According Healthcare Dive, a recent Fitch report of nonprofit hospital ratings suggests, “Nonprofit hospitals still face financial headwinds, but the worst may be over and organizations may start to gain ground as the year proceeds. The sector remains negative for the third straight year, with profitability likely to experience some additional decline, but nowhere as steep as in the previous two years, the credit rating agency says.
Among the challenges buffeting nonprofits are the emergence of nontraditional competitors like Amazon and a shrinking payer mix as more patients age into Medicare, reducing the potential to boost revenue with favorable commercial insurer contracts.
The report offers a hint of good news for nonprofit hospitals and health systems following a series of less rosy forecasts. As Fitch notes, though, nontraditional competitive entrants are vying to disrupt healthcare delivery and lure patients away from traditional settings with high-margin, low-acuity medical services to primary care clinics and other innovative services. These competitors will be felt most keenly at the front end of the healthcare process, disrupting traditional provider-patient relationships. Fending off such threats will require significant additional investment from providers — “an attempt to ‘out-Amazon Amazon,'” according to the report — or at the least some effort to partner with the new entrant.”
A few thoughts about findings from the Fitch Report as described by Healthcare Dive:
- To the challenges, I would also add the uncertain policy environment that has marked the past decade. Making a big bet on a specific strategy is difficult under the best of circumstances. When you have a regulatory and legal environment in a constant state of flux it adds an additional hurdle to clear.
- I’m not sure I would try to “out-Amazon Amazon.” They have $31.7 billion in cash sitting on their balance sheet. They have access to talent that few health systems can acquire. They have deep reach (100 million Prime subscribers globally) and a physical presence in many relatively affluent neighborhoods with commercially insured residents thanks to the Whole Foods acquisition. And with the Haven Healthcare (the JP Morgan Chase/Amazon/Berkshire Hathaway joint venture), they have a skunkworks whose mission it is to rethink insurance benefit design and care delivery for employed populations. While healthcare is “complex” and “local,” it’s probably only a matter of time before Amazon figures out how it wants to play a bigger role in the system that, as suggested in the report, disrupts referral patterns.
For health systems to effectively respond to these disruptors, they need to:
- Improve all aspects of the patient experience of care. As I’ve said before, while cost is the problem, dissatisfied patients are the leverage point that Amazon and others will use to cleave patients/members/consumers from traditional providers.
- Understand both the healthcare needs of the population and the demands of local purchasers. This information should be compared with the delivery systems capabilities (both current and realistic potential) to determine what role the health system should play in the local care eco-system.
- Understand where care delivery will occur from a technology perspective and ensure that investments in sites of service (outpatient and telehealth) match the delivery system’s role in point two. Given that most hospitals’ and health systems’ mission, vision, and values statements aren’t radically different, I’ve always suspected that most organizations were working from the same playbook tweaked for local market conditions. However, Chas Rhodes’ recent observation that “most health systems are working from a nearly identical strategic playbook” in his March 8th blog The Weekly Gist, has me more convinced than ever of one thing: The level of analysis and the accompanying difficult conversations about the appropriate role for a hospital or health system in a market aren’t occurring as frequently or with the depth they should. A good example of what the results from this type of conversation this might look like is Ascension’s decision to close its Washington, DC hospital and focus on ambulatory-, telehealth-, and population-focused services.