This year’s Health Evolution Summit in Laguna Niguel was thought-provoking from start to finish.
First, adorning the walkway as you strolled past a view of the ocean was a lovely set of graphics that captured the conversations ongoing in the rooms below. The charts showed themes of collaboration, ecosystem, data, partnering, and chasing scale.
As I stared at these charts, it struck me that what mattered most couldn’t be seen. Perhaps that is why everyone was singing a similar tune around how collaboration is sorely needed—to that I say, “here here.” Not enough is happening fast enough, we can’t find scale except in the old models that delivered us this current state.
Unlike many other nascent industries, white space growth and market generation around new technology and businesses models isn’t readily available in healthcare. The quintessential unit is the health of an individual, and traditionally the payments are fixed, opaque and confusing. We are just recutting a pie that we all think is too big to begin with. Scale is difficult because of the entrenched incentives and hidden profit pools within the industry.
A recent review of profitability from McKinsey outlined how healthcare has seen greater EBITDA growth over the last 4 years, 4.6%, than the top 1,000 US companies (excluding healthcare). Further exploring this phenomena of healthcare profitability, they breakdown how uneven these growth areas actually are. The opacity of the value chain across a complex good such as healthcare in the U.S. has created a dynamic and irrational environment.
As Scott Gottleib, commissioner of the FDA, mentioned in a previous talk regarding the intermediaries affecting just a section of the value chain of pharma and payors for drug delivery at America’s Health Insurance Plans’ (AHIP) National Health Policy Conference, “They [large consolidated firms] use their individual market power to effectively split some of the monopoly rents with large manufacturers and other intermediaries rather than passing on the saving garnered from competition to patients and employers.”
At the summit, there was a great exchange between Jeff Immelt, the recently retired CEO of GE, and Jonathan Bush, the current CEO of Athenahealth, on this topic. As Mr. Immelt noted, the intermediaries issue is broader than drug delivery. The shifting baselines, coupled with the dynamic nature of healthcare, create unstable profit maps that make it hard to align specific ROIs and investments. He went further to mention that this creates an environment where people start “eating off of one another’s plates,” creating difficulties for seeing paths forward.
The unstable nature in the market, profit pool growth, and opacity has created a fascinating and dynamic market. This is further complicated by the fact that the reasons behind pricing and cost differences are different county by county for demographic, practice, and business dynamic reasons. After all, healthcare is hyper-regional. Ironically, ask any physician this question and they would confirm the unique nature of every patient they take care of. To my doctor, for instance, I’m Jack and not a statistical number of standard needs.
All of this leads to what appears to be great uncertainty. However, the simultaneous announcements of new mergers (payors buying retail clinics, providers launching Managed Medicare plans) and novel partnerships (e.g., The Health Transformation Alliance and Amazon/Berkshire/JP Morgan) generate new optimism for what may be in store next.
As a glass is half-full individual, Mr. Immelt’s response to Mr. Bush’s question regarding why he came to healthcare is a helpful reality check. Mr. Bush asked, in his classic unfiltered form, “why come to the powder keg, are we nearing a rational value chain moment?” In response, Mr. Immelt commented that while it is hard to predict that the chaos will end anytime soon, there are four principles that make healthcare interesting. 1-Volume growth—unstoppable; 2-Rising prices—unstoppable; 3-Wave of tech–unabated; and 4-Public policy and private commercial business intersection–confusion. Amid the flux, if one stays on their toes, there is opportunity because of the dynamic nature of healthcare.
In total, the conversation and the conference were a mix of unbridled optimism and grounded discussions around what is possible. As a physician, it was also striking to reflect on how different the tone was at the event versus conversations I’d had regarding the healthcare system abutting the weeks around the summit. Some physician conversations had a tinge of confusion regarding who the good guys and bad guys were (note that this author finds a zero sum game framing of healthcare unproductive and one we should do away with). Others wondered what the shifting businesses would do to benefit actual clinical care and health. In the end, this latter point could have been emphasized more at the conference. For its well curated groups able to adeptly navigate complex topics around scale, collaborations and interaction points of business models amid uneven profit pools (e.g., huge pools in pharma and biotech, minimal pools in providers), it missed the fundamental unit of healthcare — the doctor and the patient. This relationship is, as I far as I can tell, the truest way to build from a solid foundation. Scale, collaboration, and clarity exists at this level because only one thing matters: are you feeling better, are you meeting your goals, did I help you.
Mr. Immelt did spend some time on how great businesses have been built in healthcare, and observed that systemically none of this has tipped the balance. Looking at the data that matters around our health and outcomes, it is hard to argue against him. He stopped short of answers, rather asking the question of what we should actually be trying to do with the business of healthcare. At this point, the right transition would have been to link the view of what the irreducible element of healthcare is, the care provider and the patient, with the gap. For too long the dark profit pools and intermediaries generating them have clouded the healthcare value chain, and yet for physicians, the value chain is clear and the outcome goal obvious: the health of the patient and a population. We’d be better served simplifying parts of the value chain to align better with this short and simple value chain.
As the conversation and week came to a close with a view that advancement in healthcare should be measured in progress and not perfection, I’d only advance the thought to involve a view of the physician’s role in the work. This idea of progress not perfection captures what health and care is all about. Mr. Immelt closed with two telling thoughts, first, that “the bow wave of demand is unstoppable in healthcare,” and that our children will continue to work on this problem too. So moving onwards, its both the progress we make amid an undeniable trend toward making it better, as well as our ability to focus on the foundation of the value chain in healthcare that will matter most. After all, while yes our kids will work on this healthcare problem, they will do so as both innovators AND physicians.