The Blueprint

Why are hospital CEOs worried about primary care?

by Amanda Berra

Hospital leaders are telling us that transforming primary care to drive growth and improve patient outcomes is their most important priority. Most of the reasons are obvious—but one is not, and it's worth considering.

Primary care tops this year's list of CEO and C Suite concerns

In Q4 2011, the Health Care Advisory Board asked 230 members of the C-suite what their 2012 top concerns were. Primary care has been in the top five or 10 for the last several years—but now it officially tops the list.

On average, hospital leaders said “transforming primary care to drive growth and improve patient outcomes” was more important than revenue maximization, cost-cutting, and the transition to value-based delivery models.

Top Concerns/ Research Priorities Among Hospital C-Suite

n=230

1. Transforming Primary Care to Drive Growth and Improve Patient Outcomes

2. Supporting Sustainable Cost Restructuring

3. Transitioning from Volume-Based to Value-Based Business Models

4. Maximizing Revenues in a Slow-Growth Environment

5. The Future of Profitable Growth in the Acute Care Enterprise


Top Concerns/ Research Priorities Among Hospital CEOs

n=60

1. Transforming Primary Care to Drive Growth and Improve Patient Outcomes

2. Supporting Sustainable Cost Restructuring

3. Transitioning from Volume-Based to Value-Based Business Models

4. Maximizing Revenues in a Slow-Growth Environment

5. Competing on Affordability and Value


Why health system executives are focused on primary care

The PCP transformation imperative is well documented, but in short, hospital leaders are focused on primary care for some or all of these reasons:

  • Steeply rising PCP employment
  • Payer actions, from acquiring PCPs to beginning to incentivize PCPs for inflecting continuum-wide utilization goals
  • A general sense that now is the time for providers to take real steps toward care transformation and preparing for more population-level risk
  • Strong case for primary care transformation being critical to succeeding under population risk models

Let us give you one more reason: Demand management

We would argue there is yet another compelling reason for hospital/system leaders to be focused on primary care, one that even accountable care skeptics should be paying close attention to. 

Researchers from the Advisory Board’s Medicare Breakeven Project have been building models that project future health system business models and cost structures even absent any changes in population-level risk.  First, they  trended forward shifts in payer mix and declines in average price per case to project future margins for the typical hospital.  Then, they used data analysis and profiles of organizations prospering under Medicare-like average prices today to examine the relative savings opportunities that hospitals could capture from lowering fixed costs, reducing input-cost levels, and improving utilization patterns.

Their conclusion:  The typical hospital faces a massively negative margin within the next decade.  Even after all reasonable revenue capture, cost reduction, and capacity levers have been pulled, that margin will still be negative, leaving only one make-or-break factor left for hospitals:  case mix management.   For a typical hospital, optimizing case mix management will make the difference between an operating margin of -2.4% versus +3.9%.

Case mix management is crucial because the average ambulatory-sensitive admission is significantly less profitable than the average of all cases--and those are the types of admissions that are growing due to demographic and other factors. Therefore, to survive in coming years, hospitals must find ways to prevent avoidable medical admissions for diagnoses like hypertension, diabetes, and COPD.  At the same time, hospitals must grow sufficiently to backfill with more complex surgical cases, lowering the overall share of medical admissions in the mix.

In sum: Demand management is an irreplaceable key to a positive future margin for hospitals--and the key to demand management is to start investing in PCMHs and other elements of the ambulatory network.  Only this way can hospitals BOTH grow the patient base AND form a “medical perimeter” to filter avoidable medical admissions out of acute care. 

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