Health Systems Making Newspaper Industry Mistakes

This is an updated version of a Forbes piece about how health systems executives are making the same mistakes that newspaper executives made back in the late 90's that doomed their organizations. Both newspapers and health systems have been longstanding oligopolies that one could believe will be around forever. As newspapers have shown, that can change in less than a decade. 

Health system CEOs would be well advised to study what newspaper industry leaders did (or perhaps more appropriately, didn’t do) when faced with a dramatic industry change. Turn back the clock 15 years and the following dynamics were present:

• Newspaper leaders knew full well that dramatic change was underway and even made some tactical investments. However they didn’t fundamentally rethink their model.
• Newspapers were comfortable as monopoly or oligopoly businesses allowing for plodding decisions. Their IT infrastructure mirrored the plodding pace with expensive and rigid technology architectures.
• Newspaper companies bought up other newspaper chains and took on huge debt.
• Owning printing presses was a de facto barrier to entry allowing newspapers unfettered dominance.
• Depending on one’s perspective, it was the best of times or the worst of times to be a leader of local media enterprise.

Before they knew it, owning massive capital assets and the accompanying crushing debt became unsustainable. The capital barrier to entry transformed into a boat anchor while nimble competition dismissed as ankle-biters created a death-by-a-thousand-paper-cuts dynamic. Competitively, newspaper companies worried only about other media companies or even Microsoft, but their undoing was driven by a combination of craigslist, monster.com, cars.com, eBay, and countless other marketing substitutes for their advertisers. In addition, there were easier ways to get news than newspapers. Generally, the newspaper’s digital groups were either marginalized or unbearably shackled so that the encumbered digital leaders left to join more aggressive competitors. The enabling technology to reinvent local media didn’t come from legacy IT vendors who’d long sold to newspaper companies, but from “no name” technologies such as WordPress, Drupal and the like.

The parallels with health systems today are clear. Consider the present dynamics:

• Health systems have been aggressively gobbling up other healthcare providers and building more cancer centers (despite cancer rates not fundamentally changing -- only the profit potential has changed) and frequently taking on debt to finance the growth. Concurrently, health systems often have capital project plans that equal their annual revenues even though no expert believes the answer to healthcare’s hyperinflation is building more buildings. Consider the duplicative $430 million being spent in San Diego to build two identical facilities just a few miles apart as Exhibit A of the problem. Studying other countries that shifted from a “sick care” to a “health care” system, more than half of their hospitals closed. They simply weren’t needed or weren’t appropriate.
• Until recently, complex medical procedures always took place in an acute care hospital setting. Increasingly they are being done more and more in specialty facilities that can do a high volume of particular procedures at a signifiantly lower cost. [See graphic below]
• Just as newspapers were implementing multimillion dollar IT systems while nimble competitors were using low and no cost software to disrupt the local media landscape, health systems are similarly implementing complex systems to automate the complexity necessary in a multi-faceted system. Meanwhile, disruptive innovators are implementing new models at a fraction of the cost and time. For example, it’s well understood that a healthy primary care system is the key to increasing the health of a population. Imagine if a fraction of the billions being spent by mission-driven, non-profit health systems on automating complexity was redirected towards the reinvigoration of primary care. They’d further their mission and lower their costs. Of course, they’d likely see revenues drop but presumably maximizing revenues isn’t the mission of a non-profit. See The Hot Spotters Sequel: Population Health Heroes for examples.
• The plodding pace and scale of innovation at most health systems isn’t up to the enormity of the task. The vast majority of health system innovation teams are constrained by how they have to fit innovation into an existing infrastructure. That approach rarely, if ever, leads to breakthroughs, as its true intent is to make tweaks to a current system rather than a rethink from the ground up.

New Wave of Disruptive Models in Healthcare

Image is courtesy of Jason Hwang, M.D., M.B.A. Executive Director, Healthcare of the Innosight Institute and co-author of The Innovator’s Prescription.

Compared to newspapers, the scale and importance of the challenge is far greater for health systems so they must aggressively take action or risk their future viability. Already, off the radar to many health system leaders, hundreds of mid-market companies have said "enough" to the abusive and arbitrary pricing at hospitals even though the basic underlying costs of hospitals (clinician salaries and medical supplies) are largely unchanged. Wise healthcare purchasers recognize that they have to act like a corporate IT security department fighting off hackers -- always ready to deploy new, more effective counter-measures. Only, it's the healthcare system that are "hacking" the finances of employers and employees if left unchecked.

It's Not a Zero Sum Game

The prescription for what health systems need to do is long but I believe it's their Zero Sum Game mentality that will be their undoing if they don't shake loose of it. I saw this firsthand with newspaper executives who found it very easy to ignore or discount emerging digital tools such as craigslist, Groupon, Monster, Facebook, Google and others when they were small. In virtually every case, newspaper companies had the opportunity to partner or invest in these organizations while they were small. By the time they gave them credence, it was too late. 

It's a common mistake to see everything through a traditional prism whether you lead a newspaper or health system. I am literally hearing the exact same words out of health system CEOs that I heard out of newspaper CEOs in the late 90s. 

Today, health systems only play in one "economy" -- the benefits economy. There is another economy that is a consumer discretionary spend economy focused on health and wellness that is enormous. Considering the fact that 80% of outcomes are driven by non-clinical factors, if an organization is supposedly focused on Population Health, shouldn't they also address at least a portion of the other 80%? To date, their press releases are more impressive than their actual commitment and results. As experts outlined in the Economic Development 3.0 chapter of The Opioid Crisis Wake-Up Call: Health Care is Stealing the American Dream. Here’s How We Take it Back. (click for free download), many hospitals are a more valuable asset as real estate and they'd likely contribute more to health as housing or senior center or some combination (see graphic below).

Omada Health is another example that both plays in the benefits economy but is doing things that theoretically the healthcare system should be focused on -- preventing diabetes. Some of these will have more direct medical evidence than others but, quite frankly, the same could be said for many standard medical practices. Estimates vary but the most charitable estimate is that 30% of care delivered isn't evidence-based. 

The unfortunate byproduct of the Zero Sum Game thinking is that the newspaper leaders of the last 15 years had outstanding careers until their last chapter. The last chapter of their career was essentially driving their organizations off of a cliff. The same fork in the road exists for health system executives today. They can continue on their present path. For example, most are spending billions to prepare for the last battle. Or they can draw some lessons that I wrote about earlier -- Innovation Failure: Healthcare Needs a Lot Less MSN and a Lot More Xbox.