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ESPN and legacy healthcare face similar disruption

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Kenneth Kaufman writes in Hospitals & Health Networks that the disruption of ESPN by the Internet is  very similar to the disruption faced by legacy healthcare organizations, such as a acute-care hospitals. Among his observations:

“Like ESPN, many legacy health systems have strong brands, market presence and quality but high fixed costs and prices. Like ESPN, legacy healthcare organizations have been highly successful under a long-standing business model that institutionalized high price cost, and utilization — in the case of healthcare, through volume-based payment and first-dollar insurance coverage.

“As with cable TV, this business model is proving unsustainable in the long term. Government, commercial insurers and employers are pushing back on healthcare costs. As a higher portion of those costs are being passed along to consumers, they too are pushing back.”

“Where streaming video fueled customer revolt in cable TV, options like retail clinics, urgent-care chains, virtual visits and freestanding diagnostic centers have the potential to gain the loyalty of health care consumers with services that better fit their growing expectations for low prices and high convenience.”

“Like ESPN, health-care organizations face an immediate need to reduce costs. Historically, health care organizations’ expenses have increased and decreased roughly in line with the rise and fall of revenue. Now, however, revenue is likely headed for a more substantial decline, driven by the pressure of value-based payment and consumer demand. As a result, hospitals will need to significantly change their cost structures without harming core services.”

“Like ESPN, legacy healthcare organizations have no obvious strategic response. Partnering with innovative companies is one option, with hospitals potentially able to align their scale and broad high-intensity services with innovators’ more focused, usually low-intensity services.”

“Hospitals also could attempt to go head-to-head with healthcare’s nontraditional innovators, developing their own low-price, high-access services. However, the talent, technology and other infrastructure needs to do so are unfamiliar and expensive. And like ESPN, hospitals’ high fixed costs make it very difficult to compete on price with more-focused companies.”

To read the entire essay, please hit this link.

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