Earlier this year, I sat down with HFMA Managing Editor Eric Reese to share the key themes discussed at a hospital CEO forum Navigant hosted. Chief among them was volatility due to policy issues, the ever-changing competitive landscape, and the financial challenges faced by all providers.
Following are highlights from the interview. You can access the entire HFMA Voices in Healthcare Finance podcast by clicking here.
On volatility in healthcare today…
The consensus point among executives was volatility, both in terms of policy and the ever-changing competitive landscape with retail behemoths like Amazon and CVS joining the fray. Now, healthcare has never been accused of moving quickly compared to other industries, and we’ve largely taken a wait-and-see attitude in the face of volatility. But executives unanimously agreed that the waiting room is just not comfortable anymore. And while the provider world may be volatile, Amazon knows what they're doing, and so does CVS. This isn't just about competing against the hospital down the street anymore.
On the volume-to-value movement…
Executives were clear in their commitment to value, but equally resolute about the need to re-evaluate and right-size their value-based investments.
The composition of hospital and health system capital budgets is very different today compared to 20 years ago. Back then, hard assets, such as construction and capital equipment, comprised the majority of outlays. Since the advent of the Affordable Care Act (ACA) and value-based models, capital expenditures have focused on supporting population health infrastructure, namely electronic health records (EHRs) and acquisition of physician groups.
Many successful providers have been following an implicit ‘must-have’ strategy when it comes to these population health investments. Yet, broad care delivery and margin improvements have been elusive. Take the recent research from Duke University and Harvard Business School, which shows EHR adoption has yet to reduce administrative costs for physicians, even after we’ve invested more than $30 billion in health IT.
The inability to generate sustainable ROI from these investments has advanced volatility, and it’s being driven by this simple fact: Even for high-performing providers such as those represented at the forum, expenses are rising faster than revenue. As a result, there’s a minimal margin of error in such investments that don’t yield a positive return.
On extracting value from EHRs…
Nobody could have expected providers to immediately become seasoned EHR veterans as soon as their systems were installed. Fast forward to today, and we’re much better positioned to more effectively leverage these systems.
Still, to attain an EHR’s full potential, providers need additional manpower and add-on technologies that integrate and present data from disparate sources in real time and trended over time — across the care continuum. But adding more technology and staff will just add cost if the underlying clinical integration foundation isn’t standardized. It’s the difference between a connected platform and a bag of apps. Before providers purchase these add-on solutions, leadership must make sure they have buy-in from employees – and clinicians in particular – on the added value these technologies will generate.
On “managing up” physician acquisitions…
Most Forum attendees’ health systems are expanding physician group practices, and some through acquisition. But similar to the rest of the industry, issues like cultural alignment have made integrating acquired physicians a challenge.
Further complicating the situation has been the post-ACA advent of new players on the physician consolidation scene, including Optum Health and physician-staffing companies like Envision, TeamHealth, and MedNax. More recently, health systems have faced primary care group consolidation that’s increasingly backed by private equity-funded joint ventures, luring specialists with the promise of better means to care for patients and higher pay.
As a result, the rationale for physician employment has become a moving target for many health systems. Is it a market share/market growth strategy? A response to a competitor’s acquisitions? An ACO or “leverage the payers” strategy? And we talked a bit about how it just doesn't seem right that the defacto metric for physicians is loss per physician. That just doesn't sound like the road to a winning strategy.
To overcome this, health systems need to manage up the return on these acquisitions, rather than manage down the losses. A large portion of direct practice losses are a function of “hosting” practices, rather than effectively managing them. Post-acquisition, health systems often fail to take the steps to streamline staffing and support functions, leverage office locations, standardize supply chain purchasing, and optimize scheduling and care coordination.
At the end of the day, providers need to manage operations and serve their communities while playing with the cards they’re dealt, when they're dealt. The group was very mindful of this, and they aren’t looking at uncertainty with a wait and see attitude. Instead, the mantra is, "Well, the show must go on. What am I going to do to serve my community and meet my mission?"
In the face of sticky revenue, new competitors, and ever-increasing costs, ROI on IT, physicians, population health, and growth cannot be assumed. It’s time for providers to review each to re-calibrate to higher returns.