The false promise of “no regrets” investments

Related image  
At the end of my meeting last week with a health system executive team, the system’s COO asked me a question: “Your concept of Member Health describes exactly how we want to relate to our patients, but we’re not sure about the timing. Could you give us a list of the ‘no regrets’ investments you’d recommend for health systems looking to do this?

We frequently get asked about “no regrets” strategies: decisions or investments that will be accretive in both the current fee-for-service system as well as a future payment and operational model oriented around consumer value. The idea is understandably appealing for systems concerned about changing their delivery model too quickly in advance of payment change. And there is a long list of strategies that would make a system stronger in both fee-for-service and value: cost reduction, value-driven referral management, and online scheduling, just to name a few.

But as I pointed out, the decision to pursue only the no-regrets moves is a clear signal that the organization’s strategy is still tied to the current payment model. If the system is really ready to change, strategy development should start with identifying the most important investments for delivering consumer value.

It’s fine to acknowledge that a health system is not yet ready, but I cautioned the team that they should not rely on the external market to provide signals for when they should make real change. External signals—from payers, competitors, or disruptors—will come too slow, or perhaps never.

At some point, the health system should be prepared to lead innovation, introduce a new model of value to the market and define and promote the incentives to support it. Real change will require disruption of parts of the current business and cannot be accomplished with “no-regrets investments” alone.


Hospitals Still Lagging on Cost Transformation Measures

Health system executives have to pick up the pace on implementing effective cost transformation initiatives, according to a new survey from Kaufman Hall.

The focus on adequately addressing the rising cost transformation issues facing health systems has not resulted in significant progress, according to an annual survey from Kaufman Hall.

The healthcare management consulting firm reported that less than 20% of healthcare executives surveyed saw cost reductions exceed 5% in priority areas in 2017. Additionally, the report raised concerns on the lack of accountability measures in place to ensure that leaders have consequences for achieving cost transformation goals for their respective organizations.

Data from executives surveyed:

  • 32% saying that goal setting for cost reduction is absent in their organizations.
  • More than 70% indicating a lack of confidence in the accuracy of their current costing accounting solutions.
  • 12% increase reporting that their organizations have implemented processes to hold leaders accountable for cost transformation goals.
  • 56% witnessing effective use of clinical pathways, protocols, and guidelines to develop a common approach to treatment, a 9% increase compared to last year.
  • 73% saying cost transformation improvement targets have been distributed across the organization, up from 53% in 2017.

Lance Robinson, managing director of Kaufman Hall’s performance management improvement practice, told HealthLeaders that while health system executives have focused on traditional areas of cost, like labor operations, they have overlooked other areas like service rationalization, clinical variation, length of stay, and integrating the physician enterprise. Robinson said those areas require immediate attention from hospital executives in order to sustain opportunities going forward.

“One thing I found surprising was that they’re not actually holding people accountable to the targets that are set,” Robinson said. “On the positive side, I think they have a good idea of what needs to happen. If you look at what factors are driving the need for cost transformation, like the move toward value-based care models and the advent of many disuptors in the industry, they need to be more price conscious and competitive.”

The report added that the need to generate capital to fund strategic initiatives is also driving system executives to revisit their cost transformation goals. Robinson said that as factors surrounding the system change, such as labor market and supply chain operations, executives have to evolve their cost transformation goals as well rather than seeking a “shot in the arm” to fix organizational weaknesses. 

While focus still revolves around traditional areas like labor and non-labor costs, Robinson said leading health systems are analyzing ways to address clinical variation, service rationalization, and other areas that can create meaningful change to their capital structure rather than reducing costs “around the edges.”




5 key takeaways from hospitals’ Q2 results

Earnings results were mixed for hospital operators in the second quarter, with debt-laden health systems slagging and high-performing counterparts pulling ahead.