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Podcast 125: Discussing the Past, Present, and Future with Scott Becker

Mar 05, 2021

Summary

In this episode of Health Care Rounds, John talks with Scott Becker, founder of Becker’s Healthcare, about how Scott turned a marketing effort to build his fledgling law practice 30 years ago into one of the industry’s fastest-growing media platforms. They also discuss how the pandemic has upended strategies that health systems have had in place for the past 10 to 15 years, leading to “a huge ecosystem change,” and why they will need to incorporate topics like health equity and digital consumer health into their strategies going forward.  

2:07 – 2:13 Scott: “It was originally sort of a hobby and a marketing effort to develop a brand in health care.” 

16:22 – 16:25 Scott: “So I understood the niche marketing concept, being in a niche within health care.”

19:10 – 19:18 Scott: “It wasn’t until 7-8 years ago when we started, you know, really thinking about this as a serious business, where somebody said, ‘Oh, you’re in business-to-business media.’” 

24:28 – 24:51 John: “I just get the sense that there’s still this antagonistic relationship between pharmacy and Pharma. … Pharma has not been able to demonstrate the value that they bring to the table.”

26:02 – 26:14 Scott: “There’s this constant issue with pharmacy officers of, ‘Are we getting the right drugs, or … is somebody pushing us drugs that don’t really make a difference but have a huge impact on the cost?’” 

27:59 – 28:03 John: “I think people are willing to pay for the game changers, [but] not so much for the ones where there’s that marginal benefit.”

32:58 – 36:16 Scott: “How do you mix in your strategy some of the things that were sort of ignored or not brought to the front as strong as they were before, like health equity and making sure that you’re a lead on health equity, not just in revenue on fee for service and your five great service lines?”

In this episode

Scott Becker

Scott Becker is the publisher and founder of Becker’s Healthcare and Becker’s Hospital Review. He is also a CPA and a partner and former board member of the law firm McGuireWoods, where he served as chair of the national health care practice for more than 12 years. Scott is a graduate of Harvard Law School.

 

John Marchica

John Marchica is a veteran health care strategist and CEO of Darwin Research Group, a health care market intelligence firm specializing in health care delivery systems. He’s a two-time health care entrepreneur, and his first company, FaxWatch, was listed twice on the Inc. 500 list of fastest growing American companies. John is the author of The Accountable Organization and has advised senior management on strategy and organizational change for more than a decade.

John did his undergraduate work in economics at Knox College, has an MBA and M.A. in public policy from the University of Chicago, and completed his Ph.D. coursework at The Dartmouth Institute. He is a faculty associate in the W.P. Carey School of Business and the College of Health Solutions at Arizona State University, and is an active member of the American College of Healthcare Executives.

Episode Transcript

John Marchica:
Welcome to Healthcare Rounds. I’m your host, John Marchica, CEO of Darwin Research Group and faculty associate at the Arizona State University College of Health Solutions. Here we explore the vast and rapidly evolving healthcare ecosystem with leaders across the spectrum of healthcare delivery. Our goal is to promote ideas that advance the quadruple aim, including improving the patient experience, improving the health of populations, lowering the cost of care and attaining joy in work. Please send your questions, comments, or ideas for Healthcare Rounds to podcast@darwinresearch.com. And if you like what you hear, please don’t forget to rate and review us wherever you get your podcasts. Let’s get started

Kim Asciutto:
Today on Health Care Rounds, we welcome Scott Becker, publisher and founder of Becker’s Healthcare and Becker’s Hospital Review. He is a partner and former board member of McGuireWoods. Mr. Becker served as chair of the national healthcare practice at McGuireWoods for more than 12 years. He is a CPA, and graduate of Harvard Law School.

John Marchica:
One of the things that I wanted to start off, we’re going to talk about health systems, right? And healthcare in general. And I’m always interested in talking to other entrepreneurs about their origin story. How they got… You’re a successful attorney, nice law firm in Chicago, but yet you’ve got this, from what I can tell, is kind of a conference business. I read your CEO report every day.

How did all of that get started? And how did you get interested in creating that entity?

Scott Becker:
So we started Becker’s Healthcare, literally it was an anomaly. We started it 30 years ago. I was at a law firm, starting a practice, starting a legal practice in the healthcare world. I was trying to figure out developing a brand in healthcare. We started… I started the newsletter, started some small conferences, and originally, if you went back 30 years, we were just in the surgery center sector.

And it was originally sort of a hobby and a marketing effort to develop a brand in healthcare. And at some point, it became clear that one, it was just a pleasure to connect with people in this way, and two, that it could become a business. Not just a marketing issue. And I was at a large law firm that I’m still at 30 years later. And in the law firm, of course, I was a young kid in a law firm. And they were like, “We like what you’re doing. We can’t, of course, support it and pay for it”. So I ended up developing it really outside of the law firm, and outsourcing everything in it for many years. And it sort of kept on moving along as a… In the surgery center space.

And then if I fast forward about 10, 15 years, it started to grow. It just started to pick up. It became more and more a labor of love, more and more a passion. And I started to then hire full-time people in the business. And I hired literally about 10, 12 people. And this goes back 15, 17 years ago, that were both writers, and conference producers, and a business manager.

And what really happened was, there were two critical things that happened. One of those people I hired was the niece of a client, a woman named Jessica Cole. And Jessica ended up being working in college with me, and just outperforming everybody around her, as a very young, young person. She was in her early… 21, 22, but she was just working from our department, and just outperforming everybody. And so I had to beg her to come to work for me full-time, which she did.

And that was sort of one critical, pivotal moment in the company. She went to work with me for a couple of years with about 10, 12 other people. I was, and still am, practicing law, largely full-time, to an extent at this point, but practicing law full-time. And I sort of threw my hands up and said, Jessica was a young person, probably 24 at the time. And I said, “You’re now in charge of everybody. I just can’t take it. They’re driving me crazy”. I just couldn’t do it, I was running a law practice and running that.

And the beauty of a large professional services organization is, you’re used to working with very highly motivated people that you judge regardless of age. So she was younger, but was so much more competent than so many other people that I hired. And so of course, when I put her in charge when she was 25 or 26, all the other people were like, “Are you kidding me? She’s half our age! She’s this, she’s five years younger, she’s 10 years younger. I don’t get it”. But we kept a core team, we grew on that core team, and we ended up growing four core competencies. Building an editorial team, which we view still as a crown jewel of the company, a conference team, a business development team, and a KAM team, key account management, which is taking care of key accounts.

So the first pivotal thing was probably Jessica joining me at some point, and then growing into a serious leader. She’s now CEO and President and my partner in the business, she’s been with me for 15, 17 years or so. And won an EY award last year as a transformer… Transformational Executive of the Year. She just has done a magnificent job over a long period of time. And so, she was one pivotal thing.

The other couple of pivotal things were, we ended up about 16, 17 years ago, starting two other segments: hospitals and health systems, and orthopedics and spine. And so when we started the hospitals and health systems, we, of course, this my lack of understanding of the media business, I thought orthopedics and spine would be our core business, because it was so close to surgery centers, which is where we started. But of course hospitals and health systems ended up being far more significant, basically based on two real things. One is size of market. Just a huge market, 5-6,000 hospitals. Each has $100-200 million a year in spend, which means in terms of a business perspective, there’s a lot of spend into those health systems, because advertisers, sponsors, companies need to reach them. And so it was a big fertile ground.

The second thing is when we started, and I don’t… Not so much worry, but I feel bad for people starting media businesses today, given that though there’s so many started, so many are so successful. Because it’s just such a different information overload of business. And at that point, there was one waiting publication, Bottom Healthcare, still a great publication, but they were very driven to be 52 print issues a year, and they were great at it. And they’re still great at it. We basically saw that, and us being a small, nimble company, said, “We can’t be that. We can’t beat them in print, because they’re, one, so good at it”. And I was really funding everything myself, and so we didn’t have the resources for it, either. So digitally, no one could play that game. So we ended up deciding, we’re going to try and lead with digital and events, versus print magazines.

And the print magazine thing, they’ve done great with it and they still do great with it. They’re still highly successful now in digital and events and everything else now too, but we couldn’t be in that business 52 issues a year. I would just… I just couldn’t afford it. So we chose, we’re not going to try and win in that. We’ll try and win in digital, and we’ll try and win in events.

And then the other decision we made was, really two decisions, to be only in a handful of niches within health care. So even today, X nought years later, 30 years after founding it, hospitals health systems is the biggest line, health IT is the second biggest line. Then we’ve got surgery centers, then we’ve got orthopedics and spine, and we touch a number of other areas. But the core of the business is still hospital and health system leadership, plus those three other niches.

And then the other core of it is digital and events. It print… We have print publications, they do very well, they’re well-received, but it’s an overall small percentage of the business. And they’re monthly, or six times a year in different segments, versus weekly, which seems to be brutal, and very expensive.

So we ended up building this, originally, for a different reason. We were smart enough to hire great people. We’re very… Three things: niche-centric, focused in on great people, and then very customer-centric. So making sure our customers are getting value, and constantly tracking and working with them and so forth. And trying to take very much care of, which our audience responds to what we’re doing, that they read what we’re doing, that it makes sense, a long time ago. Not that I’m doing a very good job of it today, that we move towards very short and concise. So very readable.

And this is hard. We have 25 full-time writers, Molly Gamble heads up the editorial team, she’s been with us for 10, 12 years. Laura Dyrda also helps to head up the editorial team, and Ayla Ellison. But Molly, given the medic’s job, if I went back 10, 15 years ago to get people to write in short form journalism. I recall, my background, a Harvard lawyer, which it’s taken me 10 minutes to say that, so it’s long for a Harvard person to tell you that, that they haven’t told you that already in 10 minutes. But it’s… But the reality is, I used to write these long, thoughtful, strategic pieces. And what you would find is, nobody would read them. I thought, “Oh, it’s very broad. I’m very smart. Everybody should read it”. And no one would read it.

And what you found was what people really wanted was a short sense of what’s going on in the world, what’s going on in business, so they can understand, put themselves in context. And that was just much better, that’s what people wanted. And it took a while to get the whole editorial team really on point with that, because that’s not how people 15 years ago… Everybody thought they were George Will, which is a name you and I recognize, some people younger won’t need writers anymore. But thought they were going to write long form, interesting prose, but nobody wants to read that today. They want to read… They want to get a sense of what’s going on. What’s the deal. And so, we gravitate towards that very much so, too. Let me stop for a second and turn it back to you.

John Marchica:
Yeah. So I’ll share with you my original… my origin story. So I got, after I finished business school, I went to go work at Abbott, up in Abbott park. And my last rotation, I was a product manager on a drug called Depakote. It was for epilepsy and bipolar. But in any event, there was a thing back then, it was called Heads Up. And it was a one-page fax. So this is going back to 1991. One-page fax, and it had a whole bunch of headlines. And you could choose, I guess, which… What areas of interest that you would get these headlines for.

And then if you wanted the story, you would have to dial a number, and then enter a code, and then they would fax you the story. So you imagine in today, today’s internet, how ridiculous that sounds. But the one-page fax was cool. It was everything, if you just wanted to read the headlines.

So, my idea was to create something akin to the Wall Street Journal cover… front page, where you could get everything about healthcare – and this is pretty pharma-specific, but everything that you needed to know in pharma, on a single page.

And so what I would do is… So I had this idea, and I signed up for LexisNexis, and I would go home and I would write Healthcare Business Daily. And then through my computer modem on my Mac, I would send it to people on the fourth floor at Abbott Park, all these pharma marketers, right? And so nobody knew what I was doing.

I had one friend that I had shared with it, but I got to kind of product test and see what people… How they were using it. And it was interesting. It would be like the person’s assistant would get it off the fax before whoever even got in, and then they clip it to the door outside their office.

Scott Becker:
And so you know that you’re doing well when people start to use it like that.

John Marchica:
Exactly. And so, I was in it for about three months, and then I just said… I was charging $3.95 a year for the subscription, and I said, “I’m just going to make a go of it”. And I left Abbott and with any savings that I had, I was probably mid-twenties at the time. But what was interesting is that that didn’t become our business model. And we’re going to get back to your business here in a second, but that company, Fact Watch, we… It was almost like what I would consider to be content marketing.

So what we would do, we would go to, I’m trying to think of a common drug, but a drug like an antibiotic, or even better, a drug for heart failure. And we would say, “We can deliver you the top 5,000 cardiologists in the country. And we’ll send them, on a weekly basis, a review – our medical writers – a review of review all the peer reviewed literature, the most important peer reviewed stuff that’s come out. And what you would get for that is brought to you from an educational grant from Abbott”.

So, you can’t touch our content, arm’s length. Maybe we’re going to write about your competitors. But the idea that they could be in front of their docs, with their one-page fax every week, was important to them. And then of course, over time that moved to email. And I ended up selling that company back in 2005 to go work on a PhD.

But it’s interesting like how… Just talking about these. This is a healthcare podcast, but talking about these different publishing models or different revenue models, I always got the sense, or I always thought, that probably the conference business was the most important to you, at least from a revenue standpoint. But I guess… It sounds like I’m wrong.

Scott Becker:
Well, no, no. I mean, they were largely, of course, they were not… It’s a great… Originally, back in the very early going, we were just conferences and surgery centers and had a newsletter, but very limited revenues. Then it grew, as of before 2020, it was about 50, 50. So 50% digital, 50% conferences. Of course, 2020, it’s all digital. And then of course, but thank goodness that the editorial team was, as has always been one of the absolute crown jewels of the company. And they performed remarkably well last year.

And then the same core competencies, the sales team, the digital, and more and more, of course the data people, and so forth, done a magnificent job of making sure that we stay current and front and center, and so forth. So, digital did well last year. It was always 50% of the company going in the last year, more averagely, 100% of the company last year, but it’s going okay.

Thank goodness we moved to heavy focus on events, we were an event company, but we were an event company around six large events a year, but digital has been always a very, very important part of a footprint. And so, thank God we were both.

John Marchica:
So what was the attraction, going back to when you were in your twenties, the surgery center. The, what… Why did that, was that niche for you to start?

Scott Becker:
So this is a great question. So I… People will tell me, I’ll get this every once in a while. Because I started my publishing business, my media business, legal career in surgery centers. And they’ll say to me, “That was so bright. How did you know that? How did you see that?” And I’ll tell you the reality, but the reality of almost everything is, it’s… There are some people that are that bright. I am not. What happened was that, when I was starting a legal practice, I was testing three different areas. And so, I was starting a healthcare practice in law and we… I was messing around with three different areas and they were surgery centers, cardiology and disease management, which were, at the time, 30 years ago, were evolving in different kind of areas that were evolving, and so forth.

And I had a mentor, somebody who was heading me in our practice, who had built this great practice by chance around dialysis. So I saw the niche in dialysis and nephrology. So I understood the niche marketing concept of being in a niche within healthcare. And at the time, at a law firm, you couldn’t be in your twenties and build and grow big hospital clients. Because hospital clients, hospital systems, were long-term sales processes to develop the relationships, to become their lawyer. And they’re just bringing in entrenched clients.

But surgery centers, cardiology practices, disease management, could hire you in three minutes. Somebody… There was a short sales cycle, you could start to build a practice. And so what happens is I was testing all three. All three were areas having growth, and it was sort of like if you were a sports fan from back in the day, you would go to a sporting event and there’d be an M&M race on the screen, on the big screen. The M&M’s. And the M&M’s, and one would outrace the other.

And the genius was not picking surgery centers, because I didn’t pick surgery centers, I was testing three different areas. The surgery center M&M, in terms of legal business development, relationships, connectivity, contacts, was outperforming the others. And so the intelligence, and I’ve been around people that are truly intelligent, I’m intelligent, but I’m not one of those. What I was smart enough to do was double down on the M&M that was winning. So then I started putting all my efforts into that.

And the other thing that we did, it was 10 years later or so with Jessica, is when we decided we’d expand the company beyond surgery centers, we looked at different business models. There was one company in the healthcare publishing business that had 23 different niches. There was one company that was only in surgery centers. And when made a decision, we didn’t want to be in 20 different niches, because that company was in 20 different niches, was deep in three, and sort of weak in 17, but they did great. Economically did great.

But it wasn’t the model we wanted. We wanted to be deep in the four that we were in, deep in the handful that we were in. We made that decision, too. So we ended up the surgery center things. Every once in a while, somebody will say to me, within the law firm, outside the law firm, all that was brilliant. And I’ll have to explain them. There was no brilliance. We were testing three different areas, that happened to be the one that took off.

John Marchica:
But you were doing this, you said, as a marketing exercise. You’re a young lawyer at a nice firm and… But you’re trying to build a practice. And so the whole idea behind this was to associate your name with something of value, and to be like a thought leader, right?

Scott Becker:

100%.

John Marchica:
And then you’re going after these guys for your… to be your client base, which I’m assuming has vastly expanded over the years.

Scott Becker:
Yeah. So it was really the old adage of content-based marketing. There was all these things. I was just doing what I was doing. I clearly was a business reader always. Jim Collins fan, a big business reader, a [inaudible 00:19:03], et cetera, et cetera. But I wasn’t, for example – a Jack Welch fan – but I wasn’t, for example, a… I wasn’t… It wasn’t until seven, eight years ago, when we started really thinking about this as a serious business, where somebody said, “Oh, you’re in business-to-business media”. B2B media. And I was, of course, I didn’t understand what… I didn’t know what that was until somebody said, “Yeah, we’re in B2B media”.

But it was similar, we were doing content based marketing to develop myself and reputation as a thought leader, and be highly connected to the space. And I was a very much a business reader, so I understood the concepts, right? But we didn’t think of it back then as being a “thought leader”, which has become, the term today, or a “trusted advisor”. It was more, we were just developing it and growing it. And it was great fun. It was not like it was not… It was truly a labor of love and it was like… I was able to be devoted to two great pursuits, aside from family and children and other things.

But the two pursuits were building the law practice, and building the media firm, and they were great. It was great fun. You know, growing is fun. It was great fun. So we really enjoyed, and it was… And it builds upon itself. It was just fun. We were… And we had very simple mindsets.

We were… In the law firm, it was two concepts: great clients, and great people. It wasn’t… It was a really… The business was very simple, you’re connecting great clients with great lawyers that worked with us on teams. And so it was very simple. And in the media business, it was developing great reach with the audience, where the audience wanted to read you, they wanted to read you. And then it’s ultimately the advertisers and sponsors that will support that. That want to be in front of that audience.

And very much like you talk about, somebody that owns a drug has to be in front of these cardiologists. But very similar that you want to… You got to connect to those two audiences. And again, same concept is, we always viewed it very constantly as niche-centric and customer-centric. You can almost feel Jack Welch concept, we’re going to be a real leader in whatever niche we’re in.

And then you have to secure customers, because that’s who pays the bills. That’s what keeps the lights on. So within the law business, or in the media business, we had to professionally take care of our customers. And, obviously, the whole thing comes around Jim Collins’ concept of building great teams.

John Marchica:
Right. Right. So from a readership standpoint… So I’m now… My new company, or I should say newer, now I’m kind of in the market research strategy field, so we study health systems. But from a… So distribution wise, do you get a lot of hospital executives? Do you get pharma people? Do you still have those [Crosstalk 00:21:37] people? What does your audience look like?

Scott Becker:
Yeah. So we’ve got different niches. The biggest niche, and the most important niche, is hospital and health system leadership. Is executives from hospitals and health systems. That’s sort of like, at the end of the day, the business dies or falls with that. And then it’s… Then it would be within that, health system, executives, CEOs, CFOs, CIOs, chief experience officers, et cetera, et cetera, and down the line today.

But all in hospitals and health systems is number one by far. Health IT ties in very closely to hospitals and health systems. So that’s… We cover health IT hospitals. It’s really just another big part of the hospital and health system universe. Pharmacy. More pharmacy, in terms of really trying to be front and center, we do more and more discussions, more and more coverage of what chief pharmacy officer are thinking, and so forth.

And it really came out of a discussion with one of the great health system CEOs in the country, several years ago. Where he sat down and explained to me, “Look, we have a $6 billion budget a year, of which something like $400 million of that is pharmacy. And that $400 million is going up 15% a year, and I feel like I have no control over it”. You following me? So that was the point at which… That was eye opening to me, the amount of spend, and the amount of concern and issues that health systems have in the pharmacy space. So our market is not really pharmaceutical company readership, it’s pharmacy as it relates to health systems. It’s chief pharmacy officers in health systems.

So I was on the phone yesterday, on a podcast with Joshua Free, Josh is the chief pharmacy officer of a health system on the West Coast. But just really going through, in that case, it was talking about 340B programs, but the core leadership, the core readership, the core tenants, hospital health system executives. And then in our other niches, in orthopedics and spine, it would be orthopedic and spine surgeons. In surgery centers it would be owners, surgeons, administrators that use surgery centers. But those are sort of the core of the niche.

And then when you’ve got… We have other efforts that are burgeoning efforts in different specialties, but the core of our readership and audience has to be those executives, and hospitals, health systems, or those physicians in different specialties, or whatever the area is.

John Marchica:

So, I want to go back to what you were saying about pharmacy, and the recognition of that out of control spend. I see… There’s almost a couple of tracks.

One, I see health systems adding their own specialty pharmacies. So, they see that as an important revenue stream for them. But I still get the sense… I’ve talked to a lot of these people, too, a lot of pharmacy directors. I interview them for research. And I just get the sense that there’s still this antagonistic relationship between pharmacy and pharma. And mostly, almost like that pharma has not been able… I’ve said this before on a previous podcast, but pharma has not been able to demonstrate the value that they bring to the table.

If it’s, let’s say it’s 10% of… I should know what this number is, but let’s say it’s 10% of costs. Well, maybe it should be 15% of costs, because the value that that drug brings keeps people out of the hospital, keeps people leaving longer, cures their cancer. You know what I’m saying?

So, I don’t know, if… Do you notice this sort thing?

Scott Becker:
Yes. So the very best chief pharmacy officers, when you talk to them about, is your job cost control? The very best chief pharmacy officer will say, in part. But a large part of our job is actually making sure we have the best and the right pharmaceuticals for the right people. You follow me? So that… Recognize, it’s not just cost, it’s cost plus making sure we’re actually getting the right solutions.

Now, the flip side is, and you know this probably better than I do, when people talk about their pharma cost drivers, there’s two parts. There’s the generics versus the non-generics. Generics just not being available as much as they need them, so they’re paying retail for non-generics.

And then the other big part of it is just, it’s not so much orphan drugs, but it’s specialty pharma, it’s specialty drugs that are just very, very expensive. And so, there’s this constant issue with pharmacy officers of, “Are we getting the right drugs?” Or “Somehow or another, is somebody pushing us drugs that don’t really make a difference, but have a huge impact on the cost”, are very expensive.

John Marchica:
That’s it. That’s it, right? That’s what… That’s the problem. It’s those that are expensive, but providing a marginal benefit, right?

Scott Becker:
But yes. And what we do here, and Inter mountain was big in trying to change this with the formation of a drug company, [Public 00:26:34] , I think it’s called, I’m spacing right at the moment. But the concept being, a big part of the cost problem is just generics not being available half the time. And so having to go to the non-generic, when it doesn’t make a difference. So you still have a lot of that.

I mean, you and I know when you go to get your own pharmacies fulfilled, if you’re dealing with a generic versus non-generic, your cost is very different. It’s basically free to you, or close to it. If it’s, non-generic, you’re paying a lot. And so that still is a huge part of the issue.

The second part of the issue is just the new and exciting drugs, that may or may not really make a therapeutic difference. And that’s the great challenge of chief pharmacy officers, and everybody else who is looking at stuff is, “Will this make a difference, or is it just being sold to us?” And they’re very different things.

John Marchica:
Yeah. Yeah. I absolutely agree. Well, there’s been a trend, say over the last 20 years, the cardiovascular drugs, the… A lot of the diabetes medications, they were pretty much so those markets were saturated. How many more ACE inhibitors or calcium channel blockers can you have for hypertension? And so the pharma made a choice largely to go, not only rare disease with specialty, things that would provide value, but for smaller audiences.

And then it’s just that ultimately that question, is it just marginal benefit, or is it really a game changer? And I think people are willing to pay for the game-changers, not so much for the ones where there’s that marginal benefit.

Scott Becker:
It’s almost like CEOs. Sometimes it’s very hard to tell the difference, or it takes a while to tell the difference. So, all major league baseball players make a huge amount, but some make a difference, some don’t. It’s like Tom Brady, who would’ve thought, at 43 he’s still making a huge difference. But clearly was a bat [inaudible 00:28:19] for Tampa Bay.

Similar things with the pharmaceuticals, with CEOs, all kinds of things, you’re paying for a lot of them, but it takes a while to sort of filter through what really makes a therapeutic difference. And you know and I know, it is incredibly expensive today’s world to develop drugs. To develop a pharmaceutical. So it’s very complicated as to what’s the right amount of patent protection. What’s the right amount of price protection on the other side of developing it, because it’s a very expensive endeavor.

And so you have this… One of the things that’s talked about in the pharmaceutical industry is you get a concept of, once a great drug is developed, should everybody have the rights to use that confluence and compound and how they did it? And of course, it’s a very egalitarian concept, that everybody should get the right once it’s developed, because it’s so important to health for so many people.

The flip side is we have this strange system where we very much want to encourage people to develop that stuff. If there’s not a financial war on the other side of it, then who’s going to spend the literally tens of millions of dollars, at minimum, to develop these new drugs? It’s a very complicated social policy issue.

John Marchica:
If there weren’t any financial incentive, not just to do good for society, I don’t think that we’d be looking at… What is this, our fifth or sixth vaccine? That’s going to be coming out here by the… It’s an amazing… The fact that these vaccines were developed so quickly is a testament to science, and to what these companies were able to do.

But there… I saw a number the other day that they’re… Pfizer’s going to make $15 billion, something like that? On the vaccine. And the government’s paying for that. It’s not… I guess, ultimately the taxpayer is paying for it.

Scott Becker:
Right. And essentially, if we’re all literally losing our money on, we’re probably okay with that. We’re probably pleased with that, in the big scheme of things.

If Apple had a $100 billion in revenue, $110 billion of revenue since last quarter, probably happy to see Pfizer makes 15 billion bucks on that. But it’s a very complicated issue when you get to the next step. And one of the things can happen with that is, Pfizer I guess, didn’t take Operation Warp Speed money, but still got lots of government support. But the government buying it and paying for it, regardless of what they worked out, and being able to scale up manufacturing, is a huge issue. It’s a huge issue.

And the government promising everybody’s vaccine is free, is a huge issue. We all want that. We certainly want these vaccines free, because we want people all taking them as soon as possible. I don’t want them being manufactured to the… It’s a fascinating… Your point is well-taken, it’s a fascinating social political issue on a million different levels.

John Marchica:
Yeah. Yeah. But we’re certainly, I think as a society, we’re better off by having these. But just… We’re in emergency situation here, but in just traditional drug development, again, in some cases, from society’s standpoint they say, “Well, make it available to everybody”. Well, then they wouldn’t have invested the… It’s about a billion dollars. It may be north of that, to develop and commercialize a drug these days.

So, what is your sense of… You talk to a lot of CEOs, a lot of these executives. I do. But what, as you’re looking to 2021, as we’re coming out of… It’s going to sound like it’s coming from left field, but I want to be future-focused before we wrap things up. What is some of the key trends that you’re seeing as we’re coming out of this pandemic, with some of the hospitals, and health systems, and some of the CEOs that you’re talking to?

Scott Becker:
Sure. So we spend a lot of time with health system CEOs talking about the issue of, how’s your strategy look today, in the COVID era and going forward, versus a few years ago. So, strategy a few years ago was, same sort of growth in our health systems, M and A, as well as looking at how do we strengthen ourselves in orthopedics, cardiovascular, neurosciences, oncology, a few other specialties. How does that look today, versus going forward, versus five years ago?

Because it was pretty simple. The strategy a few years ago was bigger and bigger systems, more and more market power, making yourself indispensable to payers and patients in your area, collecting more and more great physicians and great providers, and so forth. And now you’ve got this situation where you’ve had this explosion of, how do you intermix into your strategy digital and consumer health, and virtual health? How do you mix into your strategy some of the things that were ignored, or not brought to the front as strongly as they were before, like health equity. And making sure that you’re a lead on health equity, not just in revenue, on fee-for-service and your five great service lines, how do you hit those things? How do you work on community health?

And how do you at the same time, more and more, you have to be a great place to work for your increasingly burdened workforce. Both nurses, clinicians, everybody. And your physicians, in a nation that has got 330 million people, and is aging, and doesn’t have enough doctors and nurses and clinicians. And there used to be a lot of different ways that we filled the gaps of these things. A lot of it was through immigration, magnificent nurses are immigrating here and magnificent doctors are immigrating here, and we’re still filling the gap in a lot of ways like that, and thank God.

But it’s a fascinating sort of ecosystem of people are working in. How do they keep going on their core strategy, while looking separately at more and more workforce issues, more and more digital and consumer health issues, consumerism issues?

And still, at the end of the day, size matters. Because when you look at this pandemic, and too big to fail, and those kinds of concepts that all of us learned first time 10, 12 years ago in the banking crisis, size matters. When you need to treat thousands of COVID-19 patients, it’s not your hospital in Carefree that’s doing it, it’s your Banner Health system that’s doing it.

And that’s not here nor there, that’s not a negative, but that’s just the reality of it is, the small critical access hospital doesn’t have the staff, the resources, the energy to do it. They serve a critical role in our society. They serve a very important role in our society, but come a pandemic, you need the Mike Cowlings in North well healths, the Common Spirit healths, the [Tanner 00:34:55] healths. We just need these systems that have enough capacity, and can hire enough nurses and staff and team, to take care of big problems.

So you’ve got this huge ecosystem change. Well, you have some of the same things people are still focused on.

John Marchica:
So Scott, there’s this… What I’m struggling with is, the trend has been to push care out of the hospital, right? More care in the community. And the hospital CEOs are saying, “Wait a minute, I’ve got to keep my beds full”, and they’re… So you have a situation where the incentives, now, are to either close hospitals down, or have fewer hospitals. At least some level of pressure there.

Scott Becker:
Yeah.

John Marchica:
But if you’re pushing care out to the community, to physician offices and all of that, then you can’t be… If you don’t have the physical plant, to your point, if you don’t have he capability, how do you manage a pandemic? How do you…

Scott Becker:
So your point is right on. So what really happened was everybody moved towards just-in-time inventory, and getting rid of beds. Because this was much more efficient, and allowed people to run systems in a much more efficient way. Obviously, 2020 was a huge wake up call.

Also, just-in-time inventory, which has been so popular in so many circles for so long. Even in the media business, simplistically, we don’t want more paper on hand than we need to have, because there’s a carrying cost. In the healthcare business, people don’t want more PPE on hand, or more pharmaceuticals on hands because there’s a carrying cost, as long as they can get it just in time. Well, Cardinal, McKesson, others. Why don’t we need it? Medline, whoever it is, let them handle distribution like Amazon does, and let’s not have more than we need to.

Now, all of a sudden, people said… A big step back. The chief of supply chain at RWJ Barnabas and all these big systems becomes far more important than they did 10 years ago. Because now they’re trying to manage and negotiate for a little more capacity internally, not just the most efficient.

Similarly with beds. The whole, as you mentioned, that you’re pointing to, the whole effort of the last 10, 15 years was, we’re over-bedded. This was a country where constantly we’re over bedded. There’s too many beds, and you had hospitals failing because they were just not full, they were 30% capacity. You can’t keep a hospital going. They’re just risks.

Now, of course, you have a pandemic. And if you use the word over-bed at someplace, people want to shoot you. Over-bedded? We don’t have enough beds. And so, there’s certain things that change the dynamic. So you find you still need the beds, you still need the capacity. You might not be staffing it 24/7, and how you staff becomes very important, but you’ve got this huge change in how you do care.

And there’s a whole nother set of issues, that we won’t have time to discuss today, of fee-for-service, versus capitated. Fee-for-service income got hurt this year, capitated on capitated revenue did great this year. Just because they weren’t providing services, because you couldn’t do all the elective services, so people cleaned up that were capitated.

So you have all these other issues that are very complicated issues. And it moves more and more towards, whether you’re a fan or not, whether you view it as societal good or not, big systems become very important, because they have the ability to withstand these ups and downs that a small hospital often cannot. And just different challenges and issues. That’s a fascinating set of issues.

John Marchica:
It is. It is. Well, Scott, listen. I think I’ve taken you a little bit over. This has been awesome. And great getting to know you. Hope to have you back on the podcast sometime, we… This is a nice blended conversation. Talked a little entrepreneurship, talk a little media, talk a little healthcare. So it was great. I really enjoyed it.

Scott Becker:
Oh, just a great pleasure. Thank you so much for having me on, what a pleasure to visit with you.

John Marchica:
All right, Scott, take care now.

Scott Becker:
You too. Thank you.

Kim Asciutto:
From all of us at Darwin Research Group, thanks for listening. Health Care Rounds is produced and engineered by me, Kim Asciutto. Theme music by John Marchica. Darwin Research Group provides advanced market intelligence and in-depth customer insights to health care executives. Our strategic focus is on healthcare delivery systems and the global shift toward value based care. Find us at darwinresearch.com. See you next round!

About Darwin Research Group

Darwin Research Group Inc. provides advanced market intelligence and in-depth customer insights to health care executives, with a strategic focus on health care delivery systems and the global shift toward value-based care. Darwin’s client list includes forward-thinking biopharmaceutical and medical device companies, as well as health care providers, private equity, and venture capital firms. The company was founded in 2010 as Darwin Advisory Partners, LLC and is headquartered in Scottsdale, Ariz. with a satellite office in Princeton, N.J.

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