The New Rules of Health Care Business · invisible braces via SmileDirectClub. • Feb. 13. CVS...

The New Rules of Health Care Business

Ken Kaufman

Thursday, Sept. 19

8:45 – 10:15 a.m.

Governors Ballroom

Ken Kaufman

Since 1976, Mr. Kaufman has provided health care organizations with expert counsel and guidance in areas including strategy, finance, financial and capital planning, and mergers, acquisitions, and partnerships. Clients include organizations of all types and sizes — community hospitals and health systems, academic medical centers, and regional or national health systems. Recognized as a leading authority and committed to industry education, Kaufman has given more than 400 presentations at meetings such as those organized by the American College of Healthcare Executives (ACHE), American Hospital Association, Healthcare Financial Management Association, The Governance Institute (TGI), and others. Kaufman has authored or coauthored six books, most recently authoring “Focus on Finance,” published by TGI, and “Best Practice Financial Management,” 3rd Edition, published by ACHE. In addition, he’s often quoted and his articles regularly appear in major health care publications. Kaufman has an M.B.A. with a concentration in Hospital Administration from the University of Chicago Graduate School of Business.

9/12/2019

©2019 Kaufman, Hall & Associates, LLC. All rights reserved.

The New Rules of Health Care Business

Ken Kaufman, Chair, Kaufman Hall

Minnesota Hospital Association Annual Meeting

Brainerd, MN | October 19, 2019

©2019 Kaufman, Hall & Associates, LLC. All rights reserved.T H E N E W R U L E S O F H E A LT H C A R E B U S I N E S S 1

What’s Changing in the U.S. Economy Is the Basic Business Model

• Companies are used to competing in their marketplace on an ongoing basis with a consistent business model

• What we are seeing in a disruptive environment are unexpected changes to the basic business model

• The classic example: Blockbuster and Netflix

• Blockbuster went out of business in 18 months because it was competing in a real estate business model that didn’t exist anymore

• A company’s expertise in the existing business model is of no consequence when the commercial business model has moved to another dimension

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Are We Talking About the

Disappearing Hospital?


Healthcare Is Experiencing a Fundamental Demand Migration

from Inpatient to Outpatient

• In 10 years:

─ 43% growth in

outpatient visits

─ 20% decline in inpatient

discharges

• These figures are only for Medicare patients; the shift is likely even more dramatic for the general population

Percentage change Medicare IP and OP utilization—2007-2017

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The Probable New Business Model Is Driving a Whole New

Way of Coming to Work in the Morning

• The shift from IP to OP is not just a shift in revenue source

• It is a completely new relationship to the marketplace

• It is a retail business, not a wholesale business

• It is an increasingly virtual and platform business rather than a bricks-and-mortar business

• It brings a new kind of pressure on price from competitors that will challenge you directly on affordability

• It brings completely new expectations from consumers

• It brings an entirely new relationship with consumers, a relationship that is more personal than commercial


So What’s the Big Deal?

A Changing Level of

Risk and Consequence

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Case Example: Economic Chaos in the Restaurant Business

• The rise of Grub Hub, Uber Eats, Door Dash, and other digital platforms for food delivery is driving a major shift from in-person dining to delivery—for some restaurants, delivery is now as high as 75%

• “Ghost restaurants” are springing up: “restaurants” that are only a kitchen—no dining room or in-person customers—and they are often being financed by the delivery services

• Legacy restaurants have to deal with these shifts in demand and new competitors while paying up to 30% to the delivery apps for each order

• Existing restaurants have been thrown into an entirely untested business model within just the past few years with no certainty of success or survival

“We saw a direct correlation between the delivery services and the reduction of our income.

It was like death by a thousand cuts.” —Paul Geffner, Escape from New York Pizza

“We saw a direct correlation between the delivery services and the reduction of our income.

It was like death by a thousand cuts.” —Paul Geffner, Escape from New York Pizza


“Now, Near, and Far” Is a Methodology for Finding Your Way

Through These Changes

Now

CREATE THE FOUNDATION

Be successful in

the “now” and

simultaneously make the

critical pivot to the “far”

Near

MAKE THE PIVOT

Place bets on the future

and pivot resources to

support those bets

Far

ENVISION AND ENTER

THE FUTURE

Identify vision and realize a

future state and future role

• Created by Jim Hackett, CEO of Ford

• A way of conceptualizing the future and identifying the path to get there

• A way to communicate the journey inside and outside the organization

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How Can We Describe The New Business Model for the

Internet? The Funnel.

Goals of the funnel business model:

• Get as many people as possible into the top of the funnel

• Create the greatest number of interactions and transactions inside the funnel

• The most successful funnel: Amazon, of course

• The most fully developing funnel currently in healthcare: CVS/Aetna


The CVS Case Study Shows How The Funnel Model Could Be Applied in Healthcare

What CVS is and is not doing:

• CVS is not reinventing the retail pharmacy business

• CVS is not reinventing their front-of-store business

• CVS is completely restructuring the CVS business model…and in the process trying to reinvent the healthcare business model

• CVS is doing this by creating a very broad top of the funnel and by systematically rolling out an integrated set of offerings within the funnel

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The CVS Funnel Strategy Timeline: January-June

• Jan. 9. CVS announces cardiovascular disease and pilot readmission prevention program.

• Jan. 14. CVS announces $100 million spending on public health challenges.

• Jan. 30. CVS pilots service to fit people for invisible braces via SmileDirectClub.

• Feb. 13. CVS unveils three HealthHUB stores designed to manage chronic conditions with expanded clinics with a lab for blood testing and health screenings, and respiratory specialists and dietitians.

• Feb. 26. CVS announces $350 million investment in technology for more convenient healthcare.

• March 20. CVS starts selling cannabis-based products in eight states.

• April 4. CVS expands same-day prescription delivery service to 6,000 stores.

• May 1. CVS and Lehigh Valley Health Network sign a five-year agreement to co-brand preventive care and share data.

• May 6. CVS subsidiary ProCare Pharmacy buys Premier's specialty pharmacy.

• June 4. CVS announces plans to open 1,500 HealthHUB stores by the end of 2021.

• June 11. CVS launches new pharmacy benefit management platform.

Source: Adapted from Paavola, A.: "CVS moving to change healthcare: A timeline since the Aetna acquisition." Becker's Hospital Review, Aug. 28, 2019


The CVS Funnel Strategy Timeline: July-August

• July 10. CVS expands video visits to eight more states.

• July 17. CVS Health starts clinical trials of a home kidney dialysis device.

• July 24. CVS will collaborate with a social care coordination platform to help Aetna's Medicaid members more easily access social services.

• July 30. CVS hires former Partners HealthCare chief population health officer as CMO of its pharmacy benefits management.

• Aug. 2. CVS launches knee replacement pre-op and post-op program for Aetna beneficiaries.

• Aug. 5. CVS Health expands its loyalty program, CarePass; $5/month for delivery of drugstore products and prescriptions, 24/7 access to a pharmacist helpline, and a 20 percent discount on CVS-branded products.

• Aug. 28. CVS hires former Fitbit executive Adam Pellegrini to lead consumer health product development.

Source: Adapted from Paavola, A.: "CVS moving to change healthcare: A timeline since the Aetna acquisition." Becker's Hospital Review, Aug. 28, 2019

This is intentional and strategic, and demonstrates

the executable power of a $250B corporation.

This is intentional and strategic, and demonstrates

the executable power of a $250B corporation.

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Breaking Down the CVS Funnel Strategy

• Platform: ─ 10,000+ retail stores

─ 1,500 HealthHUB stores

─ Expanding virtual care

─ Digital investment

─ Data and analytics

─ Pharmacy benefits management

• Top of the funnel:─ Retail sales

─ Prescriptions

─ Routine care

─ Chronic care

─ Wellness

─ Medicaid beneficiaries

─ People without PCPs

─ Public health

• Funnel components:

─ CarePass subscription

─ Chronic care programs

─ Readmissions reduction program

─ Knee replacement care

─ Dental braces

─ Product delivery

─ Home kidney dialysis

─ Social services coordination

─ Insurance navigation

─ Yoga classes

─ Sleep apnea screening

─ Nutritional screening

─ And more coming regularly


How Can a Legacy Healthcare

Organization Manage the

Funnel Business Model?

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First, You Have to Be Flat-Out Smart

• The smartest companies are winning in the tech revolution

• Revolutionary ideas drive growth

• Scale is highly correlated with intellectual capital; the best talent is attracted to:

─ A visible role and significant influence on a national stage

─ Resources devoted to innovation

─ The opportunity to try “moonshot” projects with no fear of failure

• Legacy healthcare organizations are in a tough fight for intellectual capital,

particularly around digital capabilities


Second, You Need a Strategy to Tap into the Benefits of Scale

• In the Internet and tech economy, large-scale companies are driving breakthrough innovation

• In healthcare, $200B+ companies are the emerging competitors

• Scale can bring financial strength to invest in innovative strategies and to weather business model change

• Scale can attract partners with important competencies

• Scale can attract talent and intellectual capital

• Scale can advance mission by providing resources for community benefit and a voice in health system change

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Third, You Need an Entirely New Relationship with Your Consumers

• Loyalty is the battleground

• Loyalty is achieved at the first encounter

• Are consumers your customers or are they someone else’s customers?

• Where will the people in your marketplace turn first when they have a healthcare need?


Customer Loyalty Has

Become a Completely

Different Commercial

Concept in the Internet Age

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The Cosmo Magazine Case Study

What Cosmo faced:

• Declining subscriptions and newsstand sales

• Declining relevance as its core customers—women 18-35—migrated to social media and the internet for lifestyle insights and a sense of community

What Cosmo did:

• Hired 32-year-old Jessica Pels as editor-in-chief, who was in charge of digital strategy for less than a year before taking on this role

• Monitored social media—particularly Instagram—24/7/365

• Used that information to build an entirely new fact base about their consumers

• Built strong presence on social media, built digital subscriptions, developed new revenue streams through product partnerships, reduced reliance on print and advertising


The Metallic Blue Car

What Cosmo learned:

• In the past, the commercial fact base was the commercial behavior of the consumer population: Which products did consumers buy? How many products did they buy?

• Now, the fact base isn’t the commercial behavior, it’s the totality of consumers’ behaviors—personal and commercial behavior has merged

• Cosmo has to be part of this personal world: When metallic blue cars begin showing up on Instagram, they now show up on Cosmo

What Cosmo achieved:

• Digital subscriptions doubled in the past two years

• E-commerce revenue doubled in the past year

• Cosmo has 2.7 million followers and more than 7,000 posts on Instagram; it has 785,000 subscribers and more than 2,000 videos on its YouTube channel.

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What Is the Metallic Blue Car in Healthcare?

• What would happen if legacy healthcare providers were immersed in the totality of consumers’ lives and used those insights to redefine the healthcare experience?

• No one knows what the metallic blue car could be in healthcare

• But it is up to America’s hospitals and health systems to find it before consumers find it somewhere else


Since 1976, Ken Kaufman has provided healthcare

organizations with expert counsel and guidance in areas

including strategy, finance, financial and capital planning,

and mergers, acquisitions, and partnerships. He is

recognized as one of the foremost authorities on

healthcare industry change, recently focusing on the

effects of disruption and the new business principles of

the Internet economy. Ken is a highly sought-after

speaker, having made almost 500 speeches to major

industry groups over the years. He is also the author or

coauthor of seven books and more than 100 articles.

Kenneth KaufmanChair, Kaufman Hall

[email protected]

9/12/2019


Qualif ications, Assumptions and Limiting Conditions (v.12.08.06):Qualif ications, Assumptions and Limiting Conditions (v.12.08.06):Qualif ications, Assumptions and Limiting Conditions (v.12.08.06):Qualif ications, Assumptions and Limiting Conditions (v.12.08.06):

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