CEO Corner: Staying Competitive in Health Care Delivery
Alice Ayres, MBA
I was recently at a presentation given by Kevin Lofton, one of CommonSpirit’s co-CEOs, and he said this: “We need to move beyond the paradigm of the patient.”
For an industry that has focused on the acute episode — on making someone who is ill better — this is a true shift in thinking. What he meant by this is if we truly follow our missions, this work is a logical step. The goal of a healthy community is not only a worthy one, but also an achievable one. Increasingly, our philanthropy teams are taking a leadership role in this work — and this is work that is often attractive to donors we don’t normally think about or who might not normally give to our organizations. But these donors can make a measurable impact on our efforts to transform health care delivery in this country.
We are not alone in the understanding that there is not only health benefit but also revenue to be obtained in this new paradigm of keeping people healthy — it has drawn focus among numerous sectors. Increasingly, we are seeing a trend in cross-sector mergers and acquisitions. Here are just two of the many recent examples of this:
- Optum bought DaVita Medical Group last year for $4.9 billion, which effectively doubled the size of Optum’s owned physician enterprise to about 60,000. This means they now see 1.7 million patients per year in 300 clinics, 35 urgent care centers and six surgery centers — patients (and patient revenue) that might not otherwise be entering our organizations.
- CVS acquired Aetna for $70 billion in November 2018. This one is remarkable because it creates a direct pipeline of insured lives who will walk through CVS doors for their primary care needs, and CVS has begun talking about other specialties as well. From the perspective of CVS, this is about building out the “cart ring” — they know when someone walks through their doors for primary care, they will also buy Tylenol, diapers, paper towels, and other goods. This means they see our primary revenue source — patient revenue — as a loss leader that drives an increase in overall revenue.
Imagine the ways in which this will continue to put pressure on our own margins while at the same time forcing traditional health care to adapt to an increased demand for access, convenience and a customer-centric approach to health care delivery. As the potential for major entitlement reform grows, a new wave of strategic realignment in health care has begun, largely driven by positioning to capture Medicare lives. Margin pressure is nothing new, and it has topped CEOs’ lists of up-at-night issues for years. These cross-sector mergers make it even more critical that we address the fundamentals of health care finances and identify new ways to drive bottom line growth.