Last week, I wrote about the need for creativity and innovation in health and human service development—with the caveat that great ideas were not enough for long-term sustainability (see Innovation Isn’t Enough). I had a number of great comments from our readers about the piece, but the one from Jamie Stewart, Chief Executive Officer, Grafton Integrated Health Network, really caught my attention. He wrote:
Innovation is expensive. And by that, what I mean is that many “innovative” companies actually have losses on those operations for years. Amazon, for example, had six years of losses before they ever turned a profit. Tesla is another example – only showing profits twice in the past six years. They made it through these periods due to equity investors believing in the model and innovation. Maybe the real question is how do those of us in the non-profit world, where equity investment is not an option, stay viable long enough and under Medicaid and other reimbursements, to truly create innovative solutions?
The question Mr. Stewart raises is an important one, particularly for non-profit specialty provider organizations largely reliant on low-margin Medicaid reimbursement. What is the model for maintaining financial viability during a period of service line evolution? Large health systems have advantages in their size, their access to capital, and their diversified services and revenue. They are the capital-rich “Goliath” to the specialty provider organization’s “David.” (For example, Ascension Health, based in St. Louis, is a 76-hospital system with around $23 billion in annual revenue.) These are just a few examples of our recent reporting of new services (and investments) by U.S. health systems:
- New Mayo Clinic Startup Will Use AI To Discover New Medicines
- Cleveland Clinic To Work With CVS On MinuteClinic Telemedicine Services For Ohio
- Ascension Joins Project To Create Age-Friendly Health Systems
- Michael Bloomberg Gives $300 Million To Johns Hopkins For U.S. Health Initiative
- Geisinger Health Acquires Pennsylvania Medical School
- UPMC Reveals $2 Billion Plan For Three All-New Specialty Hospitals In Pittsburgh
- Providence St. Joseph Health Merger Creates $100 Million Mental Health Initiative
- Highmark Health’s Allegheny Health Network Announces $1 Billion Investment To Build, Renovate Hospitals
- Steward Closes $2 Billion Acquisition Of Iasis’ 18 Hospitals
- City Hospital System Is Expanding Children’s Mental Health Programs
But while the current health system competition is formidable, they are not particularly nimble – or effective in niche markets. The thousands of non-profit specialty provider organizations have the advantage of deep expertise and smaller size (yes, sometimes small size can be an advantage). But, their challenge is one of leadership culture rather than one of capital. Capital is available for innovative value-added programs in the health care space. But acquiring that capital requires a focused plan. It requires a solid market intelligence and a “customer obsession” that drives creating new solutions with a competitive advantage. It takes a defined “innovative solution” and a plan for bringing it to scale – with financial projections and budget numbers. It requires the willingness to abandon “sacred cows” (service lines, staff, organizational structures, clinical models, operating processes, etc.) in service of the customer. Organizations need the ability to manage to performance metrics. And finally, it requires the willingness to change, quickly, with the landscape.
Building an executive team that is up to this challenge is a tall order, but I will take smart and fast any time. Not convinced? You might try reading Malcolm Gladwell’s David and Goliath: Underdogs, Misfits, and the Art of Battling Giants. The key theme: underdogs often have an advantage, so find your advantage and use it. For a shorter read, check out 3 Things People Get Wrong About David vs. Goliath, Bill Murphy’s article in Forbes. My favorite takeaway:
Among the many things that the greatest leaders seem to understand better is that the idea of an underdog beating a giant isn’t an exception. Instead, it actually comes closer to the rule. The lesson isn’t simply that when a powerful competitor takes on a smaller one, the smaller one might nevertheless win. Instead, great leaders understand that the real keys to battle are sometimes obscured by our misconceptions. Perceiving them correctly can amount to a Goliath-sized advantage.”
Innovation is expensive. But I don’t think capital alone is the challenge. When I sent my thoughts to James Stewart for his comment, he shot back a short email message: “There is plenty of potential for innovation, and there is capital. But it will require us as health and human services entities to think outside who we have been and are. It will require development of unique and key partnerships, and even some unique corporate structures.”
Change is hard.
For more on the topic of “innovation financing”, check out the recent work by my colleague and OPEN MINDS senior associate, Ken Carr, What Investors Are Looking For In The Complex Consumer Space. And for more, join Tressell Carter, MPA, Senior Associate, OPEN MINDS for a web briefing on Monday, January 22, at 1 p.m. on Developing Innovative Strategies To Diversify Your Funding & Revenue Sources. For even more, mark your calendar for September 18-20 for The 2018 OPEN MINDS Executive Leadership Institute – and build the leaders your organization needs to rise to the challenge of the Goliaths!