by Tom Robertson
Executive Director, Vizient Research Institute
09/22/20

In the Memoirs of Sherlock Holmes, published in 1892 by Sir Arthur Conan Doyle, there is a short story entitled “Silver Blaze” about the disappearance of a race horse. Holmes notices that none of the witnesses mention a dog barking in the night and deduces that the family dog never barked. Reasoning that the dog had recognized the perpetrator, the shrewd detective concentrated on suspects familiar to the residents of the estate, and in the process solved the case. As we contemplate disruption in health care, there is a lesson to be learned from the 19th century mystery yarn: Listen for what you don’t hear. 

We tend to think of disruption as an outside-in phenomenon. Something happens externally — an invention, a new competitor, a demographic shift — that interrupts business as usual. We’re slower to recognize our own contributions to an unsustainable status quo. The traditional business model for any large medical center or health system involves significant subsidization of government sector patients by patients covered by private insurance. That reality is nothing new. It has been evolving since the advent of Medicare and Medicaid. Providers have grown accustomed to it; some would even say they have become comfortable with it. It is increasingly common to explain high private sector prices by pointing to the public sector, where payments fall short of covering provider costs.

There is a risk in relying on higher and higher operating margins associated with only 5% to 10% of private sector patients to offset shortfalls in the public sector. In the course of acclimating to the subsidies, providers have become vulnerable. High prices, and the margins associated with relatively undifferentiated services, are drawing unflattering attention. Patients and their families are often stunned when they see charges for even routine services. Insurers are beginning to exclude hospital-based ambulatory facilities from eligibility to deliver services that the payers deem to be over-priced.

When confronted by patients, payers, or policy makers about prices, providers are often tempted to point toward insurers or pharmaceutical companies, each of whose profit margins dwarf those of health systems. To do so, however, is to miss an important point. Privately insured patients have begun to approach their elastic limit with respect to what they can be expected to pay. Interviews with chronically ill patients and their families indicate that their relationships with providers have been undermined by financial considerations. It may not be tomorrow, it may not be for several more election cycles, but it won’t be forever before price controls emerge. They don’t have to come in the form of a national single payer system; they may be part of state by state initiatives that limit the rate of growth in health care spending to something approaching the rate of growth in the rest of the economy. They may appear as part of a public utility model of health care finance.

When disruption comes, the provider community will have had a hand in it. Like Sir Arthur Conan Doyle’s story, there may not be any barking heard in the night. Because it was not the entry by a stranger that precipitated change ... it was us.

About the author and the Vizient Research Institute. As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for 20 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.