At the Helm

The 4 challenges every health system leadership team is talking about

by David Willis

Lately, I’ve been thinking about the conversations I’ve been having with senior health care executives. No matter what market I’m in—from Los Angeles to Cincinnati to Philadelphia—every health system leadership team has a similar set of concerns.

Specifically, all our discussions boil down to four big questions.

1. What is the business model for population health?

Health care executives know that population health is no longer a question of "if" or even "when," it’s a question of "how." With few exceptions, they’re already seeing flattening volumes in their traditional lines of business, including cardiac, orthopedic, and oncology services. They’re feeling price pressure from payers. They’re seeing ACOs form very quickly in almost every market. They know the industry is moving toward population health, and for the most part, they’re getting ready to move with it.

Their question is, "How can we get paid for it?"

Of course, CMS has put forth a number of pilots to try and address this, and the results are beginning to trickle in.

What do we know so far? Shared savings is simply not a great business model. It may be a good way to get your feet wet in population health without the full downside risk of capitation or owning the premium, but the upsides—for those who are good enough to generate the savings—are generally not enough to make up for the losses in volume. To make the economics work, health systems are going to need much greater numbers of lives under risk, much more aggressive risk contracts, or both.

At the same time, health systems will have to move aggressively to reduce their fixed costs. Few things will strain the financial health of an organization more than expensive underutilized capacity.

2. Have I assembled the right network components to be chosen by patients and payers?

Health system executives used to focus on building a care network that exploited pockets of profitability in the DRG payment system and capitalized on new technologies to drive growth in high-margin services. Because of that, most health systems have ended up with a somewhat random mix of assets, from acute care hospitals to outpatient surgery centers to ambulatory clinics and more. Bigger was almost always better.

But now, health systems need a new way to look at their care network. If you want to attract both individual patients on exchanges and payers—either insurers or employers—you need to think about more than scale and the latest technology.

The question, "How big do we need to be?" is less relevant than the far more important question, "How good do we need to be?" Increasingly, the market appears to be rewarding scope (offering the full continuum of services, either yourself or with carefully-selected partners) and geographic reach (being convenient and accessible for patients).

Let’s say you’re a health system that wants to work directly with an employer. Are you nearby their offices? Do you have a robust network of primary care access points in the areas where their employees live? What specific services would that employee population need, and can you credibly offer high-quality, cost-effective care in most or all of them?

3. Do we understand our patients as consumers?

The words "consumer" and "customer" haven’t been in the health care lexicon for long. Medicine has never been a retail market; the people paying for your services are payers, the people choosing your services are often physicians, and the people using your services are patients. The patients with insurance coverage almost always had it through their employers, and when they got sick or injured, they went to a nearby location that was covered by that insurance and recommended by their doctor. And someone else paid the bill.

Who exactly is the customer in that world? Two of the most fundamental tenets of market economics—freedom of choice and full exposure to pricing—have long been absent in this industry. But now that we’re seeing the "retailization" of the insurance market, people have more choice in where they get health care, and more accountability for the financial implications of those choices. For the first time, the word customer actually means something.

And the first thing we’ve learned about our patients as customers is that we really don’t know them at all. Consider a patient with diabetes who signed up for coverage through the public exchange and is getting health insurance for the first time. If they work multiple jobs at odd hours, will they choose the lowest price insurance option (i.e. lowest premium), or will they pay a bit more for a lower deductible or to access a more convenient provider network?

What about a young married couple that moves to a new city and decides to shop for a private insurance plan? Will they prefer a primary care physician near their house, or will they drive 45 minutes to an established organization with a brand reputation for high-quality care?

It’s not that we don’t know the factors at play—namely price, access, convenience, and quality—but we’ve only ever thought of them theoretically. We have almost no data on how consumers trade off these factors, or how they value one combination versus another.

Think about how well consumer products companies understand their customers. They provide a wide array of differentiated products at different price points to appeal to different customer segments.

Health care is pretty far from having that level of sophistication. Most health systems simply don’t have the consumer marketing expertise needed to understand how patients will make these trade-offs.

4. What are the investments we can make now that will help us under both fee-for-service and value-based incentives?

This final question may in fact be the most important of the four. Many executives I talk to aren’t sure where to start on the path to population health. It can be tricky to balance care delivery and payment transformation, for reasons discussed above. So I am frequently asked, "When is the tipping point where we’ll become accountable for value?"

I think that’s the wrong question. It’s not just about volume or value. In many markets, it’s about both, and it will continue to be about both for the foreseeable future. Markets will not have clear tipping points at which health systems can seamlessly shift from one set of strategies to another. We’re going to have live with the ambiguity, and have organizations that are nimble and agile enough to sustain themselves amid that duality.

The real question is about what investments and initiatives make sense in both a volume-based fee-for-service world and a value-based world in which we’re paid based on cost and quality outcomes.

For example, improving access to care is critically important in both a volume- and value-based world. To win volume, you need easy, convenient, cost-effective access to ensure that you maximize the number of patients who are good candidates for acute care services. In a value-based world, you need to have a broad suite of access points so you can proactively coordinate care for your most complex patients.

Another investment that makes sense in both worlds is ensuring that all patients get the full complement of necessary, evidence-based care for their age and clinical profile. In a volume-based world, this leads directly to increased revenue; in a value-based world, this kind of preventive care is essential to managing costs.

And of course, most importantly, it’s better for patients.

Come talk to me at the CEO Special Sessions

This is just a preview of what we’ll be talking about at this year’s CEO Special Sessions. I’ll be at each meeting sharing our insights on assembling the right network to succeed in this rapidly changing industry, so sign up today to discuss these questions live.

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Meet the author

Dave Willis
Vice President, Health System Strategy
Research and Insights