2021 will be an interesting year on many fronts. Two of the most compelling areas I’m following coalesced for me in an odd pairing recently while reflecting on a truly unique 2020 holiday experience.
Movie-going over the holidays has long been a favorite family tradition. Going to see the latest release is something I look forward to during that lull after Christmas and before New Year’s when the bowl games are more entertaining for their names than for the competition on the field. Even now, as I have my own children and the fare tends to skew toward animation instead of Oscar-bait, watching movies is a hallmark of the holidays for me.
My in-laws live in Silverton, Oregon, where a classic local movie theater has been responsible for much of my year-end annual popcorn consumption. The Palace Theater holds many of my memories like a trusty time capsule, as I recall going to see the one movie they had showing while visiting my wife’s family over the holidays though the years.
That came to an end in 2020 — the Palace Theater is no more. Like everyone else, we embraced streaming and watched Wonder Woman 1984 on our couch at home.
It occurs to me that the story of this particular theater, and the state of movie-going in general, is an allegory for what’s happening in health care. Steadily declining ticket sales, expensive blockbusters, the death of independent film, and the rise of streaming have disrupted the movie theater business much the same as primary care consolidation, byzantine billing complexities, large regional health system growth, and the cost of adopting new technologies have disrupted independent physician practice.
The Palace
It’s an American story. Silverton has a population of less than 50,000 and is located about 35 minutes from Oregon’s state capital, Salem. The Palace Theater was built in 1935 and became a Silverton landmark, run by locals Stu Rasmussen and Roger Paulson for its last 46 years. It screened the major blockbusters and the other movies that mattered, which could be seen for less than $10 a ticket. Equally important, a large popcorn tub and soda could be had for less than $5. There are other large theaters nearby, but the Palace had withstood the emergence of chain-theater behemoths. It survived a fire, made the move to digital (requiring a massive investment — more on this later), and even weathered 6 months of the pandemic. But ultimately, real-estate hassles, difficulties with financing, media consumption shifts, and diminishing returns pushed the septuagenarian business owners to throw in the towel. While all industry must evolve to meet the changing needs of the consumer over time, sometimes the effort required is just too much. For the Rasmussen and Paulson, the Palace Theater just wasn’t fun anymore, or competitive, or economically viable.
The Practice
Independent primary care practices face very similar fundamental pressures to those stacked up against the Palace Theater. Over a similar time span, independent practices have served as anchors of countless towns across the country — and as stalwarts of everyday health care delivery. The physician was an engaged and valued member of the community, building real relationships with patients and families and neighbors. She was someone you were as likely to see at the grocery or church as you were at their office. The practice functioned as a rich type of community partnership — ensuring delivery and receipt of honest and humane health care beyond mere transaction. Medicine was practiced at the neighborhood level, built around compassion, woven into local life, and ultimately committed to the optimal state of health one might achieve. It may sound a bit “Norman Rockwell” now, but it’s the foundational vision of American primary care practice.
The Pressures
Like the Palace, independent practices face pressure from declining services (and therefore revenues) exacerbated by challenges to in-person care delivery. The pandemic has only worsened what was already an increasingly tough proposition. The combination of limited workflow tools, underdeveloped data systems, and an antiquated technology investment model have left many independent practices in the same place as independent moving theaters.
In regard to workflow, there has been a lot of advancement in technologies that leverage AI and machine learning to simplify information and improve the way we understand and deliver services. But the availability and impact of such innovations for care providers have thus far been minimal in a largely fragmented market.
With data systems and digitalization, ever-increasing network and payment constructs complicate how a practice can predict profitability and survivability — new modalities are difficult to adapt or integrate (e.g., telemedicine).
Finally, the costly capital outlays for Electronic Health Records (EHRs) that do little to improve the experience of the patient (customer) or care provider have left independent practices in a poor state technologically to adapt to a more evolving consumer-centric care delivery model. Studies of the original $25B + spent in EHR rollout suggest upwards of a $46,000 first-year implementation cost per physician. Small practices simply cannot sustain this level of capital investment for IT infrastructure, much less on IT that does not materially improve their customers’ experience. Imagine if your new operating system on your computer (or the payment and ticketing system for your movie theater) cost this much to implement — never mind ongoing costs!
These inherent challenges have fed the growth of enterprise health systems for three main reasons:
- The value of efficient capital allocation around the large outlays for infrastructure investment (with digitization as a capital expense being a “last 20 years” development)
- Leverage for competitive pricing in the market
- The perceived data consolidation benefits for better care and network performance (shift to value).
These trends could signal a death blow to the once-cherished (and I argue, vital) local primary care core of any health care system.
The Polarity
However, health care heading in to 2021 and beyond is in the midst of a profound movement, which the pandemic has only accelerated. New trends unrelated to the three competitive moats that have worked positively for large systems and negatively for the smaller groups may signal an opportunity for independents. With movies, we’ve seen a massive shift to streaming and the rise of new players competing for our eyeballs. A similarly massive consumption model change in health care may be the opening that the giants didn’t see coming — and which fragmented portions of the market can capitalize on.
As with the movies, the next wave of health care is occurring on the couches of millions of customers (patients). But unlike the little Palace Theater competing against the deluge of home-based streaming, there is a path to a more prosperous and distributed set of providers that can benefit the health care market. Because unlike movie watching, which benefits from a smart capital and content play and large base, medicine will always carry with it a component of last-mile needs.
For the same reason you can’t virtualize package delivery, we cannot (yet) virtualize the physically necessary part of health care.
The Path Forward
That’s not to say a large percentage of care delivery can’t be done virtually or at a distance — telemedicine filled a crucial gap last year and it’s not going to disappear. But health care still bears an essential in-person component for many of its core use cases — humans are not ethereal beings after all. Hybridized health services are what is emerging; and the shape of that combination is being sculpted at this very moment.
The corollary with movies might be seen in the dual big-screen/streaming delivery approach emerging from major studios. Health care is going to be coming to your living room as well moving forward. But in the process, rather than losing a staple of the local economy that enriches communities and brings them together, investors and physicians partnering can drive this new evolution of care delivery so that it is both more broad and more personalized — and as transformative as Netflix or Disney+ or HBOMax have been to the traditional audience experience.
I still want to go to a theater during the holidays in the future, even if it can’t be the Palace. But my family adapted our holiday movie-going tradition in 2020 (never minding the pandemic) through the marvel of streaming. Each experience has its own unique benefits and each has unique value. I want both and more. The same is true for health care delivery.
In the second part of this series, I’ll look at innovation and evolution in the history of movie consumption that parallel that of health care, and highlight what it can teach us. I’ll examine a transition in the innovation model that health care has, itself, followed — and discuss how lessons from upstart Point of Sale (PoS) companies like Square can shed light on where physician practice might go next.
— Jack Stockert is Managing Director at Health2047.
