When any disruptive force appears to threaten the physical wellbeing of patients—or the financial wellbeing of hospitals and physicians—the understandable first response is to push back. Particularly with respect to patient health, this initial response is necessary and important. However, when going up against major industry change, a second response may have the longer-term effect.

The Disruptive Force

Anthem Blue Cross recently instituted two new policies in many of the states it serves. One eliminates payment for non-emergency visits to the hospital emergency department. The other declines to pay for outpatient MRIs and CT scans performed in hospitals, unless Anthem deems that setting medically necessary.

These are among the most aggressive policies we have seen yet to steer patients away from high-cost hospital services and toward lower cost, non-traditional alternatives such as retail clinics, urgent care clinics, and freestanding diagnostic chains.

The First Response

Provider representatives have been quick to point out the potential hardships for patients, providers, and communities, and the potential conflict with current law.

Quality and patient protection. “Economically motivated steerage of patients compromises the physician-patient relationship and undercuts integrated health care efforts,” said the American College of Radiology in a statement about Anthem’s new imaging payment policy. In a letter to Anthem about its policy to not pay for non-emergency care in a hospital emergency department, the American Medical Association said, “The impact of this policy is that very ill and vulnerable patients will not seek needed emergency medical care while, bluntly, their conditions worsen or they die.”

Deficits among the alternative providers. The American College of Radiology “is concerned that Anthem's policy will force patients to locate an ever-declining number of freestanding imaging centers and/or physician’s offices to access imaging services” and that “such facilities may not be immediately prepared to care for an influx of patients…”

Law and regulation. The American College of Emergency Physicians said that Anthem’s emergency department payment policy “is a clear violation of the national prudent layperson standard, which is codified in federal law.” That standard “requires that insurance coverage is based on a patient’s symptoms and not their final diagnosis.”

Financial hardship for hospitals and their communities. The American College of Radiology said that “Forcing all advanced imaging out of hospital outpatient departments may prompt many of these facilities to cut back on standard imaging…or close altogether. This may be particularly true in areas where hospitals care for many indigent patients.”

The Second Response

As I described in a recent blog post, Anthem’s new rules are a case of disruption straight out of the Clay Christensen playbook: An innovative entity offers a product or service in a more convenient way and at a lower price, drawing volume away from the legacy provider. The wrinkle in healthcare is that, historically, the entity paying for the service has been different from the one using the service. However, insurance plans increasingly are designed to align consumers and payers around low prices, and a high level of convenience is designed to further move traffic toward these disruptive innovators.

For health plans, the change is clearly designed to lower costs. For hospitals, the likely result is a shift in volume and revenue away from hospitals and toward new locations of care.

After hospitals’ initial response on immediate issues of patient safety, the question is what the second response should be.

The key is not to limit the response to simply protecting the status quo. For example, when ESPN was first removed from the cable bundle, its so-called strategic response was to sue Verizon. When the taxi industry first felt the competition from Uber, it argued safety concerns and used existing regulations in an attempt to block Uber. What ESPN and the taxi industry did not do promptly enough was to address the underlying causes of disruption and the fast-changing competitive environment.

In regard to payers resisting hospitals prices, the underlying causes are stark and complex. Hospital prices are 235 percent of freestanding provider prices for CT scans and 170 percent of freestanding provider prices for MRIs. An emergency department visit costs about four times a visit to an urgent care clinic. At a time when healthcare costs are 18 percent of the nation’s GDP and 43 percent of adults have trouble affording their deductible, this kind of price variation makes hospitals highly vulnerable to lower prices and other ways of delivering care.

At the same time, consumers seeking routine services are unlikely to be open to an argument about differences in quality, especially when at least one outpatient radiology chain has scans read by Cleveland Clinic physicians. And arguments about patient convenience at hospitals are unlikely to sway consumers when less than half of hospitals and health systems have extended hours for diagnostic services.

In a disruptive environment, economics and consumer preference always prevail. The second response to disruption, therefore, needs to promptly and aggressively address the vulnerabilities of price and consumer experience that give rise to disruption.

Hospitals and health systems need to be much more serious about cost reduction through strategies such as repurposing low-performing facilities or eliminating unnecessary service duplication. They need to get deep information about consumer demographics, health status, usage patterns, expectations, and attitudes. They need to infuse this consumer understanding into all aspects of strategic and operational planning, including service design. They need to develop a comprehensive pricing strategy that takes into account market prices and likely effect on utilization of pricing changes. And they need to explore partnerships that may enhance patient access and experience.

The first response to disruption should always respect the safety of patients. The second response should focus on the future of the organization. Time spent protecting the status quo takes attention from a far more strategic objective: eliminating the vulnerabilities that invite disruption.

 

 

The-Second-Response-to-Disruption.pdf