Rising consumerism, new competition, and payment models designed to keep patients out of acute care are forcing hospital-centric enterprises to rethink their delivery models. Organizations that excel in building integrated care delivery ecosystems and lasting consumer relationships based on a differentiated brand promise and superior outcomes will be the ones that find success.
It’s a tough time to be a health system chief executive officer (CEO). Rising consumerism, new competition, and payment models designed to keep patients out of acute care are forcing hospital-centric enterprises to rethink their delivery models. Articles and news feeds rife with stories about hospital closings, layoffs, and the shuttering of underutilized services and facilities serve as constant reminders that old delivery models are no longer working.
Organizations that excel in building integrated care delivery ecosystems and lasting consumer relationships based on a differentiated brand promise and superior outcomes will be the ones that find success. The strategies, facilities, organizational capabilities, and leadership competencies that served health systems well in the antiquated fee-for-service world are becoming burdens as the industry shifts to value. Fortunately, there’s a roadmap for moving forward that will not only position systems for long-term success but will help them improve performance and protect margins during their transition to market-based delivery models.
Market Forces at Work
Fundamental forces—spiraling healthcare cost inflation, consumer and employer pushback on rising insurance premiums, lagging quality indicators, and increased demand for transparency and convenient access—are hastening the demise of the traditional hospital-centric enterprise. Consumers and payers alike are demanding value through better, less expensive health outcomes.
Value requires greater transparency in cost and quality; accountability for outcomes and costs across the continuum; and consumer choice based on real competition. These are the hallmarks of a market-based delivery model that is vastly different than the complex, costly, fragmented, and wasteful models that maximized revenue and met the needs of hospitals, not consumers.
The Future is Now
Some forward-thinking healthcare CEOs have already embraced the new market reality. Systems like Ascension and Northwell Health are redirecting spending from their inpatient platforms to new technologies, microhospitals, and outpatient and urgent care facilities that make care more convenient, affordable, and accessible. For example, Ochsner Health System is directing 80% of its expenditures to outpatient facilities.1 But these examples are more the exception than the norm.
Seizing upon the reluctance of some healthcare systems, new entrants are making vertical integration plays and introducing new care delivery approaches to address cost growth, care fragmentation, and access. Organizations that are ignoring the potential implications of deals like the CVS—Aetna merger or the Amazon–Berkshire Hathaway–JPMorgan Chase joint venture do so at their peril.
Hospital CEOs would be wise to subscribe to the age-old adage, “follow the money.” Look at where private equity and venture capital firms—and even healthcare system venture arms—are placing their bets, and you’ll see a very clear pattern. Investments in new technologies, products, and services designed to keep patients out of hospitals or bring their clinical expertise to the patient are flourishing.
One is an early-stage company, Outset Medical, with a product that allows patients to get dialysis at home. Another, Epiphany Health, provides direct primary care to patients for a modest monthly fee. As the shift to consumer-directed care accelerates, savvy investors in products that demonstrably bend the cost curve and keep populations healthy will be rewarded.
Payers and self-insured employers are also hastening the shift to more cost-effective care settings. Employers are combining high-deductible health plans and smarter, narrower provider networks to keep their employee healthcare expenditures under control. Payers like Anthem are increasingly resistant to paying site-based reimbursement differentials, directing nonemergent hospital outpatients to freestanding imaging centers instead. Risk-based and shared savings payment models incentivize providers to quickly and safely transition patients to less expensive settings.
Building a Sustainable Market-Based Model
As market forces increasingly focus on higher-quality outcomes, lower costs, and greater convenience, CEOs must fundamentally rethink how and where care is delivered. Shifting care from hospitals to ambulatory and home settings will make it more affordable and accessible, and new technologies and strategic partnerships will enable health systems to make such improvements.
These changes are not inconsequential. New capabilities and facilities will be required, and existing facilities will be repurposed or closed. For health systems, the stakes are high. Success will hinge upon their ability to navigate this transition and provide consumers, employers and payers with tangible evidence of superior clinical and financial outcomes.
CEOs should follow these steps to fuel transformative efforts:
1. Identify service offerings
Health systems need to define target patient populations and their needs, the services that will be provided, the settings in which they will be provided, and by whom. Offerings should be strong performers in cost, quality, and patient satisfaction measures. They must also consider market dynamics—unmet consumer needs, competitor landscape, and payer/employer appetite for value-based contracts. Partnerships can help ensure easy access to care and provide preventive services across the continuum ­­through telehealth providers or community resources.
2. Develop transparent pricing
Going to payers, consumers, and employers with predictable pricing will require an understanding of underlying cost structures and drivers like comorbidities and outliers. Organizations should understand historic revenues—billed and collected—plus future revenue projections to establish competitive pricing. Systems should also understand the cost of care across the continuum, especially in bundled and capitated payment models.
3. Establish quality commitments/guarantees
Pricing needs to be tied to quality commitments that differentiate a health system’s offerings from competitors. Quality, safety, clinical outcomes, financial guarantees, access, and patient experience add up to competitive advantage, assuming the system has data to warrant making such claims. Systems must understand the capabilities of their providers and strategic partners before establishing guarantees.
4. Align stakeholders
The delivery of outcomes at predictable costs requires evidence-based care paths, aligned incentive systems, and the ability to manage cost and quality variations. As responsibility for outcomes encompasses multiple providers across the continuum, effective care transition processes, genuine clinical integration, and thoughtful partnership agreements are essential.
5. Demonstrate differentiated value
Health systems must develop a compelling economic and clinical value story that resonates with consumers, payers, and employers. Each group has a specific set of needs and expectations that must be understood, and the ability to capture and use data to support claims that satisfy their requirements will be critical to future success.
Set a Course to Transform Care Delivery
The market is speaking, and the resounding message is that systems with hospital-centric delivery models must change. If they don’t, technology innovators and deep pocketed consumer-centric companies like Amazon and Walmart will become patients’ providers of choice. CEOs can elect to ignore these shifts, or they can set a course that ensures longevity and positions their organizations as recognized and rewarded brands.
Though transforming care delivery will be daunting, the move to value is accelerating, providers are taking on more risk, and payments are being increasingly linked to outcomes. Organizations providing a defined set of services and quality outcomes at a predictable, transparent and competitive prices will be tomorrow’s winners.
1. Landro L. What the hospitals of the future looks like. The Wall Street Journal. February 25, 2018. wsj.com/articles/what-the-hospitals-of-the-future-look-like-1519614660. Accessed April 10, 2019.