Hospitals used to be at the center of the health care universe. Today, new business models that deliver vertically integrated care rarely own hospitals (consider Optum’s approach). They’re building efficient, convenient, and user-friendly platforms to serve consumers on their terms. Patients, not hospitals, are the center of this new “platforming” health care universe. Integrated platform companies, not hospitals, are redefining the health care industry.
Hospitals largely operated as independent entities until the late 1990s when dozens of new health systems combined hospital ownership and operations within single corporations. This consolidation trend has accelerated during the last 5 years.
Initially, most health systems operated as holding companies. They centralized select corporate functions (e.g., contracting and treasury services), while enabling their member hospitals to operate autonomously.
As health systems matured, many have become operating companies that achieve efficiencies through centralized management of core functions (e.g., revenue cycle, supply chain, and human resources). In the process, they have centralized operations and embraced “systemness” as a managerial strategy for optimizing performance.
Systemness works well under fee-for-service (FFS) payment models but does not serve consumers well. As health care gets disrupted, reorganized, and transformed, integrated platform companies are emerging as a direct threat to incumbent business models.
In industry after industry, nimble platform companies (such as Amazon and Netflix) have toppled once-thriving giants (such as Sears and Blockbuster) by delivering products and services tailored to customer preferences.
In contrast to traditional businesses that emphasize facility ownership and production control, platform companies align independent suppliers (where costs are) within cohesive and connected networks to attract and retain customers (where the money is).
Platform companies prioritize customer service, eliminate waste, and create value. They win by delivering superior products and services at competitive prices with great customer experience.
In health care, as they have in other industries, platform companies are revolutionizing business practices. As risk-based payment models proliferate, they are winning market share at the expense of inefficient volume-driven, higher-cost service providers.
Enlightened incumbents can reposition successfully by shifting to platforming business models. Entrenched incumbents clinging to fee-for-service business models will discover a hard truth: The marketplace rewards companies that deliver the best outcomes at the lowest costs with the best customer service.
Customers versus Consumers
Companies respond to customer demands. Synonymous with burgers, McDonald’s is experimenting with kale salads because its customers want healthier menu choices. Changing customer preferences force companies to alter business models to remain competitive.
The cardinal rule in Lean process improvement is that customer need always defines value. Platform companies are the ultimate Lean machines — relentlessly driving out waste, cost, and intermediaries to curate, arrange, and personalize service provision. For example, Microsoft outsources its IT services to suppliers that deliver great service at lower costs.
In retail businesses like McDonald’s, the buyers and users of products and services are one and the same. The customer-consumer relationship in health care is more complicated, however. The buyers of health care services are principally governments and self-insured corporations. Individuals consume health care services through prearranged channels.
Unlike McDonald’s customers, governments and self-insured companies haven’t demanded commensurate value for their health care purchases. This purchasing mind-set is changing as companies (including Boeing, Walmart, and Haven) and governments (including the Centers for Medicare and Medicaid Services, MassHealth, and North Carolina Department of Health and Human Services) are becoming more discerning buyers of health care services.
More importantly, consumers are exercising more choice in selecting health care service providers. For example, Medicare Advantage enrollees select their insurance plans and aligned delivery networks. In this way, health care consumers who exercise choice become customers.
In response, health companies must deliver customer value to remain competitive. They must personalize care delivery and excel at meeting consumer needs, wants, and expectations. They must embrace platforming.
Beyond Systemness to Platforming
On a typical drive between the San Francisco airport and Silicon Valley, riders will observe at least a dozen billboards from companies offering platform solutions. These companies understand that customers ultimately only care about outputs (products, services, and customer experience), not the production process. They have moved beyond systemness and are now embracing platforming.
Health care is late to the platforming party and still practices systemness with singular dedication. In its pure form, systemness seeks efficiencies by streamlining operations, reducing service duplication, and facilitating performance comparisons between operating units.
Systemness is not bad in and of itself. By nature, however, it is more internally than externally focused. Managers apply common lexicons, establish metrics, and create synergies to drive the business of health care forward.
In fee-for-service medicine, the business of health care prospers by doing transactions at high payment rates. Consequently, health care’s managerial class has invested in high-margin procedures and implemented aggressive coding, billing, and collection practices. They apply systemness to optimize organizational performance.
This managerial focus on getting paid explains a health care anomaly. Almost all providers have robust revenue cycle capabilities but lack cost-accounting acumen. As depicted in the figure below, their business models employ health care’s “old math.”
The movement to value-based care flips the current FFS orientation by paying for health outcomes. Value-based payments convert treatment facilities to cost centers. Acute care interventions are high-cost, last resort treatments. This is health care’s “new math.”
In value-based care delivery, promoting health is good business. Services that sustain and enhance health are critical because they lower total care costs. Structured appropriately, risk-based payments give health companies a substantial economic incentive to engage consumers in their care and health maintenance. Platforming companies practice health care’s new math.
Platforming Health Care
Platforming business models go beyond systemness. They maximize customer value through whatever means necessary. Platforming companies understand both their strengths and the risks they should own to serve their customers most effectively. They willingly relinquish production control to suppliers that add incremental value and strengthen their platforms.
A relentless push to achieve competitive advantage forces tough resource-allocation decisions. In the process, platforming companies grind sacred cows into hamburger for the benefit of their customers.
All companies have inputs and desired outputs. What distinguishes platform companies from traditional companies is that they are agnostic about whether they own, partner, or outsource capabilities.
Focusing solely on desired outcomes liberates platforming companies to construct their service and production networks with the mix of owned, partnered, and purchased services that generates the best results.
The figure above details the flow of health care inputs to outputs and the resource-allocation alternatives (own, partner, or buy) within health company platforms. It also depicts the key channels (brand, price, and customer experience) that differentiate superior product offerings.
In vigorous markets, companies differentiate through these key channels. But price, brand, and customer experience are not core competencies of most health systems. Consequently, value-based competitors perceive a substantial market opportunity to steal market share from providers operating FFS-oriented business models.
Most health care markets lack real competition. This is changing as risk-based payments enable value-based platform companies to differentiate their performance from traditional health companies.
The shift to risk-based payment and value-based care delivery will vary by individual marketplace. Markets that experience more aggressive movement to consumer-directed health plans, such as Minnesota, will transition more quickly than markets where traditional FFS payment dominates.
Health care’s essential participants are providers and consumers/patients. Providers that solve consumers’ health and health care needs will differentiate and win market share.
When the dust settles, winning health companies will consolidate all necessary capabilities within efficient, coordinated, and consumer-friendly platforms. They will deliver superior outcomes by assimilating the best services within cohesive, accountable, and convenient networks.
How Platforming Helps Patients
Innovative incumbents are reorganizing episodic and ongoing care delivery into discrete service offerings. They want to compete on price, convenience, and customer experience. In the process, these health companies are migrating from systemness to platforming.
An example is AdventHealth. This nine-state system is committed to helping its customers receive the care they need when they need it — even if Advent is not providing the care. Advent CEO Terry Shaw describes this new approach as follows:
“I never want to not care-manage you, not know where you are. I want to provide health for you where you are on the continuum. We’re trying to put connective tissue back into a very disjointed system in a way that lets people understand that someone’s actually here and cares for you.” (2018 Health Evolution Summit)
This is platforming health care in action. It serves consumers’ needs on their terms. Advent is investing in patient navigation tools, customer-focused training, patient-friendly billing, and spiritual care to serve consumers more holistically and compassionately. Advent is even investing in an all-encompassing network card that Shaw expects will become more essential to consumers than their insurance cards.
Other examples of innovative platforming in action include:
- The partnership between ProMedica Health System and Welltower to acquire HCR ManorCare, the nation’s second largest post-acute and long-term care provider. This first-of-its-kind partnership encompasses the entire spectrum of care within a $7 billion network that operates in 30 states. ProMedica’s long-term success hinges on its ability to integrate post-acute care services seamlessly into vertically integrated care delivery networks.
- Fairview Health Services’s partnership with the technology firm Qventus to develop an operational transformation center that pushes real-time data to frontline personnel in ways that enhance operational decision-making, improve resource allocation, reduce caregiver stress, and deliver a better customer experience. When fully functioning, Fairview believes their technology-enabled delivery platform will improve outcomes while increasing throughput and reducing costs.
- The recently announced strategic alliance between Providence St. Joseph Health (PSJH) and Microsoft will create a portfolio of cloud-based tools and integrated solutions that employ artificial intelligence to improve clinical and operational decision-making throughout PSJH’s seven-state network. This alliance will accelerate PSJH’s digital transformation, enhance consumer engagement, standardize protocols, and drive superior care outcomes.
Platform strategies are powerful but nascent in health care. They will continue to grow. Paraphrasing science fiction writer William Gibson, “Health care’s platforming future is already here. It’s just not widely distributed yet.” Watch out!