In a previous post, I outlined how the struggles facing movie theater businesses, and the state of movie-going in general, serve as an allegory for bigger trends happening in health care.
The similarities between health care and the theater industry run deep and cut across a generational timeline. They mirror societal consumption and technology trends. They also shed light on how independent physician practice may capitalize on the next phase of business evolution and its opportunities in health care. But first, a little background…
The earliest American movie theaters in the late 1800s were really small events held in tents. They were as local as local could get. Movie distributors traveled to the people, screened their wares, and moved on until the next visit. They aimed to do the same things as today’s mega theaters — shock, awe, inspire, and delight the community they touched. But they were confined by the technology of their time.
The first modern theater, Tally’s Electric Theater, opened in 1902 in Los Angeles. Similar venues and Nickelodeons quickly emerged nationwide. The expansion of such establishments gave rise to a larger market that, coupled with color and sound technology innovations, fed the cinema production industry that birthed Hollywood.
Early theaters had only one screen, the size of which gradually increased over time. Serving economies of scale was a later significant transformation. Drive-ins first came along in the 1930s. The first multi-screen indoor theater capable of showing more than one movie at a time and meeting the needs of a range of different groups was AMC’s multiplex in Kansas City, which didn’t open until 1963. The first megaplex with over 5,000 seats was built in Dallas (again by AMC) in 1995.
Alongside these evolutions in delivery mechanisms, we also saw evolution in content. Studio systems and genre specialization eventually led to the blockbuster films and sequels, which ultimately led to institutions like today’s Disney machine of franchises that span decades in the production plans. All were designed to draw out consumers to fill the seats in theaters, and now, to tie people to their couches with an ever-expanding streaming universe.
Health Care History
If we parallel cinema history to the health care system, early modern medical delivery for most people was akin to what’s written in A Country Doctor (both the Kafka and Jewett titles). As with film distribution in the late 1800s, doctors originally travelled to their patients, and care practice followed a delivery evolution mirroring theater evolution.
Medical doctors from the 1900s and up through the 1990s served as individual lynchpins of communities. But practice patterns changed, and hospitals grew as populations shifted and medical specialization emerged. As with the rise of the megaplex, the resources and collection of skills needed to ensure a positive return-on-investment (ROI) for an operating room or a new multimillion-dollar imaging center necessitated the hospital model. Physicians still provided the care, but the facilities grew and the hospital infrastructure became a necessary partner.
As capabilities in health care advanced, so did centralization of services in larger hospital centers. As with wanting to see an indy film, if you needed specific or advanced care, you’d have to travel to a larger town. Overall experience, defined by better outcomes and life expectancy, went up — but so did cost, complexity, and effort required on the part of the patient. There was still plenty of room for local independent practice to successfully serve as part of the basic fabric of health care.
As digital technology innovation escalated, Electronic Health Records (EHRs) took hold and requirements arising from Meaningful Use legislation ensued. Hospitals used their size to leverage influence in shaping EHR evolution with underwriting and investment, a process that continues. While it makes sense for them, the digital requirements that have emerged have the same ill effect on independent physicians as the move to digital had on small independent theaters.
While incumbent hospitals and health systems have leadership leverage by virtue of balance sheets, the opportunity to define future consumption models does not solely favor them. To return to the cinema comparison, the AMC theater chain may survive consumer behavior disruption more easily than the poor Palace Theater in Silverton, Oregon. And Disney may be a behemoth in both film production and streaming distribution. But let’s not forget how, say, Netflix entered the movie ecosystem with a completely novel model — and has established itself as the king of a new kind of viewing.
In health care, breakthroughs in workflow, customer experience, and novel care delivery mechanisms will be fully realized in similar unorthodox or novel innovation approaches. This contrasts EHR development, and all the other large capital expense innovation of the last 40 years — a big implementation capital outlay model that favored the consolidation of systems.
The novel approach favors unit economics and digital innovation with minimal fixed costs and scalable models that work at an n of 1. Consider a corollary in Point of Sale (POS) hardware and software. POS went from paper to digital in the 1980s/90s, requiring significant infrastructure installation investment to usher in adoption and alter usage patterns and customs. In the early 2000s, that was all further disrupted by cloud-based POS technology.
While the initial digital POS innovation favored giants like Visa and MasterCard (and their retail partner networks), they required heavy investment to scale and solidify positioning. The cloud-based POS innovation we see today from companies like Square (novel innovation) allow even the smallest independent stand at the local Famers Market to transform its business and sales capability without any network contracts or capital outlay to speak of.
Our future in health care should be contemplated through this lens. The exciting part of this evolution is that it puts the individual physician and the individual patient in the driver’s seat, just like the farmer and the market-goer are with Square. If it is hard to use, they will not use it. And if it does not work on the tail end of the cost curve, it will not scale. The novel innovation requirement opens the door for a resurgence in independent entrepreneurship — who knows, highly localized or community-based movie production and distribution may become a new market as well (unless you want to count YouTube as the existence of it already…quality be darned)!
These new principles have yet to make their way fully into how investors are addressing the health care space, but they will eventually. And if 2020 showed us anything, it was that health care is dexterous, adaptable, and can be quick to change when required.
We may find that novel innovation approaches yield greater health care consumption and better outcomes for all types of chronic, preventative, as well as emergent care needs. When this type of innovation catches, the scaling model allows it to grow like wildfire (or Netflix).
There is a caveat, of course. As with the movie and theater business, incumbent players who benefit off of “old” models will resist change. Smart co-option is a requirement for overall success of the transformation. The capital models and investment approaches that will drive novel movements forward are important subjects for future discussion.
— Jack Stockert is Managing Director at Health2047.