SAN DIEGO — As the long-standing “continental divide” between the healthcare industry and seniors housing begins to close due to economic realities, the disruptors who embrace the opportunity to build a more integrated model of care for the elderly will be the big winners.
That’s the message Andy Waldeck, senior partner at Boston-based growth strategy consulting firm Innosight, delivered Thursday afternoon during his keynote address to several hundred attendees at the NIC Spring Conference.
“Disruption is actually a process. It explains how industries change, how they become more affordable, more accessible and actually the quality goes up through the process,” explained Waldeck who delivered his luncheon speech at the Marriott Marquis San Diego Marina. “The reason we’re talking about disruption today is not to scare you, it’s not to say you are potentially the next Kodak. Instead, it is to remind you that it is one of the greatest forces that you see out there.”
The reference to Eastman Kodak Co. stems from the executive team’s tepid reaction in the mid-1970s to the invention of the digital camera by one of its engineers. The top brass thought no one would want to look at pictures on a TV set. The company made the switch to digital 18 years later, but ultimately Eastman Kodak filed for bankruptcy in 2012.
The top companies in the S&P 500 reveal a compelling trend, observed Waldeck. “It’s now predominantly made up of organizations that are pursuing disruptive business models. If you just look at the top 10 players and their collective market cap, the vast majority of that comes from our now trillion-dollar market cap companies like Apple, like Microsoft. Amazon and Google are not far behind.”
The growing sense of urgency among seniors housing owners and operators to move to an integrated healthcare model stems from the fact that the cost of healthcare is growing at an unsustainable pace. U.S. healthcare spending now represents 18 percent of GDP, up from 6.9 percent in 1970.
The Medicare trust fund comprises two separate funds. The hospital insurance trust fund, known as Part A of Medicare, is facing long-term deficits. Meanwhile, many state governments are financially strapped. The consumer is even worse shape, according to Waldeck. Two out of five Americans don’t have the financial capability to pay for an unplanned expense greater than $400.
“So, the forces that are driving change in healthcare stem from the realization that there are literally no other pockets to dip into,” said the veteran consultant.
Game changers?
A number of recent moves by some of the largest health insurance payers in the country signal that the healthcare industry is at an inflection point, Waldeck believes.
Humana recently joined forces with New York-based private equity firm Welsh, Carson, Anderson & Stowe (WCAS) to launch primary care clinics that will serve seniors insured by Medicare Advantage plans. The private equity firm and Humana are investing $600 million to fund the clinics, with WCAS taking the majority stake in the venture.
In 2018, Humana and two private equity firms — TPG Capital and Welsh, Carson, Anderson & Stowe — assumed control of home health services provider Kindred at Home following a $4.1 billion deal.
CVS Health Corp’s $69 billion acquisition of health insurer Aetna Inc. closed in November 2018. The deal combines one of the largest providers of pharmacy services with a giant health insurer. CVS expects to have 1,500 HealthHubs in place by the end of 2021. The focus will be on managing chronic diseases, which are estimated to account for 75 percent of total healthcare spending, according to The Wall Street Journal.
In September 2019, Walmart opened up its first Walmart Health center in Dallas, Georgia. The business offers primary care, counseling, home care, eye and hearing exams, and dentistry. The goal is for Walmart to offer a breadth of services conveniently and at a much cheaper price than rivals, according to Business Insider, a financial news website. For example, a primary care visit costs $40, and a dental visit costs $25.
Meanwhile, Apple’s CEO Tim Cook has declared that healthcare is going to be the biggest driver of the company’s growth over the next decade.
For its part, UnitedHealth Group Inc.’s health-insurance unit, UnitedHealthcare, provides benefits to 43 million Americans. About 50,000 physicians work for its health services unit, Optum Inc., which means that it wields a lot of influence.
“While there are tremendous forces that drive an insular view inside healthcare, the moves that these significant incumbents have made — plus all the money that’s being invested in new startups — are creating conditions where the industry is now starting to move,” said Waldeck.
“Health systems and health plans are partnering together in new ways, they are partnering with new ventures. And it’s this activity that starts to give us confidence that disruption will actually start to happen in an industry that has been very slow relative to others.”
Frustrating experience
The healthcare industry was built on the principles of compassion and healing, according to Waldeck, but it is as far from being customer-centric as one could imagine.
He recounted the story of his 13-year-old son, Luke, a right-handed pitcher who not too long ago had an accident and broke the thumb on his right hand.
“What I want to show you is the process that we went through as a family over four days to determine what is a relatively simple question for somebody in healthcare to answer. We knew his thumb was broken. The question is does he have ligament damage, and does he require surgery, or can we just put his hand in the cast?”
What ensued was a serious of miscommunications and/or misdirection on the part of the healthcare system. Over the course of four days, Waldeck’s family went through “a process that no one would have designed from scratch.” He eventually enlisted the help of two family friends, both of whom are doctors. One is a radiologist who proved instrumental in getting the MRI scans into the hands of the pediatric hand specialist.
“This is a simple thing. My little guy broke this thumb. It’s certainly not life-threatening, but it’s a major, major frustration. We were literally directed to the opposite places we should have been directed to.”
For Waldeck, the entire experience reinforced the idea that the healthcare system needs to be reinvented. In the case of seniors housing, he believes that that the transition to his vision of an integrated healthcare system is in the early innings.
“The model historically had been that I’m going to funnel people to the highest cost location because that’s where the greatest care and greatest services are. In a model like Medicare Advantage you do the exact opposite. I want to do everything I can to keep that individual out of the high-cost locations,” explained Waldeck. “I want to manage them in their community, I want to manage them in their home.”
— Matt Valley