Madison, Ind., is a small town perched on the shores of the Ohio River. It serves as a pleasant reminder of times gone by for the many tourists who now include it in their day trips. But it would be easy to drive through this bucolic community and have no notion of what it had once been.
In the early 1800s, Madison, Ind., was the second busiest port in the United States, outdone only by New Orleans. It rivaled Indianapolis as an economic juggernaut. What happened? The railroads. River transport was displaced by rails.
For a while, Madison succeeded in prospering simultaneously in the river world and the rail world. Indiana's first rail line was built from Madison to Indianapolis. But then, the rails branched into a thickening network of value that stretched across the entire country. That network transported people and goods cheaper, faster and with more flexibility than the barges.
So, commerce and populations shifted from riverfronts to depots. But today, just a few of those once-bustling depots still exist. Most have been bulldozed or set rotting on railways abandoned because of the rise of the automobile and the expressways that came to out-value them.
One answer to the question "What happened?" has enjoyed a popular place in the management literature for some time. The barge companies and railroads forgot what business they were in. The barge operators thought they were in the barge business and the railroads thought they were in the railroad business. In fact, they were both in the transportation business. Because of this myopia, they were blindsided by players not on their radar screens and then stubbornly refused to see the handwriting on the wall.
Myopia describes a condition in which things in the distance or off to the side go unseen. It's an affliction intensified by the way the brain deals with a surplus of visual stimulation — it screens some of it out. Researchers have determined that motorists who claim to have not seen the motorcycle they ran into probably didn't — at least not consciously. Because the motorcycle wasn't big enough to constitute a visible threat, it got screened out.
But there is a flip side to the myopia coin and it is astigmatism: the inability to keep things in clear focus. When it comes to strategy, astigmatism often results from lack of discipline or distraction — not losing sight of the distant edges of the business you're in, but having an inability to focus on what lies at the very core of your position in the business. This affliction can progress until it obscures the place where your mission, experience and competencies coalesce into your value proposition.
Myopia and astigmatism can have two different but significant impacts on the ability to see. One limits the breadth of sight while the other limits the clarity of sight. Either one can put you in the ditch.
When Ray Kroc founded McDonald's, two products were the focus of the business — hamburgers and French fries, both served fast. That was McDonald's core value proposition. Kroc expanded McDonald's incrementally and cautiously from those core products to Big Macs and Quarter Pounders and then to Filet-O-Fish sandwiches and Egg McMuffins, all of which employed the grills and cookers used to make burgers and fries.
Today, McDonald's appears to be in trouble. As of the end of January 2015, its earnings have dropped 21 percent with store traffic off 3.6 percent globally and 4.1 percent in the United States. This, after McDonald's turned somersaults for more than a decade trying to respond to what it saw as changing market dynamics beyond those burgers and fries by offering healthy products and playgrounds for kids, and by competing with Starbucks on coffee. It tried all of this in a segment of the food industry many experts had written off as having matured and in decline.
Yet, it was in this supposedly moribund market that robust new competitors, including Culver's and Five Guys, appeared and quickly built success. These upstarts entered the market by focusing on what had once been clearly in focus at McDonald's — burgers and fries.
As the company's current CEO is being helped out the door by the board, he's said it's tough to say goodbye to the "McFamily," and his replacement has said he is honored to "lead this great brand." But McDonald's former and potential customers aren't over at Culver's and Five Guys buying a sense of "family," and they're not buying a "brand." They're buying differentiated burgers and fries.
On the Horizon
For hospitals, there are things in the distance that could seriously endanger the myopic. Single-specialty physician groups are resurgent, as are physician practice companies. Major retailers are beginning to eye health care. And, perhaps most importantly, government activism has reached new heights.
It's worth remembering that the railroads were a losing proposition until Abraham Lincoln decided to give the men who would become rail barons large tracts of government real estate along the right-of-ways. Eisenhower had a similar impact when he spurred construction of the national highway system. And Hill-Burton and Medicare flushed capital and cash into health care. These were expansive moves with unintended and often perverse effects. Today, we're learning that what government giveth it can also taketh away as it moves from expansion to constraint.
But real as the dangers of myopia may be, astigmatism may be even more threatening. Value-generating interaction between a caregiver and a patient is at the core of the health care value proposition. When that central reality grows fuzzy, there is a danger of debilitating astigmatism. For hospitals and physicians to sharpen focus, the question should always be, "What's ours uniquely to do?" And the answer to that question is embedded in the answer to other questions:
- What do those we serve really care about?
- What do we really care about?
- What are we really good at?
- How can we generate the most value?
- What new things do we need to get really good at?
Today, those questions ought to be topics of much discussion among leaders in health care organizations. They are questions that can be addressed without going to a conference or hiring an outside expert. Every organization ought to work toward the answers themselves, but here's how I would respond:
- What sick and injured people care about is having a timely and safe resolution of their problem.
- We care most about making sick or injured people better.
- What we're really good at is providing care to people who present themselves with diagnosable problems.
- We can generate the most value by keeping people from getting sick or injured and making them better when they are ill or hurt.
- In the future, we need to get really good at demonstrating that we're making people better, and we're doing it faster and cheaper.
Today, there's much hand-wringing about the transition to value-based care and population health. But that transition isn't going to pick us up like a tornado and suddenly deposit us in Oz among munchkins. We're just going to get paid differently. And, although we need to expand our breadth of view to include the affordable care of populations, somebody's still going to have to provide affordable care for individual patients.
There are things that are important in a fee-for-service world that are going to be just as important in a world that includes population health and value-based payments. And there are some things we need to quit doing because they hurt us in both worlds. The table below identifies some of those things. For example, over the past couple of years, a growing number of hospitals have focused attention and resources on developing Federal Trade Commission-compliant clinically integrated networks.
Clinically integrated networks are essential building blocks in fortifying health care's core value proposition in a fee-for-service world as well as in a value- and population-based world. In a fee-for-service world these networks get physicians working closer together on quality and efficiency, both of which have an impact on margins. But an effective clinically integrated network also will foster the collaboration and connections among physicians necessary to amortize the costs of analytics and information infrastructure so that value can be demonstrated and managed across populations.
Making the Transition: Three Big Questions
|What is very important in the FFS world that will still be very important in a value- and population-based world?||What will become very important in a value- and population-based world?||What things should we quit in a value- and population-based world? |
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Are there other things that need attention as American health care shifts to include value- and population-based health care? What about becoming an insurer? Some providers may have the capacity to pull this off, and a very few already have. Sentara Health is a prime example.
But organizations like Sentara took decades to become what they are. For most, moving quickly and forcefully to become an integrated provider-insurer is likely to be an expensive and risky move. Perhaps no organization has demonstrated this more clearly than Denver-based Catholic Health Initiatives.
CHI, which operates more than 100 hospitals in 18 states, has been busy acquiring and starting health plans while aggressively adding hospitals and physicians. It reported a $135 million operating loss in its first fiscal quarter, which ended Sept. 30, 2014 — nearly 10 times its $14 million operating loss for all of its 2014 fiscal year. One cause of the loss is CHI's exclusion from a Blue Cross and Blue Shield of Nebraska contract, which has left its hospitals and some of its physicians out of network in that state.
CHI's losses may simply represent the financial investment necessary to make a quick and forceful shift away from fee for service. But there's another investment certain to be required: the investment of organizational time, energy and attention. Ultimately, those resources have to come from someplace. And for an organization whose birthright is health, that someplace may be its core value proposition — the interaction between caregivers and patients.
The future won't come down to a choice between farsighted or nearsighted. Ultimately, organizations that are sustainable will be "full-sighted." And so, Toto, while this may not be Kansas, it ain't Oz either. And even though no one knows for sure where the yellow brick road will lead, it will be important to watch out for flying monkeys in the distance while we keep our eyes on the road.
Dan Beckham is the president of The Beckham Co., a strategic consulting firm based in Bluffton, S.C. He is also a regular contributor to H&HN Daily.