Top 10 in 2010: Ten Forces Framing Strategic Discussions for Healthcare Leaders

By any account, 2009 was a watershed year in which politics, the economy, public sentiment and the media all played a significant role in forcing our nation’s health care system into the spotlight. As the drumbeat for health care reform grew louder, the most severe recession since the Great Depression was in full swing. It became increasingly clear that in the great health care debate, economics would be front and center – the industry’s rising costs unsustainable, its value questionable, its inequity unconscionable. Today our nation remains deeply divided on a resolution. Meanwhile, the population is growing, graying and exerting more pressure on the health care system than The end point ever before. The impact of diseases of aging, chronic illness and obesity has yet to peak, and the seeds of and exact design consumerism – sowed in the childhoods of 78 million baby boomers, nurtured by mass marketers, honed by of health care years of prosperity and unleashed by the Internet – have health providers scrambling to meet ever-greater reform is less expectations for access, quality, personalization and on-demand service. The accelerated pace of advancement in information technology and medical science threaten to make facility, technology, important than equipment and clinical practice investments obsolete before returns are fully realized. And genomic the wheels it has medicine holds the promise of a revolution in patient care on the foreseeable horizon. set in motion. All that and anticipation of the first significant overhaul of our nation’s health care system since the introduction of Medicare in the mid-1960s, have health systems deliberating the likely impact of both market and government-led reform initiatives on financing, quality, access, growth and long term survival under the current business models. The degree of uncertainty is high, prompting some organizations to take a “wait and see” approach to strategy – a risky proposition at best. For in the short term, the end point and exact design of health care reform is less important than the wheels it has set in motion regarding increased industry consolidation, physician alignment, cost restructuring, market expansion and care delivery innovations. We can’t predict the future and no data set exists to create clarity for a single point strategic destination – rather the vision and strategy for industry-leading health systems will come from deep strategic conversations among leaders regarding possible, probable and preferable futures. And those health systems that step up to embrace new possibilities, envision new models and move proactively toward a future vastly different than today are more likely to seize first-mover advantage in shaping competitive dynamics. n av v i s a n d c o m p a n y. c o m article MARCH 2010 | 01

Here is a round-up of ten significant issues that will shape strategic discussions in 2010; and most likely for the foreseeable future. 1. Embracing the New Economics of Health Care Reform Whether or not a legislated health care reform package comes to pass, it is becoming apparent that the industry is moving away from a ‘pay for volume’ and towards a ‘pay for value’ market. Key strategies will focus on “bending the curve” over the long-term. The net desired effect is to spend fewer dollars on health care in the near term, and to create a new economic model that changes long-term expenditure trends. These changes are critical if congressional negotiators are to pass a nearly $1 trillion health care reform package that is budget neutral over the next 10 years. The most immediate changes expected are provisions which bundle payments to physicians and hospitals as an incentive to improve coordination of high-volume and high-margin procedures. In addition, payors will begin restricting or eliminating payments to hospitals for readmissions in related episodes of care. These changes will likely require new business models for coordinating and managing care. They reflect the broad direction of rewarding care coordination to reduce total costs over time, as opposed to structuring reimbursement around episodic treatments. It is a move toward pay for value that is based on the value proposition of integrated care, and will challenge systems to develop a new set of competencies in order to compete. How systems evolve their business and clinical strategies in response to this, will likely determine which providers survive and thrive, and which ones struggle or exit the market. 2. Transforming the Care Delivery Model For decades, the dominant economic model in U.S. health care has been based on payment for the episodic treatment of illnesses. This fee-for-service structure is hospital-centric with a private-practice physician model at its core. The perceived failure of this model to deliver value in terms of better outcomes at lower cost has been a key motivation for health care reform measures. New payment realities will now demand that hospitals and physicians work collaboratively toward a new economic model that emphasizes longitudinal management of care and costs as opposed to episodic treatments of acutely ill patients. n av v i s a n d c o m p a n y. c o m

ARTICLE: THE TOP 10 IN 2010 The goals of this new model are best described by The Institute for Healthcare Improvement (IHI) as “Triple Aim”. The goals of Triple Aim – improved individual experience, enhanced population health outcomes and lower per capita cost of care – represent a departure from a classic business model which focuses on episodic treatment of individuals. Over the next few years, look for emerging care models that are more in line with Triple Aim. For instance, accountable care organizations (ACOs) that are charged with managing the overall health of a population with finite dollars may move toward the medical home concept. Established as a demonstration project in 2006, the medical home creates a new economic methodology for health care financing and delivery, while providing greater care coordination and management to improve outcomes at a lower cost over time. The migration of care from the inpatient to the outpatient setting will continue for the foreseeable future. Destination ambulatory campuses will aggregate primary, specialty, imaging, emergency care and outpatient surgery and procedures into synergistic centers that address both consumer and provider expectations for convenience and access. Providers will be charged with developing creative post-acute care planning models that reduce costly readmissions, or reinventing access channels to better coordinate wellness initiatives and medical care. Case management of chronic conditions, such as congestive heart failure, will largely be accomplished remotely from home using technological advances and home visits by healthcare personnel. Clearly, in 2010 and beyond, health systems will need to re-evaluate traditional patient care models in favor of developing and implementing cost-saving opportunities through heightened use of post acute care options or home-based settings. 3. Creating the Next Generation Physician Enterprise Health systems have recognized that an increased emphasis on care coordination, quality outcomes and cost containment requires that they work more closely with physicians. While some physician integration models have attained limited success, there are significant cultural and structural barriers to hospitals and physicians forging an equal partnership that prepares them to jointly assume responsibility for the care of a population. With reform measures that will most likely put hospitals and doctors at risk for costs and quality, there will be increased pressure to move beyond the confines of traditional alignment models. The economic climate in 2010 will usher in an era that takes physician integration to an entirely new level. What emerges will most likely be a physician enterprise that integrally in- volves doctors not only in clinical decision-making, but in economic and governance issues. This next generation integration model requires systems to create a shared vision and destiny with their physicians, one in which they value them not as customers but as strategic partners. They will need to create transparent management structures and processes to engage physicians in the clinical and business strategies of the hospital and system. And they will need to learn how to manage and motivate physicians around the goals of improved outcomes at lower total cost and an improved patient experience. article MARCH 2010 | 03

4. Focusing on Cost Restructuring and Capital Generation This most recent recession was especially hard on hospitals, as rising unemployment left many in their markets without healthcare insurance. Volumes softened and elective procedures were at their lowest levels in years. Investment income disappeared. While the New payment realities economic picture turned around somewhat in 2009, hospital operating margins remain will now demand that razor-thin—making it harder to generate the dollars needed for capital replacements, modernization, and cash access to build and invest in the future. hospitals and physicians work collaboratively Although many systems engaged in cost reductions to cope with the downturn, far fewer toward a new have considered cost-restructuring as a long-term strategy. The reality is that, in an age of economic model that bundled payments for episodes of care, hospitals need to have a lower cost base that is in line with what they are being paid. Cost restructuring provides more sustainable financial emphasizes longitudinal benefits than cost reductions. It is a more rigorous approach to looking at how hospitals management of care can deliver care for a lower cost. Forward-thinking health systems will begin to take a hard and costs as opposed to look at standardizing processes, eliminating redundancy, streamlining systems, or adding episodic treatments of technology that is more efficient over the long term. While that may not seem possible at the level of Medicare reimbursement--MedPAC calculates that hospital Medicare margins were acutely ill patients. -7.2% in 2009—there will be growing recognition among systems in 2010 that they need to take a purposeful, methodical approach to ensuring their costs are more in line with overall reimbursement levels. 5. Addressing Industry Consolidation The health care industry has recently seen an uptick in the number of mergers and acquisi- tions, as the few remaining freestanding facilities try to align with larger systems. There is also a movement toward consolidation as larger systems explore affiliations with one another, to acquire the critical mass and scope of services necessary to become true accountable care organizations (ACOs). This trend will continue as new payment methodologies The economic climate move toward reimbursement for episodes of care. in 2010 will usher in an era that takes physician Many hospitals are also moving toward the consolidation of physicians via integration integration to an strategies. Specialty organizations such as home care providers, skilled nursing facility operators and other post-acute services providers will likely become part of larger systems as entirely new level. well. Case management in the home-based setting, outpatient treatment centers for dialysis and infusion therapy, and hospice services will also become increasingly important targets for acquisition. As they become consolidated business enterprises, ACOs will need to evaluate the build, own or buy options to acquire the types of programs and facilities that 6. enable them to deliver care across the entire continuum. Advancing Meaningful Use of Information Technology The issue of technology became a key point of reform debate as it relates to streamlining the efficient flow of patient health information. While Medicare and insurance companies have been moving providers toward the use of an electronic health record (EHR) for several years, the issue gained new traction when President Obama signed the Health Information Technol- ogy for Economic and Clinical Health Act (HITECH) into law last winter. Since then, there n av v i s a n d c o m p a n y. c o m

ARTICLE: THE TOP 10 IN 2010 has been considerable debate among physician groups and hospitals on the requirements for meaningful use of electronic health records and standards for EHR certification. While updated information technology is extremely expensive, HITECH was an unequivocal affirmation from legislators that efficiencies in health care delivery cannot be achieved without it. Health care providers will be devoting much of 2010 to evaluating the administrative details, cost vs. benefit, and their readiness to qualify for the meaningful use The health care of EHRs and capture all of the incentive payments available from the HITECH Act. Not landscape has become surprisingly, one study found that only one-quarter of hospitals surveyed met at least 70% of the readiness indicators required for HITECH. increasingly competitive over the last few years, Regardless of a system’s ability to qualify for HITECH incentives, advanced information giving rise to delivery technology will continue to be a high-ticket necessity if it is to balance costs with quality innovations that will over the long term. continue to disrupt 7. traditional patient acquisition and referral Adopting Disruptive Innovations channels in 2010. Innovators and entrepreneurs know that with every challenge, comes opportunity. The health care landscape has become increasingly competitive over the last few years, giving rise to delivery innovations that will continue to disrupt traditional patient acquisition and referral channels in 2010. The most successful example is the retail medical clinic. Conveniently located at local drug stores and retail establishments such as Target and CVS, these new market entrants provide low-cost, fast access health care services as an alternative to traditional long waits in an ER or physician’s office. Because they are a less expensive alternative to primary care physician or emergency room visits, health plans are increasingly covering the cost. Entrepreneurs have similar models in development for chronic and specialty care needs, and technology-enabled delivery models – telehealth, email consults, on-line second opinions, home monitoring – will become more prevalent. A number of health systems are creating dedicated resources to care delivery innovation. One example is the Mayo Clinic Center for Innovation, which uses a patient-centered focus to transform the way health care is delivered and experienced by patients. Five platforms – including “Mayo Care – Any Time, Any Where”—guide the innovation team’s work. The real revolution in medicine will come from our understanding and application of genom- ics to predict and personalize medicine at the levels of molecules and genes. Scientists now tell us that they are moving – very rapidly – from the incubation phase of study to an appli- 8. cation phase that will transform medical care as we know it. Mastering Brand Leadership It will become increasingly important for health system leaders to understand the role and impact of both market strength (control of primary care access points and distribution channels) and brand strength (strength of emotional attraction and attachment to the brand). In an increasingly competitive environment where consumerism is on the rise, these two key drivers of growth should be viewed as equally important. Increasing market strength and article MARCH 2010 | 05

enhancing operational performance is critical to brand performance, as is directing More than ever, resources to marketing that grow awareness, preference and use. Creating perceived value brand and business is impossible without both strategies. Health systems can use their brand to leverage more strategies are favorable contractual terms, attract and retain quality physicians and allied professionals, complimentary and and build organizations that deliver on the full continuum of care. must be aligned Health systems can learn from brand powerhouses such as Mayo Clinic and Cleveland for health systems Clinic, who successfully leverage their brands as a business asset and aggressively market to to achieve desired cultivate referrals from afar. These national players do not rely on traditional strengths such as primary care access points or hard-wired referral channels to capture volume. Instead, growth objectives. they leverage a strong brand as a proxy for quality, service, and value to create an emotional attraction with customers. More than ever, brand and business strategies are complimentary and must be aligned for health systems to achieve desired growth objectives. Addressing the brand impact of integrated physician models, managing brand portfolios across markets and major lines of business, building brands in on-line and social media environments, creating a pipeline of new brand-driven products, channel development and growth within channels are all critical factors in brand mastery. It is important for health systems to understand this new, more sophisticated approach to successfully compete in the marketplace. 9. Building the Generation - Next Workforce In 2010, the American workforce will see an unprecedented shift as millennials---people who are just now entering their 20s—join Gen X-ers and Gen Ys in the workforce. With Baby Boomers still in the employment picture, the American workforce will now be comprised of four generations of workers—all with varying work ethics, expectations, and communications styles. As the oldest boomers begin retiring, Generation X and Y workers --- now solidly in their 30s and 40s, and entering management positions---will outnumber boomers in the workforce. Generation X and Y Perhaps most striking are the generations’ differing orientations to a wired world. Many Baby Boomers remember using typewriters when they first entered the workforce. workers --- now Members of Gen X grew up with video games and the internet, and have never known a solidly in their 30s ‘non- digital’ world. Gen Y’s in particular are the first generation born “wired” and reared in & 40s, and entering a global, networked world. And according to the Pew Research Center, millennials are the first generation in history to regard behaviors like tweeting and texting, along with websites management like Facebook, YouTube, Google and Wikipedia, not as phenomenon of the digital era, but positions-- will as everyday parts of their social lives and daily routine. As technology becomes ever more outnumber boomers important for lowering health care costs and enhancing efficiency, the younger generations’ in the workforce. hard-wired digital orientation will become an important asset. Gen X physicians are much more tech-savvy than their older counterparts—but there are other differences as well. Many trained after 2003, when the Accreditation Council for Graduate Medical Education instituted work-hour restrictions preventing residents from working more than 80 hours per week. Many Gen X doctors are now poised to assume positions of leadership within their organizations—and may institute different expectations on productivity that reflect a less arduous ethic than their older colleagues. n av v i s a n d c o m p a n y. c o m

ARTICLE: THE TOP 10 IN 2010 10. Understanding the Impact of Globalization The trend toward globalization of health care will gather more momentum. The development of medical meccas by American interests in lands such as Dubai, Malaysia, and South America will likely generate increases in the rate of medical tourism. Several health plans have launched medical tourism pilot programs with the goal of reducing treatment costs and improving margins. The development of these overseas resources may also impact our supply of physicians in the U.S., as foreign-born doctors who trained in America return home to practice where the medical standards and technologies are similar. Even beyond Destination Medicine, there are globalization trends driven by the ongoing quest to lower costs. Technology now makes practicing medicine remotely a reality for many specialties. The internet makes outsourcing consultations between doctors not only practical, but easily achieved beyond American borders. For instance, radiologists in Australia easily view imaging studies overnight and have their findings ready for referring physicians by morning. SUMMARY As we enter a new decade, there is only one certainty: that the healthcare industry is entering a period of uncertainty, change and transformation. Health care will continue to receive focused scrutiny from legislators, consumers, payers and the media, and providers will continue to be challenged with lowering costs and enhancing quality over the long term. Accelerated advancements in medical science, clinical and information technologies will transform health and medical care. New players, new partners and unexpected competition will emerge. The impact of the informed, engaged and aging boomers will be significant. Those organizations that can effectively achieve address these forces of change and bring innovative solutions to market will set the gold standard in care delivery for years to come. CRITICAL QUESTIONS FOR HEALTH SYSTEM LEADERS • How does the leadership believe the future is likely to unfold? What driving forces will shape the future environment? What could fundamentally disrupt our business? • What role do we want to play in that future? How can we shape the competitive environment to our advantage? What must we do fundamentally different to make that happen? • In what businesses and markets should we invest our resources? What assets and core competencies will create sources of advantage and market leverage? • How will we transform health system-physician relationships, patient care, clinical and business performance? • What changes will be required in operating, leadership and governance structures to take our organization into the future? article MARCH 2010 | 07

ABOUT THE AUTHOR Karen Corrigan is chief strategy officer for Navvis & Company, a healthcare consultancy providing counsel on strategy, leadership and performance to health systems, hospitals and physician organizations. Karen is a leading proponent for value innovation in the health industry, and speaks and writes frequently on market-driving strategies to drive growth and transformation. She leads the firm’s Innovator’s Studio for chief marketing and chief strategy officers. Karen can be reached at kcorrigan@navvisandcompany.com or 757.640.8515. STRATEGY. LEADERSHIP PERFORMANCE. . Navvis & Company™ is a management consultancy specializing in competitive market strategy in the health services industry. The firm provides counsel to health systems, hospitals and physician groups on the development of innovative, market-linked strategies to build future ready health systems, cultivate tomorrow’s leaders and strengthen strategic performance. ©2010 Navvis & Company; all rights reserved n av v i s a n d c o m p a n y. c o m

Top 10 in 2010: Ten Forces Framing Strategic Discussions for Healthcare Leaders

by Karen Corrigan on Apr 24, 2010

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