1st Edition

Healthcare at a Turning Point A Roadmap for Change

By Rita E. Numerof, Michael Abrams Copyright 2013
    276 Pages 6 B/W Illustrations
    by Productivity Press

    If the furious debate around the state of healthcare in the US has led to any consensus, it’s that the system should be delivering better quality for less cost than it does. The truth is that our healthcare system is a sprawling mix of competing interests in which those of the patient are valued least. Too much discussion has devolved to simplistic scapegoating, and too few comprehensive, constructive solutions have been offered. It’s time for a fresh vision.

    In straightforward language, Healthcare at a Turning Point: A Roadmap for Change outlines a new market-based business model that aligns industry financing mechanisms with the goals of prevention, improved quality, and reduced costs. Drawing on more than 25 years of cross-industry consulting experience, the authors:

    • Articulate a market-based vision of the industry
    • Examine past efforts to reduce costs, their failures and their unanticipated consequences
    • Spotlight perverse incentives that distort the way the healthcare system operates and make it less than it could be
    • Present concrete recommendations for change within the healthcare delivery, insurance, pharmaceutical, device and diagnostics sectors
    • Explain the changes that employers, consumers and policy makers can make to create a more customer-responsive system that delivers more value

    For all the uncertainty in the current environment, there is also a rare opportunity to fundamentally redefine who wins in this market. Healthcare at a Turning Point provides guidance to executives ready for that contest as well as a roadmap for change.

    A Vision for Tomorrow
    Vision of a Fundamentally Different Future
    Seeds of Disruption
    Healthcare Isn’t the First Industry in Transition
    Where Are We Currently?

    Whose Agenda Controls Your Healthcare?
    Why a Market-Based Model for Healthcare Is a Good Thing
    How Did We Get into This Mess?
    End of the Model Year
    Understanding Healthcare Reform as Business Model Change
    Central Role of Payment Reform
    Unintended Consequences: The Hospital Example
         Paying for Volume, Not Results
         Real Impact of CMS on Quality of Care and Costs
    Unintended Consequences: The Primary Care Example
         Discouraging the Type of Care That Results in Better Outcomes
         Creating a Critical Shortage of the "Right" Kind of Doctors
    Healthcare Is Big Business
         Recent Example
    Creating a Competitive, Functioning Market
         There Is Little Accountability in the Current System
         There Is Little Information Available on Which to Base Responsible Care Decisions
         There Is Already Enough Money in the System
    There Is a Solution, and It’s Closer than Some Think

    In the Eye of the Storm: The Role of Consumers and Employers
    A Personal Example
    Whose Agenda Controls Your Healthcare? Another Look
    Perversion of the Concept of Insurance
    Where Do Employers Fit into the Equation?
    What Can Consumers and Employers Do?
         Demand Transparency and Accountability
         Move Conversation toward a Continuum of Care
         Create/Become Informed Consumers
         Create Incentives for Better Health Behaviors
    Change Is Never Easy, but It Is Possible

    Comparative Effectiveness Research: Creating an Environment for Change
    Drivers of CER
         Role of Cost Containment
         Role of Political Expediency
    Why Is the Federal Government Specifically Involved?
    Focus of CER
         Expected Criteria for Choosing Priorities

    Redesigning Healthcare Delivery: Hospitals Were Never Meant to Be Destinations of Choice
    Adapting to the Changing Landscape of Healthcare
         Needed: A Transfusion of Fresh Thinking
         Management Infrastructure
         Misuse of IT
    Comparative Effectiveness Research Is Shaping Healthcare Delivery
         Development of Predictive Care Paths
         Changing Quality Metrics
         Impact of CER on Hospital Operations
         Prudent Responses and Defensive Strategies
    Accountable Care Is Needed, ACOs Are Not 
         Laudable Goals
         Any Provider Can Provide More Accountable Care
         What Are You Waiting For?
    Bundled Payment: The Next Step in Improving Quality and Reducing Cost
         Why Will Bundled Payment Models Do Any Better?
         So How Do We Get There?
         St. Elsewhere: A Case Study in Bundled Pricing
         Taking a Proactive Approach to a Market in Transition
    Competing with a Bundled Price

    A Brave New World for Payers
    Adapting to the Changing Landscape of Healthcare Insurance
    Needed Here, Too: A Transfusion of Fresh Thinking
    Rethinking the Customer
    Rethinking Products
    Implications for Healthcare Insurers
    What Payers Can Do
         Develop Partnerships with Providers
         Segment Providers
         Focus Partnerships on the Prevention of Never Events
         Require and Pay for Predictive Care Paths
         Change the Basis for Paying Primary Care Physicians
         Increase Consumer Engagement and Personal Responsibility, Reducing the Abuse of the System by Consumers
         Reduce Fraud and Abuse by Providers
    Are You Ready for Disruptive Innovation?

    Big Pharma: How to Regain Success
    Vulnerabilities of the Current Model
    Market-Driven Business Model
         Ensuring Stakeholder Value
         Strategic Marketing Capabilities
         Innovation Stewardship
    Pressures on Innovation
    Role of CER in the Pharmaceutical Industry
         Treatment Guidelines
         Focus on Cost Effectiveness
         End of the Placebo-Only Controlled Trial
         Impact of CER on Pharmaceutical Operations
    Prudent Responses and Defensive Strategies
         Develop Service Wraps
         Diversify Revenue Streams Away from Payers
         Adopt a Rolling Blockbuster Approach
         Real-World Example
    Looking Ahead

    A New Day Is Dawning for Medical Device and Diagnostics Manufacturers
    Getting Products to Market: Change Is in the Wind 
         Implications for the Industry
         Commercial Challenges
    CER: The Threat for Medical Devices
         End of the "Last Version Plus 5%" Business Model
         Increased Pressure to Rightsize Functionality
         Increased Competition with Drugs
         Restricted Qualification for Devices
         Impact of CER on Medical Device Operations
    Prudent Responses and Defensive Strategies for Medical Device Companies
         Adopt Strategies Suited to the New Environment
         Focus on Reducing the Cost of the Procedure
         Develop Service Wraps
         Embrace the Cost–Functionality Trade-Off
    CER: The Opportunity for Diagnostics
         Reduced Tolerance for Redundant Testing
         New Commercial Model
         Possibility of Mass Screening
         Impact of CER on Diagnostics Manufacturer Operations
    Prudent Responses and Defensive Strategies for Diagnostics
         Diversify the Revenue Base
         Begin to Develop Partnerships for Custom Diagnostics
    Where Do Medical Device and Diagnostics Companies Go from Here?
         Hospital-as-Customer Requires a New Sales Model

    Putting Value at the Center of Healthcare
    Recent Legislative Solutions and Why They Won’t Work
    Accountability for Care Is a Good Concept
         ACOs: Their Original Purpose
         ACOs: Their Role in PPACA
         Government-Sponsored Payment and Delivery Systems
         Top-Down Approach to Complex Health Policy Problems
         ACOs: Key Deficiencies
         Recommendations for Policymakers: Healthcare Delivery
    Enabling Markets to Create Access to Care
         Creating Access to Affordable Health Coverage
         Recommendations for Policymakers: Access to Care
    Supporting Innovation: Finding the Right Balance at the Food and Drug Administration
         Regulation’s Impact on Innovation: A Two-Edged Sword
         Making the Rules Clearer, More Transparent, and Simpler
         Real-Life Example
    Patent Life: Shooting Ourselves in the Foot

    Creating a Roadmap for Change
    Revisiting the Challenge of Industry Transition
    Safety in Size? The Rush to Affiliation
         Consolidation and the Challenge for Manufacturers
    Additional Challenges for Manufacturers
         Creating Collaborations to Develop Lifetime Value
         Why Now?
    Reprising the Consumer
         Power of Choice
         Increase Perceived Quality
    Creating and Sustaining a New Business Model
         Harnessing Consumer Choice and Competition to Ensure Accountability: Final Thoughts for Policymakers
         End Game

    About the Authors
    About NAI


    Rita E. Numerof, Ph.D., President of Numerof & Associates, Inc., is an internationally recognized consultant and author with more than twenty-five years of experience in the field of strategy development and execution, business model design, and market analysis. Her clients have included Fortune 500 companies such as Johnson & Johnson, Eli Lilly, Pfizer, Westinghouse, AstraZeneca, Merck, Abbott Laboratories, major healthcare institutions, payers, and government agencies. The focus of her consulting addresses the challenges of maintaining competitive advantage in highly dynamic and regulated markets.

    Dr. Numerof has been a consistent advocate for the importance of strategic differentiation, organizational alignment of structure, competencies and metrics to ensure effective implementation, and anticipating, rather than reacting to industry trends. She’s been a pioneer in the area of economic and clinical value, anticipating the impact of changing global payer attitudes on the fundamental business model of the healthcare industry. Her work across the entire healthcare spectrum gives her a unique perspective on the challenges and needs of manufacturers, physicians, payers, and healthcare delivery institutions.

    Under her leadership, NAI has developed proprietary approaches that provide precise insight and practical solutions to some of the industry’s most complex business challenges. Taking a systemic approach, Dr. Numerof has addressed such diverse issues as comparative effectiveness research, accountable care, bundled pricing, consumer engagement, operationalizing compliance and transparency, portfolio management and the identification of growth platforms that provide sustainable differentiation through economic and clinical value, and effective commercialization based on value propositions that matter to key constituencies.

    Dr. Numerof is widely published in business journals and has authored five books. She serves as an advisor to members of Congress on healthcare reform and comparative effectiveness research. She was a senior advisor with the Center for Health Transformation, a regular contributor to the Manhattan Institute, and wrote the Heritage Foundation’s policy paper, "Why Accountable Care Organizations Won’t Deliver Better Healthcare—and Market Innovation Will." She led a tri-partisan, cross-industry work group on payment reform and developed recommendations for new payment models that incent better health outcomes at lower cost. In addition, Dr. Numerof provides guidance to policy organizations and agencies on the relationship between innovation and regulation, working to support innovation and ensure responsive regulatory oversight.

    Dr. Numerof graduated magna cum laude from the Honors College, Syracuse University and received her MSS and PhD from Bryn Mawr College.

    Michael N. Abrams, M.A., Cofounder and Managing Partner of Numerof & Associates, Inc., has served as an internal and external consultant to Fortune 50 corporations, major pharmaceutical and medical device companies, healthcare delivery institutions, the financial services industry, and government agencies for over twenty-five years. He has worked extensively in the areas of strategic planning and implementation, product strategy and portfolio development, market analysis, consumer engagement, and operational improvement.

    Abrams is well known for his expertise in the design and implementation of strategies for building competitive differentiation, defining sustainable value, identifying market influence mechanisms, and translating white space analysis into the creation of innovative solutions to meet unmet needs. His ability to identify market opportunities and to effectively improve organizational performance has been an invaluable resource to client companies on a global basis across industries.

    Abrams has structured and managed innovative programs to evaluate care delivery and payment models, thereby defining the internal change processes necessary to translate business opportunities into effective market position, operations, product portfolio management, and new product design consistent with changing regulatory requirements. He has provided solutions to healthcare delivery systems to improve the management of care transitions, thereby reducing unnecessary hospitalizations, and reduced length of stay by identifying and managing factors causing extended stays, changing admissions and patient care management processes, and managing across the continuum of care while maintaining or improving clinical outcomes and reducing costs.

    He is experienced in the design and execution of econometric modeling and analysis and decision support systems for a variety of science-driven industries and applications. He has designed technology solutions to meet a wide range of needs, including strategic account planning and management, thought leader interface, and key opinion leader management. His ability to manage the process of technology integration to support business objectives across multiple business environments ensures return on investment (ROI).

    Abrams has written extensively on economic and clinical value creation and the need for integrated, systemic solutions to the challenges facing the global healthcare industry. His articles have appeared in more than a dozen leading business journals, and he coauthored the book Solving the Healthcare Crisis. As an adjunct faculty member of Washington University in St. Louis and LaSalle College School of Business Administration in Philadelphia, Abrams has taught MBA courses in strategic management, product planning and evaluation, quantitative decision making, and market analysis.

    Michael Abrams completed his doctoral work in Business Policy at St. Louis University. He received his MA from George Washington University in Washington, DC.

    This book is a compelling and thought provoking analysis of critical choices facing health care leaders. It offers a detailed prescription for stakeholders on how to proceed and how to implement genuine accountability at each stage of care management. ... Numerof and Abrams offer a road map for sustainable market reform with remarkable clarity and vision.
    Book review by Peter Boland, PhD, appearing in The Journal of Ambulatory Care Management, Vol. 37, No. 1, pp. 38–41

    Everyone complains about the state of healthcare in this country—patients feel uninformed, mistrustful and lost; clinicians and hospitals are frustrated in their efforts to improve the quality of care while meeting demands for lower costs; employers are burdened with the rising expense of employee health insurance; payers who provide the coverage are pushing for greater evidence before approving reimbursement for new drugs, technologies, procedures and tests; the medical product industry is struggling under the weight of increasing costs, longer development timeframes, shifting regulatory requirements and resistance from the other stakeholders to pay for new products; and politicians and state and federal government agencies are mandating a patchwork of fixes that seem to only make things worse. What we have lacked are tangible solutions that can actually work—until now.

    Rita Numerof and Michael Abrams in their new book, Health Care at a Turning Point: A Roadmap for Change have offered a fresh look at the current state of healthcare in America, providing a detailed diagnostic assessment of what’s wrong, and importantly offer a comprehensive strategy to fix the problems. They begin with a vision of what a viable future state could look like in 10 years for providing affordable, accessible healthcare that promotes innovation in business models, products and services. Numerof and Abrams identify clearly and objectively the obstacles that must be overcome and gaps that must be closed by each of the important participants in the healthcare ecosystem, and then as the book's title implies, they deliver a roadmap, which is not only plausible, but if followed, will undoubtedly succeed in getting all of us there.
    Harlan F. Weisman, M.D., Former Chief Scientific and Technology Officer, Medical Devices and Diagnostics, Johnson & Johnson

    Numerof and Abrams have crafted a thoughtful, and often provocative, analysis of the challenges and opportunities facing the healthcare industry today. At its heart is a clarion call for the sector to become much more patient and consumer-centric -- before their existing business models become obsolete.
    —Paul Howard, Director and Senior Fellow, Center for Medical Progress, Manhattan Institute for Policy Research

    A pair of strategic management consultants intelligently scrutinize America’s healthcare industry. ... The authors’ blueprint for healthcare redesign is impressively conceived yet decidedly business-minded. Chapters defining their proposed remedies emphasize a market-based approach that objects to recent legislation and ideas of federally financed accountable care organizations (ACOs) while promoting models of bundled payment systems in which services are funded through a fixed-price schedule. ... they offer fresh, clear approaches to restructuring the healthcare system and place appropriate emphasis on the fostering of informed, accountable consumers. ... Numerof and Abrams’ ambitious study succeeds in illuminating problems within the multifaceted system ... . An elucidating, relevant discourse on the precarious future of medical care.
    —Kirkus Reviews, August 2012

    The authors present thought-provoking ideas for the 'disruptive innovation' needed to uncover pragmatic solutions for our country's healthcare delivery system. ... this suggested blueprint for market-based action is a must-read for all sides of the healthcare reform debate.
    —Marc Boutin, Executive Vice President & Chief Operating Officer, National Health Council

    Everyone agrees that the American healthcare system needs to change, but there is little agreement about how it should change. Abrams and Numerof paint a picture of how healthcare could look in an ideal future, and offer to manufacturers, payers, and providers a way to get there. Examining the healthcare system today, changes already taking place in attitudes towards innovation and medical education, ... they show how the key players in healthcare must change their thinking to survive. ... The main, and certainly provocative, message: if we move to a value-based system based on patient choice, rather than a cost-based system that assumes one size fits all, the consumer of health care is the ultimate beneficiary.

    The book will stimulate the thinking of industry across functions, and should be read not only by management but by R&D, Strategic Planning, and Sales. Sections on the need to form partnerships and alliances can change the way industry, payers, and providers think about each other. By examining the four forces they see as dominating our healthcare environment today, namely changes in the regulatory environment, a changing competitive landscape, shifting technology, and changing market expectations, Abrams and Numerof have indeed provided an insightful guide to how the industry needs to change its strategic thinking.
    David L. Horwitz, MD, PhD, FACP, Chief Medical Officer, Johnson & Johnson Diabetes Institute

    Here it is in Healthcare at a Turning Point healthcare must restore control and accountability for intimate, personal decisions to each of us as our own consumer. No one else can define our quality-value-price equation, and discipline our providers ... Such is the economics, humanity, history, and even politic of western innovation…it is time for the Renaissance of those principles, just as articulated here in Healthcare at a Turning Point.
    —Steve Bonner, President and Chief Executive Officer, Cancer Treatment Centers of America®

    Numerof and Abrams have conducted a thorough analysis of the implications of market and non-market forces on all players in the health industry -- carriers, care providers, governments, consumers and employers. They have hit the nail on the head that it will take disruptive innovation and a collaborative approach across all these stakeholders to drive solutions to the fundamental problems of high cost and poor quality in health care.

    I appreciate that Numerof and Abrams focus in on three major principles: 1.) Rethink the customer: It’s really the consumer, the end-user of health care services. The consumer needs to be at the center of the work that we are undertaking. It is imperative that we provide them transparency to cost, quality and value. 2.) Watch out for non-traditional competitors: There are many other industries which have been historically very close to the consumer. The players in our industry are changing, and all of those who serve the consumer need to rapidly evolve ourselves in order to differentiate and succeed. 3.) Segment care providers: We need to apply the discipline of market segmentation to our relationships with care providers. That is, we cannot assume that a one-size-fits-all approach on paying for value or outcome will succeed with each and every physician or hospital. Rather, we must segment our networks and identify which care providers are most likely to succeed in a partnership to reform payment in a particular way, work with them closely and then allow that success to breed other success in the market place.
    —Elena McFann, VP Network Strategy and Implementation, UnitedHealthcare

    For every professional engaged in the financing and delivery of medical care, this book is essential. Like it or not, sparked by the renewed debate over the controversial Affordable Care Act, we find ourselves in the midst of a major transformation in the health care sector of the economy. The convergence of biomedical breakthroughs, new medical technologies, new organizational structures is upon us. But the authors got it right: change will be frustrated, and energies will be diverted into unproductive channels, unless and until we change health care financing and put the patient in the center of the process as the key decision-maker.
    —Robert E. Moffit PhD, Senior Fellow, Center for Policy Innovation, The Heritage Foundation

    Congratulations on the publication of Healthcare at a Turning Point. …[You] really hit the ball out of the park with this book. First, you identified the real root problem in our healthcare system [payment], and then provided the key solution, a consumer-driven market model. This book should be the new reference text for healthcare reform and should be read by every healthcare provider, administrator, insurer, product developer, and lawmaker. Thank you for delivering such remarkable insight and strategic guidance to a very complex and polarizing issue in the U.S.
    —Kurt Weingand, D.V.M., Ph.D., Chief Science Officer, Central Garden & Pet

    Have there ever been three not-so-little words that turned an industry upside down, virtually paralyzed the planning process and left providers and consumers alike adrift as much as "health care reform"? The authors bring a calm, dispassionate tone to the dialogue, underscoring the unsettling nature of transition (a much more palatable word than change) and offer reasonable strategies that override politics. I found the emphasis on collaboration especially comforting and doable.
    —Ellen Sherberg, Publisher, St. Louis Business Journal

    ...it is important to have a clear bridge between the issues of today and the possibility of a much brighter future. Without glossing over serious issues…this book describes a way forward for those inside and outside the Healthcare system.
    —Jeff Thompson, MD, Chief Executive Officer, Gundersen Lutheran Health System

    I appreciate that Rita and Michael call out the "ultimate objective" in the debate—to improve health outcomes at lower cost. It would seem that all sides can agree we save money when we decrease and change the demand for services. There are two approaches that allow us to do it. Approach 1 is to ration care. Approach 2 is that we incentivize and align consumers AND providers toward a plan for health which the authors rightly refer to as the consumer-driven market model.
    —Amanda L. Adkins, General Manager and Executive, Healthcare Information Technology, Cerner Corporation