August 5, 2021

Trilliant Health: 2021 Trends Shaping the Post-Pandemic Health Economy

Point by Point

This episode of Point By Point was produced prior to the combination of Waller and Holland & Knight.

Trilliant Health CEO Hal Andrews discusses the inaugural 2021 "Trends Shaping the Post-Pandemic Health Economy" report, which reveals several surprising macro trends impacting the $4 trillion health economy post- COVID-19. He is joined by Waller partner MaryEllen Pickrell.


Morgan: Welcome to PointByPoint. This is Waller's Chief Business Development Officer and the host of the podcast, Morgan Ribeiro. On today's episode, I am joined by Hal Andrews, CEO and president of Trilliant Health and Mary Ellen Pickrell, a partner at Waller who works with clients in the healthcare M&A context.

Hal and MaryEllen, welcome to the show.

Hal: Thank you.

MaryEllen: Thanks Morgan. Happy to be here.

Morgan: So for a bit of background for our listeners, Trilliant Health is an analytics and data science company that provides evidence-based strategies to empower intelligent patient acquisition. And the company recently released its inaugural 2021 "Trends Shaping the Post-Pandemic Health Economy" report, which reveals several surprising macro trends impacting the $4 trillion health economy post-COVID-19. The report is fascinating and some of the results are contrary to what we might be hearing in the mainstream media. Before we launch into some of those specific findings of the report, I would like to take a step back and introduce you to our listeners, Hal. Can you share with us your background and how you found yourself as the CEO of a healthcare analytics company?

Hal: Well, Morgan, ironically, the way I got here was starting at Waller where I, in 1992, showed up and announced to the powers that be that I would be a music business attorney, and they said, " That's great. You can do that at night. And during the daytime, you're going to work for HCA." And so I did that for four years and learned a lot about hospital operations and hospital joint ventures.

And in the summer of ' 95, I was on the hiring committee and hired MaryEllen and she showed up and I realized that my time at Waller was probably short. So I jumped into the services side of healthcare from 1996 to 2007 and spent time in a number of different industries and ASCs physician operations physician staffing.

And then in 2007, took an opportunity to turn around an analytics company. And sold that. And from that point on, I've been in technology or analytics ever since.

Morgan: Thanks for that background. And Trilliant, I mentioned what the company does, but for our listeners, it might be helpful for them to hear the evolution of the company, particularly since you've arrived there and what the company is doing today and how you all work with your clients.

Hal: So Trilliant came together from a meeting that I had with Charlie Martin, who most of your listeners will know, and I had gone to meet with Charlie to talk about the fact that nobody had ever really done strategy correctly from an analytic standpoint for hospitals.

And I said, Charlie, we could probably go do something where we did Advisory Board-in-reverse and go sell it to all our friends and for those of you who know Charlie, Charlie said, "I'm in. So what did we do next?"

So we agreed to merge the company I was leading with the company that Charlie had and in June of '17, we set out with two goals in mind. One from a high-level standpoint to do Advisory Board-in-reverse. So instead of doing research and then consulting and then buying technology, we decided to start with data and then consult with our clients and then add research capabilities. The report that we just released is really the culmination of that goal to get to the point where we're doing research and market analysis.

The second thing was to build a Monte Carlo Simulation of demand for hospitals. One of the things that Charlie and I believed deeply is that healthcare is local because we've been to a lot of these places and we know that the dynamics are different from market to market and from state to state and region to region.

And we also knew that there wasn't really a way in the industry to have a data-driven approach to strategic growth opportunities. And so if you operate hospitals in Seattle and Southern California and Lubbock and Missoula, it's hard to understand all of the competitive dynamics in each of those markets and how those competitive effects in each of those markets affect the system as a whole.

And so we started with the idea that we could do. Monte Carlo Simulation of market opportunities for health systems, just as your financial advisor does Monte Carlo simulation for your investment opportunities?

Morgan: Underlying Trilliant's research is the premise that the U.S. healthcare economy represents the largest sector of the world's largest economy globally. But for decades, the industry has not operated according to the basic economic principles of supply, demand and yield. Trilliant's report highlights the inefficiencies of the health economy and reviews the impact of COVID-19 and makes some data-backed forecasts of what the future for healthcare delivery will be in the years to come.

Before we launch into some of those specific findings of the report, I am curious what prompted you to develop this report.

Hal: The idea came from Sanjula Jain, who runs research for us. She came to us from Health Management Academy and said that she'd always wanted to do a Mary Meeker internet report for healthcare. And I said, sure, let's do that. We started from the standpoint that healthcare doesn't really follow the laws of economics as you mentioned, the starting point for it is that no healthcare system knows the number of suppliers in the market.

Since nobody really knows how many suppliers are in their market, they overestimate their market share. And the reality is that we can see in our information, almost 2 million distinct providers delivering healthcare services in the U.S. A lot of them do a little bit of volume and so it's easy to say that the impact of that is death by a thousand cuts. And what I tell our customers is yes, but that's still death.

There's then the notion of demand. One of the interesting things we figured out along the way in doing this report is that a lot of what's driven the historical approach to strategy is actually the Stark Law and the Stark Law brings into its definition of a market area the number of ZIP codes that are contiguous that represent 75% of your volume. That's how you define market share under Stark to start the analysis for physician referrals.

It's clear that the Stark law has seeped into people's strategic thinking, which is why every strategic report starts about a primary service area where 75 to 80% of the business comes from and the secondary service area is the rest. The rest of the economy looks at the total available market. And so in the report, we called out the fact that HCA is the dominant health system in the U.S., if not the world. Their margins are the best and yet HCA touched 3.5 million patients last year.

There are 330 million patients in the U.S. By contrast, Walmart has 150 million visitors a week and Amazon prime has 147 million members. And so there's a real disconnect in terms of the way that healthcare thinks about its service area and its customers who we talk about as patients, as opposed to all the other parts of the economy that start with the premise of: How many people are there in the market I'm serving?. How many of them do I want to serve? How many of them can I serve? And then they build strategic plans based on that.

Morgan: You've mentioned some of this, but the report projects, contrary to popular belief, that there will be flat-to-declining future demand for health services, with increasing supply for new market entrants like Amazon and Walmart. Your analysis is based on data from more than 70 billion claims representing 309 million unique patients. Can you give us some examples of the data you saw and what those declines really mean for healthcare leaders?

Hal: The first thing to note is that we tried to take the things that everybody knows are true and connect the dots on those. So everybody who operates hospitals knows that admissions have been in decline since 2008, with a couple of slight upticks over the past 13 years.

Now we're about 34.5 million patients a year. And so another thing that everybody knows is that 5% of the population consumes 50% of the care. And 20% of the population consumes 80% of the care. And yet nobody really understands how many suppliers are out there and the notion was that in most of the rest of the economy, an increasing supply of people delivering a service or good to a declining demand creates price pressures. And there are lots of ways to think about that. I think the one that is probably most important for hospitals and health systems is to just look at the prices that Walmart and Amazon have posted publicly that they're charging for the basic services.

Now it's easy to say we didn't really want to do those services. But if you step back and look at the absolute price points, Walmart and Amazon apparently think that they can make money at a percentage of Medicaid. And most of the hospital industry is conditioned to think about maybe making money at 120% of Medicare, but not making money at 50% of Medicaid.

And so really that's the jumping-off point is to understand the emerging competition, the price points at which they'll deliver care, the fact that there is flat-to-declining demand and what that results in is what game theorists call a negative-sum game. And there are a couple of ways to win at a negative-sum game. One is to maintain what you're doing.

Most boardrooms of health systems aren't conditioned to think that a flat line is winning, but in a negative-sum game, it is. There's also taking share from others, which HCA clearly is doing in every market, except one that we can tell. And then the other is just to lose less than the others are losing.

That's not the way that healthcare thinks about things, because again, healthcare has been trained to think that demands go on up every year. And that's just not the case.

Morgan: MaryEllen, I want to hear from you on some of the topics that have been covered so far and you represent hospitals and health systems and other providers and implementing their M&A strategies. How do you see this data impacting your clients, particularly that the demand for healthcare services is decreasing?

MaryEllen: I think like everything else, Morgan, knowledge is power. Why is data important? Why is The Mayo clinic and HTA teaming up with Google. Why has Providence teamed up with Trilliant?

They need this data and need to make decisions as to which patients to target which markets to target their limited investment dollars and making a decision about which market to go in and doing what services to provide in which venue to provide it. Should it be an outpatient surgery center? Should it be a freestanding AED, should it be a full-blown, acute care hospital?

Those are decisions that are being made every day. There's no matter what the size of the system, there are limited dollars and there's a decision every day where to put those dollars. So this kind of data is critical for the forward-thinking CEOs and board members. What will the rural markets do? They don't have this data and they are hamstrung. So reaction being reactionary is not an option. They, they have to think forward.

Morgan: Absolutely. I think you're spot on with that. They're not equipped with the data and information and oftentimes not just the leadership of hospitals and health systems, but oftentimes there are boards who are tasked with making some of these calls and moving the hospitals forward and being proactive with decisions. They're just not equipped with that information to make those calls. Hal, I want to switch back over to you. Interestingly in the report, it notes that the implications of softening demand and increasing supply suggest that pricing trends are ultimately unsustainable. In addition, these trends, confirm a key but unreported finding of the AAMC, which is that projected demand for surgeons has been declining for years. So we oftentimes hear the contrary of that. Can you share more about that?

Hal: That finding was one that we found by looking at the data. I think everyone has seen the AAMC's report that started in 2016 that is released once a year and projects that there's going to be a shortage of physicians in America.

I think what we were surprised to see was that underneath the covers, AAMC has been slowly lowering its forecast of the need for surgeons, in particular, which we realized affirmed what we were seeing from the demand standpoint. I think that the other thing that was revealed in the pandemic is that when you loosen the restrictions against who can practice where, and you expand the notion of people practicing to the limit of a license, there are increasingly a number of services that can be delivered by people who are not MDs or DOs, but are NPS or PAs or other professionals. And so the first thing that we noted was okay, the AAMC sort of implicitly agrees with us about demand. I think when you look at that, and then you look at technology and practice across state lines, and then you see what Walmart and Amazon are doing, it's just another thing to factor into the equation of what strategies are you going to implement for what have historically been investments that are 20, 30, 40, 50-year assets. It's increasingly difficult to make a good decision about a 50-year asset by looking at what happened two, three years ago.

Morgan: I, like many I'm sure, was most surprised by the finding about telehealth in the report. We at Waller are consulting a lot of clients on telehealth at the moment, either providers looking to build out their telehealth strategies or investors looking to acquire companies in that area.

You're findings show that even though the telehealth industry grew exponentially over the last 16 months due to COVID. Telehealth's peak pandemic high has already begun to taper with the rate of decline ranging from about - 37% to -3%. , depending on the state. Can you tell us more about the telehealth-related findings and the report?

 Hal: The reason we focused on telehealth was we were getting a lot of calls, maybe like you are, about people talking about the digital front door. And frankly, I don't know what the digital front door is, but I do know something about telehealth because I was in telehealth in the nineties when it was pushing MRIs on phone lines, which is really hard by the way.

The obstacles to telehealth are no longer technological they're regulatory and payment-driven. But at the same time, from a clinical standpoint, telehealth has pretty limited utility. It's good for behavioral health. It's really good for behavioral health. It can be good for neurology.

It can be good for dermatology and a couple of things, but in terms of the things that are the economic lifeblood of a hospital, telehealth is functionally useless. The other thing that has been clear over time is that telehealth fit a certain demographic and, frankly, I wasn't surprised by what we found, which was the really high telehealth utilization was female and wealthy and Caucasian.

86.2% of the people using telehealth were commercially insured. And so I understood that it had limitations clinically. It also appears to have limitations from a demographic standpoint. And when you step back and look at it, did everybody have a huge increase in telehealth last year?

Yes. Was that the law of small numbers? Yes. And when you tease apart the data, that there were only 38 or 39 million people who had a telehealth visit. A lot of those people had more than one. There are almost 300 million people who didn't use telehealth last year. And my question for every health system is, if you've got 300 million people who didn't use telehealth last year, when are they ever going to use it?

What's underneath that is that a lot of what drives healthcare decisions is psychology and people in healthcare have been conditioned to think about demographics. They don't really understand psychographics the psychology of consumer choice, which is something that Amazon and Walmart understand quite well.

A lot of what in telehealth, when you set it apart from the clinical utility for behavioral health, is that there's a certain psychology of people who like it, who will pick it, who will pick it over other alternatives, but they're in the vast minority.

Morgan: MaryEllen, you practice a lot with surgery centers and one of the findings in the report shows that the growth in surgical demand is forecasted to decline. Can you speak more to that? How and what that might mean for those companies that are investing in expansion of surgery.

Hal: I would look at it two ways. I would look at the hospitals that are expanding their ambulatory presence. And then I'd look at the companies that are exclusively focused on ambulatory. And I think the trends are good for them, even though the overall demand is flat-to-declining, depending on your market. The regulatory trends to push care from inpatient settings to outpatient settings are gaining steam. The elimination of the inpatient-only list in 2024 is certain to drive more care. The things that CMS has been doing on distinguishing between hospital outpatient payment rates, and true ambulatory payment rates are trends that seem inescapable.

If you think about all of the trends, I would look at surgery centers versus hospitals. Surgery centers have a lot more wind behind their sales, in terms of what employers want, what policymakers want, what the entities bearing the risk want, what consumers want. In most cases, it's a lot easier to go to a surgery center and park in a flat, level parking lot than an eight-story parking garage.

Unfortunately for hospitals, it's clearly documented that there's a lower risk of surgical site infection and hospital-acquired infection in an outpatient setting than an inpatient one. So I think you see all of those things in the stock prices. I know if you look at what Tenet has become with their increasing focus on the ambulatory assets, if you look at Surgery Partners, those are two stories that show that the market is rewarding the trends that are benefiting the surgery center providers.

Morgan: MaryEllen, what's your reaction to that? And how do you think this impacts your clients in the surgery center space?

MaryEllen: I think Hal has divided it appropriately that surgery center standalone companies are doing quite well, continuing to go full bore into new markets and they are having success. As Hal says, they're often preferred by the patient, they're preferred sometimes by the provider because it's easier to do more cases. And if you can have four operating rooms and four teams and you can move and it takes you five minutes to do an eye here and you can do four eyes in 30 minutes, you can get paid a lot more. The government's pushing that way as well. The issue will be, and will continue to be for the standalone hospitals, the systems do better because they can build surgery centers and have the capital to invest there. What do, once again, the poor standalone community hospitals do that can't invest in surgery centers. They generally are going to need partners. And so from the surgery center side, they're looking for partners and communities from the hospital side, it's the same thing. So there's a lot of strategy behind it.

People need the data to understand what's happening. I think it's easier to see what's happening on the surgery center side when people are building out in the suburbs where the parking lots are really easy and it's a spoke into the hospital. That is working for a lot of providers.

Morgan: Absolutely. All right, I'm going to speed things up here. Make it a little quick lightning round here of some of the findings from the report. I'll throw out a topic to you, Hal, and maybe you can share a quick fact or opinion on the subject based on the report's findings. So first: patients are brand loyal, true or false?

Hal: False.

Morgan: And why is that?

MaryEllen: Patients are consumers and consumers aren't loyal. What I share with our customers is the notion of a grocery store. And for those of us in Nashville, I know that sometimes we go to Whole Foods and sometimes we go to Trader Joe's and sometimes we go to Kroger and sometimes we go somewhere else. And those grocery stores all know that we're not a hundred percent loyal because they have looked at the data to realize that we have either starved to death because we haven't visited enough to fill our pantry or we are shopping other places. Hospitals have long been conditioned to think about my patient and they don't really understand that patients are consumers and consumers aren't loyal.

So a quick example for me, I have been a patient at Vanderbilt for internal medicine for many years. I've had two shoulder replacements at Saint Thomas and two hip replacements at HCA. And until I just told you all that, none of them knew that the other ones got all that business from me.

All right, next topic, men or women are less loyal, and why?

Hal: There are a lot of things I don't understand about women, but they are less loyal than men.  The point of that finding was the myth of the mom is the chief health officer.

So there's an anecdote- a truism in healthcare - that if you get mom, you get the family. And that manifests in terms of fake cheery walls in LDRPs and women's hospitals. And the reality is women as healthcare consumers are probably more like the mama bear and they're going to do whatever they gotta do for their family. They're not thinking about brand loyalty when they make health choices for them.

Morgan: That's pretty fascinating. Because I feel like that's always the common statement, right? That the women are the big decision-makers and seems that they're more loyal, but very interesting finding there.

 Almost all the growth in demand is from the increasing burden of disease in America, true or false?

 Hal: Increasing burden of disease usually manifests in one person, which we refer to clinically as co-morbidities. So America is getting older and fatter and sicker. But again, back to the thing that everybody knows, it's 5% of the people consuming 50% of the care. One of the things that healthcare as an industry does is to take things like that and extrapolate it to the entire population.

And if you extrapolate the utilization rates of 5% of the population to everybody, you'll vastly overestimate the demand for service.

Morgan: Last question in this quick, rapid round here. Volume declines attributed to the pandemic are lost, not delayed. Is that true?

Hal: That is true. The American public has been scared away. There will be a little bit of downstream excess co-morbidity and excess complication from people who delayed, even though they shouldn't have delayed. In most cases, the volume that did not show up is not going to show up. And it's clear in the data that there hasn't been any spike in demand to offset the dip from sort of March to June or July.

Morgan: Yeah, that makes sense. Supply is rapidly increasing in commodity service offerings, like telehealth, which we talked about earlier, in urgent care and with new market entrants like Amazon and Walmart disrupting legacy delivery model.

So Walmart has established a new price for primary care services offering up to 70% cheaper visits. Can you share with our listeners more about what we can expect to see from these new market entrance and what is most surprising?

Hal: I think what's interesting as somebody who's been on the physician services side is that it's difficult to make money in primary care.

At scale and by scale, a group of physicians, each of whom has a panel of 3,000 patients and sees 18 to 22 visits a day without a massive number of ancillary services inside the group, it's pretty hard to make money in primary care. And yet Walmart specifically is going after primary care.

If you go to the Walmart in Cartersville, Georgia, you will see an Emory-trained internal medicine physician for $40. And $40 is about what Medicare reimburses for a two-view x-ray of the chest. The health system is not prepared. As Peter Drucker said, health systems are the most complex organism because it's high regulatory, it's high labor costs, it's capital costs. And so I frankly don't understand how any health system can compete with Walmart or Amazon on primary.

Morgan: MaryEllen, what's your reaction to that? It affects your clients in their M&A strategies.

MaryEllen: For Hal and me, it's back to the future - it's physician roll-ups, it's physicians saying they can't stand alone. They can't compete in and of themselves so they're either PE groups rolling up a bunch of physicians to have some power, both on the managed care side but also with hospitals. It's also physicians joint venturing with health systems so that they can, again, have power.

There's some difference in the quality of life. Being an employed physician is somewhat more attractive. Men and women today want more of a quality of life. When Hal and I started, it was the PTM phase and it was we want to get back to practicing medicine- seeing a patient - and with all the government pay payment models and the bureaucracy, they're not able to do that. So there's a big push by a lot of our clients to say, we can help you do that. And we can help you have a scale that will enable you to support your family. So from the physician side being part of a bigger group is becoming more attractive and not having to worry about dealing with the managed care.

Morgan: It's all over the headlines in terms of Amazon and Walmart and some of these newer market entrance. Are they talking about that? Do they feel that pressure?

MaryEllen: Like anything else, it depends who you talk to. The larger clients, they recognize it. And they have a plan and strategy to be able to combat it. I keep coming back to it. The hospitals and the boards in rural communities are the ones I feel sorry for, because there's not that many levers that they can push to be successful. They should be very happy if they're running a flat line right now.

And I worry about them and their sustainability and their inability to see that because they don't have time and their local volunteers who sit on the hospital board cause they care about their community. Times are changing and they need to be proactive now with some decision-making so that in 2025, they don't get hit by a bus.

Morgan: Absolutely agree with that. All right. Switching gears, Hal, I know the report also features market-by-market analysis. What were some of the surprising findings as it relates to some of the specific markets?

Hal: I think the really surprising thing is to break down the forecast demand by care trends in population migration. And the thing that is ominous for all hospitals is that the future demand that is driven by care trends is largely in the Medicare Plus cohort. And that's an area that hospitals don't normally do well on. They certainly don't do well on the medical side of that. And sometimes they don't do well on the surgical side of that. And so the attractive growth is really driven by population migration. The pandemic accelerated some trends that were already in effect. The change in congressional seats from 2010 to 2020 was not solely a result of the pandemic.

But markets that are in the Sunbelt states, not surprisingly to me, markets where HCA has a really strong presence are the markets where there will be demand driven by migration trends and translated into math. Those are migration trends that are largely commercially insured populations. So Dallas is a great place to be running hospitals.

Philadelphia is not quite as attractive. I think the market that surprised me the most was Chicago. I think they're- at least in my mind - there's a notion that Chicago is a Midwestern city that is different than Detroit or Pittsburgh or Philadelphia in terms of growth. But Chicago is not going to be a place of growth over the next 10 years.

It's a market that is got a large number of noteworthy systems and I think that it's going to be a market where those systems will have to compete increasingly aggressively to win in that market.

Morgan: A lot of that, I think, goes back to what we talked about earlier on with the rural healthcare. And that's obviously, an area that we're going to see a lot of evolution over the next couple of years. We do a lot of work in the hospital space and have been closely tracking what is happening in those rural areas, particularly the increase in hospital closures.

So how do your findings relate back to that? And what do you see as the future for rural healthcare?

Hal: From my perspective, this is really a rural versus urban story. MaryEllen's mentioned a couple of times the challenges for the rural facilities, and I completely agree.

The reason we do what we do is that in my past I have been in communities that lost hospitals, that almost lost hospitals and I've seen the economic wreckage of that on the community as a whole, not just the loss of healthcare, but the loss of good-paying jobs. And I think the rural systems have to think about Walmart and really not think about much else.

I think the urban systems should be thinking about Amazon. I think they believe they have a stronger position than they probably do. If I go back to the rural communities, the real threat of Walmart is not just the primary care access and the fact that they have the HCA equivalent of good real estate where they could easily stand up 10 or 20,000 feet of ancillary care of light imaging and light lab and PT and that sort of thing.

But it's really the fact that they're partnering with health insurance companies. And if you walk into most of the Walmart primary care centers, you'll see that there's an office for insurance right next door.

The notion that Walmart can basically become the underwriter of healthcare in a rural community, suggests that the providers who deliver the complicated things that Walmart is not delivering and probably won't be delivering will soon be competing on a price basis to deliver those services.

And so in the nineties and early 2000s, there were a number of groups in south Florida. There's a doctor named George Rapier in San Antonio. There's a doctor named Norman Chenven in Austin. They figured out that you could take risk, particularly in a Medicare advantage population.

You could get enough lives to then go turn the hospitals into price takers. And to say I know that I'm going to have this many MRIs and this many colonoscopies and that sort of thing, and basically forced the hospitals to bid against each other to deliver those services. And I think that Walmart can do that pretty easily in the rural markets. I don't know if they will but I think they can.

I think, on the other hand, that the news that Amazon is trying to become in-network with the major payers should be setting off alarm bells in every urban and suburban health system in America. Whether or not it is, I don't know.

MaryEllen: I think part of it is certainly in the rural communities. If they're the sole provider, those hospitals have to focus on what the patients in the community need and cannot get from the Walmarts. Again, they are not going to be providing and shouldn't be the primary care services, but most of the Walmarts are not going to have MRIs.

What can they do? Bread and butter to keep the doors open and then recognize there will be migration because you can probably only have in a community that size an ER doc, a primary care, maybe one cardiologist one ortho, and probably not one full-time ortho. So you're sharing within communities and there needs to be partnerships among the rural hospitals as well to keep the types of physicians that are needed to service a market. It's devastating when a hospital closes in a community.

Hal: MaryEllen, I think that point about the things that others can't do is the key point. One of the issues with telehealth is that it's just not that much of a thing outside of behavioral. I think the second thing is nobody can compete with Amazon at $15 a visit for telehealth. And I guess the question is why would you try? Even if you could get all of the telehealth visits that Walmart and Amazon get at $15, you're just losing money doing it. And that's why I don't really understand the digital front door strategies.

 I think the trick is to figure what are the things that you do well and that you create a positive margin for and how do you expand your thinking about who your market is? Again, back to a market. Everybody knows L.A.. In that CVSA, there are 13 million people. Everybody knows who Cedar Sinai is. Cedar Sinai had 50,000 inpatient visits last year. They got everybody except for 12.95 million people in L.A. And I think that if Cedar Sinai thought about the things they really do well, and how many of the 13 million people in L.A. they need, they would think about strategy a lot differently than they do.

MaryEllen: And this is something people are loathed to talk about, but it's patient targeting or population targeting. And if you want my business, whether it's as a healthcare consumer or another consumer, make it easy for me. Time is valuable. Time is valuable to every mama bear who's making the decision on healthcare. So who's winning? The urgent cares. The people who have a site location that's easy- in and easy-out after I pick up a child from daycare. That matters to people today. When the daycare provider says, there's a problem, your child's sick. Okay. Who can I see immediately? And that in pediatric offices now being open until seven o'clock at night, people are adjusting and providers are adjusting. If they don't adjust to the demands of the market and recognize who their market is, which is increasingly hard to figure out, they will have trouble surviving.

Hal: One addition to that is that so much of what drives people's selection is psychology. And again the consumer companies know this. One of the things that's sprinkled throughout the report is how psychographics affect decision-making and the sciences derivative of Procter & Gamble science about consumer behavior.

The interesting thing about psychographics is that it is as the name implies psychology, and it's really baked into somebody by the time they're 18. And so there are certain people who if you put an urgent care at their mailbox would drive past it and go to that academic medical center because they think that brand equals quality and university medicine equals quality.

There are an equal number of people who will never ever go to the university medical center and will always make the convenience choice, whether it's CVS or CareSpot or something like it. And what's interesting from a site selection perspective and back to how do you allocate capital efficiently, we have many data points about picking an urgent care based upon psychology, as opposed to demographics, most health systems pick on demographics. And, if we're being honest, they're looking for pockets of the community that are higher income than not. When in fact, what really drives a lot of volume at the site selection level is psychology. You'll find that we have stories of systems that made decisions based upon where they thought the wealthy people were as compared to the psychology of the population and the answers are very different. Going back to HCA, I think, most people think about HCA in terms of their location and they're awesome at location, but if you look at where HCA's hospitals are, they're not in every wealthy neighborhood and they're absent in lower-income neighborhoods. If you just look at Nashville, HCA has assets all around town and very different neighborhoods, but they're very strategically focused on consumer choice and consumer access.

And I think that's a piece that people miss. And I think as capital becomes more precious and people realize it's a negative-sum game, you really can't make site decisions based upon income levels. You've got to make it on consumer preference.

Morgan: Absolutely. We do a lot of work in the outpatient services and physician practice management space and the report goes into some detail and evaluates the areas that are expected to see an increase in demand, including digestive surgery, heart and vascular, neuro and spine, OB-GYN and other areas. What are the areas that are expected to have the biggest growth?

Hal: That's a bit of a trick question and it goes back to what Charlie and I were trying to do at the very beginning. Healthcare's local, and everybody says it, and it's really true. And what the industry has done for 35 years now, whether they know it or not, is that they have been given a national forecast of demand, which by definition is an average forecast demand.

And then they've been told that they get a view into their market, but they're not really getting a view of what's happening in their market. They're getting their market as if it was the nation itself. And to take two extreme examples. We'll take Dallas and Detroit. And if the national model says 3% growth and you apply 3% to Detroit and you apply 3% to Dallas, you'll be wrong in both places at a market level.

And you'll then be wrong at the service line level as well. And everything that we're doing is trying to bring the data to bear in the local market. For people in the hospital business, they know that even the big local markets have a number of sub-markets. So Houston has at least seven sub-markets. And if you say I'm taking the national average and I'm applying it to Houston that'll be wrong. And then if you apply that national average to Houston, As a whole, that will be wrong because the demand for OB in Pasadena, Texas is going to be a lot different than the demand for OB in the Woodlands.

And the same for cardiology. You want to be doing OB in the Woodlands and cardiology in Pasadena, but if you take that national number and you spread it like peanut butter, you just, you make a lot of bad decisions. Again, the things that drive markets are sometimes similar and sometimes not. Markets can be similar clinically and be different demographically.

So Fall River, Massachusetts and Clarksdale, Mississippi and Phoenix, Arizona are almost identical clinically from a diabetic population standpoint. They're completely different on every other metric. And what we're trying to help health systems figure out is what's happening in their individual markets.

Morgan: MaryEllen, what are you seeing in terms of kind of that analysis on the outpatient services and specific sectors that are ripe for growth. Is that similar to what you're seeing in your M&A practice?

MaryEllen: That's the reason his company exists and why they're good at what they do because they can help people figure out where to put their money. It is a new look. People don't look at it this way to your point and Hal's point. That's why they created Trilliant so that they could help people figure out where to put their money. Right now it's more reactionary. What sounds good? Oh, it's rolling up dermatology practices. That's great. Rolling up anesthesia practices. Again, lot of private pay opportunity, absolutely. To make money and create the margins and give doctors some freedom. That is what the market is about right now. For the investors in that front and they're doing a great job at it. Having the data that Trilliant has will enable people to use make better decisions with that money going forward.

And I think the systems understand that. I'm not sure everyone else does yet, but the larger systems are figuring out they need some help in figuring out where to invest their capital going forward because it's limited.

Hal: Absolutely. All right, guys, we have covered a lot of ground. Anything Hal that you would want to know that I maybe didn't cover in our questions?

Our customers - many of whom are in the largest 20 health systems in the country - are having the debate about whether to be in the hospital business or to be in the healthcare delivery business.

And as soon as you say the question out loud, it becomes fairly obvious what the answer should be. If you're going to really focus on consumers as opposed to patient engagement and you're really going to focus on healthcare delivery as opposed to operating hospitals, the answers are very different and they're different than they've traditionally been. And they're different on a market-by-market basis. I think that back to hospitals being the largest part of the largest industry in the largest economy in the world, It's hard. And there are a lot of hard decisions.

There's not enough capital to do all the things that a health system could do. There's not enough capital to do all the things that they should do and being prudent stewards of scarce capital is really the name of the game.

Morgan: This has been really interesting. It was great to catch up with you Hal and get your input. MaryEllen, thanks for joining us on the show today.

Hal: Thanks so much.

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