The Future of Healthcare is Not in Hospitals
Implications for Healthcare Mergers & Acquisitions
For the past five years, hospital systems have been on a buying binge, scooping up or partnering with community hospitals and physician practices in order to capture referrals and expand their geographic reach.
In the future, healthcare will be delivered in settings far outside what hospital leaders consider the norm today.
Community hospitals are being courted by larger systems as they seek to succeed in a value-based business model. Physician groups want the shelter of hospital system employment, gaining access to capital and a steady paycheck while reducing the burden of complying with new payment rules and Electronic Health Record (EHR) requirements.
The problem with this merger craze is that it reflects, in part, an outdated view of patient care. The push to build large systems and monopolies reflects a hospital and physician practice-centric view of the world, in which physician practices funnel inpatient procedures to hospitals that drive revenue for the system.
But in the future, healthcare will be delivered in settings far outside what hospital leaders consider the norm today.
Hospital utilization has dropped every year for the past decade, despite the aging and graying population. From 2006 through today, inpatient hospital utilization rates in many places have fallen as much as 10 percent, depending on the region, across all age groups. This is not just an artifact of the great recession, as use rates have declined for all age groups, including for Medicare-eligible patients.
Retail clinics are growing at a double-digit pace. In 2016, there were 2,300 retail clinics, a number expected to grow to 2,700 in 2017. Retail clinics represent classic “disruptive innovation.” Disruptive innovations are technologically straightforward, consisting of off-the-shelf components put together in a product architecture that is simpler than prior approaches and serves customers left out of mainstream solutions according to Clayton Christianson, Harvard Business School professor and author of the term.
Demand for patient-to-provider telemedicine services is exploding. Web companies such as Teladoc, Doctor on Demand and American Well hosted some 1.2 million such virtual doctor visits in 2016, up 20 percent from 2015, according to the American Telemedicine Association. Although state regulations and insurer coverage promote or impede teledoctoring, employers and health plans are promoting these services as a cheaper way to get care without leaving home or work. Like retail clinics, virtual visits disrupt traditional medicine and cost as little as $45 per visit.
The house call has returned. The Centers for Medicare and Medicaid Services’ Independence at Home Demonstration project, which brings physician services to frail elderly people in their homes, in its second year saved an average of $1,010 per beneficiary while reducing inpatient readmissions and improving care coordination. Meanwhile, services such as Pager, Heal, Medicast, PediaQ, Dispatch Health and Anywhere Urgent Care are bringing urgent care services to patients in their homes, at a flat rate far below what walk-in urgent care centers or standalone emergency rooms charge.
The right M&A strategy is crucial for accelerating growth and transforming healthcare care delivery models as healthcare services move away from the hospital. Read more.
Taken together, the trends tell us that patients want to get care at the lowest cost, most convenient location; the patient-physician relationship is no longer sacrosanct; and procedures are moving to the outpatient setting.
This forces us to ask some interesting and difficult questions about hospital consolidation.
- What is your retail and digital strategy?
- Does geographic reach matter?
- And, what are you really consolidating — beds (infrastructure) or heads (covered lives)?
If the answer is heads, CEOs should ask whether future acquisitions will help them better compete in an ambulatory-centric healthcare system:
- How does this partnership increase our system's ability to offer primary care at the lowest possible cost and greatest convenience to patients, i.e., urgent care, minute clinics, house call services and teledoctors?
- How does this merger improve our ability to leverage technology so that patients don't have to go to the hospital?
- How does this merger improve our ability to offer the highest quality specialty care in an outpatient setting?
- How does this merger allow us to compete for contracts we otherwise might not get?
- How does this merger help us improve and increase patient access to the system's services, overall?
The industry is already seeing large health systems thinking beyond the hospital-hospital merger, instead extending their reach into the community with new services.
Children’s Memorial Herman Hospital recently joined with pediatric-focused house call provider PediaQ to integrate a record of the child’s care with a hospital-based pediatrician. St. Luke’s Health System of Kansas City is setting up tiny hospitals that will have just eight to 10 beds for overnight stays as well as round-the-clock emergency rooms equipped and staffed like the ERs in their big parent hospitals. Baylor Scott & White Health is building retail-like convenient care clinics, open seven days a week, to provide access to a greater number of patients.
Some hospital systems are not replacing out-of-date hospitals with new hospital buildings, but rather with a continuum of outpatient care.
Contra Costa County in Northern California shut down the 189-bed, money-losing Brookside Hospital in 2015, replacing it with additional ambulatory hours at an urgent care clinic. In North Carolina, Vidant Health closed the local Pungo Hospital in 2014, saying it was losing money. In 2016, the network opened a 24-hour urgent care clinic in its place, one that offers minor emergency and prenatal care, a full lab, X-rays and a general family practice.
Community hospitals are often the pride of their community, and such closures can scar a community. Still, if the future of healthcare is not in the hospital, the services that replace these closed hospitals may well deliver what customers increasingly want: access, lower-cost and greater convenience.Contact Us