The below stated are the Challenges and business requirements faced by the hospital Population health Population health was one of the biggest ideas in healthcare this past year, and it will likely maintain or gain momentum in the next few years to come. But despite the frequent use of the term in the healthcare bubble, population health is a multidisciplinary concept to be shared between public health agencies, social institutions and policymakers. Hospitals fit in there somewhere. Defining that role is one of the ongoing challenges they will face in 2015. Hospitals\' demand for population health expertise overwhelms the supply. Nearly 60 percent of health system and hospital CEOs ranked population health as the hardest skill set to find within the broader healthcare field, according to a 2014 American Hospital Association survey. Further, nearly half of executives polled identified community and population health management as a talent gap within their organizations. Some health systems are filling this gap by creating new C- suite positions: 10 percent of executives indicated their health system had a chief population health manager. Quantifying population health is another challenge. Although healthcare leaders need to think creatively about how to improve the health of a geographic population, they should also maintain a healthy sense of skepticism about population health efforts. What might seem like a much- needed intervention on paper, such as a grocery store in a food desert, may be one small piece of a multipronged solution. There are no silver bullets, after all. Amid excitement for population health, systems may oversimplify problems and overinvest in solutions only to see the same health outcomes. To find success, hospital leaders may need to diminish their traditional reliance on \"programs\" and instead focus more on partnerships with community organizations and nonprofits. Some health systems still act as autonomously as they can, ignoring a wealth of expertise and resources. \"When we talk to other population health managers, they have unearthed a number of unique challenges inside their populations, such as domestic violence, elder abuse and other public health crises,\" says Jason Dinger, PhD, CEO of MissionPoint Health Partners in Nashville, the accountable care organization affiliated with Saint Thomas Health. \"Unfortunately, most respond by trying to implement their own unique program to respond to the issue. We usually encourage them to first speak with the experts in their community who work on these issues every day. In many cases these are nonprofit organizations that can add great value to the population health effort but often have trouble engaging and integrating with a health system\'s efforts.\" Shifting from volume- to value-based reimbursement The move from volume- to value-based reimbursement is inevitable. For now, it\'s a matter of how quickly providers should make it. Move too fast, and hospitals risk los.

1. The below stated are the Challenges and business requirements faced by the hospital
Population health
Population health was one of the biggest ideas in healthcare this past year, and it will likely
maintain or gain momentum in the next few years to come. But despite the frequent use of the
term in the healthcare bubble, population health is a multidisciplinary concept to be shared
between public health agencies, social institutions and policymakers.
Hospitals fit in there somewhere. Defining that role is one of the ongoing challenges they will
face in 2015.
Hospitals' demand for population health expertise overwhelms the supply. Nearly 60 percent of
health system and hospital CEOs ranked population health as the hardest skill set to find within
the broader healthcare field, according to a 2014 American Hospital Association survey. Further,
nearly half of executives polled identified community and population health management as a
talent gap within their organizations. Some health systems are filling this gap by creating new C-
suite positions: 10 percent of executives indicated their health system had a chief population
health manager.
Quantifying population health is another challenge. Although healthcare leaders need to think
creatively about how to improve the health of a geographic population, they should also maintain
a healthy sense of skepticism about population health efforts. What might seem like a much-
needed intervention on paper, such as a grocery store in a food desert, may be one small piece of
a multipronged solution. There are no silver bullets, after all. Amid excitement for population
health, systems may oversimplify problems and overinvest in solutions only to see the same
health outcomes.
To find success, hospital leaders may need to diminish their traditional reliance on "programs"
and instead focus more on partnerships with community organizations and nonprofits. Some
health systems still act as autonomously as they can, ignoring a wealth of expertise and
resources.
"When we talk to other population health managers, they have unearthed a number of unique
challenges inside their populations, such as domestic violence, elder abuse and other public
health crises," says Jason Dinger, PhD, CEO of MissionPoint Health Partners in Nashville, the
accountable care organization affiliated with Saint Thomas Health. "Unfortunately, most
respond by trying to implement their own unique program to respond to the issue. We usually
encourage them to first speak with the experts in their community who work on these issues
every day. In many cases these are nonprofit organizations that can add great value to the
population health effort but often have trouble engaging and integrating with a health system's
efforts."

2. Shifting from volume- to value-based reimbursement
The move from volume- to value-based reimbursement is inevitable. For now, it's a matter of
how quickly providers should make it.
Move too fast, and hospitals risk losing revenue and implementing a strategy the market does not
support. Move too slow, and they may lose partnership opportunities, experience and time that
could have been spent modifying clinicians' behaviors and transforming practices.
In its 2014 national study of payers and providers, McKesson found 90 percent of payers already
transitioned to some form of value-based reimbursement. Generally, providers are more reluctant
to value-based care initiatives, such as accountable care organizations. Sixty percent of payers
said they believe value-based reimbursement will have a positive finance effect on their
organizations, while only 35 percent of healthcare providers believed the same.
Despite their feelings about new reimbursement models, both payers and providers agree they
will soon eclipse traditional fee-for-service. Providers using mixed models expect fee-for-service
to decrease from about 56 percent today to 34 percent by 2020.
The onset of pay-for-performance varies among markets, and several payers in a region are
necessary to make the transition efficient and worthwhile for providers. Health systems can align
with employers, other providers and payers to build a critical mass. Providers also need to adjust
their thinking about value-based reimbursement from the short- to long-term. Taking it one pilot
or contract at a time worked in years prior, but executives must now build a strategic plan that
details where the organization needs to be in five years and how it will get there. This plan must
be as flexible as it is detailed, for the environment is changing quickly.
Regulatory demands
Healthcare providers must adhere to numerous, complex regulations that set guidelines and
expectations for quality, coding, reimbursement and overall care delivery. Although many of
these regulations were designed to improve care and efficiency, many providers see them as
burdensome and impractical.
Regulations like the transition to ICD-10 coding and the two-midnight rule, for example, each
require providers to allocate extensive time, money and staff for effective implementation. These
regulations — and the systemwide efforts required to meet them — are often met with frustration
and resistance.
While successive delays in the start dates of these mandates may seem like a relief for some,
arguably, delays only exacerbate the "burden" these regulations impose.
Venson Wallin, managing director at BDO Consulting and a member of the BDO Center for
Healthcare Excellence & Innovation, said delayed implementation of certain regulations, such as
the yearlong delay of ICD-10 until October 2015, creates additional issues for providers.
"The delays themselves impact a wide variety of aspects," Mr. Wallin said. "Prior to the delay,

3. everyone was getting ready for billing using ICD-10 codes for implementation in October this
year and working with coders. In actuality, with the delay of another year, there is a need for
continuity around ICD-9 billing."
According to Mr. Wallin, the ICD-10 delay creates a resource gap. There are about 25,000
coders across the country that have been trained in ICD-10 and not ICD-9 in anticipation of
implementation, he said.
While the ICD-10 delay may bring on new challenges, it does provide organizations that were
behind in preparation for ICD-10 with a grace period.
"Hopefully those that are behind will use the additional year as an opportunity to catch up and
focus on doing what they need to do. I wouldn't bet on another delay. Betting on another delay
is a significant risk," Mr. Wallin said.
Other opportunities may emerge from delayed starts. If a regulation's delay is related to
significant resistance within the industry because of cost or operationally from a patient
perspective, CMS may delay and solicit input, make modifications or provide additional
information to help ease the transition, Mr. Wallin explained.
For example, the two-midnight rule was delayed in part because of resistance from providers
who contended the regulation imposed too many unnecessary requirements around clinical
decision-making; many physicians thought rules relating to the amount of time patients could be
admitted took much of the decision-making power out of their hands. In the face of significant
protest, CMS offered an opportunity for providers to participate in an "open-door"
teleconference during which they could ask questions, relay concerns and hear CMS officials
clarify criteria.
The two-midnight rule, in theory, will ensure that any patient who stays in the hospital longer
than two midnights legitimately needs to be there. According to the Washington Times, a
potential benefit is reduced federal healthcare spending, though this would come at the cost of
lower hospital reimbursements. The rule is supposed to also help establish criteria for admitting
patients rather than letting the patient linger in observation status.
Other groups find healthcare regulations particularly burdensome. The fast-paced technology
companies who are just getting their feet wet in the healthcare industry are finding the time it
takes to develop and release products to the market is much longer in healthcare than what they
are used to. Companies like Apple, Google and Amazon that have recently been developing, or
plan to develop, apps and devices that can be used to serve health purposes, are finding
themselves unusually tied down by regulation and inspection.
"I think the biggest challenge for [these companies] is the level of scrutiny and peer-review that
needs to occur prior to introduction into the market. They are used to fairly rapid development
and introduction to the market," Mr. Wallin said.

4. If an app or device is intended to serve a medical purpose, the company must submit the product
to the FDA for review and testing. While the wait-time before introducing a healthcare product
may be drastically longer than technology companies are used to, the development of such
products could offer extensive benefits for users, software developers and healthcare providers
alike.
Stringent FDA regulations may create the need for technology companies to establish
partnerships with healthcare organizations. Having the ability to partner with healthcare
organizations provides IT companies the clinical resources, perspective and knowledge that
might not have otherwise been available to them, which will ultimately result in a better, safer
product, Mr. Wallin said.
Accessible and downloadable healthcare products can potentially very positively influence
population health. If hospitals and health systems can work with IT companies to develop
products that focus on preventive care and tracking chronic conditions, the community could see
great benefits.
"At the end of the day, that's what everyone wants; to control admissions and lower costs," Mr.
Wallin said.
Infection control, especially in light of Ebola
Hospital infection control and prevention programs discovered newfound fame in 2014, thanks
in large part to the appearance of Ebola in U.S. hospitals and its subsequent transmission to two
healthcare workers treating an Ebola patient. The presence and transmission of the Ebola virus
within U.S. borders steered the public eye toward the provider organizations' infection control
efforts. It wasn't always positive: Ebola also brought attention to the staggering numbers of
healthcare-associated infections that occur in U.S. hospitals annually (about 1.7 million,
according to the Centers for Disease Control and Prevention).
All of this did not shed a positive light on infection control and prevention in patients' eyes.
"Ebola has heightened the awareness of how important infection prevention is," says Linda
Greene, RN, infection prevention manager for University of Rochester (N.Y.) Medical Center,
Highland Hospital and a member of the Association for Professionals in Infection Control and
Epidemiology's consulting board and APIC's Regulatory Review Committee.
The newfound attention being thrust upon infection prevention can yield positive results if
hospitals seize the opportunity. Now is the time to invest in giving infection preventionists the
resources — in terms of people, technology and funding — to be robust. Nurses can refocus on
performing important daily tasks, like donning and doffing personal protective equipment,
correctly and effectively when dealing with infectious diseases. And the infection prevention
team can collectively "watch each others' backs," Ms. Greene says, which is called for in Ebola
guidelines but can be applied to other actions, like reminding each other to perform proper hand

5. hygiene.
"We're going to establish a culture in which infection prevention cannot be taken for granted,"
she says. "I think it really underscores how vitally important these programs are to the
organizations, patients and the public."
Demonstrating the value of M&A to consumers
Whether they are an acquirer, acquired company or an organization pursuing a potential deal,
virtually every hospital and health system will be touched by the unfolding wave of healthcare
M&A. Even if the system is not involved in a deal, consolidation among hospitals, health
systems and physician practices can upend traditional market dynamics, leaving existing systems
with new and bigger competitors.
Take the merger between Downers Grove, Ill.-based Advocate Health Care and Evanston, Ill.-
based NorthShore University HealthSystem, for instance. Overnight, two of the largest
competitors in Chicago's metropolitan area became one of the largest systems in the country.
That deal will create a 16-hospital system called Advocate NorthShore Health Partners, which
will be the largest in Illinois and the 11th largest nonprofit system in the country. It would take
several transactions to comprise a comparable system, as there is not a single-step move that
would rival the new 16-hospital system. Deals such as this dramatically and quickly alter the
landscape for other hospitals in a market.
Going forward, those healthcare providers that are participating in M&A may have to worry
more about satisfying a key stakeholder in their integration arms race: the consumer. In the past
year, dialogue about the value of healthcare M&A grew beyond the healthcare circle and became
more textured on a national level. The Wall Street Journal was one major newspaper to publish
an ongoing series of op-eds about hospital M&A, for instance. Whereas leaders of hospitals,
health systems or hospital associations have argued that the healthcare reform essentially
compels them to consolidate, other expert voices have vehemently denied such claims and
pointed to the ugly byproduct of increased prices.
The debate over healthcare M&A won't end overnight, but hospitals seem to face increased
scrutiny to prove the value of such deals and the benefits they provide to consumers. How will
healthcare providers improve transparency in how they measure integration? It may help if
leaders focus more attention on partners' capabilities rather than their financial attractiveness.
That way, systems can point to tangible, "patient-centered" ways a deal improved care delivery
rather than a balance sheet.
Truly integrating systems
In the wake of consolidation, many executives are beginning to realize their health systems are
merely jumbled collections of healthcare facilities with different strategies, distinct cultures,
duplicate fundraising campaigns and varying reimbursement rates. Many have yet to achieve true

6. "systemness."
Research from Strategy&, formerly Booz & Company, shows many health system transactions
aren't successful. In a study of hospitals acquired between 1998 and 2008, just 41 percent
outperformed their peers in operating margins and operating income.
"They hadn't managed to find the synergies they had hoped for. It never took place, because it
would've required some very difficult choices and they didn't have the fortitude to make those
choices," says healthcare strategist Igor Belokrinitsky, partner at Strategy&. "Alliances and
power base make it hard to make difficult decisions."
However, disjointed health systems can find a silver lining in their stunted integration. In a
parallel study, Strategy& found M&A strategies that leverage the distinctive capabilities of each
of the partners are consistently successful.
"Traditional integration approaches are primarily concerned with merging assets to maximize
synergy opportunities; they focus on the footprint, head counts, operations and cost reductions.
In the process, organizations frequently end up destroying the unique capabilities they have
acquired," the Strategy& report read.
Health systems that haven't achieved true integration yet are presented with the opportunity to
reevaluate and develop a clear integration strategy — with the benefit that stalled integration
likely preserved their mutually reinforcing capabilities.
To improve integration going forward, Mr. Belokrinitsky suggests laying out a roadmap with a
strategy and end objective. He then advised starting with "no regret moves," the less crucial
decisions that must be made to move forward. To make more difficult decisions, he suggests
setting milestones and creating a temporary transformation office composed of both internal
employees and external project managers and consultants. The transformation office can act as
an unbiased third party and drive integration.
"Hospitals likely do not have the internal staff there specifically to do this kind of integration
work. So it may require some handholding at least initially while they get going."
Overspecialization of the physician workforce and questions over the physician shortage
As an increasing number of Americans gain insurance coverage, the demand for primary care
increases. It is the building block of healthcare reform. Yet not enough medical students are
going into primary care, instead choosing more lucrative subspecialties.
Approximately $13 billion federal dollars are given to 759 medical institutions with residency
programs, but 158 of them do not produce any primary care physicians, according to an Atlantic
article from July 2013.
More than 6,000 regions across the U.S. are designated Health Professional Shortage Areas for
their lack of primary care, according to the U.S. Department of Health and Human Services.
Each physician in a Health Professional Shortage Area sees 3,500 or more patients.

7. Yet despite the increasing need for primary care, the health industry may still be able to fend off
a full-blown crisis. Recently, there has been more conversation devoted to whether the physician
shortage may unfold as predicted.
"The outdated shortage modeling is the assumption of how much an individual physician can
treat. As we look at creating a more effective care model, we have seen a substantial increase in
the number of patients that a primary care physician can see because they are working in
conjunction with primary care coaches," says Rob Lazerow, practice manager of research and
insights at the Advisory Board Company.
The shortage model may in fact be outdated — HHS shortage area modeling doesn't account for
primary care provided by nurse practitioners or physician assistants in their projections.
"There is absolutely a move toward team-based care. In some cases it is nurse practitioners or
community-based providers, [and] even paramedics are conducting in-home visits as part of their
weekly shifts," says Mr. Lazerow. "Some have projected shortages there as well. It would not
surprise me if supply does not keep up."
If he is right, the gap in primary care physicians due to overspecialization can only be partially
abated by other healthcare providers.
"One way around a shortage, if you can't increase supply, is to figure out how you can restrict
demand. ACO-style models are all about preventing care in the first place. That absolutely could
be a strategy. The reality, though, is that it takes time to do that," says Mr. Lazerow. "It's not
an overnight solution. The amount of time it takes to prevent someone from needing a surgery is
a matter of years."
Until medical schools are incentivized to graduate more primary care physicians and ACOs catch
up, healthcare reform may need to depend on alternate primary care providers.
Hospital closures
Goldilocks was more certain about the proper temperature of her porridge than healthcare
experts seem to be about the proper number of hospitals in the United States.
Some make the argument that there are too many hospitals and hospital beds, leading to low
occupancy rates, consolidation and closures. Others argue that America has too few hospitals,
especially in critical access areas, endangering patients who have to travel long distances for
care. For instance, researchers from UC San Francisco recently discovered a correlation between
emergency department closures and increased inpatient mortality rates at hospitals in the
surrounding area.
Regardless of whether they should, hospitals are closing around the country, presenting
numerous challenges for the patients, employees and community residents.
Kevin C. "Casey" Nolan, managing director of the healthcare provider strategy practice at

8. Navigant Consulting, highlighted several challenges communities face after a hospital closes,
including the wind down and redeployment of patients to other facilities and the issue of what to
do with the physical hospital and real estate.
Dawn Gideon, managing director of Huron Consulting Group, cited securing and transporting
EMRs as a major challenge for hospitals shutting down, as well.
Both Mr. Nolan and Ms. Gideon explained how hospitals shutting down can be a major hit to
local economies given their status as major employers. Any debt and pension liability after a shut
down can also be extremely problematic.
Shrinking inpatient activity, increasing reimbursement rate pressures, changing delivery patterns
and numerous other factors lead Mr. Nolan to predict an increase in the number of hospital
closures hospitals in the near future.
Although any closure is going to cause speed bumps, Ms. Gideon argues the real concern is not
so much that hospitals are closing but what types of hospitals are closing.
"One of the things we're seeing is, not surprisingly, that the safety-net hospitals caring for the
uninsured or the Medicaid populations are the most financially distressed and under threat of
closure," said Ms. Gideon. "The impact on those communities when safety-net hospitals close
their doors is pretty significant."
On the flipside, hospital closures present opportunities to improve integration of care and realign
delivery capacity in a given market with what the community really needs.
"In many communities, what you'll find is that the people no longer need an inpatient hospital,
but perhaps they need a comprehensive ambulatory center with lots of services," said Mr. Nolan.
The key, in his opinion, is not trying to be all things to all people but honing in on what the
community demands and what the hospital or health system can best provide.
Reimbursement rate differences
On average, Medicare paid hospital outpatient departments 78 percent more than ambulatory
surgery centers for the same procedure in 2013, in accordance with the Medicare Payment
Advisory Commission.
Addressing the payment differential in spring 2014, the HHS Office of Inspector General
recommended CMS reduce hospital outpatient prospective payment system rates for ASC-
approved procedures to ASC levels for low-risk patients. The change could save Medicare as
much as $15 billion between 2012 through 2017, but it could also present a big challenge to
hospitals.
Hospitals have very specialized real estate that is capital intensive and difficult to convert,
according to Mr. Belokrinitsky with Strategy&.
"Hospitals' whole business model is based on covering these fixed costs as well as ensuring
high occupation and utilization of the operating and patient rooms that have been built," said

9. Mr. Belokrinitsky. "When hospitals have a brand new ambulatory surgical center nearby that
has potentially lower costs because it's newer and has less overhead, while the hospitals have a
higher cost base, they are inherently disadvantaged."
Hospitals and health systems have several ways of addressing the issue, including creating their
own ASC in their competitor's territory or entering into joint ventures and partnerships with
physician groups to open an ASC together. In addition to pushing hospitals to decide whether or
not to expand, reimbursement rate differences also give hospitals the opportunity to reevaluate
their costs.
"Fundamentally, reimbursement rate differences creates incentive for all hospitals and health
systems to get a better handle on their costs and prepare themselves for transparency," said Mr.
Belokrinitsky. "Every hospital has the opportunity to get rid of waste as well as get rid of
processes and activities that don't add value for patients, physicians or staff, and don't improve
quality. The ASCs just make the pressure that much greater."
And also the Business Requirements for the Hospital will be as follows
Principles to Guide Achievement of Patient-
Centered Care:
• Make adoption of patient-centered care val-
ues a priority for improving patient safety
and patient and staff satisfaction
• Incorporate patient-centered care principles
into the activities of hospital oversight bod-
ies and transparency initiatives
• Address barriers to patient and family
engagement, such as low health literacy and
personal and cultural preferences
• Eliminate disparities in the quality of care
for minorities, the poor, the aged and the
mentally ill
• Improve the quality of care for the chroni-
cally ill through adoption of care models
that encourage coordinated, multi-discipli-
nary care
• Use robust process improvement tools to
improve quality and safety, and support
achievement of patient-centered care
Principles to Address the Staffing Challenge:

10. • Address the maldistribution of health care
workers across the globe by instilling fair
migration and compensation policies for
affected countries
• Expand health professional education and
training capacity to accommodate the grow-
ing demand for health care workers
• Create work place cultures that can attract
and retain health care workers
• Support the development of health profes-
sional knowledge and skills required to care
for patients in an increasingly complex
environment
• Educate health professionals to deliver team-
based care and promote teamwork in the
hospital environment
• Develop the competence of health profes-
sionals to care for geriatric patients
Principles to Guide Design:
• Incorporate evidence-based design princi-
ples that improve patient safety, including
single rooms, decentralized nursing stations
and noise-reducing materials, in hospital
construction
• Address high-level priorities, such as infec-
tion control and emergency preparedness,
in hospital design and construction
• Include clinicians, other staff, patients and
families in the design process to maximize
opportunities to improve staff work flow
and patient safety, and create patient-cen-
tered environments
• Design flexibility into the building to allow
for better adaption to the rapid cycle of
innovation in medicine and technology
• Incorporate “green” principles in hospital

11. design and construction
Solution
The below stated are the Challenges and business requirements faced by the hospital
Population health
Population health was one of the biggest ideas in healthcare this past year, and it will likely
maintain or gain momentum in the next few years to come. But despite the frequent use of the
term in the healthcare bubble, population health is a multidisciplinary concept to be shared
between public health agencies, social institutions and policymakers.
Hospitals fit in there somewhere. Defining that role is one of the ongoing challenges they will
face in 2015.
Hospitals' demand for population health expertise overwhelms the supply. Nearly 60 percent of
health system and hospital CEOs ranked population health as the hardest skill set to find within
the broader healthcare field, according to a 2014 American Hospital Association survey. Further,
nearly half of executives polled identified community and population health management as a
talent gap within their organizations. Some health systems are filling this gap by creating new C-
suite positions: 10 percent of executives indicated their health system had a chief population
health manager.
Quantifying population health is another challenge. Although healthcare leaders need to think
creatively about how to improve the health of a geographic population, they should also maintain
a healthy sense of skepticism about population health efforts. What might seem like a much-
needed intervention on paper, such as a grocery store in a food desert, may be one small piece of
a multipronged solution. There are no silver bullets, after all. Amid excitement for population
health, systems may oversimplify problems and overinvest in solutions only to see the same
health outcomes.
To find success, hospital leaders may need to diminish their traditional reliance on "programs"
and instead focus more on partnerships with community organizations and nonprofits. Some
health systems still act as autonomously as they can, ignoring a wealth of expertise and
resources.
"When we talk to other population health managers, they have unearthed a number of unique
challenges inside their populations, such as domestic violence, elder abuse and other public
health crises," says Jason Dinger, PhD, CEO of MissionPoint Health Partners in Nashville, the
accountable care organization affiliated with Saint Thomas Health. "Unfortunately, most
respond by trying to implement their own unique program to respond to the issue. We usually
encourage them to first speak with the experts in their community who work on these issues

12. every day. In many cases these are nonprofit organizations that can add great value to the
population health effort but often have trouble engaging and integrating with a health system's
efforts."
Shifting from volume- to value-based reimbursement
The move from volume- to value-based reimbursement is inevitable. For now, it's a matter of
how quickly providers should make it.
Move too fast, and hospitals risk losing revenue and implementing a strategy the market does not
support. Move too slow, and they may lose partnership opportunities, experience and time that
could have been spent modifying clinicians' behaviors and transforming practices.
In its 2014 national study of payers and providers, McKesson found 90 percent of payers already
transitioned to some form of value-based reimbursement. Generally, providers are more reluctant
to value-based care initiatives, such as accountable care organizations. Sixty percent of payers
said they believe value-based reimbursement will have a positive finance effect on their
organizations, while only 35 percent of healthcare providers believed the same.
Despite their feelings about new reimbursement models, both payers and providers agree they
will soon eclipse traditional fee-for-service. Providers using mixed models expect fee-for-service
to decrease from about 56 percent today to 34 percent by 2020.
The onset of pay-for-performance varies among markets, and several payers in a region are
necessary to make the transition efficient and worthwhile for providers. Health systems can align
with employers, other providers and payers to build a critical mass. Providers also need to adjust
their thinking about value-based reimbursement from the short- to long-term. Taking it one pilot
or contract at a time worked in years prior, but executives must now build a strategic plan that
details where the organization needs to be in five years and how it will get there. This plan must
be as flexible as it is detailed, for the environment is changing quickly.
Regulatory demands
Healthcare providers must adhere to numerous, complex regulations that set guidelines and
expectations for quality, coding, reimbursement and overall care delivery. Although many of
these regulations were designed to improve care and efficiency, many providers see them as
burdensome and impractical.
Regulations like the transition to ICD-10 coding and the two-midnight rule, for example, each
require providers to allocate extensive time, money and staff for effective implementation. These
regulations — and the systemwide efforts required to meet them — are often met with frustration
and resistance.
While successive delays in the start dates of these mandates may seem like a relief for some,
arguably, delays only exacerbate the "burden" these regulations impose.
Venson Wallin, managing director at BDO Consulting and a member of the BDO Center for

13. Healthcare Excellence & Innovation, said delayed implementation of certain regulations, such as
the yearlong delay of ICD-10 until October 2015, creates additional issues for providers.
"The delays themselves impact a wide variety of aspects," Mr. Wallin said. "Prior to the delay,
everyone was getting ready for billing using ICD-10 codes for implementation in October this
year and working with coders. In actuality, with the delay of another year, there is a need for
continuity around ICD-9 billing."
According to Mr. Wallin, the ICD-10 delay creates a resource gap. There are about 25,000
coders across the country that have been trained in ICD-10 and not ICD-9 in anticipation of
implementation, he said.
While the ICD-10 delay may bring on new challenges, it does provide organizations that were
behind in preparation for ICD-10 with a grace period.
"Hopefully those that are behind will use the additional year as an opportunity to catch up and
focus on doing what they need to do. I wouldn't bet on another delay. Betting on another delay
is a significant risk," Mr. Wallin said.
Other opportunities may emerge from delayed starts. If a regulation's delay is related to
significant resistance within the industry because of cost or operationally from a patient
perspective, CMS may delay and solicit input, make modifications or provide additional
information to help ease the transition, Mr. Wallin explained.
For example, the two-midnight rule was delayed in part because of resistance from providers
who contended the regulation imposed too many unnecessary requirements around clinical
decision-making; many physicians thought rules relating to the amount of time patients could be
admitted took much of the decision-making power out of their hands. In the face of significant
protest, CMS offered an opportunity for providers to participate in an "open-door"
teleconference during which they could ask questions, relay concerns and hear CMS officials
clarify criteria.
The two-midnight rule, in theory, will ensure that any patient who stays in the hospital longer
than two midnights legitimately needs to be there. According to the Washington Times, a
potential benefit is reduced federal healthcare spending, though this would come at the cost of
lower hospital reimbursements. The rule is supposed to also help establish criteria for admitting
patients rather than letting the patient linger in observation status.
Other groups find healthcare regulations particularly burdensome. The fast-paced technology
companies who are just getting their feet wet in the healthcare industry are finding the time it
takes to develop and release products to the market is much longer in healthcare than what they
are used to. Companies like Apple, Google and Amazon that have recently been developing, or
plan to develop, apps and devices that can be used to serve health purposes, are finding
themselves unusually tied down by regulation and inspection.

14. "I think the biggest challenge for [these companies] is the level of scrutiny and peer-review that
needs to occur prior to introduction into the market. They are used to fairly rapid development
and introduction to the market," Mr. Wallin said.
If an app or device is intended to serve a medical purpose, the company must submit the product
to the FDA for review and testing. While the wait-time before introducing a healthcare product
may be drastically longer than technology companies are used to, the development of such
products could offer extensive benefits for users, software developers and healthcare providers
alike.
Stringent FDA regulations may create the need for technology companies to establish
partnerships with healthcare organizations. Having the ability to partner with healthcare
organizations provides IT companies the clinical resources, perspective and knowledge that
might not have otherwise been available to them, which will ultimately result in a better, safer
product, Mr. Wallin said.
Accessible and downloadable healthcare products can potentially very positively influence
population health. If hospitals and health systems can work with IT companies to develop
products that focus on preventive care and tracking chronic conditions, the community could see
great benefits.
"At the end of the day, that's what everyone wants; to control admissions and lower costs," Mr.
Wallin said.
Infection control, especially in light of Ebola
Hospital infection control and prevention programs discovered newfound fame in 2014, thanks
in large part to the appearance of Ebola in U.S. hospitals and its subsequent transmission to two
healthcare workers treating an Ebola patient. The presence and transmission of the Ebola virus
within U.S. borders steered the public eye toward the provider organizations' infection control
efforts. It wasn't always positive: Ebola also brought attention to the staggering numbers of
healthcare-associated infections that occur in U.S. hospitals annually (about 1.7 million,
according to the Centers for Disease Control and Prevention).
All of this did not shed a positive light on infection control and prevention in patients' eyes.
"Ebola has heightened the awareness of how important infection prevention is," says Linda
Greene, RN, infection prevention manager for University of Rochester (N.Y.) Medical Center,
Highland Hospital and a member of the Association for Professionals in Infection Control and
Epidemiology's consulting board and APIC's Regulatory Review Committee.
The newfound attention being thrust upon infection prevention can yield positive results if
hospitals seize the opportunity. Now is the time to invest in giving infection preventionists the
resources — in terms of people, technology and funding — to be robust. Nurses can refocus on
performing important daily tasks, like donning and doffing personal protective equipment,

15. correctly and effectively when dealing with infectious diseases. And the infection prevention
team can collectively "watch each others' backs," Ms. Greene says, which is called for in Ebola
guidelines but can be applied to other actions, like reminding each other to perform proper hand
hygiene.
"We're going to establish a culture in which infection prevention cannot be taken for granted,"
she says. "I think it really underscores how vitally important these programs are to the
organizations, patients and the public."
Demonstrating the value of M&A to consumers
Whether they are an acquirer, acquired company or an organization pursuing a potential deal,
virtually every hospital and health system will be touched by the unfolding wave of healthcare
M&A. Even if the system is not involved in a deal, consolidation among hospitals, health
systems and physician practices can upend traditional market dynamics, leaving existing systems
with new and bigger competitors.
Take the merger between Downers Grove, Ill.-based Advocate Health Care and Evanston, Ill.-
based NorthShore University HealthSystem, for instance. Overnight, two of the largest
competitors in Chicago's metropolitan area became one of the largest systems in the country.
That deal will create a 16-hospital system called Advocate NorthShore Health Partners, which
will be the largest in Illinois and the 11th largest nonprofit system in the country. It would take
several transactions to comprise a comparable system, as there is not a single-step move that
would rival the new 16-hospital system. Deals such as this dramatically and quickly alter the
landscape for other hospitals in a market.
Going forward, those healthcare providers that are participating in M&A may have to worry
more about satisfying a key stakeholder in their integration arms race: the consumer. In the past
year, dialogue about the value of healthcare M&A grew beyond the healthcare circle and became
more textured on a national level. The Wall Street Journal was one major newspaper to publish
an ongoing series of op-eds about hospital M&A, for instance. Whereas leaders of hospitals,
health systems or hospital associations have argued that the healthcare reform essentially
compels them to consolidate, other expert voices have vehemently denied such claims and
pointed to the ugly byproduct of increased prices.
The debate over healthcare M&A won't end overnight, but hospitals seem to face increased
scrutiny to prove the value of such deals and the benefits they provide to consumers. How will
healthcare providers improve transparency in how they measure integration? It may help if
leaders focus more attention on partners' capabilities rather than their financial attractiveness.
That way, systems can point to tangible, "patient-centered" ways a deal improved care delivery
rather than a balance sheet.
Truly integrating systems

16. In the wake of consolidation, many executives are beginning to realize their health systems are
merely jumbled collections of healthcare facilities with different strategies, distinct cultures,
duplicate fundraising campaigns and varying reimbursement rates. Many have yet to achieve true
"systemness."
Research from Strategy&, formerly Booz & Company, shows many health system transactions
aren't successful. In a study of hospitals acquired between 1998 and 2008, just 41 percent
outperformed their peers in operating margins and operating income.
"They hadn't managed to find the synergies they had hoped for. It never took place, because it
would've required some very difficult choices and they didn't have the fortitude to make those
choices," says healthcare strategist Igor Belokrinitsky, partner at Strategy&. "Alliances and
power base make it hard to make difficult decisions."
However, disjointed health systems can find a silver lining in their stunted integration. In a
parallel study, Strategy& found M&A strategies that leverage the distinctive capabilities of each
of the partners are consistently successful.
"Traditional integration approaches are primarily concerned with merging assets to maximize
synergy opportunities; they focus on the footprint, head counts, operations and cost reductions.
In the process, organizations frequently end up destroying the unique capabilities they have
acquired," the Strategy& report read.
Health systems that haven't achieved true integration yet are presented with the opportunity to
reevaluate and develop a clear integration strategy — with the benefit that stalled integration
likely preserved their mutually reinforcing capabilities.
To improve integration going forward, Mr. Belokrinitsky suggests laying out a roadmap with a
strategy and end objective. He then advised starting with "no regret moves," the less crucial
decisions that must be made to move forward. To make more difficult decisions, he suggests
setting milestones and creating a temporary transformation office composed of both internal
employees and external project managers and consultants. The transformation office can act as
an unbiased third party and drive integration.
"Hospitals likely do not have the internal staff there specifically to do this kind of integration
work. So it may require some handholding at least initially while they get going."
Overspecialization of the physician workforce and questions over the physician shortage
As an increasing number of Americans gain insurance coverage, the demand for primary care
increases. It is the building block of healthcare reform. Yet not enough medical students are
going into primary care, instead choosing more lucrative subspecialties.
Approximately $13 billion federal dollars are given to 759 medical institutions with residency
programs, but 158 of them do not produce any primary care physicians, according to an Atlantic
article from July 2013.

17. More than 6,000 regions across the U.S. are designated Health Professional Shortage Areas for
their lack of primary care, according to the U.S. Department of Health and Human Services.
Each physician in a Health Professional Shortage Area sees 3,500 or more patients.
Yet despite the increasing need for primary care, the health industry may still be able to fend off
a full-blown crisis. Recently, there has been more conversation devoted to whether the physician
shortage may unfold as predicted.
"The outdated shortage modeling is the assumption of how much an individual physician can
treat. As we look at creating a more effective care model, we have seen a substantial increase in
the number of patients that a primary care physician can see because they are working in
conjunction with primary care coaches," says Rob Lazerow, practice manager of research and
insights at the Advisory Board Company.
The shortage model may in fact be outdated — HHS shortage area modeling doesn't account for
primary care provided by nurse practitioners or physician assistants in their projections.
"There is absolutely a move toward team-based care. In some cases it is nurse practitioners or
community-based providers, [and] even paramedics are conducting in-home visits as part of their
weekly shifts," says Mr. Lazerow. "Some have projected shortages there as well. It would not
surprise me if supply does not keep up."
If he is right, the gap in primary care physicians due to overspecialization can only be partially
abated by other healthcare providers.
"One way around a shortage, if you can't increase supply, is to figure out how you can restrict
demand. ACO-style models are all about preventing care in the first place. That absolutely could
be a strategy. The reality, though, is that it takes time to do that," says Mr. Lazerow. "It's not
an overnight solution. The amount of time it takes to prevent someone from needing a surgery is
a matter of years."
Until medical schools are incentivized to graduate more primary care physicians and ACOs catch
up, healthcare reform may need to depend on alternate primary care providers.
Hospital closures
Goldilocks was more certain about the proper temperature of her porridge than healthcare
experts seem to be about the proper number of hospitals in the United States.
Some make the argument that there are too many hospitals and hospital beds, leading to low
occupancy rates, consolidation and closures. Others argue that America has too few hospitals,
especially in critical access areas, endangering patients who have to travel long distances for
care. For instance, researchers from UC San Francisco recently discovered a correlation between
emergency department closures and increased inpatient mortality rates at hospitals in the
surrounding area.

18. Regardless of whether they should, hospitals are closing around the country, presenting
numerous challenges for the patients, employees and community residents.
Kevin C. "Casey" Nolan, managing director of the healthcare provider strategy practice at
Navigant Consulting, highlighted several challenges communities face after a hospital closes,
including the wind down and redeployment of patients to other facilities and the issue of what to
do with the physical hospital and real estate.
Dawn Gideon, managing director of Huron Consulting Group, cited securing and transporting
EMRs as a major challenge for hospitals shutting down, as well.
Both Mr. Nolan and Ms. Gideon explained how hospitals shutting down can be a major hit to
local economies given their status as major employers. Any debt and pension liability after a shut
down can also be extremely problematic.
Shrinking inpatient activity, increasing reimbursement rate pressures, changing delivery patterns
and numerous other factors lead Mr. Nolan to predict an increase in the number of hospital
closures hospitals in the near future.
Although any closure is going to cause speed bumps, Ms. Gideon argues the real concern is not
so much that hospitals are closing but what types of hospitals are closing.
"One of the things we're seeing is, not surprisingly, that the safety-net hospitals caring for the
uninsured or the Medicaid populations are the most financially distressed and under threat of
closure," said Ms. Gideon. "The impact on those communities when safety-net hospitals close
their doors is pretty significant."
On the flipside, hospital closures present opportunities to improve integration of care and realign
delivery capacity in a given market with what the community really needs.
"In many communities, what you'll find is that the people no longer need an inpatient hospital,
but perhaps they need a comprehensive ambulatory center with lots of services," said Mr. Nolan.
The key, in his opinion, is not trying to be all things to all people but honing in on what the
community demands and what the hospital or health system can best provide.
Reimbursement rate differences
On average, Medicare paid hospital outpatient departments 78 percent more than ambulatory
surgery centers for the same procedure in 2013, in accordance with the Medicare Payment
Advisory Commission.
Addressing the payment differential in spring 2014, the HHS Office of Inspector General
recommended CMS reduce hospital outpatient prospective payment system rates for ASC-
approved procedures to ASC levels for low-risk patients. The change could save Medicare as
much as $15 billion between 2012 through 2017, but it could also present a big challenge to
hospitals.
Hospitals have very specialized real estate that is capital intensive and difficult to convert,

19. according to Mr. Belokrinitsky with Strategy&.
"Hospitals' whole business model is based on covering these fixed costs as well as ensuring
high occupation and utilization of the operating and patient rooms that have been built," said
Mr. Belokrinitsky. "When hospitals have a brand new ambulatory surgical center nearby that
has potentially lower costs because it's newer and has less overhead, while the hospitals have a
higher cost base, they are inherently disadvantaged."
Hospitals and health systems have several ways of addressing the issue, including creating their
own ASC in their competitor's territory or entering into joint ventures and partnerships with
physician groups to open an ASC together. In addition to pushing hospitals to decide whether or
not to expand, reimbursement rate differences also give hospitals the opportunity to reevaluate
their costs.
"Fundamentally, reimbursement rate differences creates incentive for all hospitals and health
systems to get a better handle on their costs and prepare themselves for transparency," said Mr.
Belokrinitsky. "Every hospital has the opportunity to get rid of waste as well as get rid of
processes and activities that don't add value for patients, physicians or staff, and don't improve
quality. The ASCs just make the pressure that much greater."
And also the Business Requirements for the Hospital will be as follows
Principles to Guide Achievement of Patient-
Centered Care:
• Make adoption of patient-centered care val-
ues a priority for improving patient safety
and patient and staff satisfaction
• Incorporate patient-centered care principles
into the activities of hospital oversight bod-
ies and transparency initiatives
• Address barriers to patient and family
engagement, such as low health literacy and
personal and cultural preferences
• Eliminate disparities in the quality of care
for minorities, the poor, the aged and the
mentally ill
• Improve the quality of care for the chroni-
cally ill through adoption of care models
that encourage coordinated, multi-discipli-
nary care
• Use robust process improvement tools to

20. improve quality and safety, and support
achievement of patient-centered care
Principles to Address the Staffing Challenge:
• Address the maldistribution of health care
workers across the globe by instilling fair
migration and compensation policies for
affected countries
• Expand health professional education and
training capacity to accommodate the grow-
ing demand for health care workers
• Create work place cultures that can attract
and retain health care workers
• Support the development of health profes-
sional knowledge and skills required to care
for patients in an increasingly complex
environment
• Educate health professionals to deliver team-
based care and promote teamwork in the
hospital environment
• Develop the competence of health profes-
sionals to care for geriatric patients
Principles to Guide Design:
• Incorporate evidence-based design princi-
ples that improve patient safety, including
single rooms, decentralized nursing stations
and noise-reducing materials, in hospital
construction
• Address high-level priorities, such as infec-
tion control and emergency preparedness,
in hospital design and construction
• Include clinicians, other staff, patients and
families in the design process to maximize
opportunities to improve staff work flow
and patient safety, and create patient-cen-
tered environments
• Design flexibility into the building to allow

21. for better adaption to the rapid cycle of
innovation in medicine and technology
• Incorporate “green” principles in hospital
design and construction