The Bridge

4 big trends that raised some eyebrows at our recent meeting of health system CEOs

by Jessie Goldman and Yulan Egan

Every year, Advisory Board Research convenes a series of meetings for hospital and health system CEOs. This year's meetings feature a wide-ranging discussion including providers' role in addressing the opioid crisis, the impact of vertical integration on health system strategy, and the importance of cost discipline in ensuring continued strategic flexibility.

What 146 C-suite executives told us about their top concerns—and how they've changed this year

I recently spoke with Yulan Egan, who led the Advisory Board research currently being presented at the meeting series. She gave me the inside scoop on provider leaders' "a-ha" moments and helped parse out four things all suppliers and service firms should keep in mind moving forward.

1. While the payer mix shift has challenged provider margins for some years now, hospital and health system executives are recognizing that a more dramatic case mix shift is yet to come.

Across the past decade, providers have been focused on the fact that more Americans are aging out of commercial insurance and into Medicare, which reimburses providers at a relatively lower rate.

But while the Medicare population has grown, it's also gotten relatively younger and healthier. As the baby boomers have aged into Medicare, they've brought the average age of the Medicare population down. That's about to change in a big way. The first baby boomers are now turning 75 and, as they age, they require higher levels of medical care over procedural care and surgeries, which tend to more profitable for health systems. As providers confront this worsening case mix, expect more focus on improving collaboration across acute, post-acute, home-based, and other outpatient sites and on shifting care delivery to the most cost-effective delivery setting.

2. After years of Medicare-led transformation, players in the private sector now threaten to disrupt the delivery system, and they're giving even the most seasoned provider organizations pause.

Over the last decade, providers have responded to a slew of new rules and regulations designed to control the health spending curve, almost all of which have been put forth by CMS. While CMS continues to experiment with a variety of strategies for curtailing spending, private sector players—particularly technology companies, retailers, and large employers—are setting their sights on the health care industry as well. Though this is not the first time we've seen the potential for outside disruption in health care, hospital CEOs agree that this moment feels unique for two big reasons.

First, there's a powerful player in the mix that has a history of turning industries inside out. Over the past two years, Amazon has increasingly dipped its toes into multiple facets of the health care industry.  And regardless of what Amazon does next—the mere threat of its entry into the health care space is catalyzing change across the industry.  

And at the same time, consumers are also becoming more willing to engage with different-in-kind health care models.

3. Both private and public sector actors are turning their attention away from hospitals and health systems and towards independent physicians as preferred agents of change.

The recent wave of health care M&A—whether CVS' proposed acquisition of Aetna or the rumored merger between Walmart and Humana—spotlights a growing interest in lower-cost delivery settings. And a growing number of entities, including private equity firms, health plans, and the growing OptumCare network, have zeroed in on independent physicians as the key to controlling health spending and unlocking value.

But while commercial insurers have long recognized the power of independent physicians in transforming care delivery, the more groundbreaking shift we've seen over the last year is that Medicare is taking a page from the private sector's book and is eyeing physician-led care management solutions as well. For example, the recent proposed ACO rule is designed, in part, to help maintain physician independence and promote physician innovation. 

Suppliers and service firms that have focused exclusively on the hospital market should start thinking about how the rising prominence of independent physician groups may impact current and future business. These could be new potential customers, though it'll require work to pinpoint and address unique needs and pain points.

4. All hospitals—regardless of their current financial status—recognize that long-term sustainability will require a heightened focus on enterprise-wide cost control. Suppliers and service firms can expect elevated spending decisions and more cost scrutiny in decisions ranging from clinical decision support to facility expansion.

With health system revenue growth already on the decline—and the threat of continued pressure from both the public and private sectors—providers find themselves confronting an increasingly challenging financial landscape. While future success will require continued revenue growth, few health system will successfully maintain margins without a comprehensive cost control strategy.

In our recent survey of health system c-suite executives, they ranked "preparing the enterprise for sustainable cost control" as their top strategy priority for 2018 and beyond. And no one's tapped out all potential savings. Even the most progressive CEOs left our most recent meeting with some ideas for how to bend their organizations' cost curve.

Looking forward, providers need to do more than simply slash a few budget line items. And while most suppliers already face centralized purchasing committees, expect to see more organizations elevate signature authority. 

Moreover, purchasing stakeholders will closely assess the long-term value each expenditures brings to organization. Anticipate a greater focus on investments that can improve staff productivity, automate resource-intensive administrative and clinical processes, and ensure scalable growth, for example, through micro-hospitals or home-base acute care models.

Save your spot at the 2018-2019 Health Care Advisory Board national meeting

We're excited to announce the 2018-19 Health Care Advisory Board National Meeting Series, which will run from October 2018 through April 2019.

In this series, we'll unpack the most important forces reshaping the health care industry and provide guidance on how to stay a step ahead, including practical steps on how providers will rein in expenses (especially pharmaceutical spending) and how providers will secure future growth.

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