Moneyball in Healthcare





Let’s be honest: healthcare is a big business. It’s made fortunes for inventors who hold patents to medicines, apps and technologies and for investors who bet on for-profit hospitals, big IT platforms and others.  In March, 2010, when the Affordable Care Act passed, some predicted the end of the system as we know it. Five years later, it’s a better bet than ever. Why? It’s simple. The healthcare pie continues to increase even while other pies shrink.

Since passage, spending in the U.S. on healthcare has continued its steady climb reaching $3 trillion last year. The National Health Expenditures data show an amazing consistency in where money is spent as the pie gets bigger: comparing 2014 to 2010, the share of spending for hospitals, physician services, drugs and post-acute care are virtually unchanged. Healthcare spending seems pre-destined to grow even when the rest of the economy isn’t: employment in healthcare increased a million while the rest of the economy lost 5 million jobs in the 2007-2010 downturn. While the U.S. GDP struggled to reach 1-1.5% growth in that period, healthcare annual spending increased at a 4% annual clip. And as the recovery continues, so is the expectation that healthcare spending will eclipse our annual GDP growth by at least 2% every year for as long as government bean counters can predict. It seems a safe bet with newly insured and older folks using the system more, investors and lenders are willing to fund new and improved ballparks. It’s like betting on the free agents in the major leagues to pick off the league’s star mercenaries for the pennant chase.

Is Moneyball analogous for healthcare? I think yes. The healthcare industry is akin to free agentry in baseball: the have’s and have not’s in the major league are clearly defined more by their bank accounts than batting averages. Moody’s, Fitch and S&P are high on the investor-owned hospital management companies but tepid about the not-for-profits. Investors are betting on the better financed drug companies to spot and acquire promising therapies that can command $10,000 per dose, and the biggest health plans are leveraging years of premium growth and strong cash reserves to diversify and expand. Unlike baseball, which operates in a limited regulatory climate, healthcare operates in a heavily regulated market and everyone’s a user whether they purchase tickets or not. But the similarities between winners and losers seem aligned. And the two are analogous in another respect: sticker shock. Ticket prices and health costs are increasing faster than household incomes.

What’s this mean? It means access to capital will be a key distinction between pennant chasers and bottom dwellers in our league. It means investors and lenders will bet on organizations who prove their value statistically and dispel myths in their organizations about the relevance of any other metrics of success. It means organizations that can attract employers, government payers and consumers to buy tickets by delivering the most value will win at the gate and on the field. It means addressing sticker shock head-on with transparency and no excuses.

In baseball and healthcare, the spotlight is bright. In both, the separation between winners and losers is a continuing saga. And in both, Moneyball is being played. With due respect, mission, values, ownership and branding are moot if the Moneyball calculus isn’t right.


Sources: Hospitals in the US, IBISWorld, January 2015; Home Care Providers in the US, IBISWorld, June 2015; Health & Medical Insurance in the US, IBISWorld, February 2015; Medical Device Manufacturing in the US, IBISWorld, May 2015; Brand Name Pharmaceutical Manufacturing in the US, IBISWorld, April 2015; Generic Pharmaceutical Manufacturing in the US, IBISWorld, April 2015; Kaufman, Amy (September 22, 2011). "Movie Projector: Brad Pitt vs. 'Lion King,' 'Dolphin Tale' for No.1". Los Angeles Times. Retrieved September 22, 2011.; "Moneyball (2011)". Box Office Mojo. Retrieved 2012-02-22. Shea, John (October 18, 2008). "Beane a sex symbol in 'Moneyball' movie?" Retrieved October 3, 2011


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