In the era of health reform, new payment methodologies built around value and shared risk are replacing traditional fee-for-service reimbursement models. Shifting payment structures are symbolic of the changing healthcare landscape. Partnerships and mergers are reshaping local and regional markets; patients are expecting greater value, access, and transparency; and legislative and regulatory mandates – along with their associated opposition – are contributing to an air of uncertainty.
To survive, organizations must do more than simply react to the changing environment. Instead of being forced into action by external drivers, responsive organizations are proactively designing and executing near- and long-term positioning strategies. Leaders in these health systems understand the importance of responding quickly to changing market conditions, shifting payment models, and evolving patient needs.
As part of our ongoing series of conversations about the value-based enterprise, Terri Welter, head of ECG’s Contracting and Reimbursement practice, shares her thoughts on what it means to be a responsive organization in the era of reform.
Quite simply, what does it mean for an organization to be “responsive”?
It means being nimble – having the ability to modify components of a strategy and day-to-day operations when certain market or organizational factors play out. Being responsive doesn’t require an organization to change its mission, vision, or strategic goals. What it does require is being agile enough to make course corrections when executing your strategic plan in order to achieve objectives and support your organization’s mission. When we develop a strategic plan, for example, we make sure it is flexible so that as the market evolves, the organization has the ability to modify that plan without losing focus on its vision.
In practice, what does that look like?
I’ll try to answer with an example. If a health system experiences unanticipated financial pressures during a quarter, it will need to understand the root cause of those pressures and respond appropriately. It may be that the system’s formation of a clinically integrated network is successfully transforming care, and as a result of accomplishing efficiencies and decreasing the total cost of care for its patients, the hospital sees a decline in revenue. In that scenario, a responsive organization wouldn’t sit back and wait until it was forced to react. Instead, it would expedite its transition to payment for value under its payor contracts. It may also redesign its organizational structure and functions to support a more value-based model.
Why are organizations not doing that?
The healthcare industry right now has lots of uncertainties – it’s chaotic, dynamic. In the past, the reimbursement environment was stable, so hospitals and physicians could predict how they got paid. They were paid for providing a service, and if they provided more services they were paid more; if they provided less, they were paid less. Now, the way that providers – health systems, hospitals, and others – are getting paid has changed. In addition, the Affordable Care Act has caused shifts in the market in terms of how patients are covered by insurance. So an organization can’t establish a 5-year strategy and simply execute on all the elements exactly as it intended. From year to year, key market and organizational factors change drastically. By not recognizing opportunities to be responsive, organizations risk being left behind. If you’re not able to change with the market, then you’re going to struggle to compete in the market.
Is there another industry we could look at and see highly developed examples of responsive organizations?
Some corners of the tech industry serve as good examples. A firm called Undercurrent [specializing in organizational design and strategy] named Google the most responsive company in the world for 2014. When you think of an industry that touches customers’ lives on a day-to-day basis, and the innovations that Google comes up with – they’re responding to and even anticipating people’s needs. They’re connecting with their customers in innovative ways through the services they provide and the products they create. Healthcare is extremely personal, and providers are transitioning toward being more responsive so they can better meet the unique needs of their patients. To drum up greater patient engagement, a lot of providers are looking at ways to interface with the personal health devices that their patients are using. For instance, several leading institutions are already piloting HealthKit, Apple’s health-monitoring smartphone app.
What systems are doing this well?
Systems that have made progress on care model transformation and integration of the physician, hospital, and payor components of the healthcare system come to mind. Intermountain, Geisinger, and Kaiser are good examples. They’ve been ahead of the change in terms of driving their strategies toward transformation of the clinical system but also connecting that to payment for value. Those three all have their own health plans, so they’ve already integrated care delivery with payment.
Of the clients you see or organizations you are aware of: on a scale of 1-10 (1 being not very responsive, 10 being the height of responsiveness), what is the average in terms of how responsive they are?
The industry is becoming increasingly responsive. I’d say they used to be between 3 and 4, but because the recent environment has required that they be more nimble, now they’re closer to 6, 7, or even 8, depending on the organization.
Clinically and financially, what are the advantages of a responsive system?
The advantages of a responsive system can be numerous. Responsiveness can lead to differentiation of services in the marketplace and help maintain financial stability, particularly in the current environment. From a clinical standpoint, responsive organizations are using data to drive best practices in care delivery to their patients. On the financial side, organizations that are responsive are changing their payment arrangements with payors to get paid for value rather than volume. They’ve transformed the care delivery model and the way they get paid, and as a result, they don’t see major negative financial consequences because they’re not as reliant on fee-for-service.
When we talk about responsiveness, it’s often in reference to a health system. Does this have application for a smaller enterprise? Say, a community hospital? A medical group?
It would apply to any organization. Responsiveness mostly depends on an organization’s internal processes, their talent, their leadership. The same can be said for any organization, large or small, in any industry.
What are some of the common roadblocks that organizations might encounter when they’re looking to become more responsive?
The biggest roadblock would be culture. Culture trumps everything, including strategy. Responsiveness often requires a cultural transformation that drives the organization toward being innovative rather than being simply reactionary. Cultural change can take many years and requires consistent internal collaboration.
For example, you might have a medical group where, historically, the physicians have been independent and feel that the way they do things is best, in terms of clinical care. In order to be responsive, they will need to collaborate, look at reliable data, and determine whether a different approach might be better. In this example, physicians will need to be empowered within a health system to lead the organization toward clinical excellence.
What risks does a system encounter if it isn’t responsive?
Ultimately? Becoming dispensable. They can lose patients, lose market strength, and lose financial stability. In a highly evolving market, we’re seeing consumers that are expecting transformation. The performance of our health systems is more transparent to patients, employers, and the community. If organizations aren’t responding to the changes that patients and payors are expecting, they’ll lose customers as well as key talent, both on the clinical and administrative side.
How does “responsive” relate to the other pillars of the value-based enterprise?
Responsiveness with regard to care and payment transformation typically spans the full spectrum of the healthcare delivery system, from inpatient to outpatient to behavioral health organizations and more. This requires proactively developing strategies to become optimally integrated, scaled, rationalized, and informed.
Responsive organizations are making informed decisions based on reliable data. They also recognize the value of partnerships and integration across the care continuum to improve the systems of care available in our communities. Now more than ever, it is critical that health systems and payors continue to examine their performance and strategies and remain nimble on the execution of those strategies in order to drive toward a better healthcare delivery and payment system.
Terri Welter has nearly 20 years of healthcare consulting experience and has recently worked closely with health systems, hospitals, medical groups, and payors to establish contracting structures that facilitate clinical integration, helping them develop and execute the types of arrangements needed to successfully respond to healthcare reform.