Healthcare Disruption Spurs Hospitals to Alter Business Operations

November 21, 2018 - Eighty-five percent of hospital and health system executives believe the industry is at significant risk for healthcare disruption, and their organizations are preparing their business operations for potential changes to how healthcare operates, a new survey shows.

The healthcare industry has recently faced an onslaught of disruption. Amazon, JP Morgan, and Berkshire Hathaway announced in April 2018 that they are entering the healthcare industry by forming a company to manage healthcare costs and improve preventative care.

Tech companies like Google and Apple are also moving into the healthcare space through data analytics platforms and population health management tools.

Traditionally non-healthcare companies moving into the industry can significantly disrupt how consumers interact with healthcare and how they receive care.

But the rapid acceleration of healthcare mergers and acquisitions is also transforming the healthcare industry. Researchers saw a record number of healthcare merger and acquisition transactions in 2017, and they predict 2018 to meet or even exceed the new record of 115 transactions.

READ MORE: How Hospital Merger and Acquisition Activity is Changing Healthcare

Large-scale consolidation will fundamentally change consumer patterns and how hospitals and health systems compete for patients and operate their business lines.

With the industry poised for significant disruption, health system executives are quickly developing business strategies to remain competitive, a recent a series of surveys of senior health system executives from the nation’s 100 largest health systems.

Hammond Hanlon Camp LLC (H2C) and The Health Management Academy, the survey conductors, reported that technology investments are the number one strategy for responding to healthcare disruption.

Seventy-one percent of respondents are budgeting for health IT and digital health investments. Many of the health systems plan to invest through new partnership strategies that will allow the health system to become more efficient, accessible, and cost-effective, the survey stated.

Equally as important to senior healthcare leaders was cost reduction. Seventy-one percent of executive also said cost reduction is their top strategy to withstand healthcare disruption.

READ MORE: Exploring the Fundamentals of Medical Billing and Coding

High-quality care is not the only motivating factor for consumers. They also think about healthcare costs. A 2017 report from locum tenens provider Weatherby Healthcare showed that three-quarters of patients look for providers with lower costs.

Health systems are also looking to develop new revenue streams in response to healthcare disruption. Creating and growing new revenue streams was a top strategy for 67 percent of respondents.

Executives believe that diversification of service lines will be key to remaining competitive and offsetting losses in traditional revenue streams, the survey explained.

“It’s becoming more difficult to generate any margin on government-insured patients, and there will only be more of them,” one CFO said. “It’s important that we develop new profit streams that can offset those losses.”

Developing new revenue streams geared toward the commercially insured population is key to balancing potential financial losses, H2C experts emphasized in the report. Government payers notoriously reimburse providers below actual costs, and many organizations offset the losses by negotiating higher rates with private payers.

READ MORE: Hospital Utilization Management Can Reduce Denials, Improve Care

“It doesn’t seem credible that these new entrants, with no experience in healthcare, could solve the industry’s challenges overnight,” the experts wrote. “However, if these entrants were to find a way to develop a model that would serve only the commercially insured, the impact would turn the industry on its head.”

While health system executives are developing technology, cost reduction, and business diversification strategies to prepare for healthcare disruption, the series of surveys also showed that establishing a consumer strategy is also prepping health systems for transformation.

The surveys revealed that more health systems are developing a formal consumer engagement strategy. Forty percent of senior healthcare leaders identified their consumer engagement strategy as very mature in 2017, representing a 12 percent increase compared to the previous year.

Healthcare disruptors are responding to healthcare consumerism. The disruptors aim to deliver more convenient, accessible, and low-cost care to individuals.

Health systems recognize the potential disruption to their patient volumes and retention. Therefore, the organizations are implementing consumer engagement strategies that include digital care, transparency, standardization, and community outreach, the survey uncovered.

But health system executives still face challenges with developing consumer strategies that can compete with those of healthcare disruptors. About 70 percent of respondents said the culture change needed to adopt a consumer-centric strategy is a major obstacle.

Short-term priorities, like cost reduction and merger and acquisition activity, are difficult to balance with improving consumer engagement and other long-term priorities, executives added.

Self-disruption may be the key to preparing for industry-wide disruption from large competitors and non-healthcare companies. Sixty-five percent of respondents said they are willing to engage in self-disruption.

However, actually implementing self-disruption may be too much of a challenge, most executives agreed.

“[M]any executives admit that while their senior leadership team embraces the philosophy of self-disruption, the actual rollout and implementation of a self-disruptive strategy will be a slow process,” the survey stated.

H2C experts advised health systems to “be judicious about the technologies and services in which they choose to invest.” Executives should invest in tools that boost efficiency, improve quality, and provide enhanced customer service.

And in terms of new revenue streams, senior leaders should “consider the value proposition—that is to say, whether the service or technology associated with the new revenue stream displaces another for the benefit of the consumer, or whether it instead burdens the consumer with increased total cost and, if so, whether the increased total cost can be justified in the consumer’s mind by a tangible improvement in quality or convenience.”

Overall, experts from the firm stressed that health systems should respond to healthcare disruption by setting a goal for high-quality care at lower costs.