In 2014, the American Hospital Association conducted an online survey of board chairs and C-suite executives from health systems across the country. It received 1,078 responses from over 400 hospitals.
More than 50% of the respondents estimated that 20% to 40% of hospital payments will be capitated over the next five years and more than 20% of the respondents estimated that 40% to 60% of the hospital payments will be capitated. To put that in perspective, today, less than 10% are capitated.
These responses demonstrate that board chairs and C-suite executives are not contemplating "if" but are more focused on the "when" of value-based payment.
Most organizations still have one foot on the dock (fee for service) and one on the boat (value-based reimbursement). As the boat pulls away, they will be forced to be all-in or be left behind. This has forced many organizations to scramble for partners and to answer the "build, buy or partner" question.
In the aforementioned survey, 72% of respondents from 100- to 300-bed hospitals said they plan on partnering or experimenting with value, and 61% of respondents from over 300-bed hospitals said they plan to do so.
One of the key difficulties on the value-based journey is that there is not a clear linear path to success, but rather a mosaic of strategies that must be deployed simultaneously. This has overwhelmed many leadership teams as they struggle to manage competing priorities and create the needed bandwidth to succeed.
Healthcare leadership must first be able to create a model and an accompanying vernacular that can capture the essence of value-based transformation and assimilate all the disparate pieces. The following illustration depicts a value-based strategy model and how organizations can create a roadmap to navigate the volume to value transition.
Foundational to any market is the timing and rate of change from fee for service to population health. It is no longer enough to admire the problem and simply detail out the philosophy to achieve this transformation. High performing health systems will need to continuously evaluate the healthcare market influencers such as competitive positioning, consumerism, and the employer/payer dynamics and adjust their strategies to keep pace with these influencers.
Many strategies make sense in a volume-based and a value-based environment.
1. A focus on cost reduction and revenue optimization.
This first category must become part of how health systems operate and not an intermittent initiative. The low hanging fruit is gone and systems must be willing to be more comprehensive and dig deeper in their cost reduction strategies.
Cost reduction and revenue optimization should focus on costs and revenues associated with workforce, human resources, supply chain, revenue cycle, clinical variation/utilization, physician practice management and related subsidies, and patient throughput.
A deep approach on all of these areas is still very fruitful and should be hardwired into daily operations.
2. A focus on ambulatory network development and information exchange.
The next strategy is to focus on market capture and ambulatory network development. In any world, volume is still king and even more critical in organizations on the journey to risk.
A tectonic shift has to occur from being hospital-centric to ambulatory-centric. The hospital can longer exist without integration with the ambulatory setting. It must have a robust ambulatory network development strategy that is forward looking and incorporates all the stakeholders.
A "single source of truth" must be established around data integrity, creating unprecedented actionable information to drive performance improvement. When armed with complete and trusted data a whole new level of performance will be unleashed from your leadership team.
3. A focus on clinical integration.
The next component of a value-based strategy is obtaining buy-in from the clinical team. Today, systems must be willing to take risks, hand over the keys and allow physicians to co-lead these strategies. Physicians will engage when they understand the issues and help craft the solution.
The key to health systems thriving in a population health world is physicians across the continuum understanding the total cost of care and not just in their area of expertise. In this environment physicians become heat seeking missiles looking for opportunities to improve quality and decrease costs. This is possible through a clinically integrated model where incentives are aligned and physicians share in the financial rewards.
Many of the elements of a value-based strategy are sometimes easy to say but hard to do. In a rear-view mirror world of top-line revenue, our true north was to grow our volume and lower our costs.
No longer is there a single way to win but a mosaic of strategies that enable health systems to thrive in today's environment while leading the way for value-based transformation. The boat is pulling away from the dock and it is no longer possible to maintain a foot in both worlds.
David Wildebrandt is a member of BRG's Healthcare Performance Improvement practice. He has over 15 years of healthcare operations experience focused on improving contribution margin, improving efficiency through clinical process redesign, and enhancing physician integration.
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