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GfK Healthcare | January 2011 | |
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And It Just Keeps Getting Bigger and Bigger...  The fact that major health care companies are appointing lawyers (Merck) and operations managers (Pfizer) to the CEO position, rather than the scientists and marketers who had historically laid claim to this slot, should not be ignored or underinterpreted. In fact, the message of these and other moves in the industry is clear: The health care business is increasingly focusing more on the fundamentals of gaining market access, and less on science and elegant and intense promotion, than the industry we have known throughout most of our careers. As I have noted previously and will provide more evidence for, this transition is occurring not just in the business of health care manufacturing but also in the business of health care itself. More specifically, let me turn again, as I increasingly find myself doing, to The Wall Street Journal as a key source of information about what is happening in our own industry. A December 18 article described the takeover attempt that Tenet Healthcare Corp. and its CEO, Trevor Fetter, are about to face against the backdrop of troubling times and challenging forces in the health care arena. In fact, myriad forces have various elements of the health care system volleying back and forth like Ping-Pong players, with good news and bad news locked in close competition for organizations like Tenet. For example, provisions of the health care overhaul will funnel millions of insured patients, able to pay for their care, into hospitals and other care sites, but at the same time significantly cut Medicare payments. Pressures to better the quality of care, including the installation of sophisticated information management systems, are increasing both capital expenditures and ongoing expenses. Showing that health care is not immune to the general economy, these increases in expenses are happening after several years of health care revenues being substantially reduced by well-insured patients postponing elective care. The combination of such forces leads in turn to lower stock prices for health care providers that are public companies, and has in this case led to an unsolicited bid of $3.3 billion for Tenet tendered by Community Health Systems Inc. While this bid may or may not be successful, Fetter pointed out several moves that Tenet has already made to improve the financial side of its care network. The beefing up of its “financial counselor” activity, for example, qualified 80,000 people for Medicaid in 2009 and was on track to qualify more than 100,000 people in 2010. More generally, Fetter is working to sharpen, even further, his network’s focus on the dual pressures of increased quality and lower costs. Key in this effort, he believes, is convincing network physicians to become more efficient, not by browbeating them but by providing them with specific and timely information as to what behaviors yield positive outcomes for patients and profitability as well. Looking to the future, Fetter believes that a network of Tenet’s magnitude will be required to support the hundreds of millions of dollars that must be invested in IT to provide such care-improving, cost-saving information. Conversely, he believes, such IT investments will be impossible for many independent hospitals, especially smaller ones, a reality that will in turn force many such institutions into extinction. Moreover, based on an extension of the line of reasoning that in an IT-intense world, bigger is better, Tenet is continuing to actively pursue acquisitions in such outpatient facilities as surgical centers and imaging centers, and is spending increasing time looking to acquire hospitals where boards believe that survival until 2014 without a significant capital infusion is far from guaranteed. More generally, he sees the future of health care being marked by increased consolidation, accompanied by the failure of facilities that cannot find appropriate business partners on a timely basis. What does this mean to those of us in health care marketing and marketing research? The answer is fairly straightforward. We will increasingly face a U.S. health care marketplace where business, decision making and thus our research and promotional efforts will be ever more concentrated into fewer and fewer, bigger and bigger customers. Coming full circle to the opening lines of this article dealing with the appointment of a new breed of health care manufacturer CEOs, the meaning of such executive moves now becomes increasingly clear. With the greater concentration of business in health care likely comes greater concentration of business in health care manufacturing, a trend that brings with it the increased need for excellence in contracting and efficiency in operations. Large investments by manufacturers in speculative research and development efforts, searching for the next blockbuster drug, will become increasingly risky. And the investment of large amounts of money on intense promotion of “me-too” drugs becomes especially foolish in a world where so few health care decision makers, with such robust data to measure a therapy’s efficiency and such laser-like focus on the bottom line, will account for so much of the health care company business being transacted.  Richard B. Vanderveer, Ph.D. Strategic Advisor, GfK Healthcare   |