Successful boards adapt: A primer on urgent issues facing health-system decision-makers

Today’s healthcare systems face unprecedented challenges.

Part of the boardroom’s responsibility is to help their organization manage them, and to discharge this duty, board members have to carefully attend to emerging trends in the industry. But the pace of change, even to long-time insiders, can be bewildering—many issues taking top-line priority in hospital board meetings now did not exist 10 years ago.

To assist hospital boards in their mission of effective stewardship, The Governance Institute presents this primer on the most urgent issues of the day. Anyone in a position of boardroom leadership—whether as a newcomer or an industry veteran—will benefit from this overview of the challenges, threats, and opportunities that confront healthcare organizations in 2018.

Topics covered include:

- Regulatory changes
- Fiscal and business pressures
- Data security
- Consumerism

As change accelerates, the future is far from clear. But one reliable certainty is that adaptable organizations will be those best positioned to thrive. An organization’s responsiveness depends, in large part, on wise guidance from its board.

To that end, this article should help advance conversations in the boardroom, inform strategic decision-making, and provide organizations with several ways to respond nimbly to the obstacles ahead.

CONSUMERISM

Trend Overview

Of foremost importance to the success of healthcare organizations is how they manage their patients’ elevated expectations.

One reason patients have started to demand more from their providers: they’re now paying more for their care. Costs of healthcare services are rising, and patients are bearing the brunt of the bill. For the first time, patients account for 35 percent of provider revenue,¹ putting them behind only Medicare and Medicaid.

High-deductible health plans (HDHPs) are part of the reason why. Forty percent of adults were enrolled in HDHPs in 2017,² which means they and their families had to pay steep costs to access care. Meanwhile, fewer employers are offering benefits to their employees,³ and the packages they do offer have gotten less generous. As a result, the rate of uninsured Americans has risen in the last four years to 12.2 percent.⁴

This extra financial responsibility for patients has made them more keenly selective about which providers they patronize. Understandably, they want value for their money, and they’ve never been more inclined to explore their options. In fact, 7 percent of patients report that they would switch providers after just one sub-par care experience. ⁵

Accordingly, providers must offer the kind of experience that patients expect. They don’t just want high-quality care—they want to feel understood by their providers, they want clarity in their choices, and they want a seamlessly continuous experience,⁶ from the moment of admission to months after discharge.⁷

These broad-strokes descriptions of patient preferences will help orient healthcare organizations in their pursuit of better care. But they are not precise enough. Every community is different; every patient population brings unique expectations to the marketplace. It is therefore critical for providers to use every tool available to them to understand their patient communities with clarity, precision, and depth, in order to bring service in line with what their customers demand.

Traditional survey modalities often fall short in this regard. Because they frequently travel by post, they can take several weeks to reach patients after an episode of care. By then, the experience is far from fresh in their minds, and they may be less inclined to offer candid feedback—which shows in the depressed response rates seen from CAHPS surveys.⁸ This is why most healthcare organizations should at least consider deploying a modern, digital-facing, real-time feedback-collection platform.

Questions for the Board
- Do we thoroughly understand the entire patient experience?
- What data do we have to make sense of our customers’ expectations? Is it robust? Thorough? Statistically significant?
- What steps do we take, beyond those mandated by CMS, to field our patients’ concerns?
- Are traditional mail-in surveys serving our organization well? Or should we consider updating to a real-time feedback platform?
- Are we doing enough to earn patient loyalty?

THE SHIFTING REGULATORY LANDSCAPE

The Affordable Care Act

Board members will likely recall last summer’s intense debate over the future of the Affordable Care Act (ACA). The legislation has tremendously influential defenders and detractors, and while it’s unlikely to be scrapped in its entirety, it’s already undergoing significant change.

The Tax Cuts and Jobs Act of 2017⁹ repealed the ACA’s Individual Mandate, which required American adults to carry a minimum amount of healthcare coverage. The mandate will remain in effect for 2018, but starting in 2019, there will be no penalty on adults for failing to carry insurance.

Predictions on how this will affect insurance-enrollment rates vary wildly. That’s because the insurance market is governed by complex incentives, many of which individual consumers struggle to understand. The Congressional Budget Office, however, estimates that 5 million fewer people will carry insurance in 2019.¹⁰ This may result in an increase in the amount of uncompensated care given by health systems. (See more on that topic in the next section.)

Medicaid Policy Changes

While broader legislative reform must undergo substantial public debate, changes in Medicaid policy can happen relatively quickly, as they are the purview of a single government agency—the Centers for Medicare and Medicaid Services (CMS).

CMS Administrator Seema Verma has already begun two major initiatives that will affect hospitals in the near future:

(1) A push for price transparency in hospital services.¹¹
Under this initiative, hospitals and health systems will need to publish accessible prices on their websites. While hailed as a positive step by many consumer advocates, health leaders worry that pricing information can be misleading, as hospital prices rarely reflect what consumers are responsible for. Instead, their final bills are the result of complicated negotiations between providers and payers, which are virtually impossible to publish up front.

(2) Permitting states to institute work requirements for Medicaid.¹²
This change allows individual state governments to require that low-income citizens demonstrate employment in order to qualify for coverage under Medicaid. Several states have already filed proposals for CMS review and, if approved, individuals will have to document their work hours or risk losing benefits. While the results of this program are difficult to predict, it’s certain to have effects on community health, particularly in low-income areas.

Questions for the Board
- What are the likely effects of the individual-mandate repeal, given the insurance marketplace in our state?
- Are we prepared for a potential rise in uncompensated care?
- How can we effectively communicate our prices to consumers? Can we compile a list of common procedures and sample prices based on our most popular payer contracts?
- Has our state filed a proposal for Medicaid work requirements? What do these requirements entail? How might they affect Medicaid coverage and related community-health issues in our service area?

FISCAL STRESS AND BUSINESS THREATS

Fiscal Realities for Providers

Though profits have risen for many health systems,¹³ several other measures have given healthcare CFOs cause for concern. Rates of reimbursement, for instance, have continued their steady decline.¹⁴ So have admissions.¹⁵ Operating costs, meanwhile, are mounting.¹⁶ And levels of bad debt, which until recently had been falling, have levelled off at a steady 67 percent for most healthcare organizations.¹⁷

Taken together, these conditions have many healthcare leaders turning an anxious eye to the future. Profits are rising for now, but trends are also appearing that could undermine hospitals’ long-term fiscal health.

Business Activity

Perhaps catalyzed by these financial pressures, a flurry of structural changes have engulfed the entire industry. Health-system consolidation has accelerated to a new clip. The number of new acquisitions jumped 13 percent in 2017¹⁸ —up to its highest point since 2000. Though often a winning strategy for health systems, the appetite for acquisition likely reflects a defensive posture against several emerging threats.

Providers are not the only firms merging. Several headline-grabbing acquisitions in the last few years may seriously disrupt hospital service lines. The joining of CVS and Aetna¹⁹ may transform certain avenues of care management ordinarily commanded by hospitals; UnitedHealth’s acquisition of DaVita²⁰ seems poised to upend care for chronic kidney disease.

Another looming danger for hospitals is the swelling ranks of non-traditional providers. These institutions, like retail and mini-clinics, have seen an astonishing rate of growth. Between 2006 and 2014, their number has swelled by 445 percent,²¹ and last year a full 30 percent of patients have turned to them for primary care.²² By usurping the hospital’s place at the beginning of the care pipeline, these providers interrupt a very crucial point in building relationships with patients.

Finally, entirely new entities have entered the fray. No one can say with certainty what is augured by the joint announcement from Berkshire-Hathaway, Amazon, and JP Morgan Chase, but healthcare leaders are naturally reacting with some trepidation. The same is true of Apple’s eyeing two clinic groups for acquisition²³ and Amazon’s achieving licensure as a wholesale pharmacy in many U.S. states.²⁴

Questions for the Board

- How can we position our organization to recapture lost primary-care patients?
- Should our organization consider an acquisition—or seek to be made available for one? What other types of partnership arrangements should we consider to better position our brand in the marketplace?
- How can our organization control its levels of bad debt or other uncompensated care?
- What operating costs can our organization better monitor and control?
- How can our organization anticipate the changes emerging from outside players.

DATA VULNERABILITY

Trend Overview

When patients sign admission paperwork, they implicitly trust that their information will stay within the hospital’s doors. And until recently, they had little reason to fear otherwise. HIPAA laws mandate the strictest levels of protection and anonymity, and hospitals and health systems were adept at keeping records secure.

That, however, is changing. Some 96 percent of hospitals have successfully adopted Electronic Health Records (EHRs).²⁵ While this creates efficiencies in documentation and care management, it also creates new vulnerabilities that many organizations are struggling to contain. Despite the fact that healthcare organizations spend 15 percent of their IT budget on cybersecurity,²⁶ more than 5 million patient records have been compromised in the first quarter of 2018.²⁷ The cost to healthcare systems? $360 per stolen record.²⁸

Broadly considered, these breaches have two causes.

(1) Errors and glitches. EHRs make handling patient information significantly more complex. This increases the odds of missteps and errors, like glitches in software or human mishandling. A study from the Ponemon Institute attributes 48 percent of breaches to these kinds of mistakes.²⁹ Improved employee training, more robust software, and stronger encryption practices could reduce the occurrence of these problems.

(2) Malicious actors. The remaining 52 percent of breaches occur deliberately; last year, the average health system absorbed 16 cyber-attacks.³⁰ That number will likely grow in 2018. Hackers and data-thieves, unfortunately, have become more sophisticated and better organized. One such malicious actor, a mysterious new collective of hackers dubbed Orangeworm, has “carefully and deliberately” infiltrated health systems in 2018, via the software used to operate imaging machines and digital consent forms.³¹ Organizations that still run legacy software, like Windows XP, are particularly vulnerable. By extension, so are their patients.

Exposed patients are at risk not only of identity theft, but also of having some of their most private and privileged information exposed on the black market. Medical records sell for more than four times the value of a Social Security number.³² They can be used to acquire (and resell) expensive medications and equipment, as well as to file fraudulent claims with insurers—which could have a devastating effect on a patient’s finances.

Questions for the Board
- How robust are our cybersecurity measures? Do we run the latest operating systems and related patches? Do we have a multi-tiered backup system, and reliable methods for alerting and responding when anomalous behavior is detected in our IT systems?
- How is our employee training for data management? Are our organization’s employees aware of the risks of mishandling consumer data?
- In the event of a hack or breach, are we equipped with a recovery plan? How quickly can we let our patients know if their information has been compromised?

THE INDISPENSABLE BOARD

This primer is aimed to spur productive discussions in the boardroom. The questions raised should point the way to broader, deeper inquiry into the factors that drive a hospital’s or health system’s success. But it’s only a starting point. As always, the most valuable insights into an organization’s future will come from the organization’s own stakeholders.

The Governance Institute therefore recommends that board members reach out to these stakeholders regularly to see what they can learn. Frank exchanges—with executives, clinicians, front-line workers, and, most importantly, the patient community—can shed light on the issues your organization faces. They may even point the way toward solutions.

These are challenging days for hospitals and health systems, to be sure. But adaptable, resilient organizations will find new ways to flourish. And often, the most adaptable institutions are those most adept at a simple, but crucial, skill: listening.

Kathryn C. Peisert is Managing Editor of The Governance Institute and oversees the entire library of educational content and programming for healthcare boards. Prior to coming to The Governance Institute, she served as permissions and copyright editor for Roxbury Publishing, now a division of Oxford University Press. She has authored articles published in Healthcare Executive, Health Affairs, the Journal of Health & Life Sciences Law, and Prescriptions for Excellence in Health Care. She is a member of the American College of Healthcare Executives and the American Health Lawyers Association.

1. Michael Evans, “What We Can All Do About Rising Healthcare Costs.” Forbes, June 28, 2017. (https://www.forbes.com/sites/allbusiness/2017/06/28/what-we-can-all-do-about-rising-healthcare-costs/)
2. Morgan Haefner, “CDC: Nearly 40% of US Adults Have High-Deductible Health Plans.” Becker’s Hospital Review, June 7, 2017. (https://www.beckershospitalreview.com/payer-issues/cdc-nearly-40-of-us-adults-have-high-deductible-health-plans.html)
3. Jeff Lagasse, “Health Insurance Offered by Fewer Employers, While Fewer Employees Sign Up.” Healthcare Finance News, February 22, 2017. (http://www.healthcarefinancenews.com/news/health-insurance-offered-fewer-employers-while-fewer-employees-sign)
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19. Leslie Small, “CVS-Aetna Deal Has $2.1B Breakup Fee.” FierceHealthcare. December 6, 2017. (https://www.fiercehealthcare.com/payer/cvs-aetna-deal-has-2-1b-breakup-fee)
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24. Emma Court, “Is Amazon Getting into the Pharmacy Business? This Is What You Need to Know.” MarketWatch, November 28, 2017. (https://www.marketwatch.com/story/is-amazon-getting-into-the-pharmacy-business-this-is-what-you-need-to-know-2017-10-09)
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29. Ponemon Institute, “Ponemon Institute’s 2017 Cost of Data Breach Study: Global Overview.” January 8, 2018. (https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=SEL03130WWEN)
30. Rachel Arndt, op. cit.
31. Rachel Arndt, op. cit.
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