Fwd: How A Health Care Company Creates Value

On Jun 19, 2018, at 3:16 AM, Tom Schramski <tschramski@vertess.com> wrote:

Michael Porter, the renowned Harvard Business School professor, famously said that there are only two types of competitive advantage that a

Volume 5 Issue 13, June 19, 2018

How A Health Care Company Creates Value

by Bill Fotsch and John Case

Michael Porter, the renowned Harvard Business School professor, famously said that there are only two types of competitive advantage that a company can sustain. It can be the low-cost provider and thus offer lower prices. Or it can somehow differentiate itself from competitors—through quality, branding, and so on. In the health care sector, the competing-on-price avenue is pretty much closed off. If reimbursement rates are fixed, for example, then everyone in a given category receives the same amount per patient or per procedure. Anyway, not many health care organizations want to be known for bargain-basement prices. Few consumers decide to take Grannie to the cheapest nursing home or Junior to the cheapest pediatrician purely on the basis of price.

So, to create long-term value, a health care organization has to choose Porter's second option: differentiating itself from competitors. But this strategy entails its own challenges. Only a few organizations have any kind of proprietary technology or assets. Only the largest and best-known have any kind of sustainable brand or market position.

What a health-care company can do, of course, is differentiate itself on service quality. This is an approach taken by organizations ranging from local nursing homes to world-class medical centers. "Every life deserves world-class care," advertises the Cleveland Clinic. "Excellence every day," boasts the Massachusetts General Hospital. But service quality has to be more than a slogan. It has to be built into an organization's DNA, and it has to be systematically reinforced every day in the way care givers and other employees go about their jobs. All of which raises a key question for owners, executives, and would-be acquirers in the industry: if the quality of service in an organization isn't where it should be, how can we go about raising it? And in particular, how do we do so without pushing costs through the roof? These questions bring us to a little story. It's about the critical care unit in a major east coast hospital that one of us, Bill, was called in to advise. You would recognize the name. The hospital was known at the time for its innovative approach to management. Each unit was run by a local head of nursing, the relevant physicians, and an administrator. But management of the CCU had reached an impasse. The administrator pushed for lower costs. The nursing head pressed for higher quality—in particular, increasing the number of RNs and reducing the number of LPNs—and never mind the cost. The physicians just didn't want to deal with the strife. We don't know whether it was a move of desperation or genius, but the administrator finally just gave up. He turned financial responsibility for the unit over to the nurses. They sat down with the hospital's head of nursing and talked about strategies. To add interest, the head of nursing told the CCU team that they could split 15% of any improvement in the financial performance of the unit, assuming there was no compromise on quality.

Before long, amazing things started to happen. The nurses, knowing they were responsible for the unit, began offering even better service, both to the patients they cared for and to the physicians they attended. The physicians, responding to the new attitude, began referring more patients to the unit. That led to an increase in the unit's census, a key driver of profitability.

Expenses came under scrutiny, as the nurses understood that they were also responsible for lowering costs. Though most were RNs, they realized there was a lot of nursing work that did not require that level of training and expertise. Besides, the RNs did not like doing the less-skilled work that an LPN could do. When an RN left, he or she was likely to be replaced by an LPN at a lower cost. Over time, the unit's costs dropped, its profitability soared, and quality indicators such as patient satisfaction remained at a high level. We draw a couple of lessons from this story—lessons that we think are widely applicable in the health-care sector. One is that it's a mistake to separate accountability, with one group or individual responsible for quality and another for costs. That's bound to put people at loggerheads, and compromise care. Another is that the people doing the job can often take responsibility for running their own unit, provided—and this is a big proviso—that they understand the economics of the business they are responsible for. This can be a tough one, because many people in health care don't like to think of themselves as "in business" at all, and they particularly don't want to worry about costs. But how else can you assure quality without driving costs up, except by giving responsibility to the care givers themselves? Nurses and other care givers are likely to welcome the idea that they are helping to reduce the rising cost of health care. A third is that only when people do understand the economics—and do take responsibility for costs and quality alike—can an organization sustain a high level of service over time. If that's how the company differentiates itself in the marketplace, then great service is a guarantee of long-term success and job security. Even people who aren't "in business" and have never heard of Michael Porter can understand and work toward those objectives. They will create better organizations—and far greater value—by doing so.

Bill Fotsch is Founder and President of Open-Book Coaching. John Case is author of Open-Book Management and several other books. They write regularly in Forbes. If you're interested in learning more about Open-Book Coaching, Bill can be reached at bill.fotsch@openbookcoaching.com.

Bill Fotsch John Case

Note: I've admired Bill and John's work for many years and implemented OBM in my old healthcare company with great success. We found that trusting our employees with critical financial information elevated the quality and sustainability of our services. It's worth an in-depth look more than ever….Tom Schramski.

In the next edition of SalientValue... What happened in healthcare M+A during the first half of 2018? We'll look at recent developments as well as expected trends for the second half in the July 3 issue.

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Fwd: The real opportunities in cryptocurrency... aren't cryptocurrencies

This is almost always the case with technology. If you are having trouble viewing this email, or you'd like to share this article, please click here.

June 11, 2018 Santiago, Chile Hallelujah. After almost a decade since Bitcoin was created, the SEC announced last week the creation of a new, senior position to coordinate the agency's cryptocurrency and ICO efforts. As usual, the government showed up late to the party. But at least they showed up. The good news is that the person chosen by the SEC to fill that position is quite sharp. She has an engineering background, obtained her law degree from Georgetown, and, most importantly, she understands crypto. The bad news… or at least the expectation that a lot of die-hard crypto fanatics have… is that increased government oversight will be negative for crypto prices. Over the weekend, for instance, almost every major cryptocurrency fell, in part because the government launched an investigation into cryptocurrency price manipulation. But in all likellihood, reports of cryptocurrencies' death have been greatly exaggerated. Governments almost always regulate technology-- automobiles, radio, television, the Internet. And while regulations often create unnecessary costs and inconveniences, they haven't stopped the overall rise of these important technologies. Crypto will likely be the same. It's too mainstream to kill off, and the SEC needs to show the world that it embraces innovation. Plus, there are too many mega-corporations that have been investing heavily in their own blockchains and distributed ledger technology (DLT), and those companies have far too much political clout to be shut down by the SEC. (DLT is the umbrella term to describe all the various technologies which distribute transaction information and records to various participants. Blockchain is one type of DLT.) If anything, that's the real threat to most of the tokens and cryptocurrencies that exist today-- the rapid advancement of the technology itself. Consider Bitcoin, which is still by far the most popular cryptocurrency. Bitcoin was originally launched back in 2009 as an electronic form of cash to make secure payments across the Internet without having to go through a bank or financial institution. Yet Bitcoin's own software limits its throughput to just a handful of transactions per second. By comparison, Visa and Mastercard can handle tens of thousands of transactions per second, and there are already emerging technologies in the crypto sector to compete at that level. From a technological perspective, Bitcoin is in the Digital Dark Ages. And it's hard to imagine that the least efficient technology in the sector will forever continue to be the most valuable. This is almost always the case with technology. Back in the early 1990s when the consumer Internet was in its infancy, the "World Wide Web" didn't really exist. We used to use something called 'gopher', a text and menu-based version of the web. Then a bunch of engineers perfected hypertext transfer protocol, 'http', and the World Wide Web as we know it today was born. Given how much better the user experience was with http, it didn't take long for gopher to almost completely disappear. The same thing could happen in crypto. And this is important, because as these new Distributed Ledger Technologies continue to develop, it's possible that almost ALL of today's tokens and cryptocurrencies could disappear. Some of the newest Distributed Ledger Technologies don't even have tokens. Hyperledger, for instance, is a project run by the Linux Foundation in partnership with dozens of major companies like IBM, Accenture, Cisco, Deutsche Bank, Intel, and American Express. They've already released a number of working DLTs. And not a single Hyperledger DLT comes with a native coin or token. In other words, it's like a really advanced blockchain without the Bitcoin. The use cases for Hyperledger are far-reaching- document storage, financial transactions, property records, even voting. In fact there's a candidate for US Congress in the state of California who claims that he'll use the technology to allow his constituents to vote directly on federal legislation. Then there are the banks-- many of whom are developing their own DLTs. JP Morgan already launched one called Quorum, an open-source distributed ledger and smart contract platform that rapidly processes financial transactions among a closed network of participants. They've essentially created a blockchain to modernize global banking infrastructure. Outdated crypto technology doesn't stand much of a chance when some of the largest firms in the world are putting a ton of resources into making it better. And this brings me to where the real opportunity is. Most of the talk about cryptocurrency these days seems focused on what's going to be the next Bitcoin or Ether. People are trying to figure out what's the next currency or heavily promoted ICO that can turn $1,000 into $1 million. That's probably not the right way to look at this sector anymore. Certainly there are a handful of specific tokens or coins that have real utility (like some of the privacy coins). But again, aside from those select few, it's possible that today's most popular cryptocurrencies and tokens might follow in the footsteps of gopher. It's not going to happen tomorrow. But over the next 5-10 years, inferior, pointless coins and tokens could easily be replaced by superior technology. So rather than trying to speculate on the next hot ICO, or divining whether going YOLO in Shitcoin, TrumpCoin, or Fuzzballs will make you a crypto millionaire, the real fortunes to be made are in the application of these technologies. Manufacturing. Real estate. Insurance. Global shipping. Retail. Healthcare. There are litereally thousands upon thousands of compelling, lucrative ways to apply these Distributed Ledger Technologies across various industries around the world. This is what happened with the Internet. Once the technology was developed, the real money wasn't made by the people who developed TCP/IP and HTTP. It was made by the entrepreneurs who applied the technology in ways that fundamentally changed how we do business… and by the investors who backed them. Right now those opportunities with DLT are wide open.

To your freedom,

Simon Black, Founder, SovereignMan.com

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