12/10/19

The common view of disruption in health care focuses on emerging technology, new treatment modalities, or the latest generation drugs or biologics, as well as attempts to anticipate which components of a provider’s business the new developments might interrupt. The latest study by the Vizient Research Institute, “A New Look at an Old Business Model: Viewing Disruption Through a Different Lens,” looks at disruption from a different perspective: examining services currently provided and assessing their vulnerability to disruption, irrespective of what may eventually come along to precipitate the interruption.

“The 2019 study introduces three distinct categories of disruption – competitive, innovative, and purposeful – one for each component of a health system’s business model,” said Tom Robertson, executive director, Vizient Research Institute. “The research points to strategic opportunities for increasing net margins without buying or building additional capacity.”

The traditional business model for virtually every large hospital or health system is highly dependent on a small subset of very profitable patients who subsidize another small but highly unprofitable cohort of patients with government coverage or no insurance at all. The overwhelming majority of a health system’s patients – roughly 90% of all encounters – struggles to break even on low acuity, narrow margin ambulatory care.

The short-term implications identified in the study – measures to address competitive, innovative and purposeful disruption – are joined by a long-term dose of caution. Robertson noted, “The sustainability of the traditional business model, in particular the continued ability to increase margins on a shrinking sliver of profitable patients while losing money on the vast majority, is anything but guaranteed.”

The findings of the latest Vizient Research Institute study will be introduced at the annual meeting of the Vizient Consortium CEO Executive Board January 22-24, 2020 in Miami, Florida, and will be distributed to Vizient network members immediately thereafter.

For more information about joining a member network and accessing the resources provided by the Vizient Research Institute, contact Cindy White, vice president, methodology and programming.