CEOs shouldn’t pick their replacements

https://www.beckershospitalreview.com/hospital-management-administration/viewpoint-ceos-shouldn-t-pick-their-replacements.html?origin=ceo&utm_source=ceoe

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While CEOs may be intimately familiar with their companies, their opinion should take a backseat to the organization’s board of directors, according to Stanford (Calif.) University business school professor David Larcker, PhD, and researcher Brian Tayan.

In an op-ed for The Wall Street Journal, the authors note that while it was once general practice for CEOs to pick their successors, changes to corporate governance in recent years have shifted the balance of power to a company’s “independent, professional, outside directors.”

The authors claim that allowing a company’s CEO outsize influence on the hiring of their successor is a mistake because the CEO may not have the right perspective on evaluating candidates and may intentionally or unintentionally control the information presented to the board about candidates, shaping the board’s decision about those individuals.

“At the end of a long career, many CEOs are concerned about their legacy. This can bias them toward favoring candidates who will guide the company in the same direction — and in the same manner — that they themselves led it,” they write.

Instead, the authors argue that a company’s board should be responsible for the final hiring decision and use the CEO’s input to help come to that conclusion.

“Hiring the CEO is a fiduciary duty. The board owes it to the shareholders … to get it right. A subcommittee of independent directors with previous experience in succession at other companies should manage the process, with an open invitation to all board members to participate. If the board doesn’t have depth of experience in place, it can bring in an outside adviser to help,” they write.

To access the full report, click here.

 

The noble aim of being a great subcontractor

https://gisthealthcare.com/weekly-gist/

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Earlier this month I was at a health system board meeting in which we were discussing the transition from volume to value, and the shift to a population health model. One board member had the courage to ask a tough question: “What if we never get there?” Covering just a small slice of a large metropolitan area, this system has consistently ranked third in market share behind two larger competitors—and now they feel they are lagging those systems in moving toward risk. The most recent challenge: a large—and until recently, loyal—independent primary care group had just been acquired by one of their competitors. Yet the system prides itself, justifiably, on delivering low-cost hospital care and outstanding quality.

I raised a heretical notion: suppose the system pursued a strategy focused solely on being the highest-performing inpatient and specialty care provider in the market, and abandoned the goal of bearing population risk? Could the system shift their focus to simply being the best “subcontractor” to other risk-bearing networks in the market?

The ensuing conversation was uncomfortable, to say the least. The notion challenged the system’s assumptions of the role they wanted to play in the market, and whether they could be a leader in population health. I encouraged them to think of being a “subcontractor” to other risk-bearing organizations not as a defeat, but as fulfillment of a vital role—healthcare in their community would be better if more hospital care were delivered at their level of cost and quality.

Our view: for many smaller systems who are driven by a desire to remain independent, becoming a high-performing care subcontractor may be the best path forward, and the most realistic. (It will be interesting to watch the successful investor-owned chains on this front—organizations whose strategic advantage lies in running highly-efficient, low-cost hospitals.) It’s not as sexy as “population health”, but as any builder will tell you, there’s no substitute for a great subcontractor.

Top Six Healthcare Executive Challenges in 2019

http://www.managedhealthcareexecutive.com/executive-express/top-six-healthcare-executive-challenges-2019

The pace of change in healthcare is not slowing down; in fact, it is accelerating. Healthcare organizations that are most successful in 2019 will know what challenges and changes are coming down the pipeline, and they will prepare accordingly.

To help ensure you don’t get left behind, we’ve assembled the top six challenges the industry will face in 2019.

1. Shifting the focus from payment reform to delivery reform. For the past few years, C-suite leaders at healthcare organizations have been focused on navigating healthcare payment reform—attempting to preserve, improve, and maintain revenue. Amidst those efforts, delivery reform has sometimes taken a back seat.

That will need to change in 2019. Organizations that are the most successful will focus more on patient care than revenue, and they will see improved outcomes and reduced costs as a result.

Many organizations are already exploring delivery reform with initiatives that focus on:

  • Remote health monitoring and telemedicine;
  • Population health management;
  • Patient engagement;
  • Social determinants of health; and
  • Primary care.

In 2019, however, they will need to bring all of these initiatives together to implement sustainable improvements in how healthcare is delivered.

An added bonus? Organizations that accomplish this will see enhanced revenue streams as value-based reimbursement accelerates.

2. Wrestling with the evolving healthcare consumer. Healthcare consumers are demanding more convenient and more affordable care options. They expect the same level of customer service they receive from other retailers—from cost-estimation tools and online appointment booking to personalized interactions and fast and easy communication options such as text messaging and live chats.

Organizations that don’t deliver on these expectations will have a difficult time retaining patients and attracting new ones.

That’s not the only consumer-related challenge healthcare organizations will face. In 2019, millennials (between the ages of 23 and 38), will make up nearly a quarter of the U.S. population.

This generation doesn’t value physician-patient relationships as highly as previous generations. In fact, nearly half of them  do not have a personal relationship with their physician, according to a 2015 report by Salesforce.

Finding ways to maintain or increase the level of humanity and interaction with millennials will be a key challenge in 2019. Patient navigator solutions and other engagement tools will be critical to an organization’s success.

3. Clinician shortages. Physician and nurse shortages will continue to intensify in 2019, creating significant operational and financial challenges for healthcare organizations.

The most recent numbers from the Association of American Medical Colleges predict a shortage of up to 120,000 physicians by 2030. On the nursing side, the Bureau of Labor Statistics projects a need for 649,100 replacement nurses by 2024.

The implications of the shortages, combined with the fact that healthcare organizations face a number of new challenges in the coming years, are many. Fewer clinicians can lead to burnout, medical errors, poorer quality, and lower patient satisfaction.

Healthcare organizations that thrive amidst the shortages will find new ways to scale and leverage technology to streamline work flows and improve efficiencies.

4. Living with EHR choices. Despite the hype and hopes surrounding EHRs, many organizations have found that they are failing to deliver on their expectations.

recent Sage Growth Partners survey found that 64 percent of healthcare executives say EHRs have failed to deliver better population health management tools, and a large majority of providers are seeking third-party solutions outside their EHR for value-based care.

The survey of 100 executives also found that less than 25% believe their EHRs can deliver on core KLAS criteria for value.

As we recently told Managed Healthcare Executive, that statistic is striking, considering how important value-based care is and will continue to be to the industry.

Despite the dissatisfaction surrounding EHRs, switching EHRs may be a big mistake for healthcare organizations. A recent Black Book survey found 47% of all health systems who replaced their EHRs are in the red over their replacements. A whopping 95% said they regret the decision to change systems.

Hospitals and physician may not be entirely happy with their EHR choices, but the best course may be to stick with their system. Highly successful hospitals and health systems will find ways to optimize workflow and patient care which may involve additional IT investments and best of breed investment approaches, rather than keeping all of the proverbial eggs in the EHR basket.

5. Dealing with nontraditional entrants and disruptors. In 2018, several new entrants entered and/or broadened their reach into healthcare.

Amazon acquired online pharmacy retailer PillPack, and partnered with JPMorgan Chase and Berkshire Hathaway to create a new healthcare partnership for their employees. Early in 2018, Apple announced it was integrating EHRs onto the iPhone and Apple watch, and recently, Google hired Geisinger Health CEO David Feinberg for a newly created role, head of the company’s many healthcare initiatives.

New partnerships have also arisen between traditional healthcare entities that could result in significant healthcare delivery changes. Cigna and Express Scripts received the go-ahead from the DOJ for their merger in September, and CVS and Aetna formally announced the completion of their $70 billion merger November 28.

Read more about the top two ways the CVS-Aetna merger could change healthcare.

All of these new industry disruptors and mergers will impact healthcare organizations, likely creating new competition, disrupting traditional healthcare delivery mechanisms, creating price transparency and pressures, and fostering higher expectations from consumers in 2019. Keeping an eye on these potential disrupters will be important to ensuring sustained success in the long term.

6. Turning innovation into an opportunity. From new diagnostic tests and machines to new devices and drug therapies—the past few years in healthcare have seen exciting and lifesaving developments for many patients. But these new devices and treatment approaches come with a cost.

One of biggest 2018 developments that best exemplifies the challenge between innovation and cost is CAR T-cell therapy. This new cancer treatment is already saving lives, but it racks up to between $373,000 and $475,000 per treatment. When potential side effects and adverse events are accounted for, costs can reach more than $1 million per patient.

Finding the best way to incorporate new treatments like this one, while balancing outcomes, cost, and healthcare consumer demands, will be a top challenge for healthcare organizations in 2019.

 

 

 

Being explicit about decision-making

https://mailchi.mp/900e9e419717/the-weekly-gist-january-25-2019?e=d1e747d2d8

Image result for responsible accountable consulted and informed (raci) chart

Recently we facilitated a day-long meeting for one of our clients who is looking to build a new governance model for their regional clinical enterprise. It’s a complex undertaking, requiring them to bring together a broad spectrum of stakeholders—their own employed medical group, a handful of independent groups with whom they’ve built partnerships over the years, a joint venture partner, the leaders of the system’s hospitals, and their academic affiliate. All of these relationships—each with its own decision-making structure and incentive model—have accreted over time but have not operated as a cohesive whole. Now, faced with an increasingly competitive marketplace, the system wants to build an overarching structure to coordinate the activities of the disparate constituents, and to allow them to go to market with a unified platform capable of delivering better value to consumers and purchasers.

In preparing for the meeting, we quickly realized that the crux of the problem is decision rights. Every initiative or major decision that the system wants to make is getting bogged down in an endless process of discussion, second-guessing, and turf battles between the constituent groups. In our session with the group, we shared our perspective that the most important part of designing any organizational structure is being very explicit about how decisions are going to get made. To that end, we provided with them a decision-making framework that we’ve seen implemented in other organizations, a variation on the RACI responsibility assignment matrix that’s been a mainstay in organizational science for decades.

At its heart, it’s a role-based decision process, in which different stakeholders are assigned discrete parts to play in coming to a decision. RACI is an acronym for four of the pivotal roles: Responsible, Accountable, Consulted, and Informed. There’s no magic to the specific framework—indeed, there’s a multitude of different flavors of RACI.

(We like the Bain & Company notion of asking “Who has the ‘D’”, or—to paraphrase George W. Bush—who’s the Decider?) Across the day, we introduced the framework, role-played making a specific decision using it, and then began to evaluate a strawman model for the unified clinical enterprise using the framework.

We’ll keep you posted as the model moves from evaluation to implementation, but we were struck by the power of having an explicit, concrete discussion around decision rights. Given the complexity and organizational inertia that characterize many healthcare organizations, taking the time to clarify who gets to make which decisions, and how, seems like a worthwhile endeavor.

 

 

Readers Respond: Trinity Health’s President on Bond Ratings

https://gisthealthcare.com/readers-respond-trinity-healths-president-bond-ratings/

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In last week’s edition of the Weekly Gist, I shared an exchange I’d had with the CFO of one of our clients during a meeting of their health system’s board of directors. The topic was the importance of the system’s AA bond rating to the board, and the impact that maintaining that rating might have on the strategic flexibility of the system. I wrote, “As big strategic decisions loom (shifting the business model, taking on risk, responding to disruptive competitors), it’s worth at least asking whether we’ve passed the time for “keeping dry powder”, and whether systems are being held back by conservative financial management.”

One of the true pleasures of our work at Gist Healthcare is engaging in an ongoing dialogue with our clients, readers, and colleagues across the industry. Shortly after sending out the Weekly Gist last week, we heard from long-time friend Mike Slubowski at Trinity Health. He shared his somewhat different (and much more informed!) view of the importance of bond rating to hospital systems, and was kind enough to engage in a brief Q&A over email to expand on his thoughts. We hope you’ll find his perspective as enlightening as we have.

 

Gist Healthcare: How do you think about financial strength for a health system? What characteristics and metrics are most important?

Mike Slubowski: Financial strength is ultimately measured by strong operating cash flow—is the system generating enough cash to cover expenses including debt service, fund depreciation, and to meet capital spending requirements? Operating margin, days’ cash, and leverage ratios are also important metrics of financial strength. We compare these metrics to published ranges from Rating Agencies on rating categories. Finally, what is the organization’s profitability or loss on Medicare? Is the cost structure of the organization (as measured by cost per adjusted discharge or similar metrics) competitive and attractive to payer and purchasers, or is it a high cost organization that’s been living off high commercial payment rates because of its market relevance? That will come back to bite them at some point in the not-too-distant future.  Finally, financial strength is simply a means to an end. In the case of not-for-profit health systems, our mission is to improve the health of the people and communities we serve. Are we using that financial strength to make a measurable difference for our communities? That question has to always be pondered.

In my opinion a system’s bond rating is very important. Our organization strives to maintain an AA rating

GH: How important is the bond rating, and the broader evaluation of the system’s financial outlook by the banking community?

MS: In my opinion a system’s bond rating is very important. Our organization strives to maintain an AA rating. While it is true that the interest rate spreads between, say, an AA and an A rating are small, the reality is that a positive financial outlook and rating from the rating agencies is a “Good Housekeeping Seal of Approval” for a not-for-profit health system. In most instances, acquisitions in not-for-profit healthcare are accomplished by member substitutions, and rather than cash changing hands, the entity being acquired agrees to merge because of future capital investment commitments made by the acquiring entity and their belief that the acquirer will bring economies of scale. They aren’t going to join a system if it has a weak credit rating, because they’d be concerned that the acquiring system wouldn’t be able to fulfill the capital investment commitment.

GH: What are some considerations you’d recommend to health systems thinking about “trading off” a strong bond rating to gain strategic flexibility?

MS: A difficult question, to be sure. First of all, it depends on your starting point. There’s a lot more risk in going from an A- to BBB rating than, say, an AAA rating to an AA rating. Second, it really depends on what strategic opportunities the organization is pursuing—are they opportunities within the wheelhouse of the organization’s leadership competencies? There have been a lot of providers that have ventured into other businesses, such as insurance, long-term care, physician practices and other for-profit ventures, and they have lost a lot of money because they spread themselves too thin and didn’t know how to successfully manage these different businesses. Does the opportunity provide more market relevance? Is the new opportunity accretive? Is there a solid business plan that gives the organization confidence that the new opportunity will be accretive within a defined timeframe? There are a lot of “hockey stick” business plans (i.e., up front losses that predict large profits in later years) that never deliver the desired results. So rating agencies and investors are always wary of these wildly optimistic business plans.

I’m not suggesting that organizations become so conservative that they don’t take risks on strategic opportunities—but it’s important to go into these new ventures with eyes wide open. I think it is important for health care organizations that have been acute-care focused to develop a continuum of services that grow cost-effective home-based services, primary care and other ambulatory services, as well as consumer-focused digital health solutions. They also need to develop clinically-integrated provider networks that are positioned to assume risk for cost and outcomes as payers shift from fee-for-service to value-based payment. Otherwise they will be one-trick-pony dinosaurs while the rest of the world around them is transforming and diversifying.

I’m not suggesting that organizations become so conservative they don’t take risks…but it’s important to go into new ventures with eyes wide open

GH: As health systems take on more risk (strategic, actuarial, operational), how can they best make the case to their financial stakeholders (bondholders, shareholders, public funders) to justify increasing risk?

MS: I think that historical track records are important. Does the organization have an experienced and competent leadership team? Do they recruit leaders with needed skills for new businesses? How has the organization performed with previous new ventures? Have they been able to adjust if things go south? Do their business plans include a sensitivity analysis with upside and downside potential, along with immediate actions they would take if performance does not meet the plan?  Does the opportunity improve market relevance and create a diversified portfolio and/or a continuum of services? At the end of the day, confidence in an organization and its leadership comes from their track record.

 

 

 

Envisioning a range of new roles for the health system

https://gisthealthcare.com/weekly-gist/

 

 

Over the past few weeks, we’ve been sharing our framework for thinking through the path forward for traditional health systems, as they look to drive value for consumers. We began by describing today’s typical health system as Event Health”, built around a fee-for-service model of delivering discrete, single-serve interactions with patients. We then proposed the concept of Episode Health, which would ask the health system to play a coordinating role, curating and managing a range of care interactions to address broader episodic needs. Finally, last week we shared our vision for Member Health, in which the system would re-orient around the goal of building long-term, loyalty-based relationships with consumers, helping them manage health over time. In this broader conception, the health system would curate a network of providers of episodes, and events within those episodes, and ensure that the consumer (and their information) moves seamlessly across a panoply of care interactions over time.

This week we bring those three, distinct visions for the role of the health system together in one framework, shown below. A couple of points are worth mentioning here. To begin, our view is that health systems face a fundamental choice over the near term: either begin to embrace the broader aspiration of evolving toward Episode Health and Member Health or become reconciled to the reality of a future as a subcontractor of events and being part of some other organization’s curated network. There’s nothing wrong with being a subcontractor, as long as your cost and quality positions allow you to win business and thrive. You might be the best acute care hospital choice in the market, or the most efficient surgery provider, or the best diagnostic center. But competition will be intense among those subcontractors and earning the business of those who coordinate episodes and control referrals will be increasingly demanding.

Most health systems have already begun to look beyond Event Health, investing in strategies that allow them to span the full continuum of care. Other systems have pushed even further, into the “risk business”—looking to become Member Health and take on the role of managing a consumer’s care across time. But contrary to common wisdom, this evolution does not require a binary choice. Systems are not moving “from one canoe to the other”; rather, most successful systems will play a combination of all three roles at the same time, in perpetuity. While it’s always worth evaluating whether others might be more efficient providers of some Event Health services (diagnostics, rehab, and so forth), most systems will want to maintain a robust base of providing Event Health, even as they embrace a more comprehensive role.

Finally, there is a space we describe as “Beyond Health”, which comprises all of the additional components of consumer value delivery which may be beyond the ability of most systems to handle on their own. Most notably, these include services that address many of the social determinants of health—housing, nutrition, transportation, and the like. Our recommendation is that health systems look to partner with other organizations at a local and national level to address issues that, however critical, lie beyond their ability to fully solve on their own.

Next week we’ll begin to share some additional implications of our Event-Episode-Member Health framework and discuss the operational challenges that face health systems looking to make this evolution.