Most hospitals can't continue to be all things to all people.
As time has passed, virtually all industries have achieved big gains in the productivity of their workers and in the reliability of their products. Cars are much more reliable than those of 30 years ago, for example. Despite their recent troubles due to the economic downturn, auto manufacturers build cars today that uniformly have more power per cubic inch, pollute less, start reliably, and cost less, in real dollars, than they did 30 years ago. Banks, too, achieve more with less. Check processing is greatly improved, while the Internet and other innovations are used to lower costs and improve reliability. Yet these industries are two of the most vilified of late, for good reason.
On the other hand, despite technological innovations by the dozens, healthcare has seen huge increases in costs while quality of care, despite some spotty successes, isn't demonstrably better than it was 30 years ago. The time-worn refrain: Healthcare is different. But maybe it's really not that different at all.
Many believe cost and quality improvements on the same order as other industries are attainable, but that as a nation, we haven't arrived at the right incentives to bring about those improvements.
Count Regina Herzlinger among the believers that healthcare can be changed to incentivize value and quality. The Nancy R. McPherson Professor of Business Administration chair at Harvard University says the dominant fee-for-service payment system doesn't reward quality by design. Under her "focused factory" idea, hospitals and physicians should not be paid piecemeal based on procedures, but on outcomes—contracts to care for patients with certain long-term diseases would be long-term in nature and reimbursement would depend on how healthy the patient remained over time.
"Focused factories provide all the resources that people with chronic diseases or disabilities need," she says, envisioning one contract per patient to a provider or contractually aligned group of providers that ensure access to ophthalmology, cardiology, nephrology, dermatology, neurology, and exercise physiology to treat people with diabetes, for example. "The focus is not on the provider, but on the patient."
As Congress attempts to slow the rapid swelling of the healthcare cost balloon, expect payment system reform to incentivize quality over quantity.
Smart leaders at hospitals and health systems are preparing for big changes.
"The concept of focus factories began the early '80s and was largely focused on procedural healthcare," says Stephen Newman, MD, the chief operating officer of Dallas-based Tenet Healthcare, who says sinus surgery was an early example. "A number of hospitals created narrow procedure-based surgeries to try to capture market share in a narrow population. There was no competitive moat around those focus factories. So it died."
But that version of the focused factory is a far cry from what Tenet has been shaping at its 49 hospitals since 2004, which it calls "rationalization of care." The company has been adding and dropping services at individual hospitals in an attempt tailor its service offerings to stress those for which it has a competitive quality advantage in each individual market. "In only the rarest incidence does a general hospital have the financial wherewithal to be all things to all people," he says. "You can't be an A player in all the services."
Newman believes this rationalization process has Tenet well-positioned to compete in a world where higher payments from both Medicaid and Medicare as well as commercial payers will be based on demonstrated quality measures.
"Most hospitals have created services when a concept was brought to them by physician that would likely improve service to patients in the relevant market the doctor practiced in, but didn't necessarily look at local demographics and competition," he says.