With powerful new players entering the healthcare space, a continued wave of mergers and acquisitions (M&As) and vertical integrations, and a sense of ambiguity swirling around the future of policy and reform efforts, disruption has truly defined the healthcare landscape in 2018. As the year comes to an end, ECG interviewed CEOs and other C-suite leaders at more than 100 healthcare provider organizations to explore the greatest “stay awake” issues facing hospitals and physicians. While our insights capture a broad range of different geographies and hospital types and sizes, overall, several consistent themes emerged—pointing to shared top-of-mind challenges that providers are grappling with today.
1. Intensifying Margin Pressure
Unsurprisingly, the ubiquitous margin pressure felt by providers was the most common challenge interviewees pointed to. Leaders described rising costs, declining reimbursement rates, and shrinking volumes as major issues that keep them awake, and they say this financial situation is unsustainable. They’re increasingly frustrated by payors pushing the industry’s cost issues onto them (i.e., reimbursement cuts). Many organizations have a renewed focus on reducing internal costs wherever possible, but fear that the low-hanging fruit has already been found. Consequently, without a different approach, they worry they’ll be forced to reduce services or close operations.
2. Inevitable Shift to Ambulatory Care
Although leaders recognize there’s a progressive movement to shift care to ambulatory and nontraditional care settings (e.g., ASCs, retail, urgent care, home care), most struggle with determining their best path forward. Some organizations have focused efforts on developing strategies that take care delivery outside the traditional four walls of hospitals, but many are still stuck in the “discharges are king” mind-set. Moreover, the shift to ASCs leaves hospitals vulnerable to cannibalization, and the inability to backfill inpatient volume is a major concern.
3. Preparation for a Value-Based and Data-Driven Future
While leaders have a general understanding that value-based care is the inevitable future, many provider organizations are still in an initial learning or early planning stage when it comes to taking on risk and being paid based on “value.” C-suite leaders worry that they lack an adequate understanding of their organization’s readiness (e.g., infrastructure, capabilities) for value-based arrangements, as well as the ability to effectively measure and monitor data—a capability that will be critical to thrive in a value-based environment. Many have not optimized their data strategies and say they would need to overhaul internal accountability processes to truly measure total costs of care. Moreover, several leaders spoke about their struggle with getting buy-in from physicians since many of them don’t see the long-term benefit of quality measures or value-based initiatives and instead regard this movement as a “race to the bottom.”
4. Strained Payor Relationships
Although some organizations are actively working on new strategic partnerships and opportunities with payors, most described payor relationships as an increasing challenge to overcome. Other top-of-mind payor challenges include remaining compliant with constantly changing payor policies, spending resources to deal with pre-authorization issues and denials, and working with payors that are unwilling to negotiate. In some markets, leaders also see payors as another complicating factor in their value-based planning efforts. Payors often lack data and have poor data transparency, as well as differing quality standards—collectively making it difficult for providers to understand their relative performance.
5. Workforce Competition
Provider recruitment and retention challenges continue to persist, and leaders say competition is growing for subspecialty physicians who offer important market/portfolio differentiation. Workforce competition has also expanded related to entry-level/front-end staff, with hospitals increasingly having to compete with nontraditional competitors such as retailers. Leaders are also concerned about challenges regarding workplace culture—namely physician burnout.
6. Gaps in Leadership
CEOs say the need for capable and visionary leaders within provider organizations feels greater than ever, though this is met with difficulty given a talent pool that feels increasing more competitive. Issues related to both succession and leadership transition planning are top of mind for health systems, along with the need to create stronger governance and management within medical group structures.
7. Optimized Organizational Structure
Leaders described an overall pressure for their organization to function more progressively and better integrate across traditional silos. For many, this requires restructuring to digest the growth that’s a result of years of various M&A activities and move from historically disparate practices to a truly integrated system. Redesign and restructuring endeavors also include a major focus on standardization and optimization—leaders see huge opportunities in making ambulatory operations more cohesive and efficient. Determining the optimal physician compensation and care models was also top of mind, as well as the overarching issue of learning how to do more with less resources.
8. Rapidly Consolidating Market
With all the cost pressures, recruitment challenges, and M&A activity, leaders say it’s increasingly difficult to remain independent. Consequently, there’s growing competition for physician alignment, with many groups feeling a surmounting pressure to “pick a side.” Leaders of provider organizations also worry about further vertical integrations and disruptions from new and nontraditional power players (e.g., the Amazon–JPMorgan–Berkshire trifecta). For providers in long-established markets, consolidation trends imply they’ll need to increase their geographic footprint to grow.
9. Rising Patient Expectations
Provider organizations feel intensifying pressure to become more consumer oriented as patient expectations and demands rise. Patients are becoming savvier about healthcare; expect to be more involved in decision-making; and want a convenient, multidisciplinary approach—all of which are reasons for their willingness to shop around. Changing patient expectations is driving organizations to invest and innovate (e.g., seamless IT systems), but also forcing leaders to better understand how best to balance these investment priorities with their cost realities and health IT limitations.
10. Uncertain Policy Landscape
The ever-changing and uncertain policy landscape is very worrisome for providers. Some organizations that are already operating with thin margins say they could be wiped out by regulatory changes (e.g., 340B drug discounts, provider-based billing reimbursement). Leaders are concerned and hesitant about investing heavily in models that could change (e.g., bundles). Overall, there’s growing concern among providers about their ability to keep up with the pace of change.