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Staying Relevant in the New Era of Healthcare: Four Imperatives for Health Systems

Staying Relevant In The New Eral Of Healthcare Web

The future of the US healthcare system will be characterized by continued challenges. Revenue and cost pressures will mount. The economy and demographic shifts will impact healthcare utilization and payer mix. Industry disruption will continue. Margins and cash flow will be affected, and capital will become scarce. We will no doubt see calls for further, potentially massive reform across multiple sectors of the economy, including healthcare. And while the future may well be subject to these many points of uncertainty, one thing is certain: left unchecked, healthcare provider economics will remain in critical condition and perhaps worsen.

As we contemplate the implications of the forces affecting the US healthcare system, we cannot escape the realization that our current model is too complex, too costly, and too fragmented. Yet, until we establish a systemic solution, the pressures and challenges we face today will continue and quite likely escalate for the foreseeable future.

In the meantime, most hospitals and health systems must double down on several foundational business imperatives to be competitive in this new era of healthcare—one that places value on cost, access, and convenience.

Below are four key imperatives for health systems to reposition themselves, ready their organizations for the future, and improve their financial health today.

Own the Consumer Relationship

Many health systems enjoy a level of consumer engagement that might be seen as favorable or even strong. But few health systems can say they own the consumer relationship. Why is this important? Because much about the future of healthcare is digital, not just in digitally enabled care delivery such as telehealth and remote monitoring, but ultimately in artificial intelligence (AI)–enabled health management and precision medicine in care delivery.

Health systems must appreciate that the rich data locked within their electronic health records (EHRs) can be used to strengthen the bond with consumers. The potential is huge to connect with larger segments of the population or even to expand the service area beyond traditional boundaries.

Health systems need a multifaceted consumer engagement strategy that encompasses the following considerations:

  • Digital Health: Health systems should develop a clear digital health strategy, recognizing that digital health is not an IT function: it is a care delivery and consumer engagement capability enabled by technology.
  • Customer Relationship Management (CRM): CRM is the process of establishing and managing personalized relationships with an organization’s customers and using data about their needs to strengthen those relationships. A CRM strategy is built by extensive data mining of the health system’s patient records, physician referral data, and other sources to categorize and eventually tailor interactions with unique individuals, directing them to an appropriate user channel within the health system.

Redesign the Delivery Network for High Performance

The adoption of technology will change all facets of healthcare delivery and care management through the use of web-based applications, virtual health platforms, and AI-enabled health management. The health system of the future will be based around its digital health platform, ambulatory network, and physician network as the front door to the system—with hospital services available when they are needed.

  • Hospitals: Historically the economic engine for a health system, hospitals will come under great stress in the future as growth in ambulatory services continues and payment rates approach parity for ambulatory and ancillary services. As margin pressures continue to mount, hospitals must become more focused on the performance of their clinical portfolio.
  • Ambulatory and Physician Network: In the longer term, the economic engine for many regional delivery networks will shift from the hospital to the ambulatory and physician network. A health system’s ambulatory network and its aligned physician network are the metaphorical front door to the health system. This is why cost, access, and convenience are so critical.
  • Physician Enterprise: Many health systems operate their employed physician network as a loose federation of practices; few have created a fully functioning integrated medical group model. The institutional subsidy of these practices has become a financial burden for many health systems, with the aggregate investment amounting to tens of millions of dollars per year for some organizations.

Addressing the operating losses in a health system’s physician enterprise can be a sensitive undertaking, and leadersneed to be creative in designing solutions that have staying power.Fundamentally, many health systems will find they need to rethink their strategy of employing physicians, advanced practice providers (APPs), and their staffs.

Optimize Operations and the Cost Structure

Facing a growing government-funded payer mix, continued movement toward risk-sharing arrangements, and further migration of services to the ambulatory arena, health systems need to achieve greater levels of efficiency and cost management across their delivery networks. Optimizing an organization’s operations and cost structure can be a painstaking process, but the results can be significant if approached in a sustainable manner.

  • Operating Costs: The solution for sustainable cost reduction is not a “slash and burn” reduction in force but a continuous process improvement business model that strives to reduce unit costs through greater efficiency, lower-cost resources, and innovations in care.Organizations must focus on every aspect of their cost structure: fixed costs and asset management costs; labor and skill mix; high unit cost and variable cost items, such as blood products and pharmaceuticals; and of course, throughput and capacity management.
  • Fixed Costs: The COVID‑19 crisis forced hospitals and health systems to take a hard look at their cost structure. Any fixed expense not contributing to direct patient care or positively impacting quality or safety has been closely evaluated, and while many hospitals furloughed large numbers of employeesdue to loss of volume, others have eliminated certain fixed costs—mostly support functions—entirely. Going forward, hospitals and health systems must hone their focus on overhead and fixed costs.
  • High-Cost Patient Populations: Organizations that can effectively manage high-cost, frequent utilizers can have a significant impact on a provider’s ability to improve their financial health and sustain that improvement into the future. Managing these populations is a difficult task, but one that can lead to long-term financial health for the organization through reduced cost.

Optimize the Revenue Structure

The pandemic has upended the assumptions and models that have historically served as the basis for establishing rates. As a result, health systems and payers have an opportunity to engage in collaborative discussions to reset payment rates going forward.

This new era of healthcare has the potential to create a further divide between health systems and payers. Commercial payers may be reluctant to negotiate with health systems—and in fact will push back harder if a system’s sole strategy is to negotiate for future rate increases that require commercial payers to cover shortfalls from government payers. Health systems cannot afford to be shortsighted and focus merely on rate relief associated with pandemic-related loss of volumes. Now is the time for health systems to engage payers, agree to reopen contracts outside of the renewal cycle, and explore creative solutions with payers that align with select customer-centric concepts and help reshape their revenue structure.

Healthcare’s New Era Will Require Accelerated Change

In the absence of imminent systemic reform, health systems need to reinvent themselves—and the urgency to act is now. Organizations that make bold moves to address the above imperatives will be better positioned for the future. Those unable to do so risk being marginalized in their markets by other providers, or combinations of providers and payers, and potentially new entrants.

Is Your Organization Ready for Healthcare’s New Era?

This blog post is excerpted from part one of our We Believe series, a collection of strategic perspectives on the changing dynamics of the US healthcare system.

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