Category Archives: Transition to Value-Based Healthcare

Health System Chief Strategy Officer Roundtable Assessment: ‘The Near-Term is Tough, the Long-Term is Uncertain and the Deck is Stacked against Hospitals’

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https://paulkeckley.com/the-keckley-report/2023/12/4/health-system-chief-strategy-officer-roundtable-assessment-the-near-term-is-tough-the-long-term-is-uncertain-and-the-deck-is-stacked-against-hospitals/

On November 2-3 in Austin, I moderated the 4th Annual CSO Roundtable* in which Chief Strategy/Growth Officers from 12 mid-size and large multi-hospital systems participated. The discussion centered on the future: the issues and challenges they facing their organizations TODAY and their plans for their NEAR TERM (3-5 years) and LONG-TERM (8-10 years) future. Augmenting the discussion, participants rated the likelihood and level of disruptive impact for 50 future state scenarios using the Future State Diagnostic Survey. *

Five themes emerged from this discussion:

1-Major change in the structure and financing of U.S. health system is unlikely.

  • CSOs do not believe Medicare for All will replace the current system. They anticipate the existing public-private delivery system will continue with expanded government influence likely.
  • Public funding for the system remains problematic: private capital will play a larger role.
  • CSOs think it is unlikely the public health system will be fully integrated into the traditional delivery system (aka health + social services). Most hospital systems are expanding their outreach to public health programs in local markets as an element of their community benefits strategy.
  • CSOs recognize that states will play a bigger role in regulating the system vis a vis executive orders and referenda on popular issues. Price controls for hospitals and prescription drugs, restraints on hospital consolidation are strong possibilities.
  • Consensus: conditions for hospitals will not improve in the immediate and near-term. Strategies for growth must include all options.

2-Health costs, affordability and equitable access are major issues facing the health industry overall and hospitals particularly.

  • CSOs see equitable access as a compliance issue applicable to their workforce procurement and performance efforts and to their service delivery strategy i.e., locations, patient experiences, care planning.
  • CSOs see reputation risk in both areas if not appropriately addressed in their organizations.
  • CSOs do not share a consensus view of how affordability should be defined or measured.
  • There is consensus among CSOs that hospitals have suffered reputation damage as a result of inadequate price transparency and activist disinformation campaigns. Executive compensation, non-operating income, discrepancies in charity care and community benefits calculations and patient “sticker shock” are popular targets of criticism.
  • CSO think increased operating costs due to medical inflation, supply chain costs including prescription drugs, and labor have offset their efforts in cost reduction and utilization gains.
  • CSO’s are focusing more of their resources and time in support of acute clinical programs where streamlining clinical processes and utilization increases are achievable near-term.
  • Consensus: the current financing of the system, particularly hospitals, is a zero-sum game. A fundamental re-set is necessary.

3-The regulatory environment for all hospitals will be more challenging, especially for not-for-profit health systems.

  • Most CSOs think the federal regulatory environment is hostile toward hospitals. They expect 340B funding to be cut, a site neutral payment policy in some form implemented, price controls for hospital services in certain states, increased federal and state constraints on horizontal consolidation vis a vis the FTC and State Attorneys General, and unreasonable reimbursement from Medicare and other government program payers.
  • CSOs believe the challenges for large not-for-profit hospital systems are unique: most CSOs think not-for-profit hospitals will face tighter restrictions on their qualification for tax-exempt status and tighter accountability of their community benefits attestation. Most expect Congress and state officials to increase investigations about for-profit activities, partnerships with private equity, executive compensation and other issues brought to public attention.
  • CSOs think rural hospital closures will increase without significant federal action.
  • Consensus: the environment for all hospitals is problematic, especially large, not-for-profit multi-hospitals systems and independent rural facilities.

4-By contrast, the environment for large, national health insurers, major (publicly traded) private equity sponsors and national retailers is significantly more positive.

  • CSOs recognize that current monetary policy by the Fed coupled with tightening regulatory restraints for hospitals is advantageous for national disruptors. Scale and access to capital are strategic advantages enjoyed disproportionately by large for-profit operators in healthcare, especially health insurers and retail health.
  • CSOs believe publicly traded private equity sponsors will play a bigger role in healthcare delivery since they enjoy comparably fewer regulatory constraints/limitations, relative secrecy in their day-to-day operations and significant cash on hand from LPs.
  • CSOs think national health insurer vertical consolidation strategies will increase noting that all operate integrated medical groups, pharmacy benefits management companies, closed networks of non-traditional service providers (i.e. supplemental services like dentistry, home care, et al) and robust data management capabilities.
  • CSOs think national retailers will expand their primary care capabilities beyond traditional “office-based services” to capture market share and widen demand for health-related products and services
  • Consensus: national insurers, PE and national retailers will leverage their scale and the friendly regulatory environment they enjoy to advantage their shareholders and compete directly against hospital and medical groups.

5-The system-wide shift from volume to value will accelerate as employers and insurers drive lower reimbursement and increased risk sharing with hospitals and medical groups.

  • CSOs think the pursuit of value by payers is here to stay. However, they acknowledge the concept of value is unclear but they expect HHS to advance standards for defining and measuring value more consistently across provider and payer sectors.
  • CSOs think risk-sharing with payers is likely to increase as employers and commercial insurers align payment models with CMS’ alternative payment models: the use of bundled payments, accountable care organizations and capitation is expected to increase.
  • CSOs expect network performance and data management to be essential capabilities necessary to an organization’s navigation of the volume to value transition. CSOs want to rationalize their current acute capabilities by expanding their addressable market vis a vis referral management, diversification, centralization of core services, primary and preventive health expansion and aggressive cost management.
  • Consensus: successful participation in payer-sponsored value-based care initiatives will play a bigger role in health system strategy.

My take:

The role of Chief Strategy Officer in a multi-hospital system setting is multi-functional and unique to each organization. Some have responsibilities for M&A activity; some don’t. Some manage marketing, public relations and advocacy activity; others don’t. All depend heavily on market data for market surveillance and opportunity assessments. And all have frequent interaction with the CEO and Board, and all depend on data management capabilities to advance their recommendations about risk, growth and the future. That’s the job.

CSOs know that hospitals are at a crossroad, particularly not-for-profit system operators accountable to the communities they serve. In the 4Q Keckley Poll, 55% agreed that “the tax exemption given not-for-profit hospitals is justified by the community benefits they provide”  but 45% thought otherwise. They concede their competitive landscape is more complicated as core demand shifts to non-hospital settings and alternative treatments and self-care become obviate traditional claims-based forecasting. They see the bigger players getting bigger: last week’s announcements of the Cigna-Humana deal and expansion of the Ascension-LifePoint relationship cases in point. And they recognize that their reputations are under assault: the rift between Modern Healthcare and the AHA over the Merritt Research ’s charity care study (see Hospital section below) is the latest stimulant for not-for-profit detractors.

In 1937, prominent literary figures Laura Riding and Robert Graves penned a famous statement in an Epilogue Essay that’s especially applicable to hospitals today: “the future is not what it used to be.”

For CSO’s, figuring that out is both worrisome and energizing.

CMMI increased Medicare spending in its first decade

Posted on by • Posted in ACA, Center for Medicare and Medicaid Innovation (CMMI), Congressional Budget Office (CBO), Health Policy, Transition to Value-Based Healthcare • Leave a comment

https://mailchi.mp/f12ce6f07b28/the-weekly-gist-november-10-2023?e=d1e747d2d8

In this week’s graphic, we highlight the recent Congressional Budget Office (CBO) analysis of the budgetary impact of the Center for Medicare and Medicaid Innovation (CMMI), which has gotten off to a disappointing start. 

CMMI was created by the Affordable Care Act in 2010 to test new payment models and other initiatives for reducing the federal government’s healthcare costs, but of the nearly 50 models it has run, only four have become permanent programs. 

Originally projected to generate $2.8B in savings between 2011 and 2020, CMMI was responsible for a net spending increase of $5.4B, having achieved only one quarter of its projected Medicare savings. 

Moreover, the CBO predicts that CMMI won’t produce net annual savings until 2031. 

There are several factors to blame for CMMI’s initial shortcomings, including the lack of mandatory participation for providers, conflicting incentives across care models, patient attribution challenges between providers, and insufficient commercial payer support to scale new care models. 

CMMI intends to simplify its approach, according to its 2021 “strategy refresh”, which should address some of these issues, though requiring commercial payers to participate in new models seems unlikely.

However, despite the discouraging results so far, CMMI’s mission is still laudable and important, and the transition to value remains a key priority for federal regulators.

Hackensack, RWJBarnabas and Horizon strategically partner to own Medicare Advantage insurer

Posted on by • Posted in Data Sharing, Data Transparency, Health Insurance Industry, Health System, Hospital, Hospital Industry, Medicare Advantage, Patient Outcomes, Population Health, Strategic Alignment, Strategy, Transition to Value-Based Healthcare, Value-Based Contracting, Value-Based Healthcare • Leave a comment

https://www.healthcarefinancenews.com/news/hackensack-rwjbarnabas-and-horizon-own-new-medicare-advantage-plan-braven-health

New Jersey | Capital, Population, Map, History, & Facts | Britannica

Braven Health teams two of the largest provider systems in New Jersey with one of the largest insurers in the state.

Hackensack Meridian Health and Horizon Blue Cross Blue Shield of New Jersey have teamed up as equal provider and payer owners of the newly-created Medicare Advantage business, Braven Health. 

RJWBarnabas Health in New Jersey, is about to come onboard as a 10% minority owner, subject to state approvals.

“A lot of organizations have a provider and payer partnership,” said Patrick Young, president of Population Health at Hackensack. “The payer is still the payer and the provider is still the provider. This transcends that.”

While Medicare accounts for a large portion of hospital revenue – about 40% – providers do not reap the rewards that Medicare Advantage plans do.

“We don’t do well financially for care to a Medicare member because the rates are low,” said Young, who formerly worked for Aetna. “The Medicare population is the fastest growing, but there’s no advantage to being the provider. The only organizations making money are the insurers.”

Hackensack felt that getting into the insurance space specifically around Medicare was strategic for growth. 

“Medicare is the fastest growing population,” Young said, adding, “It’s the fastest growing population we lose money on.” 

Hackensack went looking for a payer partner in the complicated and highly regulated insurance market. The health system sent requests for proposals, looking not only for experience in the market, but for an organization whose value-based goals aligned with its own. 

“We have value-based arrangements with all the major payers,” Young said.

It chose Horizon as its strategic partner.

Braven Health teams two of the largest provider systems in New Jersey with one of the largest insurers in the state.

Starting January 1, Braven Health’s Medicare Advantage plans will be available in eight counties: Bergen, Essex, Hudson, Middlesex, Monmouth, Ocean, Passaic and Union.

WHY THIS MATTERS

Insurers and pharmacies have long been elbowing into the healthcare space.

UnitedHealth Group has been buying physician practices and is reportedly one of the nation’s largest employers of doctors. CVS Health, owner of Aetna, launched Health Hubs within its pharmacies. Walmart recently announced an expansion of its health clinics.

The move by Hackensack could be seen as another battle in the arms race to regain competitive ground. But it also recognizes the need for providers to work collaboratively with payers to get claims and other data needed to improve outcomes and lower cost in the move to value-based care.

Joint ventures are the next logical progression of payment models, moving away from fee-for-service and toward value, shared risk and accountability arrangements. 

The integration model of provider and payer isn’t new.

The Geisinger Health System, Highmark Health in Pennsylvania and Kaiser Permanente in California are three of the largest and best-known integrated systems.

Horizon competitors such as Aetna, Cigna and Oscar and other Blue plans such as Highmark are in provider/payer partnerships. 

One of the nation’s largest nonprofit health systems, Ascension, and health payer Centene are also among the joint ventures offering Medicare Advantage plans. In 2018, there were about 28 joint venture plans in the United States, with at least nine of these offering MA plans, according to DRG.

BRAVEN HEALTH

Braven Health plans use Horizon BCBSNJ’s existing Medicare Advantage managed care networks, meaning that every doctor and hospital that participates in these networks will also be in-network for comparable Braven Health plans. 

This gives Braven Health Medicare Advantage members access to more than 51,000 providers and 82 network hospitals in the Hackensack and RWJBarnabas systems in New Jersey. 

As a Blue Cross Blue Shield plan, Braven Health’s members choosing a PPO plan will also have access to the BCBS national Medicare Advantage PPO network. 

Braven is a separate legal entity with its own board. It also has a Practitioner Council, made up of physicians representing various specialties, that will provide recommendations to the Braven Health CEO and board of directors on ways to improve the plan from the practitioner’s perspective.

It’s still early in the open enrollment process, but so far Braven Health CEO Luisa Y. Charbonneau said she is encouraged by the response to the plans. Braven creates a closer, collaborative relationship for better health, based in part on the exchange of data, according to Charbonneau.

“You can make the best decisions when there is transparent data between all parties, as well as have innovation,” Charbonneau said. “I think we see across the United States, where physicians, providers and the insurer are all aligned to be patient-centered, that’s where we’re going to see the best outcomes and financial outcomes.”

THE LARGER TREND

Close to 40% of Medicare members now choose a Medicare Advantage plan over traditional Medicare, as the plans run by private insurers offer additional benefits and some, including Braven Health, are offering zero premiums in specific 2021 plans.

The market is only expected to grow as baby boomers age into retirement.

The Future of Hospitals in Post-COVID America (Part 1): The Market Response

Posted on by • Posted in Balance Sheet, Capitation, Cash, Cash Reserves, Change, Change Agent, Change Management, Chronic Care Management, Chronic Conditions, Chronic Diseases, Competition, Consumer Loyalty, Consumer Preferences, Consumer-Centered Care Pathway, Consumerism, Deferred Healthcare, Disruption, Economic Crisis, Economic Stimulus, Elective Procedures, Elective Surgery, Employee Furlough, Employee Hiring Freeze, Employee Layoffs, Employee Pay Cuts, Employer-Based Health Insurance, Fee for Service Reimbursement, Health Insurance Coverage Adequacy, Health System, High Deductible Health Plans, Hospital, Hospital Industry, Investment Banking, Job, Job Loss, Job Market, Job Search, Job Security, Liquidity, Marginal Effects, Market Consolidation, Medical Group, Mergers & Acquisitions, Net Income, Net Patient Service Revenue, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Out of Pocket Expenses, Pandemic, Paycheck Protection Program, Physician, Physician Practice Management, Physician Practice Valuation, Population Health, Preexisting Conditions, Primary Care, Private Equity, Public Health, Status Quo, Strategic Leadership, Strategy, Telemedicine, The CARES Act, Transition to Value-Based Healthcare, Underinsured, Unemployment, Unemployment Insurance, Uninsured, Value-Based Healthcare, Vertical Integration, Virtual Care Strategy, Virtual Healthcare, Virtual Hospital, Virtual Visit • Leave a comment

Click to access CBC_72_08052020_Final.pdf

 

[Readers’ Note: This is the first of two articles on the Future of Hospitals in Post-COVID America. This article
examines how market forces are consolidating, rationalizing and redistributing acute care assets within the
broader industry movement to value-based care delivery. The second article, which will publish next month,
examines gaps in care delivery and the related public policy challenges of providing appropriate, accessible
and affordable healthcare services in medically-underserved communities.]

In her insightful 2016 book, The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore,
Michelle Wucker coins the term “Gray Rhinos” and contrasts them with “Black Swans.” That distinction is
highly relevant to the future of American hospitals.

Black Swans are high impact events that are highly improbable and difficult to predict. By contrast, Gray
Rhinos are foreseeable, high-impact events that we choose to ignore because they’re complex, inconvenient
and/or fortified by perverse incentives that encourage the status quo. Climate change is a powerful example
of a charging Gray Rhino.

In U.S. healthcare, we are now seeing what happens when a Gray Rhino and a Black Swan collide.
Arguably, the nation’s public health defenses should anticipate global pandemics and apply resources
systematically to limit disease spread. This did not happen with the coronavirus pandemic.

Instead, COVID-19 hit the public healthcare infrastructure suddenly and hard. This forced hospitals and health systems to dramatically reduce elective surgeries, lay off thousands and significantly change care delivery with the adoption of new practices and services like telemedicine.

In comparison, many see the current American hospital business model as a Gray Rhino that has been charging toward
unsustainability for years with ever-building momentum.

Even with massive and increasing revenue flows, hospitals have long struggled with razor-thin margins, stagnant payment rates and costly technology adoptions. Changing utilization patterns, new and disruptive competitors, pro-market regulatory rules and consumerism make their traditional business models increasingly vulnerable and, perhaps, unsustainable.

Despite this intensifying pressure, many hospitals and health systems maintain business-as-usual practices because transformation is so difficult and costly. COVID-19 has made the imperative of change harder to ignore or delay addressing.

For a decade, the transition to value-based care has dominated debate within U.S. healthcare and absorbed massive strategic,
operational and financial resources with little progress toward improved care outcomes, lower costs and better customer service. The hospital-based delivery system remains largely oriented around Fee-for-Service reimbursement.

Hospitals’ collective response to COVID-19, driven by practical necessity and financial survival, may accelerate the shift to value-based care delivery. Time will tell.

This series explores the repositioning of hospitals during the next five years as the industry rationalizes an excess supply of acute care capacity and adapts to greater societal demands for more appropriate, accessible and affordable healthcare services.

It starts by exploring the role of the marketplace in driving hospital consolidation and the compelling need to transition to value-based care delivery and payment models.

COVID’s DUAL SHOCKS TO PATIENT VOLUME

Many American hospitals faced severe financial and operational challenges before COVID-19. The sector has struggled to manage ballooning costs, declining margins and waves of policy changes. A record 18 rural hospitals closed in 2019. Overall, hospitals saw a 21% decline in operating margins in 2018-2019.

COVID intensified those challenges by administering two shocks to the system that decreased the volume of hospital-based activities and decimated operating margins.

The first shock was immediate. To prepare for potential surges in COVID care, hospitals emptied beds and cancelled most clinic visits, outpatient treatments and elective surgeries. Simultaneously, they incurred heavy costs for COVID-related equipment (e.g. ventilators,PPE) and staffing. Overall, the sector experienced over $200 billion in financial losses between March and June 20204.

The second, extended shock has been a decrease in needed but not necessary care. Initially, many patients delayed seeking necessary care because of perceived infection risk. For example, Emergency Department visits declined 42% during the early phase of the pandemic.

Increasingly, patients are also delaying care because of affordability concerns and/or the loss of health insurance. Already, 5.4 million people have lost their employer-sponsored health insurance. This will reduce incremental revenues associated with higher-paying commercial insurance claims across the industry. Additionally, avoided care reduces patient volumes and hospital revenues today even as it increases the risk and cost of future acute illness.

The infusion of emergency funding through the CARES Act helped offset some operating losses but it’s unclear when and even whether utilization patterns and revenues will return to normal pre-COVID levels. Shifts in consumer behavior, reductions in insurance coverage, and the emergence of new competitors ranging from Walmart to enhanced primary care providers will likely challenge the sector for years to come.

The disruption of COVID-19 will serve as a forcing function, driving meaningful changes to traditional hospital business models and the competitive landscape. Frankly, this is long past due. Since 1965, Fee-for-Service (FFS) payment has dominated U.S. healthcare and created pervasive economic incentives that can serve to discourage provider responsiveness in transitioning to value-based care delivery, even when aligned to market demand.

Telemedicine typifies this phenomenon. Before COVID, CMS and most health insurers paid very low rates for virtual care visits or did not cover them at all. This discouraged adoption of an efficient, high-value care modality until COVID.

Unable to conduct in-person clinical visits, providers embraced virtual care visits and accelerated its mass adoption. CMS and
commercial health insurers did their part by paying for virtual care visits at rates equivalent to in-person clinic visits. Accelerated innovation in care delivery resulted.

 

THE COMPLICATED TRANSITION TO VALUE

Broadly speaking, health systems and physician groups that rely almost exclusively on activity-based payment revenues have struggled the most during this pandemic. Vertically integrated providers that offer health insurance and those receiving capitated payments in risk-based contracts have better withstood volume losses.

Modern Healthcare notes that while provider data is not yet available, organizations such as Virginia Care Partners, an integrated network and commercial ACO; Optum Health (with two-thirds of its revenue risk-based); and MediSys Health Network, a New Yorkbased NFP system with 148,000 capitated and 15,000 shared risk patients, are among those navigating the turbulence successfully. As the article observes,

…providers paid for value have had an easier time weathering the storm…. helped by a steady source of
income amid the chaos. Investments they made previously in care management, technology and social
determinants programs equipped them to pivot to new ways of providing care.

They were able to flip the switch on telehealth, use data and analytics to pinpoint patients at risk for
COVID-19 infection, and deploy care managers to meet the medical and nonclinical needs of patients even
when access to an office visit was limited.

Supporting this post-COVID push for value-based care delivery, six former leaders from CMS wrote to Congress in
June 2020 calling for providers, commercial insurers and states to expand their use of value-based payment models to
encourage stability and flexibility in care delivery.

If value-based payment models are the answer, however, adoption to date has been slow, limited and difficult. Ten
years after the Affordable Care Act, Fee-for-Service payment still dominates the payer landscape. The percentage of
overall provider revenue in risk-based capitated contracts has not exceeded 20%

Despite improvements in care quality and reductions in utilization rates, cost savings have been modest or negligible.
Accountable Care Organizations have only managed at best to save a “few percent of Medicare spending, [but] the
amount varies by program design.”

While most health systems accept some forms of risk-based payments, only 5% of providers expect to have a majority
(over 80%) of their patients in risk-based arrangements within 5 years.

The shift to value is challenging for numerous reasons. Commercial payers often have limited appetite or capacity for
risk-based contracting with providers. Concurrently, providers often have difficulty accessing the claims data they need
from payers to manage the care for targeted populations.

The current allocation of cost-savings between buyers (including government, employers and consumers), payers
(health insurance companies) and providers discourages the shift to value-based care delivery. Providers would
advance value-based models if they could capture a larger percentage of the savings generated from more effective
care management and delivery. Those financial benefits today flow disproportionately to buyers and payers.

This disconnection of payment from value creation slows industry transformation. Ultimately, U.S. healthcare will not
change the way it delivers care until it changes the way it pays for care. Fortunately, payment models are evolving to
incentivize value-based care delivery.

As payment reform unfolds, however, operational challenges pose significant challenges to hospitals and health
systems. They must adopt value-oriented new business models even as they continue to receive FFS payments. New
and old models of care delivery clash.

COVID makes this transition even more formidable as many health systems now lack the operating stamina and
balance sheet strength to make the financial, operational and cultural investments necessary to deliver better
outcomes, lower costs and enhanced customer service.

 

MARKET-DRIVEN CONSOLIDATION AND TRANSFORMATION

Full-risk payment models, such as bundled payments for episodic care and capitation for population health, are the
catalyst to value-based care delivery. Transition to value-based care occurs more easily in competitive markets with
many attributable lives, numerous provider options and the right mix of willing payers.

As increasing numbers of hospitals struggle financially, the larger and more profitable health systems are expanding
their networks, capabilities and service lines through acquisitions. This will increase their leverage with commercial
payers and give them more time to adapt to risk-based contracting and value-based care delivery.

COVID also will accelerate acquisition of physician practices. According to an April 2020 MGMA report, 97% of
physician practices have experienced a 55% decrease in revenue, forcing furloughs and layoffs15. It’s estimated the
sector could collectively lose as much as $15.1 billion in income by the end of September 2020.

Struggling health systems and physician groups that read the writing on the wall will pro-actively seek capital or
strategic partners that offer greater scale and operating stability. Aggregators can be selective in their acquisitions,
seeking providers that fuel growth, expand contiguous market positions and don’t dilute balance sheets.

Adding to the sector’s operating pressure, private equity, venture investors and payers are pouring record levels of
funding into asset-light and virtual delivery companies that are eager to take on risk, lower prices by routing procedures
and capture volume from traditional providers. With the right incentives, market-driven reforms will reallocate resources
to efficient companies that generate compelling value.

As this disruption continues to unfold, rural and marginal urban communities that lack robust market forces will
experience more facility and practice closures. Without government support to mitigate this trend, access and care gaps
that already riddle American healthcare will unfortunately increase.

 

WINNING AT VALUE

The average hospital generates around $11,000 per patient discharge. With ancillary services that can often add up to
more than $15,000 per average discharge. Success in a value-based system is predicated on reducing those
discharges and associated costs by managing acute care utilization more effectively for distinct populations (i.e.
attributed lives).

This changes the orientation of healthcare delivery toward appropriate and lower cost settings. It also places greater
emphasis on preventive, chronic and outpatient care as well as better patient engagement and care coordination.
Such a realignment of care delivery requires the following:

 A tight primary care network (either owned or affiliated) to feed referrals and reduce overall costs through
better preventive care.

 A gatekeeper or navigator function (increasingly technology-based) to manage / direct patients to the most
appropriate care settings and improve coordination, adherence and engagement.

 A carefully designed post-acute care network (including nursing homes, rehab centers, home care
services and behavioral health services, either owned or sufficiently controlled) to manage the 70% of
total episode-of-care costs that can occur outside the hospital setting.

 An IT infrastructure that can facilitate care coordination across all providers and settings.

Quality data and digital tools that enhance care, performance, payment and engagement.

Experience with managing risk-based contracts.

 A flexible approach to care delivery that includes digital and telemedicine platforms as well as nontraditional sites of care.

Aligned or incentivized physicians.

Payer partners willing to share data and offload risk through upside and downside risk contracts.

Engaged consumers who act on their preferences and best interests.

 

While none of these strategies is new or controversial, assembling them into cohesive and scalable business models is
something few health systems have accomplished. It requires appropriate market conditions, deep financial resources,
sophisticated business acumen, operational agility, broad stakeholder alignment, compelling vision, and robust
branding.

Providers that fail to embrace value-based care for their “attributed lives” risk losing market relevance. In their relentless pursuit of increasing treatment volumes and associated revenues, they will lose market share to organizations that
deliver consistent and high-value care outcomes.

CONCLUSION: THE CHARGING GRAY RHINO

America needs its hospitals to operate optimally in normal times, flex to manage surge capacity, sustain themselves
when demand falls, create adequate access and enhance overall quality while lowering total costs. That is a tall order
requiring realignment, evolution, and a balance between market and policy reform measures.

The status quo likely wasn’t sustainable before COVID. The nation has invested heavily for many decades in acute and
specialty care services while underinvesting, on a relative basis, in primary and chronic care services. It has excess
capacity in some markets, and insufficient access in others.

COVID has exposed deep flaws in the activity-based payment as well as the nation’s underinvestment in public health.
Disadvantaged communities have suffered disproportionately. Meanwhile, the costs for delivering healthcare services
consume an ever-larger share of national GDP.

Transformational change is hard for incumbent organizations. Every industry, from computer and auto manufacturing to
retailing and airline transportation, confronts gray rhino challenges. Many companies fail to adapt despite clear signals
that long-term viability is under threat. Often, new, nimble competitors emerge and thrive because they avoid the
inherent contradictions and service gaps embedded within legacy business models.

The healthcare industry has been actively engaged in value-driven care transformation for over ten years with little to
show for the reform effort. It is becoming clear that many hospitals and health systems lack the capacity to operate
profitably in competitive, risk-based market environments.

This dismal reality is driving hospital market valuations and closures. In contrast, customers and capital are flowing to
new, alternative care providers, such as OneMedical, Oak Street Health and Village MD. Each of these upstart
companies now have valuations in the $ billions. The market rewards innovation that delivers value.

Unfortunately, pure market-driven reforms often neglect a significant and growing portion of America’s people. This gap has been more apparent as COVID exacts a disproportionate toll on communities challenged by higher population
density, higher unemployment, and fewer medical care options (including inferior primary and preventive care infrastructure).

Absent fundamental change in our hospitals and health systems, and investment in more efficient care delivery and
payment models, the nation’s post-COVID healthcare infrastructure is likely to deteriorate in many American
communities, making them more vulnerable to chronic disease, pandemics and the vicissitudes of life.

Article 2 in our “Future of Hospitals” series will explore the public policy challenges of providing appropriate, affordable and accessible healthcare to all American communities.