A new job for healthcare CFOs

Since the Healthcare Financial Management Association’s annual conference in Las Vegas in June, one presentation has stuck in my mind: Ken Kaufman’s discussion of disruption and what the healthcare industry will look like very soon.

Kaufman, the chair of management consulting firm Kaufman Hall, painted a daunting – and grim – picture, but the rewards have the potential to be great for those who rise to the challenge.

During his presentation, “Leveraging New Business Models to Improve Value,” Kaufman said that the healthcare industry is moving away from hospitals as the center of care to a new entity he called a healthcare company. The healthcare company, he explained, is something like a cable company – assembling the content of care and delivering it to patients, to employers (as purchasers) and to Medicare and Medicaid. In this model, doctors and hospitals, he said, essentially become a commodity product.

“The transition that we’re making right now is nothing like any transition we’ve ever made before,” he told his HFMA audience. He likened it a baseball team becoming a football team, and declared that there is no guarantee that the legacy providers of today will be the healthcare company of the future.

Healthcare organizations that cling to their inpatient-centric perspective and to fee-for-service are not going to make it in the healthcare industry that develops in the next 20 years. “We are Blockbuster. We are Barnes and Noble. We are Borders. And we don’t know who the Amazons are that are coming for us to become those healthcare companies,” he warned. “… the existing legacy providers will fall to the bottom and all you’ll be doing is rendering your services to the organizer of services up on top (the healthcare company).”

While the industry may not know now who, exactly, the healthcare companies will be, they are coming, he said. And for evidence, just look at the inroads companies like Walgreens are already making. “There is no doubt that Walgreens is putting a real hurt on traditional legacy providers,” he said, because such operations offer a convenient, accessible service and they offer it at a much lower price than legacy providers do.

And operations like Walgreens bank on legacy providers not competing with them in any effective way, he said, because to compete with them, legacy providers would have to lower their revenue base and they believe the legacies would never deliberately lower revenue base.

So, where does this leave today’s legacy companies?

“Finance executives in healthcare have a really special job,” Kaufman said. “What you can’t do right now in your organizations is play chicken.” That means stop protecting the balance sheet by shooting down ideas for transitioning to value-based models and accept that to transition from fee-for-service to value your organization and to have a chance at being the healthcare company of the future, you will lose revenue, your profitability will go down and you will have to work incredibly hard. Stop, he said, being “hysterical” about the financial implications of the transition and instead do what is best for the organization, the country’s economy and for patients.

“So that’s your job,” he concluded. “It’s a new job, but it’s the right job. It's the ethical job, and I encourage you to go out and do it.”