By Robert Pearl, MD, CEO, The Permanente Medical Group
Chair, Council of Accountable Physician Practices

I’m often asked what the future holds for health care. I don’t have a crystal ball, but I know two things are certain.

In the future, health care providers must champion two of Michael Treacy and Fred Wiersema’s value disciplines to survive.

First, the practice of medicine is — and always will be — a great profession. It’s an honor to improve and save lives. Second, doctors and hospitals will be forced to change their practices before they’re ready. For patients, this new reality will be positive. For providers, it is likely to be uncomfortable.

In the book “The Discipline of Market Leaders,” authors Michael Treacy and Fred Wiersema note the companies that attain and sustain market leadership excel in 1 of 3 value disciplines:

1. Customer intimacy (service/relationships)
2. Product leadership (innovation/R&D)
3. Operational excellence (efficiency/effectiveness)

The authors emphasize that the best organizations make a choice of one discipline and, with rare exception, can’t excel in two. Health care will need to be that rare exception in the future. One discipline won’t be enough for providers. And once the transformation to two is complete, the result for patients will be better medical care at lower prices.

Today’s provider landscape

Although overlap and exceptions exists, most patients receive care in 1 of 3 settings:

1. Community-based providers (local doctors and hospitals)
2. Academic medical centers (university clinics and hospitals)
3. Integrated delivery systems (Mayo Clinic, Virginia Mason, Kaiser Permanente, etc.)

The typical doctor in the community works alone or in a small group. Economies of scale and research opportunities aren’t available, but the structure is conducive to the value discipline of “customer intimacy.” Patients are loyal to their local doctor. The office staff knows every patient by name and some doctors continue to make house calls. Insurance companies have little choice but to pay the higher prices community providers charge.

Academic medical centers, by contrast, have relied on “product leadership” above all else. The buildings are huge and residents rotate clinical services every month. But patients come in search of the latest medical technologies and newest machines. Sometimes these technologies prove effective, but they often cost more without improving outcomes. Insurance companies have few alternatives but to include these higher priced venues as a care option for patients.

Integrated delivery systems have taken a different path, focusing mainly on “operational excellence.” They typically include many salaried physicians from a variety of specialties. They practice together in large, centralized medical buildings. The combination of greater size and fewer locations succeeds in lowering their costs. However, their structure can make service feel less personalized.

The provider landscape is changing quickly

Everything changes. Today, doctors and hospitals face pressure from every direction.

Health insurers are narrowing networks — offering patients a smaller pool of doctors and hospitals in exchange for lower premiums. Customer intimacy or product leadership alone won’t be enough to guarantee doctor or hospital inclusion. With the introduction of health insurance exchanges and price transparency, the shift to lower cost providers will accelerate.

Payment models are evolving, as well. The traditional model was designed as a fee-for-service system that rewarded volume, not outcomes. Organizations like the Pacific Business Group on Health (PBGH) are rapidly transforming that payment model. With PBGH, rather than generating a bill for hundreds of individual pieces, a single price is paid — be it for a total joint replacement or the totality of care given to a patient with diabetes. Those hospitals and physicians that charge more are excluded.

Meanwhile, health care providers are increasingly being measured by patient satisfaction.

Physician-review sites like ZocDoc, Healthgrades and RateMDs offer patients detailed information to assist them in their choice of doctors. More and more insurance companies are paying based on patient satisfaction.

The prescription for survival

In this new reality, excellence in one value discipline won’t be enough.

Community doctors and hospitals will need to become more efficient. They will need to create Accountable Care Organizations or find other ways to develop economies of scale. Simultaneously, they will need to focus on helping their sickest patients manage health more effectively. Take, for instance, the Camden Coalition of Healthcare Providers, which provides home visits and house calls to the community’s “worst of the worst” medical cases, cutting their $1.2 million in hospital bills by more than half. If community providers don’t figure out how to lower costs, they will be excluded from these new narrow networks and risk being driven out of business altogether. Most doctors who chose community practice did so, in part, for the autonomy. It is unclear how many will be willing to modify their practice styles for the greater good.

Academic medical centers will need to become more business savvy and achieve operational excellence. Already, we are seeing an uptick in doctors pursuing MBAs, but improvements in performance will demand the commitment of all. Many physicians who chose academia for their careers may refuse to divert time and energy away from research and teaching to champion a second value discipline. However, these doctors must learn to balance their academic pursuits with business interests, such as: learning to value supply chain management, improving operating room turnover and increasing collaboration among clinical services for hospitalized patients. Until they do, the care they provide will retain excess costs.

Integrated delivery systems will need to emphasize customer intimacy – as much as they do operational excellence and quality outcomes – to survive. As narrow networks lower prices, these integrated delivery systems risk losing membership and being stuck with high fixed costs. Continued success will depend on high patient satisfaction scores. But will these salaried physicians realize it in time?

Necessity often drives innovation. As health care becomes more competitive, patients will have more choices for improved medical care at lower prices. But while patients will welcome this new reality, doctors and hospitals will find embracing a second value discipline uncomfortable. As economic and competitive pressures increase in the future, providers of medical care will be required to go beyond their comfort zone. Those that fail to do so will be left behind.

Reprinted with permission from Forbes.com.