Since the Clinton presidency, healthcare reform has largely been limited to a topic of academic debate as any efforts to drive reform forward only resulted in false starts that halted momentum before it could build. In turn, the notion of transformational change has existed as a hypothetical scenario, a distant possibility for some future point in time. Well, that point in time has arrived, and revolutionary change across the healthcare system is now our reality. Traditional healthcare reimbursement models are being razed and replaced by new payment methodologies and incentives built around the concept of value and shared risk. No matter an organization’s past successes or stance on the effectiveness of reform tactics, responding to this momentous change is imperative for the long-term viability of all hospitals and health systems. To properly position themselves in the evolving healthcare environment, hospitals and physician groups need to simultaneously evolve – operationally, strategically, financially, and technologically.
Now the question around reform is no longer “What if?,” but rather “What now?” Much uncertainty still hovers over healthcare, yet successful systems and provider groups will be those that proactively design strategies and cultivate key competencies with the expressed intention of transforming into value-based enterprises. This article presents a framework for the value-based enterprise by introducing the five foundational attributes that organizations need to possess to flourish in a value-based world.
An organization’s size, past success, or current position in the market will not shield it from the force of reform. Instead, changing reimbursement models and incentive structures will impact all hospitals and provider groups, forcing healthcare organizations to closely, and honestly, examine their current ability to exist within a value-based environment. More importantly, reform is challenging hospitals and providers to redesign care delivery when and where necessary, as well as calling for executive and physician leadership to develop a clear vision for ushering their organizations through this evolution. To provide our clients with the vision and footing they need to make the volume-to-value transition, ECG created a framework for the successful value-based enterprise based on five foundational attributes. Thriving value-based enterprises will be optimally integrated (clinically and financially), scaled, rationalized, informed, and responsive. These attributes are universal and—with the proper strategies in place—attainable by most organizations and organization types.
Thriving value-based enterprises will be optimally integrated, scaled, rationalized, informed, and responsive.
Care delivery has historically been segmented into autonomous compartments, each containing physicians, hospitals, ancillary services, or other post–acute care services. A truly integrated system, however, is one that does not encourage or protect departmental or organizational silos. Instead, it breaks down these clinical and administrative barriers to promote clinical, financial, operational, technological, and cultural alignment. In preparation for a value-based environment, systems and providers need to think longitudinally about the way care is delivered instead of episodically. The transformation to value-based care hinges on the ability of an organization to shift its focus from care delivery to care management and coordination. When achieved, clinical and financial integration produces “strong physician-hospital links, coordinated systems of care, geographic reach, quality management, contractual capabilities, utilization controls, financial strength, organized oversight, and economy of scale.” 1
Clinical integration denotes the seamless, standardized, and coordinated delivery of care across providers and settings. To achieve this, clinical data and relevant information are exchanged among providers throughout a health system or across network partners, and uniform care practices and processes are well-understood and adhered to. In turn, there is a collective expectation and dependency regarding the achievement of high-quality clinical outcomes. This increased accountability must be guided by a system-wide commitment to improve quality, performance, and efficiency by aligning incentives, management, governance, and infrastructure. Irrespective of beliefs or expectations regarding the immediate or enduring effectiveness of payment reform, resisting change or simply bracing for it is not sustainable – nor is it a strategy. To survive within the evolving healthcare landscape, hospitals and healthcare systems must find a way to anticipate and prepare for changes coming down the pike while simultaneously setting a strategic course for the future.
In concert with its clinical counterpart, financial integration requires organization and/or network participants to share financial data, resources, risk, and rewards. Creating and implementing the appropriate incentive structure frees organizations and providers to focus chiefly on what is best for the patient and the health of the population. Additionally, sharing in financial risk and reward helps align incentives with the priorities of the system as a whole.
A system’s size and scale are often considered key determinants of care quality and cost of service. Naturally, organizations that are able to effectively align to improve quality, reduce costs, and achieve economies of scale are well situated for attaining a dominant market position.
From a clinical perspective, systems that are able to reach and sustain minimum economies of scale have a greater capacity to improve quality and efficiency while driving down costs through experience gained in providing high volumes of care. Different organizations have varying demands for the volume of care they need to provide and how specialized that care needs to be. For most services, organizations can identify and define the minimum economy of scale necessary to be able to provide value to patients and the system. As that minimum scale grows, organizations need a bigger system and a larger patient population to support it.
Scaled and integrated systems are able to manage the health of a population in ways that individual organizations cannot.
From the business side, economies of scale allow systems to spread overhead across a larger revenue base, strategically leverage resources and deploy capital, and negotiate new contracts from a position of strength, among other benefits. Once a scalable infrastructure is built and streamlined processes are in place, systems and organizations can absorb additional incremental administrative tasks at very low marginal costs or expenditure of resources.
Quite simply, scaled and integrated systems are able to support service lines and population health management imperatives in ways that individual organizations or provider groups cannot. Some hospitals and providers will need to band together. Aligning with strategic partners allows organizations to increase market coverage, fill gaps in their delivery system, and successfully transition to value-centric reimbursement models. While consolidation through merger and acquisition is a dominant trend, scale can be achieved through a variety of vehicles, including partnerships, affiliations, joint ventures, comanagement agreements, network formation, and participation in accountable care organizations.
The dominant trend toward consolidation is creating a by-product of clinical congestion for systems that acquire operations with overlapping markets and services. While expanding reach and patient access are priorities for any health organization, redundancies are not. To clear the clutter and optimize clinical services, systems inevitably must evaluate the distribution and utilization of their health services across given markets and, when warranted, rationalize care by relocating, reconfiguring, and/or closing services. 2
Effective rationalization strategies provide a number of benefits, allowing health systems, hospitals, and physician groups to:
- Identify appropriate sites of service in order to match patient need.
- Remain nimble yet robust enough to manage the health of a population.
- Contain costs and maximize resources.
- Implement best practices of efficiency.
- Create a culture that is committed to eliminating waste from the system.
- Ensure that growth or reorganization in one service line supports (or at least does not hinder) others.
Rationalized systems are well situated to enhance the efficiency and efficacy of care delivery across settings in the face of declining patient volume, cost containment pressures, and quality requirements, as well as other system-wide challenges and local market demands.
Becoming an optimally rationalized system also calls on leadership to guide their organizations through a deliberate process of redesigning how, when, and where care will be delivered. This process requires several key steps, including:
- Building a system-wide base of cultural readiness.
- Establishing clear ground rules and transparent decision-making criteria.
- Organizing efforts by service line, starting with those that have greatest potential, and build a compelling business case for cost and quality.
- Engaging stakeholders at all levels.
- Setting and meeting deadlines for reporting and recommendations.
- Communicating system decisions, strategy, and progress on a regular basis.
Prevailing value-based enterprises demonstrate an awareness of what they need to know now as well as in the future and possess the infrastructure to acquire and manage the continuous flow of relevant data. More importantly, they have a clear vision for converting data into actionable information that they can leverage in making clinical, operational, financial, strategic, and technological decisions. This is no easy feat. The transition to value-based care demands that health system leaders possess a high-level understanding of drastic shifts in the payment environment, a strong grasp on local market dynamics, and intimate knowledge of organization-specific data and information systems. The changing dynamics of the healthcare industry make nurturing and maintaining an informed health system an ever-important and evolving project.
Health systems are under intensifying pressure to possess the knowledge necessary to develop high-performing provider organizations and integrate clinical services across the care continuum. Attempting to meet these demands without the appropriate analytical competencies and a clearly defined strategy for doing so will bury an organization.
Producing data is not an issue, as evidenced by the horde of financial and clinical systems as well as business intelligence and population health management technologies flooding the market. When utilized as part of a plan for transforming data into information and information into action, these resources are highly effective. However, having access to information and data is one thing; being able to apply it in a rational and strategic way is entirely another. Many organizations prematurely invest in data management systems and technologies before knowing how to use them properly or determining whether they even need them at all.
Informed organizations convert data into actionable information that they leverage in making critical organizational decisions.
Gorging on data or, conversely, failing to take advantage of pertinent and oftentimes readily available data leads to wasted opportunities, ineffective practices and processes, and uninformed decision making. Informed organizations are sophisticated in understanding what type of data they need. They also are aware of the capabilities and limitations of existing technical systems and, therefore, what additional data solutions might be necessary. Further, prevailing organizations recognize the value data holds in analyzing the present and future course of the healthcare system, as well as in designing the best strategies for improving patient care, access, outcomes, and costs.
Too many healthcare organizations default to a “wait-and-see” approach when it comes to change, responding only when forced by external drivers. Chasing change never allows you to get ahead of it, never mind lead the way. In the value-based healthcare environment, leading organizations will demonstrate the ability to anticipate and be responsive to change, as well as the willingness to accept risk.
The value of a well-informed system is limited unless it is backed by a nimble, proactive, and effective governance structure that is capable of making timely decisions in the best interest of the entire system and patient population. Many organizations are going through pre-merger, merger, or post-merger transitions. When we ask our clients for organizational charts, very few can produce an accurate organizational picture because of rapid change. This degree of change puts hospitals and physician groups in an untenable position when it comes to being responsive; however, failing to act creates stagnation. Systems with responsive governance and leadership structures can effectively leverage a critical understanding of system-wide trends and local market dynamics, empirical data, and a consistent stream of qualitative insights from internal and external stakeholders. This structure enables leadership to confidently guide their organizations and decisively make key decisions in times of accelerated change and great uncertainty.
A growing movement in the field of organizational change is building behind the concept of the “responsive organization,” which is defined as an organization that is built to learn from and respond quickly to a continuous flow of information and that motivates a network of stakeholders to pursue a shared purpose. 3 Health systems with lean and well-defined decision-making frameworks will be successful in responding to a changing environment, acting on strategic priorities, and realizing results, rather than being coerced into change. Reactive organizations merely brace for change. Systems that are focused on value harness change and use it to drive their organizations toward the fulfillment of immediate and long-term goals.
Positioning for Value
Not everyone agrees on reform tactics or the legislative mandates that are driving reform, yet few would disagree that our healthcare system can be better. Reports on the performance of the Unites States health system from organizations like The Commonwealth Fund and the Institutes of Medicine regularly remind us that the product of our healthcare is not worth the price. The migration to value-based care, theoretically, is an attempt to reconcile healthcare costs and quality. How health systems and providers respond to the volume-to-value shift has thus far been highly variable. For organizations to evolve into thriving value-based enterprises, however, they must take proactive steps to become optimally integrated, scaled, rationalized, informed, and responsive.
B. Boone and R. Maley, “Integrated Health Care Delivery Systems’ Challenges,” International Risk Management Institute, Inc., Dallas, Texas, June 2000.
ECG, “From Silos to Systems: Challenges in Regionalizing Healthcare Services,” 2014.