In a presentation at the Premier healthcare alliance’s 2011 Breakthroughs Conference on June 16, Mike Alkire, COO of Premier, discussed challenges to the healthcare industry and the need for innovation to identify new models of healthcare delivery that draw upon increased scale.
The lack of scale in the healthcare industry threatens its future success, he says, since scale increases efficiencies and drives down cost. Those unsure of the power of scale should look no further than Walmart, which revolutionized the retail industry by leveraging scale to get consistency and standards implemented consistently across suppliers, and ultimately, across the industry. Mr. Alkire shared a specific example to illustrate how Walmart utilizes its powerful supply chain to drive down costs. Walmart, realizing that cardboard box packaging for deodorant was unnecessary and increased shipping and product costs, asked manufacturers to do away with the boxes. The simple change saved Walmart and consumers, and we haven't seen deodorant in boxes since.
The power of scale
While healthcare is one of the largest industries in the United States, it is in many ways still a cottage industry, says Mr. Alkire. In order to remain viable, healthcare needs greater scale — the scale to drive simple but powerful changes to reduce costs, just as Walmart does.
“What is important is building in enough resiliency into a healthcare system to be able to adapt to change, or — even better — capitalize on it,” Mr. Alkire said.
He encourages hospitals to lead the charge by coming together to gain scale and move farther up the supply chain in order to drive efficiency standards and create new products based on clinical evidence. “Today, suppliers research, design and price products, while hospitals and other providers buy. But what about the body of evidence that’s being developed in the clinical care setting?,” noted Mr. Alkire. “Clinical knowledge can’t just reside with the doctors. It needs to travel throughout the system so those in purchasing can make sure the best supplies are available at the best cost, to produce our desired outcomes. And we need to use that clinical knowledge to “to work on new product designs directly with the manufacturers,” he continued.
Independent hospitals that fail to partner with other hospitals and systems risk being the independent grocers that struggled after the rise of Walmart. If community hospitals don't band together, they will be increasingly challenged by the for-profit hospital operators that have realized the power of scale, both in innovating the supply chain and operational efficiencies. "Innovation isn't just about adding new technologies. Sometimes innovation is about subtraction," says Mr. Alkire. "Getting rid of the things we don't need…that's exactly what we need in America's health system."
Mr. Alkire clarifies that partnering with other hospitals doesn't mean a merger or sale. Instead, it means joining a "virtually integrated delivery network" such as Premier to consolidate the supply chain and collaborate on best practices. "Each hospital needs to see itself as part of a larger whole, part of a virtually integrated delivery network," he says.
"What if we compete and innovate together?" he says. "We can be the ones transforming the system from the bottom up."
The lack of scale in the healthcare industry threatens its future success, he says, since scale increases efficiencies and drives down cost. Those unsure of the power of scale should look no further than Walmart, which revolutionized the retail industry by leveraging scale to get consistency and standards implemented consistently across suppliers, and ultimately, across the industry. Mr. Alkire shared a specific example to illustrate how Walmart utilizes its powerful supply chain to drive down costs. Walmart, realizing that cardboard box packaging for deodorant was unnecessary and increased shipping and product costs, asked manufacturers to do away with the boxes. The simple change saved Walmart and consumers, and we haven't seen deodorant in boxes since.
The power of scale
While healthcare is one of the largest industries in the United States, it is in many ways still a cottage industry, says Mr. Alkire. In order to remain viable, healthcare needs greater scale — the scale to drive simple but powerful changes to reduce costs, just as Walmart does.
“What is important is building in enough resiliency into a healthcare system to be able to adapt to change, or — even better — capitalize on it,” Mr. Alkire said.
He encourages hospitals to lead the charge by coming together to gain scale and move farther up the supply chain in order to drive efficiency standards and create new products based on clinical evidence. “Today, suppliers research, design and price products, while hospitals and other providers buy. But what about the body of evidence that’s being developed in the clinical care setting?,” noted Mr. Alkire. “Clinical knowledge can’t just reside with the doctors. It needs to travel throughout the system so those in purchasing can make sure the best supplies are available at the best cost, to produce our desired outcomes. And we need to use that clinical knowledge to “to work on new product designs directly with the manufacturers,” he continued.
Independent hospitals that fail to partner with other hospitals and systems risk being the independent grocers that struggled after the rise of Walmart. If community hospitals don't band together, they will be increasingly challenged by the for-profit hospital operators that have realized the power of scale, both in innovating the supply chain and operational efficiencies. "Innovation isn't just about adding new technologies. Sometimes innovation is about subtraction," says Mr. Alkire. "Getting rid of the things we don't need…that's exactly what we need in America's health system."
Mr. Alkire clarifies that partnering with other hospitals doesn't mean a merger or sale. Instead, it means joining a "virtually integrated delivery network" such as Premier to consolidate the supply chain and collaborate on best practices. "Each hospital needs to see itself as part of a larger whole, part of a virtually integrated delivery network," he says.
"What if we compete and innovate together?" he says. "We can be the ones transforming the system from the bottom up."