia Mason Medical Center. "Many employers have been hesitant to change their benefit structure."
The successful relationships the health system does have with employers boast two key attributes, she says. The first is a sense of partnership.
"They're not looking for an 'I win, you lose' approach," Anderson says. "It's more, 'What can we both do together to move us forward?' "
Second, unlike many employers, Virginia Mason's employer partners understand that they—not health plans—control benefit design, so they can make the decision to provide incentives for their beneficiaries to make interventional decisions.
For example, employers may choose to offer their employees and dependents a guarantee of no out-of-pocket costs if they choose to be evaluated at Virginia Mason, where physicians will help them make a healthcare decision (such as whether to have surgery) based on evidence and analytics that may predict outcomes.
Practicing healthcare in an exclusively evidence- based manner is a long-term commitment, but
Virginia Mason's senior leaders say it will pay off in the long run.
Major employers such as Walmart already send patients to Virginia Mason from far outside the state because they trust its systems to evaluate proper utilization of expensive healthcare services.
"For example, they can tell employees, 'If you go to one of these centers of excellence, you won't have any out-of-pocket costs,' " she says.
Senior leaders admit it's been difficult for major stakeholder groups, like employers, to move toward value-based healthcare and affordable purchasing because it's difficult and time-consuming to produce reliable standardized quality outcomes and prove it through transparent reporting.
Virginia Mason has made that significant investment not only in analytics capability, but also in clinical practice change, which is arguably an even higher hurdle for some health systems to overcome.
Similarly, Virginia Mason is trying to overcome inertia with many employers, which have typically treated the purchase of healthcare for their employees as a benefit rather than as a healthcare supply chain issue, Anderson explains.
Employers typically outsource the purchase of healthcare to brokers and don't treat the decisions behind the benefits they offer as a procurement opportunity. Virginia Mason is trying to change that calculus, one employer at a time.
"They don't have much of an idea what they're buying, so that's a barrier for them in managing their healthcare supply chain," says Robert Mecklenburg, MD, medical director of the Virginia Mason Center for Healthcare Solutions.
"Then there's the health plans, who are burdened by the fee-for-service model. It's hard to move all three of those together, but that's what it takes. To the extent they can start managing this supply chain and paying attention to what they're purchasing and demanding the best, is where we come in," he says.
Employers will go to great lengths for other goods and services, he says. Healthcare should be no different.
"It is a benefit, which is a warm and fuzzy thing, but it also should have a bit of edge to it," he says. "Employers shouldn't buy defective products, which in this case is unnecessary hospital readmissions. They wouldn't pay for it in other domains."
That's one reason why Virginia Mason is excited to see companies such as Amazon enter the healthcare space with a commitment toward seeking value.
"One of the exciting things is they're going to aggregate a million or more insured customers in their plan, so they'll have the scale to conduct experiments on what works and what doesn't," says Anderson.
The presence of Berkshire Hathaway, Warren Buffett's investment company, in the Amazon partnership shows there will likely be rationality and endurance in what Amazon does, she adds.
"That appeals to Virginia Mason because we have a very long-term horizon. We've been on this [value] journey since 2000," says Mecklenburg.
4. A logistics 'command center'
Many hospitals have capacity constraints. If those constraints are too severe, they can result in serious lost revenue.
To help address this, as well as patient dissatisfaction surrounding transfers, Carilion Clinic, a seven-hospital health system based in Roanoke, Virginia, took over a former patient room in 2009 to handle bed placement and transfer acceptance.
That small control room grew into the new off-campus 24/7 ParkView Mission Control Center that opened in September 2017. Even during its small start, the control room opened the eyes of leadership on the capabilities and possibilities a first-class logistics center could offer.
In fact, the million-dollar center is so important to the health system's efficiency that Nancy Howell Agee, Carilion's president and CEO, likens it to the Johnson Space Center.
"That's what this room looks like, with 20–30 large-screen LCDs with multiple views of beds, and where the [three] helicopters, highways, and ambulances are," she says. "It's the nerve center for flow into, out of, and within the hospitals."
The health system's main quaternary center, 703-bed Carilion Roanoke Memorial, has an average daily census of 90%, "so we're always maxed out," says Agee. "We thought this worked best for the large hospital, but we've extended it to the community hospitals because they're also prioritizing patients coming in and out."
While the top-line technology is impressive, it's the people in the room who are key to the success of the operation, says Melanie Morris, senior director of Carilion's Transfer and Communications Center.
It consists of a transfer center and bed placement center, which handles bed management and transfers for the system's two largest hospitals. It also houses the communications center, which dispatches the helicopter and ambulance fleet.
The Parkview Mission Control Center is staffed by nurses experienced in critical care and organizes the activities of clinical transporters, housekeeping teams, and utilization management professionals.
"That's a lot of moving parts," she says.
The center handles and relieves bottlenecks. Internal "customers," often nurses, call with a need, usually to move a patient. It's the transfer center's job to make room to help put providers back at the bedside, says Morris.
During peak hours, the transfer center is staffed with up to 22 people and scales down after hours to as few as six. While the center currently handles transfers and accommodations for acute care services, it's aiming for connectivity with home health and care management.
"Competition has become asymmetric." - Rod Hochman, MD
"The future is connecting not only to the postacute realm, but we'll also add the community, such as EMS providers and the front end of 911 calls, to deal with the ER," says Paul Davenport, Carilion's vice president of emergency services.
Because there are so many portals into a big system, Morris says the center is almost a necessary addition to a healthcare organization that's charged with being a good steward in matching patients with valuable beds.
Other hospitals and health systems visit the Transfer and Communications Center frequently to learn how they can implement similar programs.
"We're answering the question of how we get more people in and meet needs of the regions we serve efficiently," says Agee. "By bringing together an array of folks who traditionally don't work together as a team in an integrative way, the notion is can you bring more patients in, and that's a metric we look at."
Directly attributable to the center are stats from areas such as housekeeping, which now cleans rooms more quickly and efficiently thanks to better information from the command center.
The increased agility of housekeeping has led to a 30% decrease in time to move patients from the ICU, and a reduction of about 20 minutes to move an ED patient to a clean bed.
"Healthcare is so complex, with so many working parts, it's like a spiderweb," says Davenport. "The ops center connects all those dots and helps break down silos."
A physician and journalist probably isn't who you thought business titans Bezos, Buffet, and Dimon would choose to lead their effort to disrupt healthcare, but Atul Gawande still might make a big impact.
The of Atul Gawande MD, to be the CEO of Amazon's joint venture with JP Morgan Chase and Berkshire Hathaway is at once surprising and groundbreaking.
We should all be heartened that someone willing to try bold ideas is getting the chance to hack away at healthcare's problems and push forward the Institute for Healthcare Improvement's so-called triple aim: improving the patient experience, the health of populations, and the per-capita cost of care.
In announcing the effort at the end of January, the three tycoons promised no less from the company than "simplified, high-quality and transparent healthcare at a reasonable cost."
But can an East Coast healthcare celebrity work hard enough—and be ruthless enough—to tear down and rebuild a broken industry while continuing to write for The New Yorker and serving as chairman of Ariadne Labs, the health system innovation center for which he is currently executive director? That's what it might take to achieve the bold mandate his bosses have set forward.
These business titans have led us to believe their new, unnamed joint venture will be nothing less than transformative. Back in January, Warren Buffet called healthcare a "hungry tapeworm on the American economy." But as I wrote then, many have tried and failed to bring healthcare's unsustainable inflation rate and quality problems to heel.
Winners and Losers
If this venture is successful, and it will be a long time before we know, the winners will be American corporations and patients. The healthcare-industrial complex, if you will, will be the losers.
Ken Turner, vice president of operational effectiveness at University Hospitals Health System in Cleveland, whose clinical leaders have taken $25 million in costs out of the health system over the past six years, is taking the threat seriously.
Turner breaks it down:
Physicians: "Medical staffs should be most concerned," he says. "[This venture] will find ways to deliver more care without them, through automation, technology, and nurse practitioners."
Health Plans: "Look at the rate of medical inflation," says Turner. "It's unsustainable and health plans will have to figure out how they provide those products at a price people are willing to pay."
Healthcare IT: This industry subsegment has a made a mint on setting up health systems with proprietary systems that require expensive and frequent upgrades, and that aren't interoperable across sites of care or health system to health system. Amazon may do the same thing to them that it's
Pharma: Specifically, what Turner calls "pharmakinetics," the science of making sure evidence shows that drugs are both effective and cost-effective for specific conditions. "We have folks who have knowledge about what therapies are effective and we already use them to coach our physicians," he says. "Amazon will totally transform this."
What It Means
Gawande is an analytical scientist who also happens to be arguably the best healthcare writer of his generation. No national healthcare figure understands the underlying problems in healthcare with his blend of perspective and compassion.
Many expected a disruptor. They expected a deconstructive business revolutionary who would use the megapower of three international industry giants to rip away at the wasteful underpinnings of the industry. We didn't quite get that here, but perhaps the Bezos-Gawande partnership will have that effect.
What IS IT? Another institute, cross-industry collaborative, or white paper factory? If it is a non-profit enterprise, what, exactly, does it have at stake? Things are still pretty murky. No one knows what this company will actually do.
One thing's clear: There will be no equivocating when it comes to healthcare's affordability and quality problems. Gawande has become famous by exposing healthcare's many failings.
Process automation company Agilify, which has saved the health system 10% in costs for five straight years, launches for healthcare as well as other industries.
The nation's largest Catholic health system says the results from its shared services subsidiary over the past five years are so compelling that it can compete with the best in intelligent process automation.
That's why it's launching its Indianapolis-based subsidiary Agilify outside the Ascension family to organizations from healthcare and other industries.
The field is expected to grow to a $2.4 billion market by 2021, according to Ascension.
Intelligent process automation has been described by global management consultant McKinsey & Co. as "taking the robot out of the human."
It replaces labor-intensive, repetitive tasks with software automation to handle tasks in organizations with large process operations that are largely standardized. IPA merges a set of new technologies that combines fundamental process redesign with robotic process automation and machine learning.
McKinsey says many companies have been experimenting with IPA recently with impressive results, including:
Automation of 50 to 70 percent of tasks.
20% to 35% annual run-rate cost efficiencies.
A reduction in straight-through process time of 50% to 60%.
An ROI in triple-digit percentages.
Indeed, Ascension’s shared services organization, the Ministry Service Center, began testing and piloting automation more than five years ago, and has recorded 10% year-over-year cost reduction for more than five years, with automation playing a key role in that performance.
The 153-hospital St. Louis-based healthcare organization is counting on Agilify's ability to capture business from outside healthcare after a year of successful market testing and growth in demand, says Anthony Tersigni, Ascension's president and chief executive officer.
The company is part of Ascension’s Dual Transformation strategy, whereby Ascension is working to optimize and transform its core healthcare operations while creating transformational new models to extend its reach and impact, Tersigni said in a release.
“Agilify is an example of how we are developing new revenue sources and best-in-class subsidiaries that serve the needs of Ascension and other organizations, all to advance our mission of service,” he said.
Innovation often comes from outside healthcare instead of the other way around. Health systems more frequently adopt technologies developed by other firms and try to adapt those solutions to healthcare.
Not this time.
“As we began to tell our own story of success, other companies across a mix of industries approached us to find out how we did it. From there, Agilify began to take shape,” said Lee Coulter, chief executive officer of Agilify.
He said that the tools it employs, including software bots and other digital technologies, deliver better transactional speed and accuracy, while working around the clock.
While the overall CEO turnover rate held steady in 2017, it remains among the highest rates calculated in the past three decades.
The Hospital CEO turnover rate in 2017 held steady at 18%, matching the rate reported by the American Hospital Association over the past three years, but less than the record high rate of 20% recorded in 2017.
A recent reportby the American College of Healthcare Executives, based on American Hospital Association data, shows that the past five years represent the longest period of continuously elevated CEO turnover rates since the organization began studying the issue in the early 1980s, according to Deborah J. Bowen, ACHE's president and CEO.
"Hospitals and health systems continue to evolve and reorganize to meet the demands of the new healthcare environment at the same time many CEOs are reaching retirement age, all of which may be contributing to CEO turnover," she said in a release.
Some of the larger trends that may be contributing to higher turnover:
A wave of reorganizationsand restructurings, which sometimes mean a layer of management being reassigned from what were formerly president and/or CEO positions.
While the national rate of CEO turnover seems stable over time, if elevated, some states are experiencing dramatically higher churn than others. Topping out at 38%—over the course of a single year—is Connecticut, where in the past few years, the state has simultaneously ratcheted up tax rates on hospitals while reducing the Medicaid reimbursement rate.
Top 10 states for CEO turnover, according to ACHE research, include:
New Mexico: 31%
South Carolina: 24%
The two lowest-turnover states were Vermont and Arkansas, which recorded 2017 turnover rates of 8% and 7%, respectively.
The company's main product provides prescription decision support to clinicians.
Former Cleveland Clinic CEO Delos M. "Toby" Cosgrove has joined the board of a Denver-based healthcare IT company that offers prescription decision support to providers.
RxRevu says its mission is to improve healthcare through more informed and consistent prescription decisions.
Cosgrove will join a board chaired by Explorys co-founder and CEO Stephen McHale, who sold that company to IBM in 2015.
Explorys was a healthcare intelligence cloud company that built its business on analyzing clinical data sets that it built to help hospitals and health systems deliver better, more cost-effective care. It was founded at Cleveland Clinic and spun off from the Clinic in 2009.
Interestingly, IBM Watson Health, which absorbed Explorys, nearly simultaneously announced a major shift in strategy in scaling back its hospital business, citing weak demand.
Cosgrove famously turned down offers from two presidents to lead the Veterans Administration prior to retirement, and was the single healthcare voice in President Trump's advisory panel, assembled in the early days of his administration.
That panel quickly disbanded in the wake of the President's comments about the Charlottesville violence in the summer of last year.
Supporting Prescription Efficiency
RxRevu's decision support tool, SwiftRx, incorporates national guidelines and patient cost variables to systemize prescribing and improve quality and lower costs for patients, as well as improve provider efficiency, Cosgrove said, in a release.
The tool is "one of the essential solutions health systems will need as they move into value-based care, improve quality and lower costs for their patients, as well as help to prevent provider burnout," Cosgrove said. "This is the future of medicine."
The former heart surgeon retired from the Clinic in January after leading the organization since 2004 and having worked for the Clinic since 1975.
"Dr. Cosgrove is a visionary clinical leader and his unique perspective will help us to better collaborate and partner with health systems,” said Carm Huntress, co-founder and CEO of RxRevu, in the release.
A Michigan health system's patient portal has a half million accounts, and its telemedicine service has doubled volume in the past 12 months.
Spectrum Health's bet on creating its own digital health strategy is built on its belief that reducing costs is the path to future relevance as well as growth in the present.
Its strategy ties together many services into a cohesive ecosystem that, because of its breadth, provides many benefits to the integrated delivery network.
HealthLeaders recently spoke with Tina Freese Decker, the executive vice president and chief operating officer of the 12-hospital, $6 billion (revenue) health system based in Grand Rapids, Michigan.
Freese Decker has led the digital health initiative prior to and through its 2015 launch of MedNow, its telemedicine offering.
Since then, the service has experienced 260% year-over-year growth, and is closely integrated with the more than a half million accounts associated with Spectrum's patient portal, MyHealth.
Following is a lightly edited transcript of that conversation.
HealthLeaders: Where does digital fit into Spectrum's overall strategy?
Tina Freese Decker: First, it's important for our community to have access to healthcare. Improving access and making it as convenient and as local as possible to reduce the cost of care was one of the reasons to launch.
Patients can use MedNow instead of going to the ED or other forms of care that are more costly.
We have two main platforms: one is primary care–based and direct-to-consumer, and we have a specialty platform, where you could be at one of the community hospitals and connect with specialists in urban settings. That way you don't have to travel an hour and park for a 15-minute appointment.
HealthLeaders: Lots of health systems have patient portals and have been talking about their importance for more than a decade. What sets Spectrum’s apart?
Freese Decker: Healthcare is going to be more digital. We need to connect with patients and consumers to make it easier for them, but it's also more convenient and cost-effective. In some cases, it's improved care.
Here's a story about how we first got started: I was at our regional hospital where we wanted to make sure we were providing convenient care that was cost-effective. Cardiology asked to champion. We bought that technology.
At the time, physicians valued seeing patients in person and were skeptical [about telemedicine]. At the end of the first trial, we asked physicians and patients what they thought.
[One] physician said it worked well, but he just wished he could have shaken the patient's hand. The patient said it was fantastic due to time savings and, although he appreciated what the physician did, he said, "I don't need to shake your hand."
HealthLeaders: Spectrum is focusing on digital transformation generally. What else does that encompass besides telehealth and the patient portal?
Freese Decker: I'm privy to ROI over the whole system. I've looked at the impact on the health plan, and it shows significant savings. We avoided almost 11,000 ER or urgent care visits and saved almost a million miles of travel with this. But the ROI is not just based on the telemedicine.
HealthLeaders:How does it serve to bind the patient to the health system?
Freese Decker: The strategy helps connect us with a relationship, and allows the patient to choose a convenient and easy way to interact with a health provider.
The benefit of building it on our own is that, as a patient, I can see my medications through the EMR. And as a patient, I feel the provider knows me because he or she can see my chart.
That was purposeful, and it has helped us attract new patients. Many people are generally well, and they have that one instance where they may be sick. We've had many new patients who have approached us through MedNow and created a relationship with us through that entry point.
HealthLeaders:What's the benefit of having MedNow and MyHealth integrated into the health plan?
Freese Decker: Patients can understand their claims and their deductible and match it with the medical side. Consumers can see there's a value to being a health plan member.
One of the strong benefits is our connection to the cost estimator tool through our health plan. I can see exactly what I will pay, or a pretty darn close estimate.
That's really valuable information and keeps us up with the trend for transparency in pricing. About 25% of the patients seen at Spectrum are also Priority Health members.
HealthLeaders:Where does digital fit into the top strategic priority for Spectrum?
Freese Decker: It's changing the way we think about our interactions and relationships. We need to think digital first because patients want to get information before they make a decision.
We launched our Find a Doctor page to help patients find physicians, but it also has information that helps patients make a decision.
We've posted all the comments from patient satisfaction surveys, star ratings for physicians, shoppable services like lab services, and added information about the insurance physicians take. All of that has driven a lot of traffic to our website.
HealthLeaders:What is the future for digital at Spectrum?
Freese Decker: I'm spending most of my time on moving the organization to achieve our larger strategic goal of becoming consumer-centric.
Our goal is to reduce total cost of care. Health systems must collaborate and partner with each other and others outside the industry.
There needs to be more focus on wellness. People are looking for nutrition and how to exercise well. That’s been untapped. And genomics are going to play a bigger role in health and wellness.
We must understand that what made us successful in the past may not make us successful in the future. We have to be willing to try new things and not be satisfied with the status quo.
High prices paid for deals combined with exciting new technologies aimed at extracting value are driving acquirers to team up for acquisitions as never before.
Corporate and private equity executives are having a tough time locating merger and acquisition targets in the healthcare sectors as values have ballooned to nearly three times the level of 2015.
New research from phone interviews with more than 100 of these executives from consulting firm West Monroe Partners show a high appetite for deals and a favorable market for sellers.
According to the research:
The top challenge in healthcare deal-making is the shortage of attractive targets. There are few targets valued at $100 million or less, and potential acquirers cite difficulty in finding companies with the right technology or products necessary to sustain growth.
The biggest challenge to healthcare companies over the next one to three years is the fast pace of change in technology.
Few targets means a greater number of potential acquirers are definitely (31%) or likely (48%) to seek more joint ventures or alliances over the next 12-18 months, versus acquisitions.
49% of respondents are dissatisfied with their compliance and cybersecurity due diligence in recent deals: 58% of respondents said they had discovered a cybersecurity problem at an acquired healthcare company after completing the deal.
Acquirers are paying close attention to targets' ability to manage the transition to value-based care. It's a slow and steady shift from fee-for service, but the transition is a big factor in taking costs out of healthcare.
But the market may be on the cusp of offering more targets due to pressures on top-line growth. Regulatory changes on the horizon mean additional pressure on some companies to maintain top-line growth and some will react by selling non-core assets. One prime example of this would be General Electric's divestiture of part of its healthcare IT business to Veritas Capital, a private equity acquirer, in March.
In the meantime, as buyers wait for more targets to emerge, they're getting creative:
Buyers are going upmarket and creating joint ventures with other acquirers to find targets and win deals.
Mobile tools and data analytics are key technologies at viable M&A targets.
The best cybersecurity programs are dangerously ineffective without a security-minded culture.
When it comes to due diligence, the clash between corporate cultures is a larger problem than incompatible IT.
Marc Harrison was named president and CEO of Salt Lake City's Intermountain Healthcare in May 2016. Immediately prior to taking the job, he was CEO of Cleveland Clinic Abu Dhabi.
He might have passed on the Intermountain opportunity and waited for a chance to lead the Clinic itself.
About a year later, longtime Cleveland Clinic President and CEO Toby Cosgrove, MD, made the decision to retire. The pick to take his place: Harrison's successor at Abu Dhabi—Tomislav "Tom" Mihaljevic.
But Harrison has no regrets. Intermountain, a regional health system, is a world leader in its own right.
Charles Sorenson, MD, whom Harrison replaced in May 2016, built the organization into an integrated health system, complete with a health plan (Select Health) that gained national reputation for its work on clinical integration and eliminating variation from clinical practice, with resultant improvements in quality and efficiency.
Though Harrison wants to continue that leadership, he also has other goals, including the development of virtual health and "distance health" capabilities, intellectual property development, and what he calls "novel joint ventures" with local physicians that are aimed at cutting healthcare's cost and improving its quality.
As a cancer survivor, Harrison says that experience has given him an acute sense that clinicians and other caregivers are interacting with patients at the most vulnerable times of their lives; it's also given him knowledge of what patients go through when they place their trust in clinicians.
Following are the highlights of his recent conversation with HealthLeaders.
"I feel incredibly fortunate to be leading Intermountain. This is the perfect job for me. I love the population health and value orientation that Intermountain has. In addition to providing high-end quaternary and specialty care, we also serve as the primary safety net for people without means across the state and region. That feels really good. The aspect of leadership that involves service to the community is something I've always loved. I'm great friends with Dr. Cosgrove, but here, we're trying to build a model system in terms of driving value, and that is what I feel I'm meant to do. I don't wish I was anywhere else. I'm where I want to be."
"The health system of the future needs to deliver care where, when, and how people want it and at the highest-possible quality and lowest-possible cost. Our history of being careful with resources and innovating around quality delivery, as well as our experience around the payer-provider model, puts us in a unique place as an operational and thought leader. Our target is to be the first consumer-centric, digitally enabled consumer health system. I also love the fact we're not just a fully employed physician model. We treasure our 1,500 employed physicians, but we also have 3,500 aligned physicians. Organizations that will drive the future need to be able to work with both."
"A good example is some really nice work we're doing with Select Health with St. Luke's up in Boise. They're achieving superb results in terms of safety and quality. Those projects allow us to test replicability and will let us know if we can generalize this work across the country. Our digital and distance health is now in five or six western states in hospitals we don't own, and they achieve outstanding results in standardizing clinical care and keeping people in their home area. That's a piece of reliability as well. We have about a hundred clinical services we deliver virtually at this point, and have formalized them into a virtual hospital that we'll share with others and to some extent forgo some revenue."
"Some systems like ours seek to absorb transports. We’re happy to take those, but we’re more interested in using our virtual capabilities to have people stay in their home hospitals. I’m fascinated by whether we can systematically support rural hospitals and have these hospitals remain financially viable. Extracting patients from these hospitals is the right thing to do if you have no other option, but if there are ways to keep them in place, that’s wonderful because they can stay strong for their communities. That’s not the primary motivation for the virtual hospital, but the future of bricks and mortar is to some extent unclear."
"There’s nothing about my ego that needs us to be on multiple continents. The reason to interact with people at a distance is to learn things that will benefit our primary mission. I don’t have a checklist of countries that I want us to be in. My international experience has been wonderful in that I recognize how deep and diverse the global talent pool is. Salt Lake and Utah in general is much more diverse than most folks recognize. At one of our middle schools, we did a health screening service project and 80% of the kids were people of color."
"Nothing is easy in healthcare. It's a complicated industry, and we're in a volatile political time. The best thing to do is pay close attention to things one can control, and for us, that's care at high quality with consistency at the lowest-possible cost. It's rare to bump into anyone here who's not an expert in what they do. That talent means we can do things that stretch the organization. We're moving fast. I have no disappointments around speed. In fact, the team has overdelivered in terms of improvements in operational excellence, safety, and quality. It appears we're having an excellent year from a financial standpoint."
"Another way for us to grow is through intellectual property. We've spun off Empiric Health, which allows clinicians to understand the costs of delivering a given service. Our anchor client is Loma Linda [University Health]. Internally, we saved about $90 million in a year with it deployed in half our system. That's without mandating that clinicians change anything. We've also spun off a company called Navican, a precision cancer company. They're able to help patients with advanced cancer to have their tumors sequenced, ID'd, and have a global virtual tumor board determine whether to use targeted biologics or other therapies. Others will spin off in the next six months to a year. We're also looking at some novel JVs with physicians in our region."
"Select Health is a growth lever. If we choose our partners judiciously, we should be able toachieve the same results with other health systems. It takes quite some time to get good at running health plans. The final piece is the delivery of distance services. For a relatively small investment, well under $100 a square foot, we’ll stand up a [virtual] hospital that will deliver care to millions of people compared to the roughly $600 a square foot that it costs to stand up a traditional hospital."
"I am not ready to declare victory on capitation. That would be foolhardy. It’s an effort of continuous improvement and ever-changing expectations on how we take care of patients. The future is understanding and influencing social determinants. I was talking with our SVP of population health, and I said, ‘If I could take $50 million from Select Health and tell you to keep the members well, could you do it?’ She was honest with me and said not in an objective way. How you apportion care, patient by patient and member by member—we’re trying to figure it out. That’s a totally honest answer."
"If I had a tendency to coast in life at all, which I don't think I ever have, the cancer diagnosis has accelerated my desire to make change because you don't know how much time you have. It's given me a real sense of urgency."
"I'd like to see us deliver the highest-quality care in the U.S. at the lowest per-capita cost. I want people to feel like they can have some control over their health and well-being. Good health systems will have a lot more tools to help people have that sense. The idea of digital is not to depersonalize, but the opposite. If we can do that, I'll be the happiest guy around."
The resignation of Jonathan Bush follows allegations of misconduct and comes weeks after the company resisted a hedge fund's buyout offer.
Jonathan Bush has stepped down as CEO for Athenahealth Inc., following a series of misconduct allegations involving women, including his former wife. His departure now makes a sale of the healthcare software-as-service company to a hedge fund or other strategic acquirer more likely.
It's a dramatic fall for a charismatic and loquacious CEO, and until February, its chairman. Bush has been the unquestioned leader for the company since Athenahealth’s inception.
His departure follows reports of inappropriate behavior dating as far back as 2006:
Responding to a report that he assaulted his ex-wife, Bush said in a statement last month, "I take complete responsibility for all these regrettable incidents." The report, by the U.K.'s Daily Mail, cited documents from a 2006 custody battle in Massachusetts.
Bush settled a sexual harassment claim from a former employee in 2009.
Bush was publicly embarrassed by a 2017 video clip that emerged from an industry event in which, dressed as a movie character from the 2006 comedy "Talladega Nights: The Ballad of Ricky Bobby," he said he wanted to "jump down on" one of his female employees and "do inappropriate things."
In a statement, Bush said, "it's easy for me to see that the very things that made me useful to the company and cause in these past 21 years, are now exactly the things that are in the way."
Bush leaves in the midst of a contentious $6.9 billion buyout proposal from Elliott Management Corp., which he had resisted. Elliott is a New York hedge fund that has described Athenahealth as poorly managed.
Elliott began its unsolicited bid campaign about a month ago, proposing to buy out Athenahealth and take it private at $160 per share, a premium of 27% over where the company's shares were trading at the time.
Following the announcement of Bush's departure, Elliott said it welcomed the news.
Athenahealth will be led on an interim operational basis by Matt Levine, its chief financial officer. The company will likely have a tougher time fending off Elliott and other potential suitors who may find it easier to make the substantive changes for which Elliott has been calling.
Former GE CEO Jeffrey Immelt has taken on the role of executive chairman role since Bush's resignation. Immelt was named chairman of Athenahealth's board in February, replacing Bush in that role.
Immelt is believed to have played a key role in General Electric's dramatic decline in value over his 16-year tenure as CEO. He will be leading a process to "explore strategic alternatives," which could include a variety of possible outcomes, including a sale, merger or continued independence for Athenahealth.
Piper Jaffray senior research analyst Sean W. Wieland issued a report that raised its price target for the stock to $179 from $155 based on the greater likelihood of a sale following Bush's resignation. He cites several reasons the company could attract multiple bids that would improve on Elliott's earlier offer. Among them:
Athenahealth is among the highest quality assets in the health IT sector.
It was an early entry to the cloud platform, with a recurring revenue business model.
Athenahealth's decelerating recent growth is a function of healthcare industry dynamics rather than company-specific tactics.
The company has demonstrated a strong ability to drive incremental margins.
Many strategic buyers may now be interested, including Oracle, Microsoft, and Salesforce.
SunTrust Robinson Humphrey analyst Sandy Draper also weighed in after Bush's departure, assigning a $180 price target on the stock.
Draper describes Elliott's bid as a valuation floor and says Athenahealth is now more likely to be acquired. Among her reasons:
Bush founded Athenahealth, has been its only CEO, and he ran the company the way he wanted to even if shareholders didn't necessarily like it.
The board is reviewing strategic alternatives officially, after declining several prior calls from Eliot to do so.
Elliott indicated it might be willing to pay more for the company if given proper due diligence.
Bush owns only 2.8% of the company, and now that he's not officially involved in day-to-day or strategic decision-making, it's easier for potential buyers to make substantial changes without going around him.
Bush is a nephew of former president George H.W. Bush and a cousin of former president George W. Bush. He had led the company since its inception in 1997. It had its initial public offering in 2007; shares debuted at around $35 a share.
The software and cloud services company provides billing, electronic health record and other services to more than 100,000 accounts, including physician groups and hospitals and health systems.
Commission, regularly ignored by Congress, recently suggested eliminating and replacing the controversial MIPS physician evaluation program.
The Government Accountability Office has named five new members to the Medicare Payment Advisory Commission and reappointed one existing member to three-year terms expiring in April 2021. They replace the six members whose terms expired in April 2018.
The new members include a former national coordinator for health information technology at the U.S. Department of Health and Human Services as well as a former under secretary for health at the Department of Veterans Affairs. Four of the new members are physicians.
Karen De Salvo, MD: A professor of Medicine and Population Health at the Dell Medical School at the University of Texas, De Salvo was formerly Acting Assistant Secretary for Health and the National Coordinator for Health Information Technology at the U.S. Department of Health and Human Services.
Marjorie Ginsburg, BSN: The founding executive director of the Center for Healthcare Decisions Inc. at the University of California Davis, who served there from 1994-2016. That organization merged with the Center for Healthcare Policy and Research in 2017. She is an expert on end-of-life care, health plan benefits design, and strategies to reduce overuse of unnecessary medical care.
Jonathan Jaffery, MD: A professor of Medicine at the University of Wisconsin School of Medicine and Public Health, Jaffery is also the chief population health officer at UW Health and the president and CEO at UW Health ACO Inc., where he is responsible for the development, coordination, and implementation of UW Health’s population health management strategy.
Jonathan Perlin, MD: The president of clinical services and chief medical officer of HCA Healthcare in Nashville, Perlin was previously under secretary for health at the Department of Veterans Affairs. He is responsible for improving performance at HCA's hospitals and outpatient centers.
Jaewon Ryu, MD: The executive vice president and chief medical officer for Danville, Pennsylvania-based integrated delivery system Geisinger. He was previously president of Integrated Care Delivery at Humana and held leadership roles at the University of Illinois Hospital & Health Sciences System and at Kaiser Permanente
Susan Thompson, RN, senior vice president of integration and ptimization at UnityPoint Health in West Des Moines, Iowa, was appointed to a second three-year term.
MedPAC, established in 1997 as a 17-member independent Congressional agency, advises and makes recommendations to Congress each year in two voluminous reports that are highly publicized. The healthcare experts who make up the Commission often suggest ways they think Medicare payments and programs can be streamlined or better administered, but Congress often ignores their recommendations.
Members whose terms also expired in April are:
Alice Coombs, MD, critical care specialist and anesthesiologist at Milton Hospital and South Shore Hospital in Weymouth, Massachusetts.
Jack Hoadley, PhD, research professor emeritus at the Health Policy Institute at Georgetown University in Washington, DC.
David Nerenz, PhD, director of the Center for Health Policy and Health Services Research at Henry Ford Health System in Detroit.
Rita Redberg, MD, a cardiologist and professor of clinical medicine at the University of San Francisco Medical Center.
Craig Samitt, MD, executive vice president and chief clinical officer at Anthem Inc. in Indianapolis.