Adrian Slywotzky is an author, consultant and noted expert in management, value growth and economic theory. He’s also a keynote speaker at the American Hospital Association and Health Forum Leadership Summit July 20 in San Diego. His presentation, "The Volume-to-Value Revolution," will explore the industry’s shift to value, the consumer patient, and how leaders should be shifting their models of business in this new reality. We spent a few minutes recently discussing the value revolution in health care with the Massachusetts resident and partner in the Oliver Wyman consulting firm. | Interviewed by Marty Stempniak
What’s a hassle map? How does it apply to health care?
SLYWOTZKY: The idea was generated in several places, most prominently in the tech world, where companies like Amazon, Netflix and Apple did something funny. They watched us as we struggled with buying a book, renting a movie, using a cellphone, and basically they charted out every step that happens, all of the frustrations and hassles and wastes of time and delays along the way. They asked, “How can we radically improve the hassle map of the customer?” We’re all familiar with how they did it and kept doing it. If you look at the field of health care, when I’m a patient suffering from a chronic condition or have to go to the hospital or have to deal with insurance, if you map out every single step that I have to take and the delays and the frustrations, health care is a particularly rich environment for hassle maps. Companies have started to address it in some pretty aggressive ways. Whether you’re talking about a clinic setting, a hospital setting or a specialist setting, if you track what we as patients have to go through, you’ll find a lot of things that are frustrating, delaying, unnecessary, and there are ways to radically simplify that. The good news is people have started to do that.
How are hospitals addressing the negative experiences?
SLYWOTZKY: If I’m going in for knee surgery or heart surgery or whatever it may be, instead of dealing with dozens of touch points and invoices, there are hospitals that have said, “No, we’re going to bundle all of that together. We’re going to have a single point of accountability and it will be a fixed payment. If there is a readmission in 30 or 60 days, we will bear the cost of that,” and that’s a radically different way of approaching it. It helps or forces the members of the hospital team to be very careful throughout the process because they’re dealing with a bundle and a fixed payment, rather than an open-ended, fee-for-service situation. The other thing that sometimes is done by hospitals and care teams is [establishing] a position called an extensivist. That is to say, a physician or a health care professional whose job is to make sure, once I or my parent leaves the hospital, that all of the right follow-up things are done to avoid unnecessary care in the future. Whether you’re talking about a medical group, a care team or a hospital, there’s a growing number who say what happens in the traditional fee-for-service world doesn’t make any sense, either for the patient or for the economics, and they are developing new ways to simplify the process and create prevention much earlier. There is tremendous process-improvement innovation happening in health care today. It’s still the minority, but it’s growing quickly.
Are there any evolving no-profit zones in health care?
SLYWOTZKY: There are a couple of places that might be worth thinking or worrying about, because many of these care teams, whether you call them patient-centered medical homes or accountable care organizations, are focused on prevention and reducing emergency room, hospital or readmission visits. At the same time, a growing number of hospitals are posting their prices online, and you can see greater price transparency coming. Hospitals that don’t keep up with these developments may be seeing drops in utilization and price realization that are more rapid than they’re planning for. As you can imagine, with the high fixed costs, a hospital is very sensitive to revenue-reduction. Hospitals that are unprepared for that might be seeing the kinds of phenomena we’ve seen in other industries where businesses with declining volumes suffered break-even or even negative profitability. Another example is, as the PCMH and ACO movement grows — and it’s growing very, very rapidly now — I think that the market will be seeing the transition from soloist physicians to physicians who lead care teams of nurse practitioners, medical assistants and others as the most effective model for helping a patient to stay out of trouble, stay healthy and achieve better functionality over time.
Why does health care leaders’ thinking lag the market?
SLYWOTZKY: Well, it’s a phenomenon that’s not exclusive to health care, frankly. It’s happened in steel, it’s happened in retail, it’s happened in the airlines, it’s happened in computing. And it happens for a variety of reasons, a couple of the most important of which are that the leaders run very good, sophisticated businesses that demand a lot of their attention. It becomes harder to see new clinical models and new business models coming up at the edge of the radar screen, whose assumptions and ways of helping customers to create value are very different. The second reason is because, when the customer changes, the market rarely changes 80 or 100 percent. You have 3, 4, 5 percent of the market changing and voting for the new models, and it seems like a small number. The problem is that the number often grows 50 to 100 percent a year and, so in industry after industry, when consumers’ new behavior switches from being small to mainstream, that usually catches us by surprise. It’s caught leaders by surprise in dozens of different industries over the last five to six decades. That’s why it’s worth having two things: a good radar screen where you’re looking for what’s happening at the edges and asking why customers, whether they are patients or employers, are voting so enthusiastically for new clinical and business models.
What must hospital leaders learn in the next three years?
SLYWOTZKY: Learning to offer services on a bundled and fixed-payment basis will be new but also a tremendous advantage in competing for business. Something that wasn’t that important in the past, but will become critical in the future, is understanding profitability in the hospital. Which of our services make money? Which of our services lose money? In which particular areas should we be investing because we can be as good as or better than anyone in the market, and which should we potentially be disinvesting in? Also, because there may be so much excess capacity in general, and in particular types of equipment, we should be asking a different question: Where should we be collaborating with others instead of competing, because the market no longer may allow the kind of duplication of facilities that we’ve had in the past? And the final thing is, with the growth of PCMHs and ACOs, how do we as a hospital or a hospital system become the best partner for those care teams? Or, because many hospitals already own physician groups, how do we become very good at creating or co-creating the kinds of care teams that can deliver great value to patients in the future?
What will be the new basis of competition in health care?
SLYWOTZKY: Value. There will be a shift from volume to value as to how we compete, and that opens up a whole new set of competitors. The kinds of care teams we were talking about, whose aim is to reduce emergency department visits, hospitalizations and readmissions, may be competing with hospitals for value. Retail pharmacies that are growing quickly and adding more services, many of them based on prevention, also will be competing on value — what consumers get and how much they pay for it. There are many, many ways to improve the outcomes for the patient and to reduce the resources required, as well as the prices. But the big thing that is happening is that the health care industry was a single-value chain, and you had people competing within the health care industry. Today, there are two other value chains, or industries, that are going to compete for value in health care. One is retail pharmacies that have been investing aggressively over the last several years, and the other is the technology companies. Whether the big incumbents like IBM, Google, Apple and Samsung, or the hundreds of new health technology startups, all are focusing on the consumer and asking, “What is it that you’re not getting today that we can provide cost-effectively?” The numbers and types of new competitors who are competing on a value basis will expand dramatically in the next three to five years.
What are the most powerful brands in health care now?
SLYWOTZKY: That’s a great question because there aren’t that many, and it’s a great opportunity for companies, hospitals, hospital systems and medical groups that do compete on value and provide a much better deal for the patient. If you ask most audiences that question, people will say two or three words — Mayo, Cleveland Clinic, maybe Sloan Kettering. And then, they start to run out of names. And there’s a very good reason for that: Health care has been an intensely regional or even local business for a long time, but that is starting to change as national employers make agreements with hospitals on a national or regional basis. There are few national brands today, but by delivering better value to the patient, the opportunity to build great, new, strong, regional or national brands is going to be enormous in health care in the next few years.
How fast do you think this shift to value will happen?
SLYWOTZKY: There are three things that are surprising that indicate it’s moving much more quickly than people anticipated two years ago. The first is that the ACO and PCMH movements are growing very rapidly. We had almost no accountable care organizations three years ago. Now we have more than 600, and the number is growing quarter by quarter. The second thing is the rate of investment by venture capital in health technology. IBM is spending billions on Watson; Google is spending nearly a billion on its health portfolio; Apple is investing in an iWatch that may come out at the end of this year or early next year; and Samsung is investing in a health-based watch, too. Those numbers are growing much more quickly than anticipated.
The third thing, which is related to the second, is how rapidly patients are becoming consumers, learning more about and tracking their own health. It’s a subtle shift that goes back to your question about why leaders miss the change. Consumers used to be passive. They didn’t know anything about health care costs, and their attitude was, “When I’m broken, fix me.” That consumer is now changing, with higher deductibles becoming more the norm than the exception for people who go on exchanges. Consumers are beginning to learn — Wow! — how much health care costs.
Also, a growing number of consumers across all age groups are becoming more proactive in their own health — the Fitbits, the Jawbones, the website participation. The subtle but important shift is, “I want to be responsible for my own health because it’s very expensive. I’m beginning to learn about health care costs through deductibles” — which is going to be the great educator about how much health care costs. But there are ways that products and systems and groups can help me get better and stay better, and that’s happening a lot more quickly than I think people would have anticipated a couple of years ago.
SLYWOTZKY: I would just reiterate the importance of the next couple of years. We’ve all seen how, in other industries from steel to retail to computing, very good to great companies didn’t see the transition in the market and, therefore, were late and had a difficult time. My key point is that trauma is unnecessary if you stay focused on the market, stay focused on the edge of the radar screen and move with or slightly ahead of that change. There will be tremendous opportunity in this change, but not for the old types of business models that have been successful in the past.
THE SLYWOTZKY FILE
What are you reading now?
The Iliad because almost everything is in it and I read it every three or four years. There’s a terrific new translation by Stephen Mitchell. The other book is called Provenance, about a stunning set of art forgeries in Britain in the 1990s. It is a reminder of how things aren’t what they appear to be and how easily we get fooled again and again by people who want to fool us.
Who was a big influence?
I had a prof in business school who, in a world where class answers averaged about 60 seconds, kept you online for about 10 minutes and kept asking the next question and the next question. He exposed how shallow we were in our thinking and provided a pragmatic, clear model of how to take a problem and keep working it to get to the legitimately correct answer.
Do you have hobbies?
I’ve got three hobbies and in order of least to most frustrating, the first is teaching my grandkids to read. The second is reading history and literature. And the third is playing the piano, the most frustrating by far.