The business of healthcare is changing rapidly. New legislation, the pace of medical innovation, and an older and more obese population mean the way we do things is going to have to change.
We spoke to Dr. Delos ("Toby") Cosgrove, the CEO of the Cleveland Clinic, which is regarded as one of the most innovative hospital systems in the United States on these massive trends.
Consolidation is coming
During our conversation, Dr. Cosgrove pointed out that all of those trends, accelerated by the cost pressures of the Affordable Care Act, are pushing the industry in one direction — consolidation. "When you look at industries in the United States, particularly low margin businesses — and healthcare is clearly a low margin business — you figure that 25 percent of the hospitals right now are in the red, so it's very low margin." Cosgrove said. "What happened to airlines, what happened to supermarkets, what happened to bookstores? They all consolidated, they brought scale so they could drive efficiency. I think that's what's happening in healthcare right now."
As a result, as Dr. Cosgrove says, "Hospitals are coming together in systems and systems are beginning to talk to systems." His own Cleveland Clinic is talking to three facilities in the area about joining up.
It's not just costs, healthcare has gotten more complex
It's not just about costs and margins, it's the increasing complexity of the healthcare business. "If you look at the back office, what it takes to drive a hospital now or even a doctor's office, the IT, the contracting, the purchasing, you get advantages from scale." Dr. Cosgrove said. "Simply, the dynamics are driving it, because it's all so complicated to do it in private practice. I mean, think about the explosion of knowledge there's been in healthcare. Docs don't want to practice by themselves anymore, they simply can't scrounge up all of the knowledge they need, so they're looking too team up with other people to do it."
A great example is Dr. Cosgrove's own experience as a surgeon before he became CEO. "I started out as a chest surgeon. I used to do esophageal surgery, lungs, coronary bypasses, aortic aneurysms, valve surgery. Now you have doctors who do just esophageal or lung surgery, I did just valve surgery by the end of my career. The knowledge and the expertise has gotten so big that you've got to narrow your field."
When fields narrow, it becomes increasingly difficult to have small practices.
Healthcare is the second largest industry in the country
Consolidation's not just huge news for healthcare. It's huge news for the economy. For one thing, healthcare is one of the biggest employers in the country. Dr. Cosgrove argues that employment is just the beginning of the impact. "It's not just employment, I mean its 24 percent of the federal budget. After restaurants and hospitality, this is the biggest industry in the United States. It's big business news." Dr. Cosgrove said, "It was big news when the airlines started to consolidate. This is a much bigger industry."
Larger hospital systems are going to compete with each other, have increasing influence over the labor market, and change how policy works.
It's going to change how we experience healthcare.
Hospitals systems can't just get bigger, they have to get better
Though the idea of losing small family practices might seems scary, it's not all bad. These cost pressures don't just mean hospitals have to get bigger. That won't be enough. They have to get better.
Systems like the Cleveland Clinic are already starting that process, its doctors are on salaries rather than being paid by procedure to emphasize quality over quantity of care. Also, the system's hospitals are organized around patient needs rather than keeping the traditional division between medicine and surgery, which is both more efficient and better for the patient.
Check War Room over the next few days for more from Dr. Cosgrove on how exactly the healthcare business can and needs to change.
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