The pandemic’s disruption of the healthcare industry creates opportunities for innovative organizations

• More than 90% of executives from 200 organizations across industries said they expect the fallout from COVID-19 to fundamentally change the way they do business over the next five years, according to a McKinsey & Company survey.
• Almost as many of the same group of executives surveyed believe that the crisis will have a lasting impact on their customers’ needs, according to the survey.
• Although 71% of the surveyed healthcare executives in the McKinsey survey said the crisis provides an opportunity for growth, few are confident their organizations are well positioned for growth as organizations because their attention is now on the pandemic and not on innovation.

A recent McKinsey & Company survey, of 200 organizations across industries finds that, “more than 90 percent of executives said they expect the fallout from COVID-19 to fundamentally change the way they do business over the next five years, with almost as many asserting that the crisis will have a lasting impact on their customers’ needs.“

In the same survey, “Innovation in a Crisis: Why It Is More Critical than Ever,” 71% of the surveyed healthcare executives said the crisis provides an opportunity for growth. However, few are confident that they are well positioned for growth, as organizations have reduced emphasis on innovation to focus on responding to the immediate crisis.  

Takeaway

The sheer scale of disruption to providers’ finances, purchasers’ pocketbooks and care delivery models wrought thus far by the pandemic should create opportunities for innovative organizations to gain market share and grow revenue. A portion of my conversation with three health system leaders during the July 15 Digital Annual Conference  session titled “Navigating Through a Pandemic” touches on some of the opportunities that are emerging as a result of COVID-19 and how they are positioning themselves to make the best of the situation. Below I discuss three examples:

Provider finances. Earlier this year, it was estimated that delaying non-emergent procedures reduced hospital revenue by 40% to 60% and physician practice revenue by 55%. While providers with strong balance sheets and good access to liquidity will likely weather this, weaker systems and independent practices will likely need the support of a partner. This creates an opportunity to alter the competitive dynamics through mergers and acquisitions or other alignment strategies for health systems with strong balance sheets, health plans (who to date are relatively unscathed  financially by the pandemic) or private equity funds with cash to deploy. In terms of timing, unless Congress revises the terms of the Advanced and Accelerated Payment program, we could see financially weaker providers start to falter in the coming months, especially if more states (or regions within states) expand moratoriums on non-emergent procedures due to concerns about increased COVID-19 hospitalizations and decreasing PPE.

What might this look like? In every state and/or market, it will be different based on competitive dynamics. In North Carolina, for example, the major payer is smartly taking advantage of this opportunity to align independent PCP practices to its ACO model in return for financial assistance. This will likely shift referral patterns from specialists with more aggressive practice patterns to those who practice more conservatively, hospital outpatient departments to freestanding sites of service and institutional post-acute care settings to the home.

Purchaser pocketbooks. Governmental payers will now need to find cost savings to balance their budgets. This will likely come via a combination of rate cutting and additional pressure to transition to value-based care models. For employers, the soft economy creates an environment where they may be more willing to experiment with narrow network products and other lower-cost benefit designs. For the past 20 years, lower-cost benefit design was code for increased cost sharing at the point of service. However, increasingly employers have expressed concern about the impact of  high deductible health plans on access to care. So, the next iteration of benefit design may offer or fully replace traditional network designs with those that offer telehealth as the first point of access for primary care. Not only would this expand access but decrease unnecessary utilization of emergency departments (ED) and urgent care settings, reshaping where and how care is delivered.

Care delivery. If the telehealth expansion is maintained post-COVID-19 (as many assume it will be), a McKinsey & Company analysis suggests that up to 20% of office visits and 24% of ED visits could be delivered virtually. So what does it mean for patient acquisition strategies when you have to compete with the likes of Cleveland Clinic and other national brands for traditional feeder services? And for ED services, if the patient needs low-acuity hospital care, what happens to admissions when care can be provided in the home?

To that end, we’ve recently seen providers (Hospital at Home, Intermountain, Mayo Clinic) and other entities make some interesting moves, such as Walmart starting a health plan and Walgreens acquiring a stake in a primary care provider. While many of these actions were likely planned long before the pandemic, they will position these organizations to succeed in the post-pandemic world.