With Amazon officially in the provider market, stakes are even higher for health systems competing in healthcare’s negative-sum game

Faced with a shrinking population, changing demographics, shifting economic conditions, and new market offerings that continue to challenge the status quo and disrupt traditional care models, the U.S. healthcare system today is a negative-sum game -- and the losers will vastly outnumber the winners – especially among hospitals and health systems. 

Amazon’s move to acquire One Medical was particularly a game-changer. With its well-documented technology process, unmatched control over consumer loyalty and nearly unlimited resources, everyone from large, brand-name health systems to small community providers could soon face competition from a market player that doesn’t know how to lose.

Then there was news about CVS’ intention to get into primary care by the end of 2022. All of this new consumer choice also will impact consumer expectations. Access to technological innovations and abundant healthcare information empowers consumers with more control over their care, even if they are not prepared for it. As digital technology changes the way care is delivered, what patients expect with respect to their healthcare experiences also will change. 

The bottom line is failing to plan is planning to fail, and for hospitals and health systems to succeed, they must plan to win.

Winning a negative-sum game

Because healthcare has only recently become a negative-sum game, health economy stakeholders have rarely followed economic principles in strategic decision-making historically. However, in the current “shrinking pie” in which health economy stakeholders find themselves – with a growing number of suppliers competing for the same, decreasing set of customers – the only way to maintain a dominant industry position - or perhaps merely survive - is to take customers from other stakeholders. 

To win healthcare’s negative-sum game, health economy stakeholders must understand the changing industry dynamics and economic principles behind them, and design targeted, competitive strategies to account for them – in part by focusing on the following: 

Understand your TAM and find your competitive edge 

Pro Football Hall of Fame coach Bill Parcells says it best: You are what your record says you are. For health systems, this means understanding your “share of care” in your total addressable market (TAM), the starting point for which is understanding how many providers are in your given market. 

A few health systems, like LifePoint Health, a healthcare delivery system which operates in 29 states, take it a step further. According to SVP for Revenue and Network Management Jason Ross, LifePoint Health not only considers how many providers are in a market, but also the specific populations (e.g. Medicare Shared Savings Program or Accountable Care Organization) for whom they are responsible, quantifying the total spend and understanding their share-of-care percentage for that total spend (both in aggregate and at the individual patient level).

Only with a true understanding of TAM and market share can a stakeholder in the health economy make prudent decisions about what services to offer, how to differentiate, and where to double down. 

For example, health systems should regularly ask themselves questions like: 

• What services, if any, can only your system provide (e.g., a Level I trauma center or a pediatric ICU)? 
• What services do you provide more efficiently and effectively than other systems (e.g., cardiac or orthopedic services)? 
• For which services can you be a market leader, and how should you allocate limited capital resources to support service line growth? 
• For which services will you never be #1 or #2 in the market? 
• Which service lines will experience increased demand in the next 10 years, and which will experience decreased demand?  
• Is your TAM growing, flat or declining? How do you know? 
• What must change - internally and externally - in order to increase market share in a specific service line (e.g., additional physicians, equipment, or sites of service)?

Similarly, health systems should understand which services they are uniquely suited to provide, with a bias to those that are more clinically acute (e.g., complex surgery), and find partners for services that have commodity-like profiles (e.g., telehealth, urgent care). Equally important, they should identify the markets and/or services where they cannot compete effectively and exit them.

Relying on “loyalty” in consumer-directed healthcare is a losing game  

Retailers like Amazon and Walmart have used comprehensive data analytics to better understand their market and drive decisions for decades. This data-driven approach includes using psychographic segmentation to help understand consumer motivations and ultimately influence purchasing decisions.

Unfortunately, understanding why consumers make the decisions they do is a competency that we, as a health economy, have historically lacked. Health systems must realize that consumers are not loyal, and patients are consumers. On average, consumers have relationships with 4.2 provider network brands, so health systems should stop believing that every patient listed in their EMR is “their” patient. Assume they are competing with other providers.

For instance, Ohio-based Premier Health wanted to grow volume across its system. Still, with tight capital constraints, Premier Health executives wanted to know what access points had the most impact on its existing infrastructure. Understanding the longitudinal relationships of consumption based on a patient’s entry point helped the health system prioritize investment in its access points to maximize the overall value.

Health systems should also realize that the “digital front door” is not the only way in or out of the organization. Having an app that connects to the EMR is not that different from having a parking garage or an emergency department. Most consumers really don’t care. Forced adoption is not the same as consumer preference or engagement. 

Understanding healthcare consumer psychographics

Every health system must analyze whether it can be #1 or #2 in a particular market or service. If it is possible to be a market leader, then it should develop a detailed understanding of which consumers it wants and needs to reach, and then apply psychographics to understand exactly what those consumers want and how best to communicate with them. 

For instance, Seattle-based Providence, a comprehensive healthcare network which operates in seven states, recognized the importance of a “connected operating model” to deliver a meaningful omnichannel experience that met consumers where they are. Given the “sticky” consumer relationships that retail entrants are using to compete with traditional providers of care, according to EVP, Chief Strategy and Digital Officer Sara Vaezy, Providence uses individual-level healthcare and consumer data to deliver a more personalized experience for each patient cohort based on their unique engagement preferences and clinical needs.  

Health systems also must think carefully about targeting specific cohorts. For example, adult females are widely considered the “chief health officers” of their households, but women have lower brand loyalty than men. In addition, certain female cohorts are responsible for propping up entire segments of the industry. For example, fewer than 30% of the U.S. population used telehealth during the peak of the COVID-19 pandemic, but it was a specific cohort of women, of a certain psychographic profile, who were primarily responsible for telehealth’s relatively limited use. 

Getting predictive with analytics at a hyperlocal level

Health systems invest entirely too much time in developing an incomplete understanding of the past instead of focusing on what will happen in the next five to 10 years. Instead of regurgitating consulting buzzwords about the dreams of Beltway policy wonks, they should invest in data and analytics to develop evidence-based strategies. Instead of the “lather, rinse, repeat” of annual strategic planning processes based upon incomplete data that is 12 to 24 months old, provider organizations should leverage dynamic forecasting models based on targeted population and utilization trends to reassess business strategies and tactics. 

More importantly, they must pursue hyper-local analysis instead of national benchmarking. This approach could include matching physicians’ needs assessments with consumer psychographic profiles in certain geographies, which creates a better understanding of which sites of service will be most successful in different neighborhoods.

This is another area where LifePoint Health excels. LifePoint Health’s network strategy ignores anything that isn’t hyper-local, focusing on where its consumers seek care and why they choose LifePoint Health facilities over the competition. Armed with this information, Ross’ team can focus on removing barriers to make LifePoint’s care settings the most attractive, convenient, and frictionless choice for healthcare consumers.

Similarly, Providence recognized the importance of optimizing its variety of care settings to align with regulatory trends, projected healthcare demand, and consumer preferences. It uses market intelligence to distinguish between changes in demand due to population migration during COVID-19 as compared to variation in incidence of disease. In addition, Providence utilized psychographic data to understand consumer preferences for different care settings between and within markets.  

In the end, game theory is all about competition. To survive and thrive in today’s tumultuous and challenging environment, health systems must lean on evidence-based strategies based on a deep understanding of local market conditions, which should include the number of suppliers and customers in their TAM, while also considering probability models of what will happen in the future. 

Without that level of detail, winning in a negative-sum game will nearly be impossible.