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The Business models often change quite dramatically over time in the American economy. During our time the bookseller; Amazon changed the concept of a book selling and its book retailing vision led to the radical diversification of its product line.

At Healthcare Opportunities Investment Advisors, we offer business models that aren't more resistant to change, with firms concentrating on specialization rather than engaging in organizational innovation and diversification. Take the example of hospitals. Within our health system, hospitals carry out a “repair shop” function, and, despite new technologies and advancing professional skills, that function and business model has changed little for over a century.

True, there has been some alteration at the margin. Walk-in clinics and many physician offices now provide some services that used to require a trip to the hospital emergency room or a hospital admission; but that has not done much so to reshape the basic concept of a hospital. It is also true that hospital administrators have become much more businesslike in managing cost and improving quality. But hospitals have altered little in an institutional or functional sense.

However, things could change. One school of thought sees hospitals radically improving efficiency by becoming highly specialized “focused factories.” Like the three point shooter on a basketball team, the argument goes, hospitals will reduce the range of services they provide and concentrate on providing a small number of services as efficiently as possible, with patients going to different hospitals for different procedures. According to this view, hospitals should cease thinking of themselves as a one-stop shop offering a wide range of services, thus going in the opposite direction of Amazon. However, another school of thought would encourage hospitals to evolve in a different direction. According to this view, hospitals would become far more involved as “hubs” in communities, orchestrating a wide range of non-medical social services even such things as housing that contribute in some way to health.


There is a good reason to advance this second model and turn hospitals into hubs that provide a range of social services. In America, we have overmedicalized health; we assemble impressive and very expensive medical technology to fix people when they are sick or injured. However, we spend proportionately far less than other countries for social services that address so-called determinants of health that contribute to better health and reduce the need for medical care.

We spend proportionately far less than other countries for social services that address so-called determinants of health that contribute to better health and reduce the need for medical care.

If one combines medical spending and social service spending for the advanced industrialized countries, as a proportion of GDP, the United States ranks just a little above the average.


We believe at Healthcare Opportunities Investment Advisors that switching funds from medical care to social services and housing, however, is not exactly a welcome idea to the typical chief financial officer of a hospital. It is true that many hospital administrators recognize that the health of their patients would improve if there were more integration of hospital-provided services with social services, such as making sure discharged patients received support services in their community. Most administrators also agree that offering hospital staff to train individuals and community institutions in prevention techniques would improve community health. However, in the manner of “no good deed goes unpunished,” administrators point out that they have no financial incentive to spend hospital money to reduce the need for hospital services and hence reduce revenue. Indeed, their financial incentive is NOT to reduce the demand for hospital care. This is often referred to as a “wrong pockets” problem; a situation in which we would have better outcomes if one institution or sector invested money, but because the primary benefit accrues to another institution or sector there is no incentive to make that investment.