HealthLeaders EXTRA! Are You Ready for 'Big Box' Healthcare? By Preston Gee, for HealthLeaders News, September 24, 2004 What keeps hospital CEOs up at night? The thought of their specialists breaking out on their own may cause some tossing and turning. A JCAHO audit is unnerving. But, in the future, what might make the blood drain from a provider CEO's face is this thought: What if the mass merchandising giants like Wal-Mart, or Target got into the healthcare delivery business in a big way? It might be a stretch in literal terms, but not in figurative terms. What seems inexorable is the progress of retail operating principles into healthcare. Just look at a recent report by government agencies on competition in healthcare. In July, the Federal Trade Commission (FTC) and the Dept. of Justice (DOJ) released a study entitled, Improving Health Care: A Dose of Competition. The in-depth report provides insight into these agencies view of what the healthcare industry needs to do to bring down costs. Bottom line-specialty hospitals and the like are likely back in the game, and what's more, there'sa potentially more powerful competitor lurking in the wings. Added Pros, Fewer CONs The FTC/DOJ report is a relevant read for healthcare executives, especially if anyone thought niche players were going away. Two of the most salient findings in the study involve the recommended elimination of Certificate of Need (CON) laws and the encouragement and support of entities like specialty hospitals. Many healthcare executives may not agree with the recommendationsof the report, but the intent is clear. This sector of government wants to encourage as much competition within the industry as possible. The rationale for such reasoning is rather obvious. Healthcare costs in this country are still rising. American companies and employees are getting squeezed by the increasing costs. A recent study by Laura D'Andrea Tyson, President Clinton's onetime top economic advisor, attributes the lethargic economic recovery to stratospheric healthcare costs. No wonder then that the folks at DOJ and FTC are touting market competition as the best medicine for feverishly rising health costs. Certainly, the nation's business leaders-of companies large and small--would like to find a silver bullet for debilitating health benefits, many of which feel the burgeoning burden is dulling their competitive edge in the global market. Consequently, the FTC/DOJ report is both timely and resonant. And if these two government regulatory groups have their way and sway, there will be many competitors and far fewer CONs to affect the competitive equation. Furthermore, the expected forthcoming climate that will likely foster a new version of competition-one that could prove both demonstrably different and dangerously effective. Of Bull's-eyes and Bellwethers The media has recently picked up on the trend toward "quick care clinics." This concept has been around for decades, but this iteration is more intriguing due to the locale and the rapid ramp-up of these facilities. For example, one of the more compelling models is named "MinuteClinics," which was started by an entrepreneur named Steve Pontius and two partners. There are 12 MinuteClinics in the Minneapolis-St. Paul area, and eight in the Baltimore area. Most of these are found in area Target Stores, the nation's second largest retailer. According to a recent article in the New York Times, Pontius cameup with the idea in 1999 after waiting three hours in an urgent care clinic for a three-minute diagnosis on his 5-year old son. MinuteClinics rely on nurse practitioners, which see most patients within 15 minutes and charge considerably less than either a physician's office, or an urgent care clinic, and a fraction of an emergency room visit. The company reportedly wants to open 200 locations in the next four years. The fundamental idea behind the MinuteClinics model is that people are seen in a professional fashion, an atypically convenient time frame and a sharply reduced fee. In one fell swoop, the model has trumped many of the traditional physician practices in America for minor medical concerns. No wonder they're popular and growing at breakneck speed. Could such a model portend the day when medical professionalism meets mass merchandising efficiency? Obviously Target likes the concept, and on that possibility alone, everyone in the industry should sit up and take notice. Think what this could do to emergency room volume. Most of the EDs in the nation rely on 25 percent to 40 percent of their volume as non-emergent cases. This type of convenience option (with extended hours and reduced fees) could put a major dent in that volume of business. And there is more than just a primary care disruption to consider. For good reason, the Target model may prove to be the tip of the iceberg-a bellwether for the kind of competition that could prove to be the unraveling of the traditional healthcare delivery system with its established "distribution channels." It's a Party Thing Some in the field might worry that cranking medicine into the merchandising model may result in the commoditization of healthcare. That fear may prove valid, but the upside may be worth the risk. The reality is that what serious competitive "channel redistribution" offers healthcare is a transformation of the model by providing convenience and commonality. And that is what is currently missing-to large extent--from healthcare delivery in America, namely the ready access and typical convenience of other services that have been absorbed into the mechanics of the free markets. As highlighted in the government report, restrictive distribution channels are a drag on the competitive nature of healthcare. To take it a step further than even the FTC/DOJ report suggests, if the system is to fundamentally change, then the full gears of the market need to be engaged. What better way to do that than through entrepreneurs working with the existing channels of distribution that already have extensive access to the masses-namely organizations like the "big box" retailers? Some skeptics might reason that healthcare (and medicine) will never "stoop" to the level of mass merchandising. Such detractors may argue that the field is too enshrouded with sophistication and cachet to succumb to the commonness of the mall mentality. A few years ago, that rationale may have held up, but there is one thing that is changing in the market mix: payment by the party. As long as healthcare was basically subsidized by a third party (employers or government), and administered by another third party (insurance companies), the delivery could remain ensconced in the expensive and somewhat restrictive distribution channels of hospitals and physician offices. However, with the primary party (patients and their families) now becoming more involved in the actual exchange-financially and programmatically-the retail model becomes more tenable and probable. Increased cost accountability will likely introduce the "commoditization" of the nation's healthcare services. So just how pervasive and disruptive could this trend toward the mass merchandising of medicine be? The Super Center Scenario Consider this hypothetical scenario: What if one of the big retailers decides it wants to grab a bigger share of the nation's largest service sector, healthcare? Maybe they get the idea to use their unparalleled merchandising power to pursue the lucrative radiological segment of the market, so they begin offering imaging services in a dedicated medical annex near their huge retail centers. Who would ever go to a Sam's or a Wal-Mart for an MRI? Five years ago, probably not too many folks. But patients are now picking up a larger share of the total cost for all medical expenses, including diagnostic procedures. So, if people could save several hundred dollars of their own money, have unprecedented convenience in location and time, have the quality assurance of attending physicians, and combine it with an already scheduled trip to grab groceries and some school supplies, is such a thing out of the question? After all, if people are willing to cross the ocean and travel to India for heart surgery to save some money, is it is implausible that they would cross the outdoor gardening section to have a CT Scan? On a national scale in terms of expenses, what happens if the big players with mass marketing biceps decide to muscle in on medicine? Then we could see some serious competition. All of a sudden, all bets are off and the entire healthcare landscape shifts to the middle. And what impact might that have on national healthcare costs? For one thing, some major segments of healthcare would emerge from the clannish and cloistered domain of complex pricing, diffused accountability and opaque contract arrangements. Under such a scenario, myriad transactions would emerge into the light of free-market, open air, hardball retail pricing. The Haves and Have Nots: What to do? The super center scenario may never materialize. But that's not really the issue. What is happening all around the industry is the migration of high-margin business from traditional inpatient settings (hospitals and health systems) to more retail-oriented enterprises. This mass exodus leaves healthcare executives in a position of being in one of two camps: "the haves or the have nots." The "haves" group consists of healthcare executives with a plan in place, sound strategies to execute the plan, and committed resources to compete aggressively and successfully. In essence, they are prepared to stave off the rapid evacuation of high-margin services from their facilities. The "have nots" do little more than watch in dismay and disdain as their business exits their facility and migrates to more market-savvy competitors, all the while tied up in the paralysis of their own provincialism. So what can be done? First, healthcare executives need to focus their attention on a different competitive target. For the last five to 10 years, the focus has been on the wrong competitor. The established health system acrossthe valley, or the large hospital across town is not the greatest threat anymore. The more menacing, would-be-market-share thief is the hungry, agile and entrepreneurially oriented new competitor that understands retail transactions and consumer desires. Their approach and model is the new standard. Hospital managers and healthcare executives need to either measure against that competitive standard, or align with it. Second, a good starting point for assessing the market is to develop a competitor vulnerability index (CVI). The CVI for hospitals and health systems is comparable to indices developed for manufacturing companies in the 1970s and 1980s. For healthcare executives, the CVI provides a method and a model to assess those lines of operation where the hospital or health system is at greatest risk. A CVI can range from a highly sophisticated and detailed operational analysis and assessment (by service line, for example) to a more subjective assessment by the executive team. In either case the value of a rigorous review/analysis related to competitive vulnerability-at all levels and with all potential competitors--helps the organization ensure determined focus, defined direction and differentiating strategy. Lead or Languish As the healthcare sector comes under increased public scrutiny, the competitive pressures to rein in costs and substantiate value will only intensify. Therefore, it is reasonable to expect that entrepreneurialism will be encouraged, innovation will be rewarded, and traditional models will be pass=E9. Healthcare executives who are attuned to the changing environment will provide strong leadership. Fundamentally, they will lead their organizations into and through this new era of heightened expectations and emerging market-driven dynamics. They will also recognize the mounting imperative to adapt to a new customer-centered, competitor-astute orientation. Unfortunately, for some who remain inflexible and fixated on yesterday's managerial model, the next waveof competition could prove to be a tsunami.
____________________________________ Preston Gee is the author of Service Line Success: Eight Essential Rules (ACHE/Health Administration Press), and is SVP of Strategic Planning at St. David's HealthCare Partnership in Austin, TX. Gee can be contacted at firstname.lastname@example.org. Diane Mahoney, LTCIS, Vice President Velco Insurance Agency, Inc. 11100-A Liberty Road P.O. Box 683 Randallstown, MD 21133 410 922 0912 410 922 2455 (fax) _www.VelcoIns.com_ (http://hometown.aol.com/velcoltc/VelcoHome.html)