August 12, 2019

In 2014, Mayo Clinic celebrated its 150th anniversary—a moment when the storied health system might have been expected to rest on its laurels, or at least to double down on its historical strategy.

Mayo's then-CEO, John Noseworthy, decided on a very different approach.

In a commentary published at the time, he shared a striking vision of the health system's future in 2020. While emphasizing Mayo's continued commitment to its core values, he announced three strategic bets that seemed unexpected and risky—especially compared to the usual hospital growth playbook.

In particular, Noseworthy said Mayo would:

  1. Avoid sending patients to a Mayo site of care whenever possible. The system would "aggressively develop innovative digital platforms to minimize the need for patients to travel to a Mayo Clinic site except when essential." Essentially, the system aimed not to be a "place" to visit for care, but a "'resource' capable of delivering a continuum of personalized services … without the patient leaving the home";
  2. Hop off the consolidation bandwagon. Rather than joining in the "extensive consolidation of organizations" happening elsewhere in the market, Mayo would instead invest in a network model that would support "the diffusion of knowledge" without engaging in M&A; and
  3. Cut costs—and pass the savings to patients. Mayo would undergo hundreds of process improvement initiatives and, rather than padding its margins, would "pass along savings to patients" to make their care more affordable.

The plan was ambitious, intended to reach 200 million patients by 2020. It was also a distinctly different path than those pursued by the country's other leading health systems. So has Mayo really stuck by these big bets, and have they paid off in practice?

Let's explore each one—and what it tells us about the organization's strategy moving forward.

Bet #1: Avoid sending patients to a Mayo site of care whenever possible

In their 2014 assessment, Mayo noted that "the emergence of our hyperconnected world," along with "changing cultural expectations for immediacy across geographic distances," was making digital health inevitable in the modern health care system. And while plenty of health organizations are pursuing digital technology, Mayo was clear from the get-go that it would focus on innovations intended not to complement Mayo's physical assets, but to replace them.

Partly, this was driven by necessity: Mayo's central location in Rochester, Minnesota, a town of just over 100,000, has necessitated a different growth strategy than that of a health system in a major city. While Mayo has locations in Florida and Arizona, and has heavily invested in making itself a destination for the global elite, it needed to rely on telemedicine to scale its expertise.

To make that happen, Noseworthy was adamant about reducing the regulatory and administrative barriers to telemedicine. This push has continued—for instance, Mayo recently supported the sponsors of several Arizona bills to make telemedicine more accessible. Meanwhile, in the clinical sphere, Mayo has used telemedicine robots to evaluate football players for concussions, employed telemedicine to evaluate newborn resuscitation, and used tele-controlled robots to perform intensive cardiac stenting surgeries. All told, Mayo provided over 39,000 discrete telemedicine consults in 2018 alone.

One of Mayo's most advanced telemedicine bets is their Enhanced Critical Care eICU program, which connects the central Rochester location to eight ICUs around the country, allowing intensivists to connect 24/7 with remote patients. The system allows real-time audio/ visual connection, as well as secure access to the patient's complete EHR, with provider notes, laboratory data, imaging scans, and continuous vital sign information from bedside monitors. Streaming data are analyzed by software to monitor trends in the patient's condition and to alert the care team if the patient may be deteriorating.

The eICU has reported significant clinical successes. Mayo's mortality index, which compares observed to expected mortality, improved by 40% for patients in the eICU program in the year after implementation. Mayo believes so much in the power of these services that it historically has absorbed the cost of providing eICU services for the hospitals in its health system.

As the reimbursement and regulatory landscape for telehealth becomes more favorable, Mayo will undoubtedly continue to advance in this arena. In particular, telehealth will grow even more essential to Mayo's second big bet: scaling its operations through the diffusion of knowledge, rather than M&A.

Bet #2: Hop off the consolidation bandwagon

Noseworthy was prescient in 2014 when he observed that "[f]or-profit and not-for-profit health care institutions and insurers are merging in various combinations with a focus on financial return," and that they would increasingly advance this consolidation.

Mayo didn't want to go down that road. Rather, Noseworthy explained, "Mayo's most scalable and differentiated asset is knowledge."

To double down on that asset, Mayo launched its Mayo Clinic Care Network (MCCN) in 2011. The integrated network is comprised of more than 40 "high-quality practices who share Mayo's patient-focused ethos" and pay a membership fee to access Mayo's knowledge and tools. These tools include eConsults and inpatient telephone consults with Mayo's specialists; AskMayoExpert, a digital platform that includes care protocols, order sets, alerts, and decision support tools; eBoards, where providers can discuss complex cases in interactive video conferences; and administrative consulting.

Although the MCCN network was initially intended to include only practices within a 500- to 700-mile radius of Mayo's main sites, it ultimately expanded after high early interest. In 2018, MCCN collectively saw more than 12.5 million patients and now includes practices across 35 states, as well as in Mexico, Egypt, Saudi Arabia, United Arab Emirates, South Korea, Malaysia, and China. Mayo touts its "extensive due diligence process" for prospective member practices, allowing Mayo to carefully vet the organizations it allows to share its brand.

The care offerings Mayo provides members are fairly unique. Mayo chose only to offer services used by their own staff, as opposed to new or vended products created specifically for the MCCN. In practice, it's essentially been able to expand its care network, gain revenue from the fees it's charging, and build a pipeline for referrals, all by selectively opening access to its staff and knowledge.

This strategy certainly wouldn't be possible for organizations that lack Mayo's brand halo and deep expertise. But it's noteworthy that even Mayo came to this strategy only after trying, and in some cases faltering, with a more aggressive approach to M&A.

In the mid-1990s, Mayo built a rural care network by affiliating with dozens of hospitals across the upper Midwest. However, this left Mayo making hard decisions about whether to sustain hospitals in areas with low demand. For instance, its decision to merge hospitals 23 miles apart in Alberta Lea and Austin, Minnesota led to a very public battle that somewhat tarnished its image in the state.

By pursing a network affiliation model instead, Mayo has insulated itself from local market forces while still expanding its reach. The approach also enabled Mayo to test new telemedicine pilots, spare patients unnecessary travel, and in many cases provide a lower cost of care.

Bet #3: Cut costs—and pass the savings to patients

Noseworthy's emphasis on lowering costs was especially striking because, in 2014, Mayo's financial health was under attack from several fronts. Among the challenges: declining revenue; the "concerning" solvency of Mayo's trust fund; and cost control efforts from government health programs, insurers, and employers.

But rather than respond by raising prices, Noseworthy urged that "we do all we can to make our care affordable for patients." He added, "Mayo must be trusted and affordable if we are to remain indispensable to our patients and competitive in the marketplace."

To accomplish that goal, the clinic has pursued more than 400 projects aimed at taming costs. By 2017, it reported cutting $900 million in costs in the previous five years.

The system's approach to cardiovascular surgery is a perfect example. In 2009, the department asked Noseworthy to add two more ORs to meet growing open-heart surgery demand. He denied the request, even though it was a high-revenue department, and instead asked the department to cut costs by 20%.

Upon reviewing the financial details more closely, department leaders learned surgeons' average cost per case ran between $55,000 and about $110,000—a range that Joseph Dearani, chief of cardiovascular surgery, said demonstrated "too much variability."

They discovered two primary drivers of cost variation: the patient's length of stay and the surgeons' choice of mechanical heart values. To reduce patients' stay length, doctors began discharging out-of-town patients to a hotel one or two days before their flight, asking them to come in for a follow-up visit before they departed. Then, to lower valve costs, surgeons over two years winnowed their valve selection to those from two vendors, enabling Mayo to negotiate lower prices through bulk purchasing. Due to these changes, among others, the department cut costs by "millions of dollars."

Mayo has also supported academic research into health care costs. In 2013, it opened the Robert D. and Patricia E. Kern Center for the Science of Health Care Delivery in order to "quantify the quality and the costs of our services to drive better outcomes at a lower cost." Finally, the center has collaborated with Optum to found Optum Labs, a project looking at data on over 150 million people that seeks to "understand the key variables that determine best care at lowest cost." (The Daily Briefing is published by Advisory Board, a wholly owned subsidiary of Optum.)

It's important to acknowledge the elephant in the room: Mayo Clinic, as a leading academic medical center, is still an expensive place to receive care. And Mayo has not released information about how these cost-cutting efforts have specifically translated into lower patient charges. Further, some purchasers are skeptical of Mayo's prices: Minnesota's state employee health insurance program, for instance, ranks Mayo's care as the most expensive in the state, and it provides financial incentives for workers to choose other options.

Even so, Mayo continues to forge high-profile Center of Excellent arrangements with employers such as Walmart, premised on the idea that steering patients to Mayo's high-quality care leads to cost savings down the line. Simply put, although Mayo charges more than other providers for an organ transplant surgery, "if you can avoid a second one, you save a bunch of money," said Dr. Charles Rosen, a Mayo transplant surgeon.

What have these big gambles meant for Mayo's future?

In 2018, Mayo's revenue grew 5.1% to $12.6 billion as it saw more than 1.2 million patients from all 50 states and more than 135 countries. That growth was impressive given that 2018 marked the end of Mayo's implementation of a single EHR system—a process that involved the work of over 52,000 staff members and required 287 legacy systems to be retired.

This growth, while slower than in past years, was steadier than the growth experienced by many similar health systems facing the same headwinds. It also attests to Mayo's ability to diversify its revenue streams: Advances from Mayo Clinic Laboratories and commercialization activity from Mayo Clinic Ventures grew 8.8% to reach $1.3 billion in 2018.

All of this revenue growth has allowed Mayo to continue investing in unprecedented capital improvement projects—totaling $1 billion in 2018—that should allow it to compete with other big-name health systems, such as Cleveland Clinic and Johns Hopkins, in attracting those travelling for care.

Even so, Mayo still shies away from too much of a focus on the financials of care, seeking to turn the spotlight back on patient outcomes. As CEO Gianrico Farrugia proclaimed when announcing Mayo's 2018 financial results, "These strong achievements allow us to strategically and purposefully transform health… I'm excited about Mayo's future and the opportunity to work with the best staff in health care to drive change, guided by the best interest of patients."  

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