While America’s health care policy is still uncertain, the strategic direction of most hospitals remains fundamentally unchanged. Nevertheless, there remain many uncertainties, not only about the future of Medicaid and coverage, but also about the commitment to payment reform like the Medicare Access and CHIP Reauthorization Act (MACRA) and bundled payment initiatives. This uncertainty has caused leaders to evaluate the overall commitment to risk-bearing strategies and the pace of change for payment and delivery reform.
Ten Common Themes
Health care systems have been criticized for suffering from groupthink, slavishly following the conventional wisdom. While this may be a valid criticism, the common themes of health systems’ strategic plans do seem to make sense. I see a lot of strategic plans in my travels, and I participate in many health system board retreats in states from California to Maine, Louisiana to Oregon. And I have had the opportunity to interact with leaders and board members from all over the health care ecosystem. In my experience, hospitals and health care system executives draw on some or all of the following 10 common themes in their strategic plans.
Strategic growth. Every health system I’ve ever worked with is trying to grow.
The primary vehicle is not growth through acquisition (although mergers do continue) but organic growth from 1) increasing market share in primary service territory for key service lines and 2) extending into geographically contiguous markets by planting footprints such as ambulatory care centers or primary care physician networks to capture referrals from competitors.
Obviously, there are winners and losers in such a strategy, and not everyone can succeed. Indeed, I have joked that if you add up the strategic plans of all the geographically contiguous health systems in the Midwest, you would need the entire population of China to move to the Midwest to fulfill all of their growth aspirations.
But growth takes many forms, including new partnerships along the continuum of care, and with other nontraditional health care actors, such as retail clinics, free-standing emergency rooms and urgent care clinics.
Regional powerhouses such as Carolinas Health and Texas Health Resources are good examples of systems focused on strategic growth using each of these growth elements.
Consumer engagement. Health care administrators are recognizing that they need to pay better attention to consumer decisions. Increasingly, consumers have high-deductible plans and more responsibility to select plans and providers and to decide on patterns of care (including forgoing care because of cost or seeking out lower-cost alternatives). Health system leaders are focusing on engaging consumers by establishing convenient locations, flexible hours of operation, and creative use of new consumer-facing technologies. Health systems such as Providence have been pioneers in this area.
Consumers also play an important decision-making role in government programs from Medicare Advantage (which accounts for approximately one-third of all Medicare enrollees) to exchange and managed Medicaid consumers who are often required to select plans and therefore choose provider systems. Managed care companies that have strengths in Medicaid (like Centene and Molina) have proven more adept at understanding lower-income consumers and in developing provider networks that are more affordable and effective than their traditional commercial insurance competitors.
Consumer decisions matter not only because they select plans and providers but because their care experience (as measured by patient satisfaction) is increasingly a factor in the financial success of plans and providers. For example, health plans in the Medicare Advantage space are obsessed with star ratings because of the financial and marketing advantage that five-star status brings. Similarly, the growing importance of Consumer Assessment of Healthcare Providers and Systems scores in Medicare, and commercial payment for hospitals, makes consumer satisfaction a primary financial driver of the hospital’s bottom line. Systems like the Cleveland Clinic have concentrated on improving the patient experience, and many have appointed chief experience officers.
Many health systems are actively engaged in enhancing the consumer or patient experience with new consumer-facing tools and technologies (more of which below), improved customer service, process improvement, and training staff to encourage care and compassion. In addition, investment in improving provider satisfaction is seen as a critical determinant of patient experience. For example, many health systems embrace “restoring provider joy in practice” as a fourth element to be added to Dr. Donald Berwick’s Triple Aim.
Several of the tools and technologies that are being deployed have to do with care coordination and support, shared decision making, consumer navigation, and wellness and health promotion. But in my experience, one of the key determinants of patient satisfaction has to do with out-of-pocket costs. Increasingly, as the financial burden is placed on consumers, the financial “gotchas” such as out-of-network charges or alarmingly high deductibles can have a significant negative impact on consumers’ satisfaction with plans and providers. Providers need to take responsibility for communicating with patients clearly, fairly and compassionately about their financial responsibility. And let’s be honest: Consumers on the hook for big cost sharing may still be cranky at the end of the day.
Physician relationships. In every strategic plan I have seen in the last five years, physician relationships are among the top three priorities. This takes many forms. Much of the focus is on both clinical and economic integration with physicians to improve care performance and enhance provider loyalty. While not every health system is on the path to formal vertical integration such as Kaiser’s, almost all health systems have embarked on some form of economic integration with doctors.
Most health systems have three buckets of physicians. The first bucket contains the employed multi-specialty medical group that many systems continue to grow rapidly. The second bucket is composed of a group of loyal and tightly engaged physicians who may be in a formal independent practice association or are the core exclusive medical staff for that whole system. The third bucket is filled with community-based physicians who may have varying degrees of loyalty or exclusivity with the health system.
In my experience, we are seeing more physicians in buckets one and two and fewer in bucket three. But Dr. Dan Varga, chief clinical officer of Texas Health Resources, is smart to point out that to be successful, health systems have to provide what he terms “economic docking opportunities” with all three buckets of these physicians, whether it be through employment at one extreme, joint ventures at the other extreme, or the use of clinical integration organizations to contractually bind the physicians to the system somewhere in between. The three-bucket model is everywhere.
Not only are hospitals engaging in clinical and economic integration with doctors, but they are placing more emphasis on improving physician experience, particularly in the face of a growing recognition that the majority of physicians are suffering from burnout.
There is a “cooling of ardor” toward acquiring and building physician practices, as well as growing anecdotal evidence in the marketplace of both buyers’ and sellers’ remorse. My old line from the ’90s about employing physicians – “Why would you want to capitalize the future income stream of a bunch of passive-aggressive people?” – remains a valid critique of physician employment.
However, there is a growing cadre of younger physicians fresh from medical school whose expectation is not to put up a shingle and spend 100 hours a week in practice. Rather, they are looking for an employment contract with secure earnings and work arrangements that fit with their lifestyle. Young graduates of both genders are gravitating to employed situations. This explains why salaried organizations such as Kaiser, Mayo, the Cleveland Clinic and other large health systems with employed medical groups have little difficulty recruiting physicians. The exception to this generalization is smaller and more rural environments, which have a constant struggle attracting medical staff of all types.
Quality and patient safety. It has been almost 20 years since the Institute of Medicine recognized patient safety concerns in its landmark “To Err is Human” report. Critics argue we have made very little real progress in two decades, despite significant attention to the problem.
But I take a more positive view: My experience is that every health system has put quality and patient safety high on its strategic agenda. Each picks an “operating system” or strategic framework for quality, whether it be Lean, Six Sigma or High Reliability. The systems develop focused initiatives within this broader framework, such as falls prevention or reducing hospital acquired infections. They select specific measures and develop an accountability path to monitor progress and take corrective action. And they develop governance frameworks (whether it be clinical councils as in the case of Memorial Hermann in Houston or “physician compacts” as in Seattle’s Virginia Mason) to engage physicians directly in governing the activities of clinical improvement.
Increasingly, leaders and board members recognize that to have good governance practices, they must give extremely high priority to quality and patient safety initiatives. I am encouraged that this will remain a top priority and that results will improve.
Innovation at scale. Over the last decade, partly as a consequence of investment under the Health Information Technology for Economic and Clinical Health Act, American health care has come into the digital age – electronic health records in hospitals and physicians’ offices have become ubiquitous. The EHR has become table stakes for care delivery. New opportunities are emerging with innovations: Some technologies support population health and data analytics; others such as consumer-facing apps will help engage consumers. Other promising technologies will assist physicians and other caregivers to manage the hassle factor of EHRs, including voice recognition technologies. For example, health care accounts for a full half of Nuance Communications’ business. (Nuance is the leading speech recognition technology vendor.)
One way health systems are improving care is by using scribes, reportedly among the fastest-growing category of health care employment. Scribes are support staff who track physicians either actually or virtually (as in the case of Augmedix, a Google Glass–based system) and enter data into the EHR. In a recent polling of CEOs at an industry conference attended by 150 of the largest health systems in the country, we found a full 56 percent of the audience reported having scribes in their facility – a testament to the need for EHR workarounds.
Two other major innovations concern big data and analytic initiatives using machine learning and artificial intelligence. While the doctor won’t be replaced by robots or software anytime soon, there are major opportunities to enhance clinical decision making and to guide consumers and providers alike through the insights that big data and predictive analytics can provide.
The final intense innovation focus is on virtual health and telehealth. Whether it be enhanced access to specialty consults for rural health care in systems such as Mayo and Avera, or remote monitoring of intensive care unit patients by specialized clinical ICU supervisors at St. Louis–based Mercy Health’s many ICUs, virtual health presents new opportunities for the field to improve quality and reduce cost.
No matter the innovation approach for the set of projects that are prioritized by the institution, the key challenge is innovation at scale. We must avoid what I call the Scout badge problem – one-off pilot projects shown off like merit badges at board meetings but with little meaningful use. Such pilots are useless if they don’t scale and can be a distraction for the clinical enterprise. Technology accelerators such as AVIA or Rockhealth or Health Box play a key role in deploying innovation. AVIA in particular is committed to curating innovative solutions that solve health systems’ key problems and coaching health systems to deploy these innovative solutions at scale.
Culture and people. Almost all health systems have a value-based culture that is manifestly important to the mission of the organization and guides the strategy and behavior of the organization. Many systems are faith-based and guided by the principles and values of their religious sponsors. Many systems have adopted the great Don Berwick’s Triple Aim as their north star.
Other systems such as Ohio Health or Atlantic Health strive to be a best place to work in their community and benchmark themselves against other leading national employers. Across the country, health system leaders are passionate about creating an engaged workforce, and are building respect, reliability, retention and resilience among their employees.
Value and affordability. As financial pressures intensify, with public payment rates likely to be constrained over the long haul and private purchasers concerned about their cost for health care, health systems are trying to work on their underlying cost structure and identify opportunities to improve value and affordability for the various customers. But each stakeholder sees value somewhat differently.
For consumers, value means low out-of-pocket costs, keeping their current doctors, convenience, proximity and, in some cases, reputation of providers. (There is much less institutional loyalty than there is loyalty to physicians, unless the price is right.)
For public purchasers, such as Medicare Advantage plans or Medicare through the proposed MACRA legislation, the criteria for value depend on multiple performance measures, including patient satisfaction, cost effectiveness, meaningful use of EHRs and adherence to quality improvement principles.
For private purchasers, particularly self-insured large employers, value takes many forms: Some are looking for choice, high quality and low unit costs on a fee-for-service, preferred provider organization basis, while others are seeking innovative relationships with providers (including centers of excellence, high-performance narrow networks and accountable care organizations). A subset of employers is experimenting with more direct relationships with health systems including global giants such as Boeing, Disney and Apple.
Clinical differentiation. Most health systems have identified three or four top critical priority areas; however, in my experience, it always ends up being the same three or four: orthopedics, cancer, cardiovascular and neurosurgery, which happens to be where the money is. Very few hospitals claim to be specializing in morbidly obese patients with behavioral health issues or the frail elderly or care for the homeless. Just sayin’.
For academic medical centers, this clinical differentiation is even more concentrated, and many leading such centers are focused on quaternary care in the four service lines, including transplantation, and are betting on a future of personalized (or precision) medicine, including such notables as Stanford and Penn.
Financial sustainability. All health systems have a strategic priority for financial stability or financial stewardship. As the cliché goes: No money, no mission. Every health system must obsess over the financial hydraulics of payer mix (managing the relative balance of unprofitable Medicare and Medicaid business against more profitable commercially insured patients). As public payment grows because of an aging society and widening income inequality, health systems are anticipating a tightening financial future, a future that would be even tighter if coverage is eroded.
As I have noted in previous columns, few health systems have been able to make money on Medicare, but in many institutions, there is a growing recognition that the cross subsidy from private payment may not be sustainable for the long term. Indeed, the pattern I’ve seen across the country is that 2015 was the “best year ever” financially for many institutions, fueled by the combination of a recovering economy and coverage expansion (especially through Medicaid) and increased cost discipline and operational improvement. The increased coverage reduced bad debt for inpatient care, and the improving performance of cost-cutting initiatives launched in the recession yielded positive financial performance for 2015.
Finances for some soured in 2016 and into 2017 partly because Medicare and Medicaid patient loads have grown. There is considerable anxiety in the field that potential health reforms such as the American Health Care Act or its derivatives will challenge finances even further.
Population health and risk-bearing strategy. The one approach with a significant variation in strategy is population health and overall risk-bearing strategy. I have written at length on both of these, most recently about population health, so I refer you to a previous column.
[http://www.hhnmag.com/articles/7416-look-to-income-inequality-to-help-explain-population-health]
Health system leaders diverge in their attitudes toward risk bearing. At one extreme are those who want no part at all of risk bearing in any form beyond modest pay-for-performance incentives. (This may be a third to a half of all hospitals in the country, according to Nielsen/Harris surveys.) In the middle of the spectrum is clinical integration, where administrators are beyond dabbling and are making very serious efforts to integrate with physicians to contract with health plans – and to embrace improvement in clinical performance on a systematic basis with an aligned medical staff.
Then there are those who are eager to embrace risk (perhaps accounting for as many as 20 percent of institutions). We have identified a group of about 8 percent of leaders who agree with the statement “We will derive the majority of our revenues fully at risk within five years.” (That number has hovered around 6 percent to 8 percent over the last three years of surveys.) A slightly less aggressive version of that risk-bearing strategy is that they are preparing for risk bearings such as accountable care or the opportunity to contract directly for Medicare Advantage (which is a further 10 to 12 percent of hospitals). So, approximately 20 percent of health systems are serious about risk, and this is reflected in the same percentage in surveys reporting that they anticipate having a state health insurance license within five years.
The American Hospital Association has identified 100 health systems that currently have their own health plan. A provider-sponsored health plan strategy remains controversial and is not for the faint hearted. Overall, in my view, there is no clearly preferred risk-bearing strategy; each of the options could work but depends on execution. But remember, bearing risk requires thinking like an insurer, which can be a major challenge for institution leaders still wedded to fee-for-service economics.
Looking Ahead
In a Trump administration with potential health reform to repeal and replace Obamacare still being debated, do you change your strategy? I’ve asked this question of many CEOs across the country, and I’ve participated in many board retreats since the election, all over the country, discussing the issue. I have also had the opportunity to poll CEOs at various meetings in the last few months. My overall conclusion is that most CEOs are committed to staying the course on the strategies, drawing on the 10 common themes outlined above. Obviously, not everyone has exactly the same strategic plan, but certainly there is remarkable agreement on the common themes. Most CEOs and board members are of the opinion that the pursuit of high-value care, through strategic growth and clinical integration, with increased attention to population health, remains the most sensible strategy.
However, there are key uncertainties that a Trump administration reform could impact:
Coverage expansion. This has been very important to the bottom line of all health organizations. But it has been a mixed blessing: On one hand, it has substantially reduced bad debt in every state (especially where Medicaid was expanded, and where previously uninsured patients were newly covered). At the same time, Medicaid expansion permanently impairs the payer mix. We await the final true policy direction, and let’s be clear: deep Medicaid cuts such as proposed in the AHCA would harm most hospitals and be devastating for the most vulnerable rural and safety net institutions. But no matter what the policy outcome, it will have consequences for the financial sustainability and stewardship dimensions of most health system strategic plans.
Payment reform. The second point of concern is the Trump administration’s commitment to continued payment reform. The conventional wisdom is that payment reform, such as MACRA, bundled payment and value-based reimbursement, will remain largely untouched. However, many CEOs expressed concern that the Trump administration’s commitment to bundled payment programs, MACRA and so forth may not be as intense or urgent as if it would have been under a Clinton administration. So, there are many CEOs revisiting not the direction of change but the pace of change, and they await policy clarity.
Consumer responsibility. Consumer responsibility for payment would be even more dramatic if AHCA-type legislation actually passes, intensifying many of the challenges laid out earlier in terms of out-of-pocket costs, consumers seeking lower cost alternatives, and dissatisfaction with care associated with out-of-pocket burdens.
Role of the states. No matter what, states will have more flexibility over the next few years, and CEOs need to pay more attention to their state capitals and policymakers who will play a bigger role in determining the strategic context. Increased variation across states in terms of policy will challenge multi-state health systems strategic plans and require customization to adjust to what fellow futurist Jeff Goldsmith has called the local “terroir”.
I am deeply impressed by the commitment of all CEOs and their board members to doing the right thing. I have interacted with many over the last few months who tell me “no matter what” they are committed to serving their communities, to delivering high-quality care and embracing the need for affordability. They recognize the importance of belt tightening as they anticipate a more challenging financial environment. They stress the need to innovate their way to care redesign and higher performance. They are preparing to weather fiscal storms that may come. And they are paying renewed attention to operational excellence. Great leaders do all that.
So, stay the course, and continue the work toward higher performance.
Ian Morrison is an author, consultant and futurist based in Menlo Park, California. He is also a regular contributor to H&HN Daily and a member of Speakers Express.