Editor’s note: This guest post was written by Dave Chase, the CEO of Avado.com, a patient portal & relationship management company that was a TechCrunch Disrupt finalist. Previously he was a management consultant for Accenture’s healthcare practice and founder of Microsoft’s Health platform business. You can follow him on Twitter @chasedave.

As healthcare goes through massive changes, health system CEOs would be well advised to study what newspaper industry leaders did (or perhaps more appropriately, didn’t do) when faced with a similar situation. In the late 90′s, the following dynamics were present:

• Owning printing presses was a de facto barrier to entry allowing newspapers unfettered dominance.
• Newspaper companies bought up smaller newspaper chains and took on huge debt.
• Newspapers were comfortable as oligopoly or monopoly enterprises allowing for slow, plodding decisions. Their IT infrastructure mirrored this with expensive and rigid technology architectures.
• Newspaper leaders knew full well that dramatic change was coming and even made some nominal moves, but didn’t fundamentally rethink their model.
• Depending on one’s perspective, it was the best of times or the worst of times to be a leader of local media enterprise.

Before long, owning massive capital assets and crushing debt became unsustainable. The capital barrier to entry turned into a boat anchor while nimble entrants created a death-by-a-thousand-paper-cuts dynamic. Competitively, newspaper companies mistakenly worried about other media companies or even Microsoft, but their undoing was driven by a combination of craigslist, monster.com, cars.com, eBay, and countless other marketing substitutes for their advertisers and there were easier ways to get news than newspapers. Generally, the newspaper’s digital groups were either unbearably shackled or marginalized so that the frustrated digital leaders left to join nimble new competitors. The enabling technology to reinvent local media didn’t come from legacy IT vendors who’d previously sold to newspaper companies, but from “no name” technologies such as WordPress, Drupal and the like.

The parallels with health systems today are striking. Consider the present dynamics:

• Until recently, complex medical procedures had to take place in an acute care hospital setting. Now they are being done more and more in specialty facilities that can do a high volume of particular procedures at a much lower cost. [See article graphic.]
• Health systems have been aggressively buying up other healthcare providers and frequently taking on debt in the process. At the same time, health systems often have capital project plans that equal their annual revenues even though no expert believes the answer to healthcare’s hyperinflation is building more buildings. Consider the duplicative $430 million being spent in San Diego to build two identical facilities just a few miles apart as Exhibit A of the problem. Looking at the history of other countries that shifted from a “sick care” to a “health care” system, more than half of the hospitals closed. They simply weren’t needed or weren’t appropriate.
• Just as newspapers were implementing multimillion dollar IT systems while nimble competitors were using low and no cost software to disrupt the local media landscape, health systems are similarly implementing complex systems to automate the complexity necessary in a multi-faceted system. Meanwhile, nimble competitors are implementing new models at a fraction of the cost and time. For example, it’s well-known that a healthy primary care system is the key to increasing the health of a population. Imagine if a fraction of the 100’s of millions being spent by mission-driven health systems on automating complexity was redirected towards the reinvigoration of primary care.
• The pace and scale of innovation at most health systems isn’t up to the enormity of the task. The vast majority of health system innovation teams are constrained by how they have to fit innovation into an existing infrastructure. That approach rarely leads to breakthroughs, as its true intent is to make tweaks to a current system rather than a rethink from the ground up.

Compared to newspapers, the scale and importance of the challenge is far greater for health systems so they must aggressively take action or risk their future viability.

Prescription for Healthcare From a Newspaper Industry Executive
In the midst of the newspaper industry carnage, there is one particular bright spot from an individual who has gone against the conventional wisdom that newspapers are doomed to fail. His name is John Paton and he’s reinventing local media. I’ll highlight some of what he’s done to turn a bankrupt (financially and creatively) enterprise into a profitable, dynamic and rapidly growing enterprise attracting the all-stars of the industry.

There has been an expression in traditional media that analog dollars are turning into digital dimes. Rather than lament that, here’s John Paton’s response:

“And it is true that print dollars are becoming digital dimes to which our response at Digital First Media has been – then start stacking the dimes. All of that requires a big culture change. A change that requires an adoption of the Fail Fast mentality and the willingness to let the outside in and partner. Partnering is vital to any media company’s growth whether it is an established media company or start-up. We are going to marry our considerable scale with start-up innovation to build success.”

It’s worth noting that those “digital dimes” are often more profitable than the “analog dollars” of the past because much less overhead is required.

The following is John Paton’s 3-point prescription for reinvention that led to a 5x revenue increase and halving of capital expenses. This resulted in his organization going from bankruptcy to $41 million in profit in two years.

1. Speed to market: One new product launched per week [See Related Article: The Rise of Nimble Medicine]
2. Scaling opportunity: Sourced centrally, implemented locally. Ideas can come from all over. Identify the best ideas/people from all over
3. Leverage partners – Feed the firehose of ideas from outside.

Unfortunately, before John Paton was able to affect this level of change, scores of newspaper employees lost their jobs while traditional newspaper executives dawdled. It is the rare leader that can create the sense of urgency necessary to affect this scale of change before the enterprise is a hair’s breath from extinction. As the old oil filter ad says, “you can pay now or pay later” – of course, the cost is much greater if change is put off. The only question is whether health system leaders will have the courage to make the change before the inevitable crisis hits with full force.

Applying Reinvention Lessons into Healthcare
The following are some ideas and examples of how this approach can be applied to tackle the enormous challenge facing health system leaders. [Disclosure: The company where I’m CEO, Avado, provides enabling technology for some of the organizations mentioned which is why I have a view into their projects.]

Fresh, Outside Perspective is Imperative
As John Paton brought in outside advisors such as Jeff Jarvis and Jay Rosen, health systems would be well-advised to do the same. They can go a step further and partner with innovators driving new models. They can be project managers or partners. Examples follow:

• Mike Berkowitz has been a pioneer in telehealth including running his own business, Telehealthcare.com. Large and small healthcare providers are hiring him to develop and implement their telehealth programs.
• Dr. Samir Qamar founded MedLion as a mass-market version of primary care. MedLion works with healthcare providers to transition from a “do more, bill more” model to a patient-centric, accountable model that is affordable yet produces impressive outcomes and a dramatically better bottom-line than a standard practice.
• Ken Erickson is the CEO of Employer Direct Healthcare. He’s working with providers to deploy bundled case rates. That is, rather than getting scores of bills from various providers and the accompanying morass, they enable a single, transparent cost for procedures. This also enables healthcare providers to tap new distribution models for their services.

Communication is the Most Important Medical Instrument of the Future
John Paton has demonstrated an unprecedented level of communication in redefining the culture of his organization. This approach has set the tone for his organization. Imagine if that tone was set by healthcare leaders for their organizations. I have heard it said that between 80% and 93% of what a doctor says to a patient is forgotten. In a world where provider reimbursement is based on outcome, rather than activity, this is a recipe for reimbursement disaster. Communications is the antidote to that avoidable disaster.

Like local media executives in the late 90’s, healthcare leaders can view the present situation as either the best or worst time to be in their role. The health system leaders who believe it’s the best of times would do well to ask WWJD – What Would John Do? John Paton demonstrates how a strong leader can reinvigorate and reinvent a lumbering giant into a nimble organization.

Related articles
Why it’s Good News HealthIT is so bad
Moneyball for Medicine – Business Models for Healthcare

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