Publisher's letter: 2017 healthcare system strategy – Welch's Law; The reevaluation of the ACA and more

It has been a fascinating year and we are looking forward to 2017. A few of the fascinating issues are as follows:

1. Welch's Law — dominant or market essential, lean or special — hospitals, health systems, physician practices and surgery centers. There is a "law" that I will call "Welch's Law." Jack Welch famously said of GE — we need to be first or second in a market or not compete in that market. While this concept may have been waterdowned over the years, recognition of its importance seems to be making a dramatic comeback. In technology, in phone systems, in electronic retail and e-commerce, it has never been more true than today that being first or second gives you a dramatic advantage in profitability and revenues. In healthcare, this rings quite true.

In my own view, you ultimately have three core choices to be successful in business, whether as a healthcare system, practice or surgery center. First, a system or practice or company should aim to be "dominant" and/or needed in your market. Anti-trust lawyers have moved this concept of "dominant" to the word choice "market essential." Whatever you want to call it, for offering services to patients, payors or recruiting talent, it seems to pay to be dominant. Throughout the country, we see scattered chains that don't do very well. In contrast, those same chains in markets where they are "market essential" earn disproportionate profits compared to their other markets.

Second, you can be super lean. This has often been the recipe for business in its later days where it is trying to reap cash or for a practice that is trying to hold on through retirement and so forth. It has also been a long term method of profitability for some practices, surgery centers and hospitals. At the same time, given the cost of operations today, it has become more difficult to be "so lean" that this itself can be a business strategy. Further, the market doesn't seem to pay you for being so lean. Lean is important. However, as an absolute core market strategy, we think it is secondary to being dominant or market essential.

Third — and this is very difficult — a system, surgery center or practice can be so uniquely excellent in something that it has a special market position and can continue to make money off of that type of position. However, as information and best practices become shared so quickly, it is harder to have such a unique advantage of being so great in something that there is no one else to visit for it. It also takes great resources and discipline to maintain and improve this position. Thus, you end up much more in a situation where you aim to be dominant and rationally lean.

2. The election, the ACA and more. This was a fascinating election. This is a nonpartisan comment. Whether a Republican or a Democrat, it has substantial consequences. One of the more interesting issues is that it causes a reevaluation of the ACA. There have been many observations made about the ACA. In simple terms, it provided insurance coverage to 20 million previously uninsured people at a tremendous cost. Here, we can weigh the pros and cons of that effort. It is hard to be negative in a vacuum about adding insurance coverage for 20 million people. At the same time, everything should be done in a cost efficient and rational way. Moreover, it erodes free enterprise if the rules of the game become big ticket and constant simple or complex redistribution of wealth.

The four largest positives of the ACA are, I think, as follows so far. First, coverage for 20 million people. Here, it's estimated that 16 million of these have been added via Medicaid plans. Second, the redesign of the system in some places has led to a seismic jolt in the use of telehealth. Telehealth is incredibly cheaper than office-based healthcare and in some places they are estimating that nearly 40 percent to 50 percent of patient visits are completed by telehealth. This is particularly true in places such as Kaiser Permanente, where the vertically integrated system is dramatically driving down costs by moving things greatly towards telehealth. System CEO Bernard Tyson reported 52 percent of 2015 patient interactions at Kaiser Permanente were held online, via virtual visits or through the Kaiser-branded apps. By fully aligning the system in a non-fee for service way, Kaiser has been inventive and aggressive about driving down costs. The third largest positive under the ACA is the movement of consumers towards actually watching their healthcare costs as their deductibles and costs have gone up. However, even though I see this as a clear positive, it is hard to see the positive impact so far as healthcare premiums and costs continue to rise significantly. Fourth, the ACA has made it easier to gain coverage for people with pre-existing conditions.

On the negative side: First, healthcare premiums and costs have not decreased at all. Second, if anything, the ACA has led more to the concept of market domination as a strategy for success financially by health systems. It is difficult to link provider consolidation spurred by the ACA to any savings — studies that examine the correlation between the two yield mixed results. Third, the ACA has added trillions in total costs and billions in administrative costs to the federal budget, leading to increased costs and taxes for most Americans.

It will be fascinating to see what happens with the ACA. Like with most things, once people have gotten used to a benefit, in this case, insurance coverage for 20 million people, it is hard to see the country taking the hard tack (even though it may save billions of dollars) of not providing a means to obtain healthcare coverage (note 16 of the 20 million are in Medicaid plans). Thus, I think it will be fascinating to see how this actually unfolds.

3. Conferences for 2017. We have added some amazing speakers and keynotes for next year. For the first half of the year we have Arnold Schwarzenegger and Jay Leno and eight of the greatest hospital CEO's in the country taking the podium, as well as 233 hospital executives speaking, at our Annual Meeting. That meeting is four days in April (April 17th to 20th). Come for one, two or four days. Here, the keynotes and keynote panelists include.

Annual Meeting

1. Arnold Schwarzenegger 38th Governor of California and Cultural Icon
2. Marna Borgstrom, MPH, Chief Executive Officer, Yale New Haven Health and Yale New Haven Hospital
3. Delos M. Cosgrove MD, President and Chief Executive Officer, Cleveland Clinic
4. Michael J. Dowling President and Chief Executive Officer, Northwell Health
5. Rodney F. Hochman MD, President and Chief Executive Officer, Providence Health & Services
6. Jay Leno Comedian and Former Host, The Tonight Show
7. Redonda Miller MD, MBA, President, The Johns Hopkins Hospital
8. John Jay Shannon MD, Chief Executive Officer, Cook County Health and Hospitals System
9. Johnese Spisso MPA, President, UCLA Health; Chief Executive Officer, UCLA Hospital System and Associate Vice Chancellor of Health Sciences
10. Nancy Howell Agee, President and Chief, Executive Officer, Carilion Clinic
11. Barry Arbuckle PhD, President and Chief Executive Officer, MemorialCare Health System
12. Lloyd Dean, President and Chief Executive Officer, Diginity Health
13. Laura Forese, MD, MPH, Executive Vice President and Chief Operating Officer, NewYork-Presbyterian
14. Steven Goldstein, President and Chief Executive Officer, Strong Memorial Hospital
15. Robert C. Garrett, FACHE, Co-Chief Executive Officer, Hackensack Meridian Health
16. Charles Lauer, Author, Consultant, Speaker, Former Publisher, Modern Healthcare
17. Stephen Mansfield PhD, FACHE, President and Chief Executive Officer, Methodist Health System
18. Anthony Mercando MD, FACC, FAHA, Cardiologist, NYP Medical Group/Westchester; Associate Clinical Professor, Medicine, Columbia University College of Physicians and Surgeons
19. Richard Nesto, MD, Executive Vice President and Chief Medical Officer, Lahey Health
20. Randy Oostra, DM, FACHE, President and Chief Executive Officer, ProMedica
21. Stephen Rosenthal, President and Chief Operating Officer, Montefiore Care Management
22. Michael T. Rowan, FACHE, President, Health System Delivery and Chief Operating Officer, Catholic Health Initiatives
23. Thomas Sadvary, Chief Executive Officer, HonorHealth
24. Lou Shapiro, President and Chief Executive Officer, Hospital for Special Surgery
25. Warner Thomas, President and Chief Executive Officer, Ochsner Health System
26. Rhoda Weiss, PhD, National Healthcare Consultant, Speaker, Educator, Author, Managing Healthcare Reform: Ideas for Leaders

Spine and ASCs

For our June Spine+ Orthopedic, Spine and Pain Management Driven ASC Conference, we have 140 great surgeons speaking - a record number. We also have Lou Dobbs and Marcus Allen speaking as keynotes. We are looking forward to what should be a great meeting of minds and ideas.

Fall Events

Finally, we are planning our 3rd Annual Health IT + Revenue Cycle meeting as well as our October ASC Meeting and our November CEO + CFO Roundtable Meeting for later in the year. For the Health IT + Revenue Cycle Meeting, we have booked President George W. Bush and Sugar Ray Leonard. That also should be a fascinating meeting.

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For a discussion on any of the issues included here or to talk about any other issues, please contact me at (312) 750-6016 or sbecker@mcguirewoods.com or Kirsten Doell at kdoell@mcguirewoods.com or at (312) 750-3506. We look forward to speaking with you.

Very truly yours,
Scott Becker