Vision and Balance: Missing Links in 2011 Hospital Strategy


While the shaping of public policy continues through the courts and the political process, operational responses from healthcare organizations can too often be characterized as unfocused, fragmented, and even somewhat frantic. We believe that there is much that can and should be done to bring vision and strategic direction into hospitals and health systems planning for the coming changes. This Insight will highlight actions your organization should take in 2011 to respond to this very unsettled environment. Specifically, we’ll discuss how clarity of vision and balanced priorities can distinguish your organization from competitors in your market.

Our Take on the Pace and Direction of Reform

While the dust is far from settled on the healthcare reform debate, hospitals and health systems are assessing what the legislation will mean to them. Will the expansion of coverage be beneficial, or will potential increases in patient volumes be overshadowed by reductions in reimbursement rates for government-funded programs? How will hospitals and health systems fare under the Medicare value-based payment program? Will bundled payments and accountable care organizations (ACOs) become a reality? If so, when – and in what form?

Let’s take a step back and look at the current realities of ACOs and payment reform as of early 2011:

  • The Patient Protection and Affordable Care Act is a framework that will guide reform, but the specific regulations still need to be drafted, and they will be complex and poorly understood.
  • The Shared Savings Program (SSP) metrics remain under development and will have significant impact on ACO participation rates.
  • There is uncertainty (and desperate need for clarity) regarding regulatory and legislative restrictions to ACO development (corporate practice, antitrust, Stark, and others).
  • Political resistance is significant, and federal court reviews are ongoing. It is probable that there will be political compromises to the very real issues of access, cost, and quality.

Given these realities, it is likely that we will see an orderly retreat from specific CMS timelines, but there is no sign that we will see a retreat from the specific initiatives.1 Thus, reform-based structures and financial incentives are likely to be developed and implemented in an evolutionary manner rather than as a complete package. ACOs are especially subject to modification, as there are significant unresolved issues that will proceed slowly through the rule-making process. While the message is clear that more tightly coordinated provider networks will be required, it is apparent that no one model will work in all settings. We therefore advise you not to get caught up in the month-by-month developments in Washington; instead, carefully consider what preparation for healthcare reform is truly critical in the next year in your market.

We may not need physicians or their office staff to help us obtain better pricing on wheelchairs or gauze pads, but we absolutely need their leadership to efficiently manage chronic conditions.

Going Beyond the Obvious in Strategic Planning

We assume that your strategic plan for the coming year will include physician alignment and integration, electronic medical record (EMR) implementation or optimization, cost-reduction initiatives, revenue opportunities, service line enhancements, and some variant on responding to healthcare reform. Each of these elements is important and necessary, but together they are not sufficient to make you more competitive for the world that awaits us. The missing links in most strategic plans involve identifying future success factors (vision) and performing in the present while preparing for the future (balance).

To go beyond the obvious, your vision should include the following components:

  • Creating collaborative relationships.
  • Developing physician leadership.
  • Facilitating clinical integration.
  • Investing in clinical informatics.
  • Committing to value-based performance.

To incorporate the above components in your 2011 strategic plan, we recommend that four specific elements be addressed in addition to those traditionally found in hospital strategies.

Creating Collaborative Relationships

In most settings, a flurry of activity during the past year has been aimed at physician employment, driven by targeted shifts in the Medicare Physician Fee Schedule and the lowering of physician office reimbursement relative to hospital outpatient settings. Hospitals have been employing specialists impacted by reduced reimbursement in order to sustain specialists’ services, and many hospitals employ primary care physicians to provide a strong referral network. However, focusing only on an employment model for provider affiliation requires significant capital investment, and it is unlikely to secure the full array of services needed by a value-based network. More thought must be given to nonemployment-based collaboration with physicians and others that will be needed as risk is transitioned to providers. This could include contracting networks, process-improvement initiatives, multisite chronic disease management, and development of shared health information networks.

Unfortunately, those physicians who are most valuable in a fee-for-service environment are not necessarily the most valuable when financial risk is shifted to providers.

Further, the necessary expertise for managing risk does not exist within the hospital alone. It will come from the combined efforts and open communication of the hospital(s), provider organizations, and payers. Thus, you should do what’s necessary to secure and maintain physician relationships in the near term, while having a clearly defined path to forging the affiliations that you’ll need for the longer term.

The missing links in most strategic plans involve identifying future success factors (vision) and performing in the present while preparing for the future (balance).

In addition to your relationships with the physician community, begin working with commercial payers or regional networks of providers to identify opportunities to bring “next generation” insurance products into your market. Examples include risk-sharing arrangements, specific disease management “carve-out” products, and nontraditional provider services (e.g., preventive nutrition, acupuncture, chiropractic). The role of non-acute care facilities (e.g., home health, nursing homes) must also be considered. Skilled leadership will be needed to make sound collaborative decisions.

At a minimum, a communication plan should be developed to meet and share perspectives with a range of potential partners in your market. Consider the creation of a community development team of provider stakeholders, including a majority of physicians, and don’t insist that it be controlled by the hospital. This can ensure that key players work on creating a shared vision and building mutual trust and respect rather than jockeying for political or economic advantage.

Developing Physician Leadership

Traditional medical staff leadership tends to be vocal and opinionated, and not necessarily committed to working with the hospital for long-term success. While you continue to function within the medical staff structure, you should also have a plan for identifying and preparing the physicians who will serve in key roles in the value-

based future. The role of physicians in effective clinical integration is outside the scope of typical medical staff leaders. Past efforts at integration such as joint ventures, medical directorships, office information technology (IT) support, and even physician employment are a useful “farm club” for physician leaders, but these fall far short of the sophisticated leadership that will be needed in the coming years. Specifically, the challenge is to nurture those physicians who demonstrate both clinical and organizational skills and are willing to participate with the hospital and others in the value-based payment arrangements.

An effective physician leadership plan for 2011 should contain one or more of the following elements:

  • For select early- or mid-career physicians:
    • Support for attendance at management-oriented conferences (HFMA, AMGA, MGMA, HIMSS). Consider developing your own leadership curriculum.
    • Support for formal management training (MBA courses, PIM series).
  • Formation of a physician advisory body to provide direction and input on strategic plans, EMR deployment and optimization, and physician initiatives.
  • Creation of dyad management teams that pair physician leaders with administrative managers to oversee clinical operations.
  • Appointment of qualified physician leaders to executive positions in the hospital with significant operational responsibility.

We recognize that developing physician leaders can be slow and frustrating work. At the same time, it is critical to the success of the organization. Our advice is to create an explicit plan with tasks and accountabilities, expect setbacks, and celebrate whatever successes are realized. Over time, your efforts will lead to better patient care and a more competent and competitive organization.

Facilitating Clinical Integration

When we use the term “clinical integration,” we mean the coordination of patient care across conditions, providers, settings, and time. It is characterized by a high degree of interdependence between and among providers and hospitals, clinical protocols across a broad spectrum of diagnoses and procedures, sophisticated revenue distribution/compensation methodologies to align incentives, integrated IT and robust reporting capabilities, and the ability to sanction providers for noncompliance.

Perhaps the greatest challenge for hospitals in the next decade will be the effort needed to transform the organizational model of care so that it can be part of a clinically integrated network. While we wait in 2011 for the specifics of reform to emerge from the regulatory swamp, there is much that can be done to move your organization forward. Our advice is to identify specific initiatives both internally and with outside partners that will serve as a learning experience for everyone involved. Taking such action will also be tangible evidence that your organization is providing leadership toward clinical integration. Sample initiatives, in order of complexity and the number of “outside” participants, are illustrated in the graphic below.

It is very likely that you are currently working on projects in the first three categories. We recommend that you look for at least one opportunity in each of the other two categories because these will involve working with entities outside the medical staff. Great opportunity exists for creative collaboration with payers and even pharmaceutical companies because they own much of the data needed to support integration initiatives, and they are interested in working with providers. Finally, be willing to participate in, rather than direct, collaborative initiatives as they emerge. Learning how to share control with physicians, payers, and other providers is a valuable part of the process.

Developing Value-Based Metrics

Most hospitals suffer from too much data and too little useful information. The demands of value-based reimbursement will accelerate efforts to have routine and relevant reporting of both management and clinical information, and you can take steps now to facilitate the process. It is useful to think of cost data or metrics with three different purposes:

1. Reducing cost of production such as staffing costs, optimizing the supply chain, and outsourcing selected services.

2. Reducing the total cost per episode of care – for example, coordinating patient care in both the ambulatory and inpatient settings. The SSP, to be implemented in 2012, centers on controlling costs by episode of care.

3. Reducing the total cost of care for a given disease or population. This is accomplished by eliminating unnecessary care through following best practice protocols, choosing more cost-effective treatments, or selecting conservative therapy rather than more costly interventions.

Most hospitals are well versed in the first category, somewhat able to manage the second, and completely unequipped to do anything about the third because the need for collaboration with physicians and others increases with each step. We may not need physicians or their office staff to help us obtain better pricing on wheelchairs or gauze pads, but we absolutely need their leadership to efficiently manage chronic conditions. Importantly, it is the third category (reducing total costs for a population) that is the focus of healthcare reform, and this is where physicians and other providers outside of the hospital can have the greatest impact.

Consider the creation of a community development team of provider stakeholders, including a majority of physicians, and don’t insist that it be controlled by the hospital.

Networks of providers that intend to assume risk for patient care will need standard data sets, fully integrated electronic health records (EHRs), and a robust Community Health Information Network (CHIN). It is also important to understand that inpatient services will be just one piece of the needed information system and that the hospital is not necessarily the best home for network-wide information management. In the near term, we think that useful actions can include:

  • Improving internal metrics, especially quality indicators.
  • Educating key staff members about ambulatory EHR, CHIN, and value-based payment mechanisms.
  • Preparing an inventory of practice management systems currently in use in your community, as well as the systems and capabilities of payers.
  • Promoting and participating in the creation of a provider and payer collaborative for medical information management in your service area.

Maintaining Balance

Everyone recognizes that major changes are likely because of the passage of healthcare reform legislation. However, the truth is that nobody can say with certainty what changes will actually occur, when they will be implemented, and how the payer and provider communities will respond. Our perspective is that keeping a balance between current needs and future opportunities is a key component for success. Specifically, you’ll need to ensure balance between:

  • Current medical staff relationships and future provider/payer network development. The current reimbursement system may result in hospitals employing specialists that won’t be needed under a value-based model. We’ll also see new types of ambulatory care relationships. One client refers to this strategic reality as “collect and sort.”
  • Ownership and partnerships. The current volume- based payments favor asset ownership, while future value-based payments will favor collaboration and partnerships.
  • Organizational integration and clinical integration. Current financial incentives emphasize broad participation, but the future will reward an efficient network of caregivers.
  • Current fee-for-service reimbursement and the future that will require documented quality and efficiency in patient care. One example is reduced payment to hospitals with high readmission rates beginning in 2013.

It is a difficult balancing act to simultaneously focus on the requirements of the current fee-for-service environment while preparing for the value-based, post-reform environment. Our experience suggests that hospital management perceives near-term volume-based priorities as more accessible, and they get a lion’s share of management attention. It takes considerable discipline to maintain balance on the longer-term value-based initiatives suggested above, but it is critical to your organization’s ability to remain successful.


  • 1.

    As of the writing of this Insight, recent testimony from CMS representatives indicates that ACO regulations will be published in March. Practical realities suggest the actual date of publication may be in June.