Top 12 takeaways from the 2018 JP Morgan Healthcare Conference — while the destination is uncertain, the direction is clear

https://www.beckershospitalreview.com/hospital-management-administration/12-things-you-need-to-know-from-the-2018-jp-morgan-healthcare-conference-while-the-destination-is-uncertain-the-direction-is-clear.html

The recent breathtaking flurry of mega-mergers coupled with increasingly challenging market forces and an ever shifting political landscape has cast a cloud of confusion regarding where the U.S. healthcare delivery system is heading.  

So, where do you go to find the map?

Every year, the JP Morgan Healthcare Conference provides an incredibly efficient snapshot of the strategies for large healthcare delivery systems, the hub for healthcare in the U.S. Most of these organizations are also the largest employers in their respective states. The conference took place this week in San Francisco with over 20 healthcare systems presenting, including Advocate Health Care, Aurora Health Care, Baylor Scott & White Health, Catholic Health Initiatives, Geisinger Health System, Hospital for Special Surgery, Intermountain Healthcare, Mercy Health in Ohio, Northwell Health, Northwestern Medicine, Partners HealthCare System, WakeMed Health & Hospitals and many of the other big name brands in the market. Each provided their strategic roadmap in a series of 25-minute presentations from their “C” suite. If you’re looking for the GPS on strategy and a gauge on the health of healthcare, this is it.  

How do their strategies differ? What direction are they heading in? There is a great line from Alice in Wonderland that goes, “If you don’t know where you’re going, any road will take you there.” You would think that line applies perfectly to the U.S healthcare system, but the good news is it actually doesn’t.

While the exact destination for everyone is TBD, the direction they are heading in is actually pretty clear and consistent. It turns out that they are all using a very similar compass, which is sending them down a similar path.

So, what are the roadside stops health systems consider absolutely necessary to be part of their journey to creating a more viable and sustainable value-based business model?

Based on the travel plans for over 20 of the largest and most prestigious healthcare delivery systems in the country, here’s your GPS and list of 12 things you “must do” on your journey.

1. You Must Scale

Clearly the headline at #JPM18 was the flurry of major announcements regarding major mergers. With that said, two of the mergers were front and center: teams were there to present from Downers Grove, Ill.-based Advocate and Milwaukee-based Aurora, which will be a $10 billion organization with 70,000 employees, as well as San Francisco-based Dignity Health and Englewood, Colo.-based Catholic Health Initiatives, which will be a $28 billion organization with 160,000 employees. The size and scale of these mergers is pretty stunning. While the announcement of these and the other recent mega-mergers has forced many into their board room to determine what the deals mean to them, the consensus at the conference was this: There are a number of different paths forward to achieve scale. Some, like Baylor Scott & White in Texas, have aggressive regional expansion plans. Others are betting on partnerships to provide the same or even more value. Taking a pulse of the room, two things were clear. The first is there is no definition of scale any more in this market. The second is that, despite this flurry of mergers, “getting really big” is not the only destination.  

2. You Must Pursue “Smart Growth” and Find New Revenue Streams

Running counter to the merger narrative in the market, Salt Lake City-based Intermountain provided a good overview of the movement to what is called an “asset light” strategy of “smart growth.” This is a radically contrarian approach to the industry norm, which is the capital intensive bricks and mortar playbook of buying and building. As part of their strategy, Intermountain will open a “virtual hospital” delivering provider consultations and remote patient monitoring via telehealth. The system will also launch a number of healthcare companies every year, leveraging their considerable resources in a manner they believe will produce a higher yield. Other health systems outlined a similar stream of initiatives they have in motion to diversify their revenue streams and expand their business model into higher margin, higher growth businesses. One example is Cincinnati-based Mercy Health, which achieved strong growth and leverage via their investment in a revenue cycle management company. Advocate in Illinois formed a partnership with Walgreens. Together, they now operating 56 retail clinics and Advocate has seen a significant impact on driving new patients and downstream revenue to their system. The bottom line is all now recognize that they must think and act differently to be able to continue to fund their clinical mission and serve their community.

3. You Must Measure and Manage Cost and Margins

While some are moving aggressively to get scale, everyone is looking to more effectively use the resources they have and get more operating leverage. Margin compression was a consistent theme, with many systems now moving into consistent, stable operating models around managing margins versus launching reactionary initiatives when they find a budget gap. What is emerging is a new discipline and continuous process around managing cost and margins that is starting to look similar to the level of sophistication we have seen in the past for revenue cycle management. To that end, there has been major movement in the market to implement advanced cost accounting systems, often referred to as financial decision support, which provide accurate and actionable information on cost and help organizations understand their true margins as they take on risk-based, capitated contracts. Some during the conference referred to it as the “killer app” for the financial side of driving value. Regardless of what you call it, all are moving aggressively to understand the denominator of their value equation.

4. You Must Become a Brand

Investing in and better leveraging their brand has become a strategic must for health systems. The level of sophistication is growing here as providers shift their mental model to viewing patients as “consumers.” Aurora in Wisconsin cited their dedicated Consumer Insights Group and outlined their “best people, best brand, best value” approach that has been incredibly effective both internally and externally. At the same time, the bigger investments for many health systems relative to brand are more on brand experience than brand image, with a focus on understanding and radically rethinking the consumer experience. As an example, at Danville, Pa.-based Geisinger, close to 50 percent of ambulatory appointments are scheduled and seen on the same day. And every health system is making meaningful investments in their “digital handshake” with consumers, creating and leveraging it via telehealth as well as mobile applications to enhance the customer experience.

5. You Must Operate as a System, Not Just Call Yourself One

One clear theme at #JPM18 is different organizations were at different points along the continuum of truly operating as a system vs. merely sharing a name and a logo. There are a number of reasons for this, but you are increasingly seeing tough decisions actually being made vs. just kicking the can down the road. There has been a great deal of acquisitions over the last few years coupled with a new wave of thinking relative to integration that is more aggressive and more forward-looking. This mental shift is actually a very big deal and perhaps the most important new trend. Many health systems are heavily investing in leadership development deep into their organization to drive changes much faster.   

6. You Must Act Small

The word “agile” is quickly becoming part of everyone’s narrative with health systems looking to adopt the principles and processes leveraged in high tech. Chicago-based Northwestern Medicine is an example of an organization that has grown dramatically in the last five years, now approaching $5 billion in revenue. At the same time, they have still found a way to operate small, leveraging daily huddles across the organization to drive their results. The team at Raleigh, N.C.-based WakeMed has achieved a dramatic financial turnaround over the last few years, applying a similar level of rigor yielding major operational improvements in surgical, pharmacy and emergency services that have translated into better bottom line results.

7. You Must Engage Your Physicians

Employee engagement was a major theme in many of the presentations. With the level of change required both now and in the future, a true focus on culture is now clearly top of mind and a strategic must for high-performing health systems. That said, only a handful articulated a focus on monitoring and measuring physician engagement. This appears to be a major miss, given that physicians make roughly 80 percent of the decisions on care that take place and, therefore, control 80 percent of the spend. One data point that stood out was a 117 percent improvement in physician engagement at Northwestern. Major improvements will require clinical leadership and a true partnership with physicians.

8. You Must Leverage Analytics

Many have reached their initial destination of deploying a single clinical record, only to find that their journey isn’t over. While health systems have made major investments big data, machine learning and artificial intelligence, there was a consistent theme regarding the need to bring clinical and financial data together to truly understand value. Part of this path is the consolidation of systems that is now needed on the financial side of the house with a focus on deploying a single platform for financial planning, analytics and performance. The primary focus is to translate analytics not just into insights, but action.

9. You Must Protect Yourself

As organizations move deeper into data, there is increased recognition that cybersecurity is a major risk. Over 40 percent of all data breaches that occur happen in healthcare. During the keynote, JP Morgan Chase CEO Jamie Dimon shared that his organization will spend $700 million protecting itself and their customers this year. Investments in cybersecurity will continue to ramp up due to both the operational and reputational risk involved. Cybersecurity has become a board room issue and a top-of-mind initiative for executive teams at every health delivery system.

10. You Must Manage Social Determinants of Health in the Communities You Serve

Perhaps the most encouraging theme for healthcare provider organizations was the need to engage the community they serve and focus on social determinants of health. As Intermountain shared: “Zip code is more important than genetic code.” To that end, Geisinger refers to their focus on “ZNA.” They have deployed community health assistants, non-licensed workers who work on social determinants of health and have implemented a “Fresh Food Farmacy,” yielding a 20 percent decrease in hemoglobin A1c levels along with a 78 percent decrease in cost. Organizations like ProMedica Health System in Ohio have seen similar results with their focus on hunger in Toledo. WakeMed has an initiative focused on vulnerable populations in underserved communities that has resulted in a significant decrease in ER visits and admissions and over $6 million in savings.

11. You Must Help Solve the Opioid Epidemic

The opioid issue is one that healthcare professionals take very personally and feel responsible for solving. It came up in virtually in every presentation, and it’s an emotional issue for the leaders of each organization. This is good news, but the better news is that they are taking action. As an example, Geisinger invested in a CleanState Medicaid member pilot that resulted in a 23 percent decrease in ER visits and 35 percent decrease in medical spending, breaking even on their investment in less than 10 months. While many would rightly argue that the economic rationalization isn’t needed for something this important, the fact that it’s there should eliminate any excuse for anyone not taking action.

12. You Must Deliver Value

The Hospital for Special Surgery in New York is the largest orthopedics shop in the U.S. and a great example of how value-based care delivery is taking shape. Perhaps the most revealing stat they shared is that 36 percent of the time patients receive a non-surgical recommendation when they are referred to one of their providers for a second opinion. This is exactly the type of value-based counseling and decision-making that will help flip the model of healthcare. Some systems are farther along than others. Northwestern currently has 25 percent of its patients in value-based agreements, but other systems have less. As the team from Intermountain re-stated to this audience this year, “You can’t time the market on value, you should always do the right thing, right now.” Well said.  

 

 

 

The No. 1 takeaway from the 2019 JP Morgan Healthcare Conference: It’s the platform, stupid

https://www.beckershospitalreview.com/hospital-management-administration/the-no-1-takeaway-from-the-2019-jp-morgan-healthcare-conference-it-s-the-platform-stupid.html

If you want to understand the shifting sands of healthcare, you’ll find no better place than the nonprofit provider track during the infamous JP Morgan Healthcare Conference that took place this week in San Francisco.

Over 40,000 players were in town from every corner of the healthcare ecosystem. However, if you want to hear the heartbeat of what’s happening at ground level, you needed to literally squeeze into the standing room only nonprofit provider track where the CEOs and CFOs of 25 of the most prominent hospitals and healthcare delivery systems in the country shared their perspectives in rapid-fire 25 minute presentations.

This year those presenters represented over $300 billion, or close to 10 percent of the annual healthcare spend in U.S. healthcare. These organizations play a truly unique role in this country as they are integrated into the very fabric of the communities that they serve and are often the single largest employer in their respective regions. In other words, if you work in or care about healthcare, understanding their perspective is a must.

Every year I take a shot at condensing all of these presentations into a set of takeaways so healthcare providers who aren’t in the room can share something with their teams to help inform their strategy. So what do you need to know? Glad you asked, here you go.

Shift Happens — Moving from Being a Healthcare Provider to Creating a Platform for Health and Healthcare in Your Community

Trying to synthesize 25 presentations into a single punch line is pretty stressful. I listened to every presentation, debriefed with other healthcare providers in the audience afterwards and then spent the next 48 hours trying to process what I heard. I was stumped.

But then, finally, it hit me. To take a new spin on an old phrase, “It’s the platform, stupid.” To be clear, even though I’ve been in healthcare for close to 30 years, “stupid” in that sentence is absolutely referring to me.

So the No. 1 takeaway from the 2019 JP Healthcare Conference is this — for healthcare providers, there is a major shift taking place. They are moving from a traditional strategy of buying and building hospitals and simply providing care into a new and more dynamic strategy that focuses on leveraging the platform they have in place to create more value and growth via new and often more profitable streams of revenue. Simply stated, the healthcare delivery systems of today will increasingly leverage the platform and resources that they have in place to become a hub for both health and healthcare in the future. There is a level of urgency to move quickly. Many feel that if they don’t expand the role that they play in both health and healthcare in their community, someone else will step in.

Folks in tech would think of this as the difference between a “product” strategy (old school) and a “platform” strategy (new school). Think of this as the difference from cell phones (Blackberry) to smartphones (iPhone and Android devices). One was a product, the other was a platform. Common platforms that we’re all familiar with such as Facebook, Amazon, Google, Apple and even Starbucks have always 1) started with a very small niche, 2) built an audience, 3) built trust and 4) then added other offerings on top of that platform. By now there is no need for a “spoiler alert.” We all know that this strategy works and these companies have created a breathtaking amount of value. The comforting news for hospitals and healthcare delivery systems is that many have already completed the first three steps and have many of the building blocks they need to leverage a “platform” as a business strategy. The presentations at the JP Morgan Healthcare Conference made it clear that most are now actually taking that fourth step to separate themselves from the pack.

There is enormous upside to those who understand this pivot and take advantage of this change in the market. Dennis Dahlen, CFO of Mayo Clinic, shared his perspective on this: “Thinking differently in the future is essential. In many ways, at Mayo, we are already operating as a platform today, but we have to continue to leverage this approach to uncover additional ways that we can be a hub for both health and healthcare in our community.” Mayo’s platform includes leveraging research, big data, expert clinic insights and artificial intelligence to create new value for Mayo’s clinical practice as well as new opportunities for Mayo’s partners.

To be clear, the mental shift here is massive. It’s the difference of being on defense (where most healthcare providers are) to be being on offense (which is where they know they need to be). Executive teams have focused their time, energy and resources on driving and supporting inpatient admissions via a traditional bricks and mortar presence coupled with the acquisition of physician practices. The difficulty of thinking through what it means to truly be “asset light” and taking a different approach shouldn’t be underestimated. The good news is that the recent financial results of many health systems have improved, providing a little breathing room for investments to enable this shift in strategy. Those who don’t may fall way behind.

A New Way of Thinking — What it Means to be a Hub

Being a hub is essentially bringing together people with common interests to spark innovation and facilitate work getting done more efficiently. Examples include Silicon Valley as a “tech hub,” Los Angeles as an “entertainment hub,” New York as a “financial hub,” Washington, D.C. as a “hub for politics” and how essentially every college town is or can become a “research hub.”

Given that hospitals and health systems are the largest employers in their community, they are already set up to become a hub. In the past, they leveraged that position to simply care for the sick. Increasingly in the future, these organizations will be health and healthcare hubs for innovation and building new companies, for bringing the community together to tackle issues like hunger and homelessness, for education and training, for research and development partnerships, for coordinated, compassionate and longitudinal care delivery for treatment, for support groups for specific chronic conditions, for digital and virtual care, and for thoughtful and effective support for mental and behavioral health. Changes in the care delivery market over the last 10 years have put the right building blocks in place to make this happen.

Hiding in Plain Sight — The Single Biggest Change in Healthcare We May Ever See Has Already Happened

Taking advantage of becoming a hub and leveraging the strategic concept of being a platform requires new thinking, new structures and new skill sets. The great news for healthcare providers is they have already made the toughest move of all in order to set this in motion.

Over the last decade, there has been a massive level of consolidation with hundreds of hospitals and thousands of physician practices being acquired every year. While more mergers and acquisitions will still happen, this stunning and fundamental restructuring of healthcare delivery has taken place and there is no turning back. This is likely the single biggest shift relative to how healthcare is structured in this country that will take place during our lifetime, and it barely gets mentioned. The strategy many were chasing was primarily being driven by a “heads in beds” pay-off that was both based on offense (“an easier way to grow”) and defense (“we better buy them before someone else does”). That said, as this consolidation happened most healthcare delivery systems were really just an amalgamation of stand-alone hospitals set up as a holding company that provided no real leverage other than more top-line revenue.

During the JP Morgan Healthcare Conference, it was clear that most have made the shift from a holding company into a single operating entity. Chicago-based Northwestern Medicine shared a very refined playbook for quickly bringing acquisitions onto their “platform,” and the results are pretty stunning as they have transformed from a $1 billion academic medical center into a $5 billion regional healthcare hub in a handful of years.

And over the last few years, these organizations have gotten super serious about making the toughest decisions right away. The mega-merger of Advocate Health and Aurora Health, the largest healthcare delivery systems in Illinois and Wisconsin respectively, was accompanied by a gutsy decision to fast-track the implementation of Epic at Advocate to get the leverage of a single EHR platform across the system. While many focus on the cost of the transition and the shortcomings of some of the applications, what gets missed is the enormous long-term leverage this provides regarding communication, integration, continuity of care and, of course, access to data and the potential to improve clinical and financial performance. This creates a “platform-like” experience for both employees and customers. 

So, the twist in the story is that the pay-off for consolidation will likely be very different and perhaps much better than many had originally intended. They have the building blocks in place to be a health and healthcare platform for their community. But now they need to figure out how to truly take advantage of it.

Your Action Plan — 6 Ideas from 25 Healthcare Delivery Systems on How to Leverage Your “Platform”

During their presentations the 25 non-profit provider organizations opened up their playbooks on how others can leverage their platforms and the idea of becoming the hub for health and healthcare in their respective communities. Here is what they shared.

1. Create the Digital Front Door — or Someone Else Will

The big shift in play right now is the moving away from traditional reliance on transactional face-to-face interactions with individual providers. Building relationships and trust is something that has been a core competency and core strategic asset for hospitals in the past. In the future, this simply won’t be possible without leveraging digital platforms as we do in every other aspect of our lives today. As Stephen Klasko, MD, CEO of Philadelphia-based Jefferson Health, shared, the real strategy will be to deliver “health and healthcare with no address.”

Many provider organizations are moving aggressively to create digital front doors. Kaiser Permanente delivered 77 million virtual visits last year. Intermountain introduced a virtual hospital that provides over 40 services and has delivered over 500,000 interactions. Nearly every health system leverages MyChart or a similar personal health record platform. There is an enormous amount of risk for hospitals and health systems that don’t take action here, as traditional healthcare providers will be competing with more mainstream and polished consumer brands for the relationships and trust of the folks in their community.

As the team from Spectrum Health shared, “87 percent of Americans measure all brands against a select few — think Amazon, Netflix and Starbucks.” Google, Apple and Facebook as well as Walgreens or CVS are all going after this “digital handshake,” and are big threats to healthcare providers. There is no question that some of these organizations will be “frenemies,” where they are both competing and collaborating. Healthcare organizations will need to approach any partnerships mindful of that risk.

2. Drive Affordability and Reduce Cost — or Risk Being the Problem

As the burden of the cost of care increasingly shifts to the patient’s wallet, healthcare providers will need to play in driving affordability. Coupled with the recent federal requirement to post prices online, there is a great deal of visibility around the price of care, even if the numbers are way off the mark. Understanding and reducing the total cost of care is now viewed as a requirement. As legacy cost accounting applications relied on charges as a proxy for cost and were limited to the acute care setting, most provider organizations have or are now in the process of deploying advanced cost accounting applications with time-driven and activity-based costing capabilities including a number that presented during the conference, such as Advocate Aurora Health, Bon Secours Mercy, Boston Children’s Hospital, Hospital for Special Surgery, Intermountain Healthcare, Northwestern Medicine, Novant Health, Spectrum Health and Wellforce.

This was one of the hottest topics during the conference, and there was significant buzz regarding having a single source of truth for the cost of care across the continuum. Vinny Tammaro, CFO of Yale New Haven Health, commented, “We need to align with the evolution of consumerism and help drive affordability in healthcare. How we leverage data is mission critical to making this concept a reality. Bringing clinical and financial data together provides us with a source of truth to help both reduce the cost of care as well as reallocate our finite resources to high impact initiatives in our community.” Organizations like Intermountain Healthcare, which implemented a 2.7 percent price reduction in exchange pricing, are taking the next step in translating cost reduction into lower prices for consumers. And now healthcare systems are starting to work together to create additional leverage via Civica Rx, which now includes 750 hospitals joining forces to help lower the cost of generic drugs.

3. Tackle Social Determinants of Health — or You Won’t Be the Hub for Health in Your Community

It is always less expensive to prevent a problem than it is to fix it. The good news is that the economic incentives for hospitals and healthcare delivery systems to both think and act that way are beginning to line up. They are certainly there already for providers that are also health plans such Intermountain, Kaiser Permanente, Providence St. Joseph Health, Spectrum Health and UPMC. They are also in place for providers that have aggressively taken on population-based risk contracts such as Advocate Aurora Health. With that said, it feels like every health system is starting to lean in here — and they should.

Being the central community hub for these issues makes a ton of sense. The way that Kaiser framed it is that while they have 12 million members, there are 68 million people in the communities they serve. Taking that broader lens both allows them to make a bigger impact but also broaden their market. Many organizations, such as Henry Ford Health System, are taking on hunger via fresh food pharmacies. Geisinger shared how a 2.0 reduction in Hemoglobin A1c reduction leads to a $24,000 cost reduction per participant in their fresh food “farmacy.” So while hospitals are perfectly positioned, have the resources and know it’s the right thing to do, they are now also beginning to understand the business model tied to targeting the social determinants of health. There is also strong strategic rationale associated with taking on a broader role of driving health versus only providing healthcare.

4. Create Partnerships for Healthcare Innovation — or Lose the Upside

Spectrum Health has a $100 million venture fund. Providence St. Joseph’s Health announced a second $150 million venture capital and growth equity fund. Mayo Clinic Ventures has returned over $700 million to their organization. Jefferson Health has a 120-person innovation team focused on digital innovation and the consumer experience, partnering with companies to build solutions. These are all variations on a theme as virtually every organization that presented is leveraging their resources to make a bigger impact and drive additional upside from their platform. “We have close to 900 agreements with over 500 partners,” stated Sanda Fenwick, CEO of Boston Children’s Hospital. “Our strategy is to be a hub for research, innovation and education in order to help evolve how care is delivered. This can only be done by collaborating with others.”

5. Become the Hub for Targeted Services and Chronic Conditions — or They Will Go Elsewhere

Perhaps the best example here is the work of Hospital for Special Surgery, the largest orthopedics shop in the world. It is has become a destination for good reason — fewer complications, fewer infections, a higher discharge rate to home and fewer readmissions. The most compelling data point is that when patients come to HSS for a second opinion, one-third of the time they receive a non-surgical recommendation. The same type of shopping is increasingly going to happen for chronic conditions.

Healthcare delivery systems that take a more holistic yet targeted approach have significant potential. They will need to think more deeply about the end-to-end experience and become immersed within the community outside of the four walls of the hospital. Other players in the community, such as CVS Health and Walgreens, would say they have a platform — and they would be right. The platform that healthcare providers have built and are building will absolutely be competing against other care delivery platforms.

6. Leverage Applied Analytics — or You’ll Lose Your Way

In order to enable everything listed above, the lifeline for every health and healthcare hub will be actionable data. Applied analytics is a boring term that is actually gaining traction and starting to dislodge buzzwords like big data, machine learning and artificial intelligence relative to its importance to healthcare providers.

Similar to how analytics are being used in a practical way in baseball to determine where to throw a pitch to a batter or position players in the field, healthcare providers are pushing for practical data sets presented in a simple, actionable framework. That may seem obvious, but it is simply not present in many healthcare organizations that have been focused on building data warehouse empires without doors to let anyone in. Many organizations, such as Advocate Aurora Health, Bon Secours Mercy and Spectrum Health, have deployed more dynamic business decision support solutions to access better insight into performance and care variation. This allows them to assess opportunities to reallocate resources to invest in more productive ways to leverage their platform.

While leveraging a platform as a business strategy is new to healthcare providers, the good news is that building blocks are already in place. It’s time to leverage that platform to drive better outcomes and more affordable care in the community. And now is the time to get started.

 

Scaling the “specialty care business” across the health system

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Over the past month we’ve been sharing our framework for helping health systems rethink their approach to investment in delivery assets, built around a functional view of the enterprise. We’ve encouraged providers to take a consumer-oriented approach to planning, starting by asking what consumers need and working backward to what services, programs and facilities are required to meet those needs. That led us to break the enterprise into component parts that perform different “jobs” for the people they serve. We think of each of those parts as a “business”, located at either the market, regional or national level depending on where the best returns to scale are found (and on the geographic scale of any particular system). So far we have described how a consumer-oriented health system should be organized at the market level, with expanded access and senior-care businesses providing lower-cost care in an outpatient setting for many services that were previously delivered in an acute-care hospital, and how the profile of the local hospital needs to change in response.

This week we shift our attention to health system services that can be scaled at the regional level, starting with specialty care, the medical and surgical specialty services that comprise many hospital service lines. Today nearly every community hospital is a “jack of all trades” with the same portfolio of services: obstetrics, cardiac care, orthopedics, and cancer care are the marquee service lines. Incentives, both market-based and internal to the health system, have encouraged this. Hospitals build services aimed at capturing the same handful of profitable (and usually procedurally-focused) DRGs. And many health systems reward local hospital leaders on the profitability of the hospitals they run, creating no incentive for those leaders to shift profitable volume to other hospitals in the system, and often resulting in redundant, inefficient, and sub-scale specialty care services.
 
We believe many specialty care services could be improved by moving care “up and out” of the community hospital. As we described before, a large portion of routine surgical care could be moved “out” of the hospital to lower-cost outpatient centers, supported by short-stay capabilities and expanded home health. At the same time, more complex specialty care should move “up” in the health system and be concentrated in regional “centers of excellence”, where expensive talent and expertise can be scaled, and systems can aggregate the volume needed for highly-efficient operations that lower the cost of delivering complex specialty care.

While the center of excellence model is not new, it’s often little more than a marketing slogan. Few systems have deployed it for operational efficiency, redirecting specialty care patients to high-volume-centers—and shuttering their low-volume or sub-standard local programs. Even fewer have invested in the infrastructure needed to effectively coordinate care between a regional center and local providers: telemedicine for effective provider collaboration and consultation, effective information sharing, and strong local care management support. One question inevitably arises: will patients travel for care? As individuals bear a larger portion of the cost of care, they do seem to be willing to travel longer distances in pursuit of better value. Understanding how the consumer “travel radius” changes with higher levels of financial accountability, and how that radius differs among services, ought to rank high on the priority list of systems looking to determine what business to consolidate at regional centers.

 

 

Optum a step ahead in vertical integration frenzy

https://www.healthcaredive.com/news/optum-unitedhealth-vertical-integration-walmart/520410/

Vertical integration is all the rage in healthcare these days, with Aetna, Cigna and Humana making notable plays. 

If the proposed CVS-AetnaCigna-Express Scripts and Humana-Kindred deals are cleared by regulators, the tie-ups will have to immediately face UnitedHealth Group’s Optum, which has been ahead of the curve for years and built out a robust pharmacy benefit manager (PBM) business already along with a care services unit, employing about 30,000 physicians and counting.

UnitedHealth formed Optum by combining existing pharmacy and care delivery services within the company in 2011. Michael Weissel, Group EVP at Optum, told Healthcare Dive the company began by focusing on three core trends in the industry: data analytics, value-based care and consumerism.

Since then, the company has been on an acquisition spree to position itself as a leader in integrated services.

“For the longest time, the market assumed that they were building the Optum business [to spin it out] and what is interesting in the evolution of the industry is that that combination has now set a trend,” Dave Windley, managing director at Jefferies, told Healthcare Dive.

“United has now set the industry standard or trend … to be more vertically integrated and it seems less likely now that United would spin this out … because many of their competitors are now mimicking their strategy by trying to buy into some of the same capabilities,” he said.

Weissel said Optum will continue to push on the three identified trends in the next three to five years, with plans to invest heavily in machine learning, AI and natural language processing.

The question will be whether and how the company can keep its edge.

What Optum is

Optum is a company within UnitedHealth Group, a parent of UnitedHealthcare. Optum’s sister company UnitedHealthcare is perhaps more well known within the industry and with consumers.

However, Optum, a venture that encompasses data analytics, a PBM and doctors, has been gradually building its clout at UnitedHealth Group.

In 2017, the unit accounted for 44% of UnitedHealth Group’s profits.

In 2011, UnitedHealth Group brought together three existing service lines under one master brand. Services are delivered through three main businesses within a business within a business:

  • OptumHealth – the care delivery and ambulatory care capabilities of OptumCare, as well as the care management, behavioral health, and consumer offerings of Optum;
  • OptumInsight – the data and analytics, technology services and health care operations business; and
  • OptumRx – its pharmacy benefit service.

The company focuses on five core capabilities, including data and analytics, pharmacy care services, population health, healthcare delivery and healthcare operations. Services include but are certainly not limited to OptumLabs (research), OptumIQ (data analytics), Optum360 (revenue cycle management), OptumBank (health savings account) and OptumCare (care delivery services).

The Eden Prairie, MN-headquartered company has recently expanded its care delivery services, with much of the growth coming from acquisitions. The past two years have seen Optum expand its footprint into surgical care (Surgical Care Affiliates), urgent care (MedExpress) and primary care (DaVita Medical Group).

It’s a wide pool, but the strategy affords UnitedHealth the opportunity to grab more revenue by expanding its market presence. For example, the DaVita acquisition, which is still pending, allows OptumCare to operate in 35 of 75 local care delivery markets the company has targeted for development, Andrew Hayek, OptumHealth CEO, said on an earnings call in January.

Optum’s strategy of meeting patients where they are and deploying more ambulatory, preventative care services works in concert with its sister company UnitedHealthcare’s goal of reducing high-cost, unnecessary care services, when applicable. If Optum succeeds in creating healthier populations that use lower levels of care more often, that benefits the parent company UnitedHealth Group as UnitedHealthcare spends less money and time on claims processing/payout.

The strategy has been paying off so far.

Three charts that show UnitedHealth’s financial health as it relates to Optum

Optum’s presence has grown as it has steadily increased its percentage of profits for UnitedHealth Group.

Credit: Healthcare Dive / Jeff Byers

In 2011, the first year Optum was configured as it looks today, the company contributed 14.8% of total earnings through operations to UnitedHealth Group with $1.26 billion. That’s about 29 percentage points lower than in 2017, when Optum brought in $6.7 billion in profits on $83.6 billion in revenue.

Broken down, it’s clear that pharmacy services make up the lion’s share of the company’s revenue. In 2017, OptumRx earned $63.8 billion in revenue, fulfilling 1.3 billion prescriptions. OptumRx’s contributions to the company took off in 2015 when Optum acquired pharmacy benefit manager Catamaran.

Credit: Healthcare Dive / Jeff Byers

In recent years, OptumHealth has grown due to expansion in care delivery services, including consumer engagement and behavioral and population health management. The care delivery arm served 91 million people last year, up from 60 million in 2011.

OptumInsight has grown largely due to an increase in revenue cycle management and operations services in recent years.

On Wall Street, UnitedHealth Group is performing well and has seen healthy growth since 2008. The stock peaked in January and took a dive when Amazon, J.P. Morgan and Berkshire Hathaway — industry outsiders yet financial giants — announced they would create a healthcare company.

Credit: Healthcare Dive / Jeff Byers

While these charts suggest a dominant force, the stock activity shows that investors believe there’s still more room for competition, if the new entrants play their cards right.

Where Optum could lock out and rivals could cut in on competition

UnitedHealth started down this strategic path many years ago and the rest of the industry just now seems to be catching up.

“Optum’s been the leader in showing how a managed care organization with an ambulatory care delivery platform and a pharmacy benefit manager all in house can lower or maintain and bend cost trend and then drive better market share gains in their health insurance business,” Ana Gupte, managing director of healthcare services at Leerink, told Healthcare Dive. “I think they have been the impetus in the large space for the Aetna-CVS deal.”

Because the company is multi-dimensional, Optum’s competition will be varied. If all the mergers making news — including the Walmart’s rumored buyout of Humana — close, here’s what competition could look like:

Perhaps oddly, its largest revenue contributor, OptumRx, seems to have the largest vulnerability for competition in the coming years.

Optum’s competitive advantage in the PBM space is driven largely by already realized integration. Merging data across IT systems is no easy task, and Optum has spent years harmonizing pharmacy data across platforms to assist care managers in OptumCare to see medical records for United members.

Anyone with experience implementing EHR systems can tell you such integration doesn’t happen over night.

If the Cigna-Express Scripts deal closes, the equity can compete with OptumRx, but the technology investment needed to harmonize data and embed Cigna’s service and pharmacy information into Express Scripts servers will take time, Windley said. Optum, on the other hand, has invested in the effort and integration for years.

Gupte says the encroaching organizations in the PBM space have the ability to realize the efficiencies and savings and the integrated medical that Optum has been realizing across OptumRx and the managed care organization.

Optum’s leg up in PBM space could last two to three years over the competition, she said.

On the care delivery side, OptumHealth has been purchasing large physician groups for a variety of services. There are only so many large physician groups putting themselves on the market, and Optum has been making bids for them.

There’s still a bit of white space to fill in its 75 target markets, but analysts note Optum may have the competition on lock in this space

Even if CVS-Aetna closes, OptumCare is a $12 billion business with many urgent and surgery care access points. If CVS-Aetna is finalized, the company will have about 1,100 MinuteClinics capable of realizing efficiencies with Aetna, but, as Windley notes, they likely won’t have primary care or surgery care elements.

There’s also a lot of time and capital needed for building out and retrofitting retail space to medical areas.

On the surgical care services, “I don’t see either Cigna, Aetna or Humana getting into that business,” Gupte said. “That will be one element of their footprint on care delivery that will be unique and differentiated for them.”

Urgent care has the potential for outsider competition, she added. However, Optum is using its MedExpress business to treat higher acuity conditions and have an ER doctor on staff in each center. Compared to the typical types of conditions treated in retail clinics or those that would be feasible over time, Gupte believes services that could be seen in CVS or Walmart would be lower acuity, chronic care management services.

“[Optum has] been so proactive and so strategic I don’t think there’s going to be a lot of reactive catchup they have to do,” Gupte said. “I think it’s going to be hard for the other entities to play catch up, outside of the PBM.”

One potential issue will be harmonizing the disparate businesses so patients can be effectively managed across the various organizations, Trevor Price, founder and CEO of Oxean Partners, told Healthcare Dive.

“I think the biggest challenge for Optum is operationalizing the combined platform,” Price said. “The biggest question is do they continue to operate as individual businesses or do they merge into one.”

What’s next?

Optum will continue to explore ground in the three core trends it has identified.

Out of the three, consumerism has the longest path to maturity in healthcare, Weissel said, adding he believes consumerism is going to change healthcare more than any other trend over the next decade.

“There is a wave coming, and this expectation that we will move there,” he said. “Increasingly, this aging of people who become very comfortable in a different modality is going to tip the balance with how people will want to interact with healthcare. I know there’s pent up demand already.”

That means the company is putting bets into the marketplace around consumer building and segmentation models as well as thinking about how to connect data to allow patients to schedule appointments, view health records, sign up for insurance, search for providers or renew prescriptions online.

Consumer-centric projects currently underway include digital weight loss programs — including streaming fitness classes — and maternity programs to track pregnancy. The company is also experimenting with remote patient monitoring to understand the impacts on those with heart disease or asthma and to search for service opportunities.

Optum will pursue investments as well as acquisitions to push into the consumer space.

“When it comes to acquisitions to Optum overall, we’re always in the marketplace looking to extend our capabilities, to extend our reach in the care management space to fill in holes or gaps that we have,” Weissel said. “That’s a constant process in our enterprise.”

 

 

 

 

Have enough beds? Demographic trends paint an alarming picture

https://medcitynews.com/2018/12/have-enough-beds-demographic-trends-paint-an-alarming-picture/?utm_campaign=MCN%20Daily%20Top%20Stories&utm_source=hs_email&utm_medium=email&utm_content=68616131&_hsenc=p2ANqtz–fq1sdxIB88xY-ain-FJhljI6XCajKx4jjImF-6g7OJCDVEtx0Bo9c1pP788k3hLe6ehxSYBoP-w51DLgGo5izH2qh5g&_hsmi=68616131

Healthcare providers know that inpatient volumes are down over historic levels. (But let’s not talk […]

Healthcare providers know that inpatient volumes are down over historic levels. (But let’s not talk about emergency department volumes—those are WAY up.)  They know this trend originates mostly with Medicare beneficiaries. They also know the causes: migration to outpatient services, observation day rules, intense focus on decreasing length of stay, and reduced readmissions as part of their quality initiatives.

What they may miss, however, is that this trend also has something to do with the declining average age of our nation’s senior population—a phenomenon that first began in 2005 and will continue until about 2020.  In 2005, the average age of our nation’s senior population was 75.2 years; in 2020, the average age is expected to be 74.4 years.

This fact is important because older seniors consume significantly greater healthcare resources than younger seniors. Today, those over 65 represent about 15 percent of the total U.S. population. By 2020, one out of six Americans will be 65 or older, rising to 22 percent by 2040. Understanding how this population is distributed among age cohorts is critically important not only in understanding current trends in reduced utilization, but also in preparing for the future.

Taking a Closer Look
This increasing proportion of the population that are seniors is important because the average Medicare beneficiary consumes about four times the hospital-based services as the average commercially insured person.
But it is just as important to look more closely at consumption patterns within the senior population. Those between ages 75 and 84 consume about 60 percent more services than seniors ages 65 to 74. Those age 85 and above consume about two-and-a-half times as much.

According to U.S. Census forecasts, in 2021, the over-75 population will make up the lowest percentage of the senior Medicare population in recent history, at about 41 percent. By 2040, seniors older than 75 will constitute 55 percent of the total senior population. This fact alone would suggest that we are in for a reversal of declining volume patterns—but by how much?

The answer is that if nothing is done to further reduce admissions and days per 1,000 for the senior Medicare population, inpatient days should almost double from about 70 million today to about 130 million in 2040 on the basis of demographic changes alone. That represents a need for some 220,000 additional beds at 75 percent capacity by 2040—never mind all the other healthcare services that will be needed. But even as there is general recognition among healthcare leaders of the advent of an aging population, there is also the general sense that somehow, we will not need the same level of resources to meet that demand as we do today.

Where does that sense of assurance come from? Apparently, it stems from the belief that unnecessary and excess utilization exists purely due to financial reasons, and that even more of the care delivered on an inpatient basis could be performed on an outpatient basis or at home with better monitoring and intervention through new technologies. But there also appears to be an ignoring of the well-known trend for the population becoming increasingly co-morbid at ever-younger ages. Additionally, some believe that increased focus on addressing social determinants of health, which impact 64 percent of health outcomes, will reduce need for medical services.

All of these assumptions may be true, in theory. In practice, however, as a senior healthcare executive and registered nurse said to me recently, “People are really sick. You have no idea.” There is also the enormous question of how one staffs and gets paid for programs and investments that might reduce demand for hospital-based services. The economics of today’s medicalized approach to health care is unprepared to address this.

A Critical Issue for Leadership
This is an issue that should be of paramount importance to healthcare providers. As seniors comprise a greater portion of our population, demand for inpatient and post-acute services will significantly increase. The hope and dream expressed in the view that hospital-based utilization might be reduced springs from a terrible reality: Hospitals in general, with the possible exception of high-end tertiary/quaternary services, lose money on government-reimbursed volume—and this will only get worse as cost inflation continues to exceed government reimbursement trends.

The prospect of the demand for inpatient days nearly doubling over the next 20 years paints a horrifying financial picture. Who, then, would not want to hope that something magical will happen to prevent a scenario that logic and data tell us is likely to occur?

It’s time for healthcare leaders to take a hard look at the trends around senior aging and have tough discussions with their executive teams and boards about the impact these trends could have on their organizations’ futures—and what they should be doing now to prepare.

 

 

 

Envisioning the “asset-light” hospital of the future

 

Across December we have been sharing our framework for helping health systems rethink their approach to investment in delivery assets, built around a functional view of the enterprise. We’ve encouraged our clients to take a consumer-oriented approach to planning, starting by asking what consumers need and working backward to what services, programs and facilities are required to meet those needs. That led us to break the enterprise into component parts that perform different “jobs” for the people they serve. We think of each of those parts as a “business”, located at either the market, regional or national level depending on where the best returns to scale are found (and on the geographic scale of any particular system). First we shared  our view of the “access business”, pushing systems to create a broad web of access points across their market, with the goal of building consumer loyalty over time. Last week we described our vision for the “senior care” business, where an array of assets traditionally providing postacute care, including rehabilitation and skilled nursing facilities (SNFs), home health, and even hospital-at-home programs, could expand their capabilities to manage chronic disease exacerbations in elderly patients in lower-acuity, lower-cost settings. This week we’ll describe how the changes in these outpatient care settings will affect the profile of the traditional acute care hospital.
 
Shifting demographics will dramatically change the patient mix of American hospitals across the next decade. As Baby Boomers age into their Medicare years, ED and hospital beds will fill with elderly patients admitted for exacerbations of chronic diseases like congestive heart failure and diabetes, their care reimbursed at public-payer rates. Over time it’s easy to imagine hospitals starting to look like giant SNFs, filled with elderly patients receiving nursing care and drugs. With current cost and labor structures, this shift will be financially unsustainable for hospitals, as Medicare payment for many medical admissions does not cover the cost of the inpatient admission, forcing hospitals to pursue alternative care settings for these patients. As we described last week, as many as half of chronic disease admissions could be managed by an expanded “senior care” platform. Adding to this potential shift of medical admissions to an outpatient setting, we anticipate that an expanded postacute and home care platform could also accelerate the shift of inpatient surgeries to an ambulatory setting. If surgery centers could manage patients for 24- to 48-hour stays, and hospital-at-home capabilities supported recovery at home, some experts believe that a majority of non-emergent inpatient surgeries—including many orthopedic and general surgery cases—could shift away from the hospital. If this shift to alternative settings bears out, demand for traditional “med-surg” beds could decline significantly, even in the face of demographic shifts.  
 
The graphic below describes an alternative vision for the future acute-care hospital that takes into account these changes. This “hospital of the future” will be asset-light, focused on providing higher levels of emergency, medical and surgical care, with capacity weighted toward more intensive patient management. The acute care facility will be supported by a network of connected and expanded ambulatory resources, including outpatient surgery, postacute services, home care and access services, all enabled by remote monitoring technology. While payment changes covering expanded outpatient care will accelerate this movement, we believe that payer and patient mix shifts alone will provide motivation for hospitals to pursue these strategies. The cost of adding a new med-surg bed now tops $2M in most markets—trimming even a few beds that may not be needed will provide capital that can go a long way in expanding outpatient capabilities to support lower-acuity care.

 

Healthcare as a zero-sum game: 7 key points

https://www.beckershospitalreview.com/hospital-management-administration/healthcare-as-a-zero-sum-game-7-key-points.html?origin=cfoe&utm_source=cfoe

This article sets out seven thoughts on healthcare systems.

The article discusses:

  1. Types of Healthcare Systems
  2. Mergers and Key Questions to Assess Mergers
  3. Headwinds Facing Systems
  4. The Great Fear of Systems
  5. What has Worked the Last 10 Years
  6. What is Likely to Work the Next 10 Years
  7. A Few Other Issues

Before starting the core of the article, we note two thoughts. First, we view a core strategy of systems to spend a great percentage of their time on those things that currently work and bring in profits and revenues. As a general rule, we advise systems to spend 70 to 80 percent of their time doubling down on what works (i.e., their core strengths) and 20 to 30 percent of their time on new efforts.

Second, when we talk about healthcare as a zero-sum game, we mean the total increases in healthcare spend are slowing down and there are greater threats to the hospital portion of that spend. I.e., the pie is growing at a slower pace and profits in the hospital sector are decreasing.

I. Types of Healthcare Systems

We generally see six to eight types of healthcare systems. There is some overlap, with some organizations falling into several types.

1. Elite Systems. These systems generally make U.S. News & World Report’s annual “Best Hospitals” ranking. These are systems like Mayo Clinic, Cleveland Clinic, Johns Hopkins Hospital, NewYork-Presbyterian, Massachusetts General, UPMC and a number of others. These systems are often academic medical centers or teaching hospitals.

2. Regionally Dominant Systems. These systems are very strong in their geographic area. The core concept behind these systems has been to make them so good and so important that payers and patients can’t easily go around them. Generally, this market position allows systems to generate slightly higher prices, which are important to their longevity and profitability.

3. Kaiser Permanente. A third type of system is Oakland-based Kaiser Permanente itself. We view Kaiser as a type in and of itself since it is both so large and completely vertically integrated with Kaiser Foundation Health Plan, Kaiser Foundation Hospitals and Permanente Medical Groups. Kaiser was established as a company looking to control healthcare costs for construction, shipyard and steel mill workers for the Kaiser industrial companies in the late 1930s and 1940s. As companies like Amazon, Berkshire Hathaway and JPMorgan Chase try to reduce costs, it is worth noting that they are copying Kaiser’s purpose but not building hospitals. However, they are after the same goal that Kaiser originally sought. Making Kaiser even more interesting is its ability to take advantage of remote and virtual care as a mechanism to lower costs and expand access to care.

4. Community Hospitals. Community hospitals is an umbrella term for smaller hospital systems or hospitals. They can be suburban, rural or urban. Community hospitals are often associated with rural or suburban markets, but large cities can contain community hospitals if they serve a market segment distinct from a major tertiary care center. Community hospitals are typically one- to three-hospital systems often characterized by relatively limited resources. For purposes of this article, community hospitals are not classified as teaching hospitals — meaning they have minimal intern- and resident-per-bed ratios and involvement in GME programs.

5. Safety-Net Hospitals. When we think of safety-net hospitals, we typically recall hospitals that truly function as safety nets in their communities by treating the most medically vulnerable populations, including Medicaid enrollees and the uninsured. These organizations receive a great percentage of revenue from Medicaid, supplemental government payments and self-paying patients. Overall, they have very little commercial business. Safety-net hospitals exist in different areas, urban or rural. Many of the other types of systems noted in this article may also be considered safety-net systems.

6. National Chains. We divide national chains largely based on how their market position has developed. National chains that have developed markets and are dominant in them tend to be more successful. Chains tend to be less successful when they are largely developed out of disparate health systems and don’t possess a lot of market clout in certain areas.

7. Specialty Hospitals. These are typically orthopedic hospitals, psychiatric hospitals, women’s hospitals, children’s hospital or other types of hospitals that specialize in a field of medicine or have a very specific purpose.

II. Mergers and Acquisitions

There have seen several large mergers over the last few years, including those of Aurora-Advocate, Baylor Scott & White-Memorial Hermann, CHI-Dignity and Mercy-Bon Secours, among others.

In evaluating a merger, the No. 1 question we ask is, “Is there a clear and compelling reason or purpose for the merger?” This is the quintessential discussion piece around a merger. The types of compelling reasons often come in one of several varieties. First: Is the merger intended to double down and create greater market strength? In other words, will the merger make a system regionally dominant or more dominant?

Second: Does the merger make the system better capitalized and able to make more investments that it otherwise could not make? For example, a large number of community hospitals don’t have the finances to invest in the health IT they need, the business and practices they need, the labor they need or other initiatives.

Third: Does the merger allow the amortization of central costs? Due to a variety of political reasons, many systems have a hard time taking advantage of the amortization of costs that would otherwise come from either reducing numbers of locations or reducing some of the administrative leadership.

Finally, fourth: Does the merger make the system less fragile?

Each of these four questions tie back to the core query: Does the merger have a compelling reason or not?

III. Headwinds

Hospitals face many different headwinds. This goes into the concept of healthcare as a zero-sum game. There is only so much pie to be shared, and the hospital slice of pie is being attacked or threatened in various areas. Certain headwinds include:

1. Pharma Costs. The increasing cost of pharmaceuticals and the inability to control this cost particularly in the non-generic area. Here, increasingly the one cost area that payers are trying to merge with relates to pharma/PBM the one cost that hospitals can’t seem to control is pharma costs. There is little wonder there is so much attention paid to pharma costs in D.C.

2. Labor Costs. Notwithstanding all the discussions of technology and saving healthcare through technology, healthcare is often a labor-intensive business. Human care, especially as the population ages, requires lots of people — and people are expensive.

3. Bricks and Mortar. Most systems have extensive real estate costs. Hospitals that have tried to win the competitive game by owning more sites on the map find it is very expensive to maintain lots of sites.

4. Slowing Rises in Reimbursement – Federal and Commercial. Increasingly, due to federal and state financial issues, governments (and interest by employers) have less ability to keep raising healthcare prices. Instead, there is greater movement toward softer increases or reduced reimbursement.

5. Lower Commercial Mix. Most hospitals and health systems do better when their payer mix contains a higher percentage of commercial business versus Medicare or Medicaid. In essence, the greater percentage of commercial business, the better a health system does. Hospital executives have traditionally talked about their commercial business subsidizing the Medicare/Medicaid business. As the population ages and as companies get more aggressive about managing their own healthcare costs, you see a shift — even if just a few percentage points — to a higher percentage of Medicare/Medicaid business. There is serious potential for this to impact the long-term profitability of hospitals and health systems. Big companies like JPMorgan, Amazon, Berkshire Hathaway and some other giants like Google and Apple are first and foremost seeking to control their own healthcare costs. This often means steering certain types of business toward narrow networks, which can translate to less commercial business for hospitals.

6. Cybersecurity and Health IT Costs. Most systems could spend their entire budgets on cybersecurity if they wanted to. That’s impossible, of course, but the potential costs of a security breach or incident loom large and there are only so many dollars to cover these costs.

7. The Loss of Ancillary Income. Health systems traditionally relied on a handful of key specialties —cardiology, orthopedics, spine and oncology, for example — and ancillaries like imaging, labs, radiation therapy and others to make a good deal of their profits. Now ancillaries are increasingly shifted away from systems toward for-profits and other providers. For example, Quest Diagnostics and Laboratory Corporation of America have aggressively expanded their market share in the diagnostic lab industry by acquiring labs from health systems or striking management partnerships for diagnostic services.

8. Payers Less Reliant on Systems. Payers have signaled less reliance on hospitals and health systems. This headwind is indicated in a couple of trends. One is payers increasingly buying outpatient providers and investing in many other types of providers. Another is payers looking to merge with pharmaceutical providers or pharmacy and benefit managers.

9. Supergroups. Increasingly in certain specialties and multispecialty groups, especially orthopedics and a couple other specialties, there is an effort to develop strong “super groups.” The idea of some of these super groups is to work toward managing the top line of costs, then dole out and subcontract the other costs. Again, this could potentially move hospitals further and further downstream as cost centers instead of leaders.

IV. The Great Fear

The great fear of health systems is really twofold. First: that more and more systems end up in bankruptcy because they just can’t make the margins they need. We usually see this unfold with smaller hospitals, but over the last 20 years, we have seen bankruptcies periodically affect big hospital systems as well. (Here are 14 hospitals that have filed for bankruptcy in 2018 to date. According to data compiled by Bloomberg, at least 26 nonprofit hospitals across the nation are already in default or distress.)

Second, and more likely, is that hospitals in general become more like mid-level safety net systems for certain types of care — with the best business moving away. I.e., as margins slide, hospitals will handle more and more of the essential types of care. This is problematic, in that many hospitals and health systems have infrastructures that were built to provide care for a wide range of patient needs. The counterpoint to these two great fears is that there is a massive need for healthcare and healthcare is expensive. In essence, there are 325,700,000 people in the United States, and it’s not easy to provide care for an aging population.

V. The Last 10 Years – What Worked

What has worked over the last five to 10 years is some mix of the following:

  1. Being an elite system has remained a recipe for financial success.
  1. Being regionally dominant has been a recipe for success.
  1. Being very special at something or being very great at something has been a recipe for success.
  1. Being great in high paying specialties like orthopedics, oncology, and spine has been a recipe for success.
  1. Systems have benefited where they provide extensive ancillaries to make great profits.

VI. The Next 10 Years

Over the next 10 years, we advise systems to consider the following.

  1. Double down on what works.
  1. Do not give up dominance where they have it. Although it may be politically unpopular and expensive to maintain, dominance remains important.
  1. Systems will need a new level of cost control. For years hospitals focused on expanding patient volume, expanding revenue and enlarging their footprint. Now cost control has surpassed revenue growth as the top priority for hospital and health system CEOs in 2018.
  1. Systems will have to be great at remote and virtual care. More and more patients want care where and when they want it.
  1. Because there will be so much change, systems must continue to have great leadership and great teams to adjust and remain successful.
  1. As systems become more consumer-centric, hospitals will have to lead with great patient experience and great patient navigation. These two competencies have to become systemwide strengths for organizations to excel over the next decade.

VII. Other Issues

Other issues we find fascinating today are as follows.

1. First, payers are more likely to look at pharma and pharma benefit companies as merger partners than health systems. We think this is a fascinating change that reflects a few things, including the role and costs of pharmaceuticals in our country, the slowly lessening importance of health systems, and payers’ disinterest in carrying the costs of hospitals.

2. Second, for many years everyone wanted to be Kaiser. What’s fascinating today is how Kaiser now worries about Amazon, Apple and other companies that are doing what Kaiser did 50 to 100 years ago. In essence, large companies’ strategies to design their own health systems, networks or clinics to reduce healthcare costs and provide better care is a force that once created legacy systems like Kaiser and now threatens those same systems.

3. Third, we find politicians are largely tone deaf. On one side of the table is a call for a national single payer system, which at least in other countries of large size has not been a great answer and is very expensive. On the other hand, you still have politicians on the right saying just “let the free market work.” This reminds me of people who held up posters saying, “Get the government out of my Medicare.” We seem to be past a true and pure free market in healthcare. There is some place between these two extremes that probably works, and there is probably a need for some sort of public option.

4. Fourth, care navigation in many elite systems is still a debacle. There is still a lot of room for improvement in this area, but unfortunately, it is not an area that payers directly tend to pay for.

5. Fifth, we periodically hear speakers say “this app is the answer” to every problem. I contrast that by watching care given to elderly patients, and I think the app is unlikely to solve that much. It is not that there is not room for lots of apps and changes in healthcare — because there is. However, healthcare remains as a great mix of technology and a labor- and care-intensive business.