This research document may have you changing your mind about what’s wrong with our healthcare system and how we should change.
Do you shop for goods and services on-line? If you do, you are part of the growing and significant consumer revolution that is taking place in the world. People crave convenience and the ability to evaluate options when they buy anything.
The central focus of on-line consumerism is convenience but there is much more taking place here. The initial barriers to on-line retail have quickly fallen and technology is improving at a fast pace that is broadening its appeal among consumers. Even people that go to the mall or the “big box” stores, shop on line ahead of making the trip to get a better view of what their options are. It’s all about becoming a more informed consumer.
The affects of these changes in consumer trends have broad implications for everyone, including those in healthcare. American culture has shifted and so have the ways people make buying and executing buying decisions. If haven’t you been to a mall or big box retailer during the workweek lately you would likely notice how sparse the crowds are. Store employees are standing idle and the operators have turned up the music volume to fill the open air with some sound; absent of consumer voices. The experience shouts of excess overhead and failing economics. There is little published regarding sales and overhead on a per square foot basis but unless catalogue or online sales dilute it the mall overhead would have to be a crushing blow to any financial success of its occupants.
THE AMERICAN SHOPPING MALL IN DECLINE
Rick Caruso, the C.E.O. of Caruso Affiliated, one of the largest privately held American real-estate companies, stood on a stage at the Lavits Center, in New York, and forecasted the demise of the traditional mall, stating that “within ten to fifteen years, the typical U.S. mall, unless it is completely reinvented, will be a historical anachronism—a sixty-year aberration that no longer meets the public’s needs, the retailers’ needs, or the community’s needs”. As Internet sales reached six per cent of total retail spending in the fourth quarter of 2013, nearly doubling their share from 2006 some retailers, understandably, are responding by focusing more on the online end of the retail business. The 1.1-million-square-foot Eastland Mall in Charlotte, North Carolina sales per square foot fell to $210 in 2008 from $288 in 2001. One industry rule of thumb holds that any large, enclosed mall generating sales per square foot of $250 or less — the U.S. average is $381 — is in danger of failure.
Forbes recently published a list of the top 15 retailers with the highest sales per square foot. Not surprisingly, Apple topped that list and looking at the rest, there isn’t a large presence of retailers that are typically found in large shopping malls. The list only accounts for in-store sales, not on-line or catalogue sales. The significance of the list may be how well Apple does relative to all others. They have few stores and a small footprint. They also sell very high-end items as does Tiffany (#3) on the list. It may be that smaller retailers will not be able to afford to have a mall presence going forward.
Gap (not in the top 15 retailers in sales per square foot, became synonymous with the American mall, but no longer counting on malls for growth. “Culturally, the business pivoted towards digital,” Glenn Murphy, the C.E.O., said, describing the past year. “Mall traffic, for a number of years, has been slowing down. Whether it continues to decline somewhat over time, I think that’s realistic to assume.” Gap customers now can order clothes online and pick them up in a store. When it opens new stores this year, Gap will focus on Asia; earlier this month, the company launched its Old Navy brand in China. Sbarro, who made a significant investment in their mall presences, filed for bankruptcy this year, citing sharp declines in mall traffic as the reason.
There are examples of success in recent mall statistics but they are limited to markets that sport self-limiting socioeconomic strata and are designed at a higher cost and bigger investment. In any case, these types of malls are more destination locations and not sources for serious shoppers. Examples include The Grove in Los Angeles, CA and the Americana in Glendale, CA.
In a twist of statistics overall total department store retail sales declined by 4% to about $175 billion in 2013, according to Fitch Ratings however the U.S. shopping center industry posted a 7% rise in net operating incomes last year to post the strongest annual performance since 2008, according to the International Council of Shopping Centers (ICSC) and National Council of Real Estate Investment Fiduciaries (NCREIF). Looking more closely at this collection of statistics, the following can be surmised:
- The economy has improved; explaining part of the uptick in profits
- Those stores that have both a mall and internet presence benefited most from growth in internet sales (diluting their mall sales decline)
- Stores that rely totally on walk-in traffic (food vendors) are the undisputed biggest losers Experts agree that retailers must change the way that they do business in the face of cultural shifts, especially around Internet sales.
LESSONS FOR HEALTHCARE PROVIDERS
Healthcare in the United States can be divided into five distinctly different service lines:
- Acute/largely inpatient services
- Routine/largely outpatient • Mental Health/substantially outpatient
- Preventive/nearly exclusively outpatient
- Home Care
All but acute services can and are being provided for in less expensive settings than hospitals, which is the most expensive setting to receive non-acute services. Insurance payers have historically overpaid for acute care services that require a hospital environment; the most expensive of all healthcare venues, with specialized equipment; facilities and staff. Routine care can and is delivered in a variety of venues with no discernible differences in outcomes but distinctly different costs. Mental health is likely one of the most misunderstood elements of our system but leans heavily on outpatient as the venue to serve patients in need of this type of care. Everyone in healthcare poses to offer preventative care but the truth is that our compensation models don’t sufficiently reward good preventive care models and thus few excel at their offerings. Nonetheless, they are generally offered in the outpatient setting. Payers have built their payment models around a consolidated hospital model; meaning that they generally overcompensate for services in the hospital environment in order to have the higher cost services available. Building their provider panels generally circles around getting a hospital signed on that gives the payer “presence” in a market and then everything else gathers around it. Because of this, there exists a huge disparity in what hospitals have get paid for the like services offered in less expensive non-hospital sites. In other words, the high cost services are likely underpriced just as the non-acute services are over priced. Payers unwilling to test existing models have opted to retain a complex scale of payment that varies from provider to provider, with hospitals being paid the most for services that can and are being provided in less expensive venues. This sets up a direct conflict between what consumers and payers view as value; which is becoming an increasing challenge for payers to address given the shift of risk to patients and an increasing influence of patients as buyers.
With the new age of consumerism being driven by costs being shifted to the patient and employers, patients are moving to make their own shopping decisions for healthcare; especially the non-acute services. This is having a huge impact on the way hospital deliver their services and bringing a whole new level of competition into the market. In fact, one could argue that patients are increasingly driving the strategies being considered by all providers.
The term “retail medicine” has recently been coined to refer to small clinics being opened up in retail pharmacies, grocery stores and some retailers with Take Care Clinics and Minute Clinic as examples. That term is quickly expanding to include a host of additional services that include: urgent care, telemedicine and virtual medicine. Technology and the pressure to control costs and focus more on prevention are driving this shift. Hospitals, physicians and all providers should learn from the shifts in shopping patterns referenced earlier in this article. As consumers become more savvy internet shoppers and technology makes it possible to safely get what you need, cheaper, faster and safer, they will stop going to the buildings that have historically been synonymous with “shopping” and opt to order on-line.
THE IMPACT OF AND ON TECHNOLOGY AND FACILITY DEVELOPMENT
Healthcare is perpetually adapting to new technology but never at the pace currently being experience. Hospitals have traditionally used new technology to bolster their image to the public. The market is littered with examples of expensive equipment that makes a statement that only an investment in technology can make. Likewise, these investments have historically been rewarded with higher payment rates from payers. That is all changing. Hospitals’ capital budgets can no longer afford “speculative” investments in technology, equipment and facilities. In fact, an increasing number of hospitals are opting to lease their investments in all three. In Chicago, IL, St. Joseph Hospital opened its new $147 million outpatient center, the lakefront medical center joined the growing ranks of health care providers opting to rent, rather than own. The Presence Health system, which includes the 375-bed hospital, agreed to sign a long-term lease with developer Hammes Co. for roughly a third of a more than 200,000-square-foot building developed on a site adjacent to the hospital. Likewise, in deals totaling $42.3 million, a New York real estate investment trust separately has purchased properties under long-term leases to Rush-Copley Medical Center in Aurora and Oak Brook-based Advocate Health Care. The trend is likely to intensify as hospitals increasingly emphasize outpatient care — instead of overnight stays — as a way to lower costs, experts say.
These events signal the pressure that hospitals and health systems are feeling in dealing with healthcare reform and shift to a consumer-driven market. As competition for outpatient services accelerates, pressure on hospitals to preserve their markets will escalate.
“There’s still a lot of risk and uncertainty with health care reform,” said Sydney Scarborough, Managing Director of Healthcare at Chicago-based commercial real estate firm Jones Lang LaSalle Inc. “Conserving cash, using other people’s money, makes a lot of sense.”
Hospitals are at particular disadvantage in competing with other outpatient providers in that they have a less mobile and extraordinary rigid commitment that ties them to a limited number of locations. The capital commitment for each of their locations is generally significant and when changes in the market change they can be hurt badly.
There are some excellent examples of how hospitals and health systems financial commitments are significantly more costly than some of their competitors:
- Electronic Medical Records (EMR): Hospitals are complex entities with many and varying departments that provide inpatient services as well as comparatively simple outpatient services like physician offices, diagnostic centers and surgical centers. To accommodate all of these various services, hospitals require a robust EMR and they are very costly. Duke University Health System shelled out $700 million, so did Boston-based Partners HealthCare; University of California, San Francisco will pay $150 million. Customers, such as New Hampshire’s Dartmouth-Hitchcock Medical Center paid $80 million. All are feeling the pinch of this huge expense. All the while, competitors in the outpatient sectors are paying fractional amounts for their EMR’s and capitalizing on the lower overhead with lower point of service costs.
- Physician Employment: Hospitals have been forced to employ a significant portion of their medical staffs in recent years. They have been forced to do this in response to challenges that physicians face in their private practices due to reimbursement changes and increased regulation and cost in operating their businesses. These are not moneymaking ventures by any definition. Employment of physicians is a means to an end; it is not a strategy. A hospital employing physicians is like a professional sports team employing their fans in order to fill seats. In addition, the costly infrastructure of the hospital often bleeds over into the physician office making them less efficient and burdens them with excessive cost. Over the years, hospitals have lessened these scenarios but they have and never will go away.
- Emergency Departments (ED’s): There are in excess of 113 million hospital ED encounters annually in the United States. We have conducted research on significant sample size of these encounters and it shows that nearly 60% of the average non-specialty hospital visits to their ED’s could be treated in a less expensive setting, including an urgent care center or even a primary care office. Price points for hospital ED visits are under pressure and losses are piling up. Hospitals tolerate the losses because ED’s are the largest single source for inpatient and outpatient business. The average hospital gets 50% or more of its inpatient business from the ED.
These are just three examples of costly and unprofitable commitments that hospitals have and which competitors don’t. To make up for these, hospitals charge extraordinary amounts for their services, but this practice is coming under increasing pressure.
As technology evolves and more services can be performed in less costly and more convenient environments, hospitals will lose market share and struggle to maintain the status quo of the large facility environment that is equivalent to the shopping malls that were the subject early on herein.
Technological advances are having a significant impact on how healthcare is being delivered. Mobile devices are being developed daily that make it possible to deliver healthcare remotely, cost effectively and with the focus on patient engagement/accountability. Examples are abundant but here are a few:
- Sleep Apnea Testing: Expensive, inpatient sleep labs were once the rave as the method of testing for sleep disorders. An overnight stay in a hospital or other inpatient sleep lab could cost as much as $6,000. This used to be the standard but new testing devices that strap to the patient and allow the study to be conducted in the comfort of their own home make it possible for these studies to be done for under $300. This comes a huge blow to those facilities that invested in expensive inpatient sleep centers. Outpatient monitors allow for the results to be interpreted by a specialist virtually and results are generally returned even faster than would be achieved by inpatient centers.
- Telemedicine: Primary care has numerous levels of competition focusing on their business model but recently the creation of centralized telemedicine companies that connect patients with providers using telephone call centers has surfaced as a significant offering by companies focused on reducing visits to the ED and to give some level of consistency to the provider base. This is possible due to the advances in telephone communications, use of personal electronic devices and faster Internet connections.
- Virtual Medicine: Like telemedicine, virtual medicine stands as a model that competes with primary care but can also be used as a platform to provide various specialty medical services. Virtual medical work stations like those produced by Computerized Screening, Inc, eVIrtualHealth and Healthspot link diagnostic devices to a central medical record and video technology that puts providers not only in face-to-face communication, but also provides the provider with a patient history and diagnostics that rival what is done at a primary care physician office. These sites are easily and cost effectively deployed and position providers to competitive in terms of cost and convenience with emerging alternative delivery platforms. Some platforms like Computerized Screening, Inc and eVIrtualHealth provide for links to desktops and personal electronic devices to further expand the patient reach.
- Medication Dispensing: Generic prescriptions can and are being dispensed in states that allow it and save patients time and money in going to a local pharmacy or even having them delivered via mail-order pharmacy programs. States like Texas prohibit this but doing so will become more and more difficult to defend as pressures to improve access and responsiveness in healthcare increase. Technology now exists to provide for safe, convenient dispensing of medications out of vending machines and make for a much more convenient and cost-effective model of delivery.
- In-Home Care and Monitoring: Again, telemedicine and visiting nurse visits can and do provide for a level of access that simply cannot be otherwise achieved. Virtual home visits for patients requiring regular follow up will become more common in the future. A host of new in-home remote monitoring devices are now available that connect patients with providers so as to alert both of changes in health status that are cause for alarm or intervention.
Changes in the retail sector provide forward-looking managers in healthcare with great insight into the future of their own businesses. Gone are the days that significant capital is focused entirely on the “mother ship” as the panacea for a community’s healthcare service delivery needs. Focusing on mechanisms that allow existing resources to be scaled and used to serve broader population needs is the vital. Telemedicine and especially virtual medicine are prime examples of how to accomplish this.
On the other hand, there are systems still gobbling up vacated retail spaces and following in the footsteps of their failed predecessors. A careful eye will need to give to such ventures going forward as consumerism infiltrates the healthcare market.
New technology and patient concern for cost and safety draws competition and opportunities that never before existed.
New technology and patient concern for cost and safety draws competition and opportunities that never before existed.
An objective look at what defines retail clinics and some perspective on their potential in the current environment.
According to the American Cancer Society, over 1,600 people die daily in the United States from cancer. The 5-year relative survival rate for all cancers diagnosed between 2003 and 2009 is 68%, up from 49% in 1975-1977.
MD Anderson in Houston, TX arguably has the most respected of all cancer treatment programs in the United States and has not only some of the best results in terms of outcomes but some of the lowest costs per case as well. One of the reasons is the establishment of the MD Anderson Cancer Center Emergency Center which is a unique facility that provides emergent and urgent treatment for established MD Anderson Cancer Center oncology patients.
Open 24 hours every day, the Emergency Center is staffed by a team of registered nurses, patient service coordinators, patient care assistants, mid-level providers and physicians from the Department of Emergency Medicine who have expertise in the treatment of cancer related emergencies. The Emergency Center features 44 rooms including those designated for isolation, code emergencies, and gynecologic emergencies. The Emergency Center provides service to approximately sixty patient per day with cancer related conditions and is an important safety net for MD Anderson patients. Since the staff of the center is trained in handling of patients that are undergoing multiple types of treatment, they are well versed and trained in handling of conditions most often experienced by this patient population, including:
- non-urgent to emergency conditions
- treatment-related side effects
- cancer related emergencies and non-cancer related emergencies
- fluid and electrolyte replacement
- urgent blood product administration
MD Anderson isn’t the only such center. Memorial Sloan Kettering in New York has such a program also and the providers there, like in MD Anderson, are well versed in the various stages of and complications related to cancer treatment.
Oncologic Emergencies by Yeung & Escalante, reported that of all the patients presenting to the emergency center at MD Anderson in 2000, only 4% had true emergencies, 61% had conditions warranting urgent care services and 35% had non-urgent conditions. Even given these statistics however, the rate of admission was about 40%; much higher than a typical emergency room and well above any like statistics for an urgent care center. This demonstrates the difference in treatment that exist between cancer treatment patients and the typical emergency and urgent care patient.
The question is, should more cancer treatment centers have this service and what would the impact on outcomes if they did? As the focus on population health management grows and technologies advance it will make more and more sense for cancer treatment programs to facilitate enhanced support services that can continue to deliver high value, cost effective care to this and other specialty populations that may otherwise not be sufficiently serviced through the traditional delivery means.
We see the potential for an increasing number of cancer treatment programs to open their own versions of extended coverage for their patient treatment population that include telemedicine, urgent care and specific at-home treatment designed to improve outcomes, lower cost and improve the patient comfort during their treatment process.
Entrepreneurs abound in urgent care today and some have seen great success but others are just beginning their quest in the arena and few have given thought about changes relative to the demand for their services in to the future. Urgent care centers have a finite number of patients that they can serve and a defined population that is required to support their opening and contented success.
Exploring the statistics broadly, the United States has just over 300 million citizens. Without taking into consideration income, age groups or geography it has been determined that the typical urgent care center requires 30,000 supporting population to be successful. This comes from studying successes and failures over the years, we have found that population density coupled with location proximity will yield the desired results. In urban areas, this population would be within a relatively tight radius; say one (1) mile while in non-urban areas it would expand to as far as eight (8) miles. In any case, 300 million divided by 30,000 would set the saturation point at 10,000. No one has exact numbers on the number of urgent care centers in the United States, however, www.urgentcarelocations.com has details on just over 7,800 urgent care clinics and this appears to be the most complete listing of urgent care centers available. Given this, it would appear that we might be approaching the end of the growth cycle, however, the Accountable Care Act (“ACA”) appears to have driven up the value proposition of urgent care and thus the ceiling may have also been raised. We are now seeing that expansion in to non-urban markets may have driven the population requirement for a sustainable urgent care center to 22,000 and thus the top number may be closer to 14,000.
All of these numbers do not take into consideration the impact of new delivery models that are taking the country by storm. Telemedicine, worksite clinics and subscription models all present formidable competition for urgent care and will begin to dilute the need for urgent care expansion going forward. Urgent care centers treat a significant number of extremely low acuity patients that could easily be treated tele medically. Add to this the fact that technology is making telemedicine more accessible and valuable and you can quickly see the urgent care low-hanging fruit dropping from the trees. The convenience of having a nearby urgent care center to visit is quickly trumped with access to a physician familiar with your family’s history available on the computer screen of the home; especially in the middle of the night. When you add to this the concept of a subscription being paid by a family to facilitate this access, it starts make a compelling story.
We project that as much as 30 percent of the patients treated in the urgent care setting could be treated tele medically. It has been proven already that 60% of the patients being treated in hospital emergency rooms could be successfully treated in an urgent care center at 1/3 the cost. Telemedicine will have a like impact on urgent care as urgent care has had on the hospital emergency rooms.
Additionally, employers that have become frustrated with the costs being heaped on them by healthcare providers are starting to take matters into their own hands. Worksite clinics are springing up and employees and their dependents are being pushed to use them in an effort to not only save healthcare dollars but to better managed chronic medical conditions that could and do lead to compromised health status and higher cost of care. This is particularly true of larger employers.
The future will be filled with change but look for the growth of urgent care centers to taper off while telemedicine and worksite clinics push forward. The most successful operators will align all three of these into their portfolio so that they can have a more complete population health delivery model.
Population Health Management is starting to replace accountable care as the new “buzz phrase” in healthcare. The healthcare sector has traditionally begun at the end in defining its interests and objectives. Accountable Care Organizations (ACO’s) have been spoken of for several years as the future of healthcare. An ACO would, theoretically, take responsibility for the health care for a defined population both clinically and financially. Specifically, it would be the ultimate managed care entity and as such, the motivations would be to improve the the utilization of healthcare delivery by being accountable for the outcomes.
The operative work in ACO is “accountable”. We all know that accountability is not worth much if there is responsibility and infrastructure to adapt and make change. ACO’s have made little change in healthcare to date because they do not combine accountability with responsibility.
Population health management circles a population and, as the term implies, requires an assessment of health risks and definition of the strategies and resources required to be engaged to improve outcomes, which would presumably drive costs down.
In the real world, a population health management strategy would be executed ahead of an ACO because it involves the steps required to make and ACO work.
Putting together a successful population health strategy is difficult for health systems and impossible without the resources and guidance from others. Health systems (hospitals and physicians) are so entrenched in the encounter form of delivery that managing the healthcare spend for a population and focusing on wellness instead of sickness falls outside their traditional resource group. In fact, employers are in a much better position to embrace population health management than are health systems. Employers have become increasingly frustrated with the traditional healthcare delivery results and taken on the tasks of assessing the health status of employees and engaging their own alternative delivery mechanisms in the form of on-site clinics, disease management and direct relationships with home healthcare and others to address their employee health concerns; bypassing hospitals and physicians all together whenever possible.
At the core of a population health management strategy is the data for the population being managed. This includes risk assessment, baseline health indices and an identification of key management focus sufficient to reach improved outcomes. The successful engagement of education and other support mechanism sufficient to change the outcomes of the population are contingent upon accurate data upon which such initiatives are based.
Healthcare providers are encouraged to seek and engage organizations familiar with population health initiatives and with focus on the employers needs sufficient to build trust and collaboration.