Craig Lack

By Craig Lack

How Health Care Is Going the Way of Cable

150 150 Craig Lack

Think back – way back – to the days of big hair, acid-washed jeans, velour tracksuits, and the ubiquitous use of polyester, all set to super-synthesized pop beats. The phrase “what were we thinking!” comes to mind – not because of the fashions, necessarily, but because of the momentous decision to deregulate cable. Congress passed the Cable Communications Policy Act of 1984 in October of that year, removing controls from the industry in hopes of promoting competition. And for decades thereafter, the cable providers transformed the television industry – first as a cheeky, fringe start-up operation, only to grow and mature into a major force whose original programming receives not only ratings but critical acclaim and has essentially wrought the demise of free television viewing.

Enter the Bundle Concept 

The cable industry, with the help of powerful lobbyists, caused a sea change in the way local channels broadcast programming. The number of channels skyrocketed because the way content was sold and the way programming was distributed resulted in vast volumes of content to sell. Inevitably, though, there was a substantial amount of chaff among the wheat, so “bundles” were created to package less popular and rarely watched content with popular programming. Of course, the cable company knows viewers want HGTV, and they’re counting on consumers accepting a higher tier of packaged channels they couldn’t care less about in order to get the one or two they do want. Size became a proxy for quality and bigger was marketed as better. Since the 1990s bundled packages have become the pervasive force in delivering programming, movies, live sports and music. It’s a business model that has worked to the cable companies’ advantage for decades.

Freeing Cable Consumers from Bundle Bondage

Do the math and it just doesn’t add up: Even though industry research finds the typical viewer watches an average of just 17 channels, subscribers of bundled cable receive hundreds of them. It’s increasingly impossible to overlook the fact that consumers have a glut of channels they don’t view, and that many subscribers don’t even know exactly what they’re paying for in the giant bundle they’ve purchased. But the times are a-changing once again.

As the Internet has expanded in depth and breadth of services, wireless connectivity has become ubiquitous and mobile smartphone technology is growing globally at exponential rates. People can watch video on their phones as easily as they can make a call on them.

Consequently, subscribers are increasingly demanding that they only pay for what they actually use and what they actually watch. Why pay a penny more, especially when you don’t even need a television to watch pay-per-view TV? Today, an Internet connection means you can watch almost anything online. Websites like Netflix, Apple, Hulu, Amazon, YouTube and a growing list of new entrants are forcing change on the cable industry. Yet while the cable industry has for years clearly seen these changes on the horizon industry leaders have remained entrenched in the past; rather than read the writing on the wall and position themselves for change, the cable industry has mostly chosen to lobby for anti-competitive legislation and incremental slow change. As a result, the beginning of the end has already started for the old cable industry (and they don’t like it one bit).

It’s clear: unbundling is here to stay. Pay-for-TV subscriptions are falling and the rate of disconnect is increasing. At the same time, the rate of unplugged nontraditional non-subscribers is growing annually. The industry refers to the people who cancel their connections as ‘cord cutters’ and the people who have never subscribed as ‘cord-nevers’. What they need to call them is lost opportunity.

Health Care Is Unbundling Too, Because Buyers Are Demanding Change 

Just like the Millennials, the Internet and mobile devices are changing the cable TV industry, the ACA, self-funded employers and a legislative shift to value pricing are changing health care. The parallels with the health care industry are unmistakable, where the key players dictate terms and pricing, bundling unnecessary and ineffective care and then charging fees based on the volume of treatments with little or no transparency. Disrupting the status quo is already here; it’s just not evenly distributed – yet.

The health care buyers of today and tomorrow are controlling their costs and experience by flexing their demand muscles in local and regional markets around the country. Enrollment in prepaid fully insured health plans is dropping annually as employers learn about the advantages of self-funded pricing, taxes and cost of claims.

The most successful business purchasers of healthcare are predictably and successfully shaving 30%-50% off the standard provider-driven pricing. By focusing on claims reduction and elimination, savvy health buyers are slashing hospital, surgical center, pharmacy, physician and ancillary expenses by double digits. Some of the tools have been smart buyers’ best-kept secrets for nearly a decade and are only now receiving press. The truth is, solutions like RBP, SIHRA, DPC, 100% audits, PBM re-contracting, fixed-fee bundled pricing, medical necessity, coordinated care, COEs and many more are saving organizations millions of dollars and changing the experience of health buyers, patients and providers.

Unlike the solution providers changing the cable TV industry effective via national virtual footprints, the health care industry is being disintermediated in local and regional markets. Because health care represents 20% of the economy, impacting health care costs by billions, as hard as it is to believe, these dollar amounts barely register on the radar, but for the employers creating EBITDA from health care, the results are tremendous.

Health care buyers are witnessing their own #metoo movement—an experience where every encounter with a patient is a market of one and the buyer is becoming aware of his or her power in this transaction with the health care supply chain. Other industries have recognized the efficiency and pricing economies that come with managing the supply chain because demand is elastic. Think how WalMart has changed inventory controls, Amazon has changed “last mile” logistics, and Best Buy announced it will cease selling CDs altogether, as just a few examples.

Though the pendulum swings slowly, the power is shifting inexorably to the people. Health care buyers can now negotiate, force transparency and control the cost of care. Failing to act, or remaining on the path of least resistance, is surely the road to (in cable parlance) cancellation. Self-funded employers need to recognize and respond to the change because your employees’ financial wellbeing could literally be ruined by the health care cost shift. Forget about cable – the health care industry will never be the same.

Craig Lack uses Performance Based Health Plans® to help publicly traded and privately held self-funded medical plans nationwide. According to Inc., Lack is the most effective consultant you’ve never heard of. Forbes Magazine calls him a broker whisperer for health care consultants. To reach Craig Lack, just go to www.meetme.so/craiglack.

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