Healthcare Strategy in the Now, Near, and Far€¦ · Healthcare Strategy in the Now, Near, and Far Mark E. Grube ... •Although restructuring costs have hurt profitability, sales

CONFIDENTIAL – ©2020 Kaufman, Hall & Associates, LLC. All rights reserved.

Healthcare Strategy in the Now, Near, and Far

Mark E. Grube

Managing Director and National Strategy Leader,

Kaufman, Hall & Associates, LLC

January 24, 2020

CONFIDENTIAL – ©2020 Kaufman, Hall & Associates, LLC. All rights reserved.H e a l t h c a r e S t r a t e g y i n t h e N o w , N e a r , a n d F a r 1

Agenda Slide

The Now, Near, and Far Planning Framework1

2

3

Healthcare’s Now, Near, and Far

A New Planning Cycle for the New Framework

2CONFIDENTIAL – ©2020 Kaufman, Hall & Associates, LLC. All rights reserved. 2CONFIDENTIAL – ©2020 Kaufman, Hall & Associates, LLC. All rights reserved.

The Now, Near, and Far Planning Framework


Companies All Over America Are Endangered, Who Would Imagine Ford Would Be One of Them?

• Weak financial performance

• Weak stock price

• Overreliance on internal

combustion engine

• Late to the game of electric

and autonomous vehicles

• New mobility options

emerging that do not include

cars or traditional car

ownership

The Ford problem set:

• Milk the existing business

model of F-150s and SUVs

for every penny of cash flow

• Envision a completely

different long-term business

of electric and autonomous

mobility

• Build a strong and seamless

bridge between the two

business models

Ford’s management challenge:


Ford CEO Jim Hackett Views This Challenge Through the Lens of “Now, Near, and Far”

Now

How to be

successful

in the “now” and

simultaneously

make the critical

pivot to the “far”?

Near

How and when to

place bets on the

future and pivot

resources to support

those bets?

Far

How to envision a

future state and

future role, knowing

that any prediction

is uncertain and

subject to change?


“Now, Near, and Far” Is the Biggest Current Management Challenge for American Business

How to be successful in the “now” and simultaneously make the critical pivot to the “far”

The problem:

What Ford is planning:

• Eliminate “value killers”: Stop selling sedans in the U.S. (frees up $8 billion to support electric and autonomous vehicles); eliminate 7,000 salaried positions globally (approx. 10% of salaried workforce); close six factories and eliminate 12,000 jobs in Europe

• Double down on customer preferences: Transform F-150s and SUVs into electric vehicles with autonomous features

• Drive investments in innovation: Invest $11 billion in electric and hybrid vehicles by this year; partnership with Volkswagen to co-develop electric and autonomous commercial vehicles

• Attract the best intellectual capital: “Our goal is to… attract the entrepreneurs and young businesses” that typically would gravitate toward Silicon Valley (William Ford, Chairman)


Ford’s Strategy Is Starting to Pay Off

• After a disappointing 2018, Ford’s stock price rose more than 17% in 2019

• Although restructuring costs have hurt profitability, sales of trucks and SUVs have continued to be strong

• Earnings for Ford’s automotive division increased in Q1, Q2, and Q3 in 2019, the first growth of three consecutive quarters for the division in more than three years

• Morgan Stanley upgraded its rating of Ford’s stock, citing restructuring actions, strategy, and product-mix enhancements

• Despite these bright spots, the strategy remains a work in progress as the global economic slowdown, trouble in China, and intensified competition are anticipated to soften results—at least in the near term


The Ford example illustrates new principles of American business that apply to industries

from restaurants to retail.

Healthcare is no exception.


Healthcare’s Now, Near, and Far


What “Now” Looks Like for Legacy Health Systems

• Complete ownership of inpatient care

• Robust outpatient care segment bolted on

• Outpatient the source of much profitability

• Geographic orientation

• Site-specific orientation

• Revenue pressure from all payers

• Struggle to manage costs

• Largest systems are $10-$20 billion in revenue

• New entrants—such as Optum, CVS Health, and Amazon—are focusing exclusively on outpatients


What “Near” Could Look Like for Legacy Health Systems

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

• Consolidation will continue, with the average size of transactions growing and rising interest in non-contiguous partnerships

• The industry will break into more distinct groups of outpatient versus inpatient providers

• Hospitals/health systems will be forced to defend their profitable outpatient flank, while continuing to support their inpatient flank

• Disruptive competitors—such as Optum, CVS Health, and Amazon—will continue intense focus on outpatients

Average Size of Acquired Hospitals: 2008-2018($ in millions)

13.1% CAGR


New Entrants Want to Redefine Healthcare Delivery

• $194 billion company

• Rolling out 1,500 HealthHUBs over two years, putting a center within 10 miles of three-quarters of the nation’s population

• Expanding into higher acuity care with launch of clinical trials for a new home dialysis device and a pilot program offering pre- and post-operative care for knee replacements

• Revenue of $100 billion in 2018, up 11 percent over 2017

• More than 45,000 physicians

• Strong presence in 35 of its 75 target markets nationwide

• Partnering with John Muir Health, with Optum providing all back-office services

Note: CopSources: CVS Health: “CVS Health Reports Fourth Quarter and Full Year Results.” Feb. 20, 2019; LaVito, A.: “CVS to Open 1,500 HealthHUB Stores Over Next Two Years.” CNBC, June 4, 2019; Mathews, A.W.: “CVS Begins Clinical Trial for Home-Dialysis Device.” The Wall Street Journal, July 17, 2019; Pifer, R.: “CVS to Test Knee Replacement Program for Aetna Beneficiaries.” HealthcareDIVE, July 23, 2019; UnitedHealth Group: “UnitedHealth Group Reports 2018 Results.” Jan. 15, 2019; Bailey Southwell & Co.: “Chasing the Leader: Healthcare Vertical Integration Follows Optum Model.” Oct. 3, 2018; Japsen, B.: “UnitedHealth’s Optum Now in Half of 75 Targeted Provider Markets.” Forbes, Jan. 17, 2018; Japsen, B.: “UnitedHealth’s Optum: We’ll Lure More Providers to New Partnership Model.” Forbes, July 19, 2019; Walmart: “In Dallas, Georgia, Walmart Unveils Enhanced Store Experience and First-Ever Walmart Health Center”, Sept. 13, 2019.yrights of images belong to their respective owners.

• FY 2019 revenue of $514.4 billion

• Opened first Walmart Health center in September in Dallas, Georgia

• Will deliver services including primary care, labs, X-ray, and EKG, counseling, dental, optical, hearing, community health (nutritional services, fitness), and health insurance education and enrollment

• Will provide low, transparent pricing for key health services regardless of insurance status


Walmart’s New Health Center in Dallas, Georgia


Large Insurers Dominate Markets Nationwide

The largest insurer in each market holds more than 60 percent market share in 25 states and more than 50 percent share in 32 states.

Source: Kaiser Family Foundation: Large Group Insurance Market Competition, Market Share of Largest Insurer (2018).


A Look at the Florida Market

Health System Competitive

Dynamics

Payer Landscape

• Significant consolidation over the last several years• Two national non‐profit health systems (Ascension and AdventHealth)• Three national for‐profit systems (HCA, Tenet, and Community Health

Systems)• Several regional non‐profit health systems (Orlando Health, Baptist

Health South Florida, Memorial Healthcare System, and BayCare)• HCA is the state‐wide leader in inpatient market share (22.6%);

AdventHealth is second (11.7%)

• Significant variation in payer position and value-based contracting by sub-regions within Florida

• The commercial payer landscape is largely led by Florida Blue and UnitedHealth Group

• Humana and UnitedHealth Group are the No. 1 and No. 2 Medicare Advantage leaders within each market

• WellCare leads the aggregated Managed Medicaid market


Florida Hospital and Health System Transactions2013 to 2019

16

1

17

2

4

5

6

7

8

9 10

11

12

13

14

15

18

19

20

21

3

22

Map Key by Year

Source: Kaufman Hall proprietary database.Note: Transaction summaries can be found on following slide.

2017

2013

2014

2015

2016

2018

23

24

25

26

2019

28

27

• Florida saw a slowdown in activity in 2019 compared to recent years

• Much of the recent activity has involved full change-of-control transactions (acquisitions and member substitutions)

• CHS has been the most active seller in the state, with 5 sales between 2017-2019


Florida Transactions Overview

Note: Dates represent announced date.


What “Far” Could Look Like for Healthcare

• New national healthcare platforms will emerge, combining digital and in-person care

• An “outpatient revolution” will take shape, with new players, new types/mixes of services, and new focus on consumer experience

• Health systems will consolidate into significantly larger entities and evolve into provider/payer organizations

• Affordability, access, and consumer experience will be the new competitive differentiators

• Emerging technologies—such as precision medicine and telehealth—will be the norm for diagnosis, treatment, prevention, and engagement


The Migration of Care to Outpatient Settings Heightens Competitive Threats


Hospital Outpatient Visits See a Decline

Outpatient Visits

2017 880.5 million

2018 879.6 million

Outpatient visits to health system-owned ambulatory surgery centers, outpatient clinics, and urgent care clinics fell 0.9% in 2018, after 35 years of steady increases, according to the AHA.

Even so, hospitals' net outpatient revenue increased 4.5% year-over-year in 2018, while net inpatient revenue rose 2.1%.

Source: Bannow, T.: “U.S. Hospitals See First Decline in Outpatient Visits Since 1983.” Modern Healthcare, Jan. 8, 2020.


In Florida, Outpatient Visits Continue to Rise as Inpatient Visits Show Signs of Leveling Off

Source: Florida Agency for Health Care Administration: FloridaHealthFinder.gov website. Accessed Jan. 14, 2020.

Florida Outpatient Visits, 2010-2018 Florida Inpatient Visits, 2010-2018

2.75

2.8

2.85

2.9

2.95

3

3.05

3.1

3.15

3.2

2010 2012 2014 2016 2018

Outpatient Visits

2.5

2.55

2.6

2.65

2.7

2.75

2.8

2.85

2.9

2010 2012 2014 2016 2018

Inpatient Visits

An

nu

al v

isit

s (i

n m

illio

ns)


A New Planning Cycle for the New Framework


Pivoting to This New Role Requires a Sophisticated Cycle of Planning

Assess Signals of Disruption

Identify Our Vision and Role

Assess Our Capabilities and Needs

Set Our Strategic Priorities

Map Our Pivot from “Now” to “Far”

2

1

5

4 3







2

1

5

4 3


What Is the State of Disruption in Our Market and Nationally?❶

Emergence of New Competitors

Changing Consumer Expectations

Increasing demand for enhanced access (including digital), improved experience, and lower prices

Consolidation and Integration Increasing among payers, hospitals, and/or physician groups

Emergence of large, non-hospital competitors with the potential to significantly reorder markets nationally, and/or change care platform

Payer-Purchaser Pressure

Emphasis on lower cost and on risk-bearing arrangements from government and commercial payers, and from large employers

New Care Models Shifts in underlying care models driven by technology and economic incentives







2

1

5

4 3


Identifying Vision and Role: Newspaper Example❷

GeographySubject Focus Medium

Local

Regional

Statewide

National

Print

Photography

As the Internet emerged, each newspaper had to place bets on future facets of the delivery platform and approach to content. For each newspaper, the answers were different depending on capabilities and mission.

Delivery Method

Home delivery

Retail

Websites

Newsfeeds

Relationship with New Platforms

Participant

Partner

DeveloperDigital

Video

Traditional Future Focused

Broad

Specialized


Newspaper Example (continued)❷

Advertising Subscriptions Other

Sources: Statistica: New York Times Company’s Revenue from 2008 to 2018; The New York Times Company: “The New York Times Company Reports 2018 Fourth-Quarter and Full-Year Results and Announces Dividend Increase.” Press release, Feb. 6, 2019.

In the past decade, The New York Times has

flipped its revenue model from a focus on print

advertising to a primary focus on building digital

subscriptions and growing digital advertising.

60%

30%

10%

2008 Revenue Mix

32%

60%

8%

2018 Revenue Mix


Identifying Vision and Role: Hospitals and Health Systems❷

Market and Geography Service Focus

Value-Based Payment Position

Local

Regional

Statewide

Multi-state

Niche

Broad-based

Tertiary/complex

Outpatient-

focused

Wait and see

Testing

Points of Differentiation

Cost

Quality

Access

Experience

Relationship with New Platforms

Participant

Partner

Developer

National

Catalyst

Hospitals and health systems also need to place bets on the future and their role. The answers will vary for different organizations and different services within organizations.







2

1

5

4 3


What Capabilities Are Essential to Achieve Our Vision, and Where Do We Stand Today?

❸

Digital Capabilities

Consumer Experience

OperationalEfficiency/Cost

Performance

Quality and CareManagement

Clinical andBusiness Intelligence

FinancialStrength

Culture/Innovation

BrandStrength

Leadership andGovernance

Limited

Limited

Challenged

Little toNone

Traditional

Challenged

Limited

Limited/Local

LimitedDepth/

Alignment

Robust/ System-wide

Strong

Strong

Robust

Integrated

Strong

Fully Integrated

Strong/National

Deep MD andAdmin/StrongAlignment

Low/Early Stage Strong/Highly Developed= National







2

1

5

4 3


What Are Our Strategic Priorities, Based on Our Desired Role and Current Capabilities?

❹

• Do we have the capabilities and infrastructure we need to compete in the outpatient market?

• Where can we win, and where are we likely to lose?

• What is the edge that will help us compete?

Three Fundamental Questions:







2

1

5

4 3


Using Hackett’s “Now, Near, and Far” Framework❺

Now

Create the Foundation

• Commit to a bold vision for

the organization’s future

• Improve cost performance

• Evolve culture

• Assess potential partners

• Develop plan to enhance

financial position

Near

Make the Pivot

• Execute on initial phases

of a comprehensive

transformation plan

• Implement financial plan

• Enhance access

• Improve consumer

experience

• Approach potential

partners

• Evolve care models

Far

Enter the Future

• Achieve real change

• Be a regional system

differentiated on cost and

access that partners with

a major innovator to

develop a transformative

healthcare delivery

platform

• Monitor new technology,

competitive dynamics,

and business models,

and adjust vision of

“far” as needed

E X A M P L E


The Keys to Success

Organizations that Successfully Pivot from “Now” to “Far” Will…

• Not seek certainty; it does not exist

• Be ruthless about pruning the portfolio

• Recognize that failure is part of innovation

─ Expect failures in pursuit of new business ideas and models

─ Reward learning from failures

• Recognize that the market is moving too quickly to wait for one major strategic move to be fully implemented before considering the next one

• Have the biggest ideas and pursue those ideas relentlessly


"Transformation starts with the

realization that, despite our

history and strengths, we don't

have a right to the future. We

have to earn it.”

— J I M H A C K E T T

Source: Thibodeau, I.: “Ford CEO Hackett to Employees: 2019 Will Be a Turning Point.” The Detroit News, March 11, 2019.


Questions


Mark E. Grube

Mark Grube, Managing Director and National Strategy Leader for Kaufman Hall, leads a broad array of strategy-related services to regional and national health systems, academic medical centers, community hospitals, and specialty providers nationwide. Mr. Grube has more than 30 years of experience in the healthcare industry, as a consultant and as a planning executive with one of the nation’s largest healthcare systems.

Mr. Grube is a frequent speaker and author on healthcare strategy topics and has published dozens of articles and white papers. He is a three-time winner of the Helen Yerger/L. Vann Seawell Best Article Award from the Healthcare Financial Management Association (HFMA).

Mr. Grube has presented at national meetings of HFMA, The Governance Institute, the American College of Healthcare Executives (ACHE), The Healthcare Roundtable, and the Society for Healthcare Strategy and Market Development (SHSMD). He is a member of HFMA, ACHE, SHSMD, and the Leaders Board for Healthcare Strategy and Public Policy.

Mr. Grube received an M.B.A. from the University of Chicago Graduate School of Business, and a B.S. in Economics, magna cum laude, from Bradley University.

Managing Director and National Strategy Leader

Mark E. GrubePhone: 224.724.3127 [email protected]


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Healthcare Strategy in the Now, Near, and Far€¦ · Healthcare Strategy in the Now, Near, and Far Mark E. Grube ... •Although restructuring costs have hurt profitability, sales