Please identify and explain five items discussed ? all answer should be from the article 10 things….. .10 things keeping health system CEOs up at night
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Written by Molly Gamble and Ayla Ellison | August 18, 2016 | Print | Email
Health system CEOs are asked to perform the highwire act of managing change in the industry
while keeping operations steady and finances healthy. Whether the CEO of a large integrated
system or a smaller regional organization, health system leaders are confronted with many of the
same pressing issues.
Here are 10 issues leaving health system CEOs most concerned.
1. The speed of movement from volume to value and potential impacts. The rate at which an
organization moves from traditional fee-for-service payments to novel pay-for-performance
contracts is often compared to having one foot on the dock, one on the boat. Although CMS and
commercial insurers have set clear deadlines for their progression to value-based payment, the
transition is less clean-cut for many providers. This leaves executive teams grappling with
certain questions.
The jury is still out on whether a health system needs its own health plan, thereby controlling
more of the premium dollar, to succeed under value-based payments. CEOs are also struggling
with risk assessment, an atypical skill for many executives who devoted their careers to the
provider side of healthcare. As one CEO said, it’s difficult to explain risk to an organization not
accustomed to taking it on. For executive teams that aren’t on the cutting edge of value-based
payments, the magnitude of loss that could occur under an unfamiliar payment model remains a
source of anxiety.
2. The cool-off as it relates to provider-sponsored health plans. Between 2010 and 2014, the
number of providers offering one or more health plans grew from 94 to 106, according to
McKinsey. Since this is the latest data available, it is too soon to say whether the number of
providers offering health plans has decreased, although subjectively the fervor shared by a great
segment of the hospital industry to launch a health plan has lost intensity.
For one, the performance of these plans remains mixed in all markets. Secondly, newly launched
or acquired health plans produce large operating losses in their initial phases. Last summer,
Standard & Poor’s analysts noted the possibility of more volatile system-wide operating
performance due to provider-sponsored health plans, although this forecast pertained more to
organizations with newly launched or acquired plans versus those integrated systems that have
long had health plans such as Oakland, Calif.-based Kaiser Permanente and Pittsburgh-based
UPMC.
As health insurance co-ops under the Affordable Care Act go under, major insurers pull out of
the ACA exchanges and executives wait to see whether Hartford, Conn.-based Aetna or
Indianapolis-based Anthem prevail against the government’s challenges to the mega-mergers, it
is safe to say the payer industry is tumultuous and markets are volatile. A couple of years ago,
http://www.beckershospitalreview.com/hospital-management-administration/10-things-keeping-health-system-ceos-up-at-night-081816.html?tmpl=component&print=1&layout=default&page=http://www.beckershospitalreview.com/component/mailto/?tmpl=component&template=beckers&link=http://www.beckershospitalreview.com/hospital-management-administration/10-things-keeping-health-system-ceos-up-at-night-081816.htmlmany healthcare providers looked to the option of health plans and vertical integration with
excitement. Now enthusiasm is lukewarm and consensus is lacking on whether this is a wise
business decision.
3. Traditional M&A continues while nontraditional alliances grow more prevalent. M&A is
often compared to marriage, and in this spirit, health systems are increasingly finding value in
dating several partners versus committing to one for life. In an effort to expand patient
populations, double down on clinical strengths and grow brand awareness and market share,
systems are working with payers and providers via insurance-related partnerships, direct-to-
employer contracts, clinical affiliations, joint ventures and other arrangements that could be
collectively called merger lite. “I hear more about strategic alignments than traditional M&A,”
said the CEO of an independent 168-bed hospital in the south.
When a health system is a partner to many, this changes the daily life of the CEO. One chief said
he is out of the office four days a week to work with partners and better understand how to
increase the patient population and align services under insurance products.
4. Growth in ancillary systems and alliance efforts with best-in-class operators. The phone
practically won’t stop ringing for the CEO of an independent specialty hospital. She noted her
organization is inundated by other providers, who approach with interest to replicate and
leverage her organization’s clinical expertise for women’s health. “Do one thing and do it well,”
the Zen-like proverb spoken by a software developer, rings true for hospitals that have secured
an edge for certain clinical areas, research capabilities or operating functions. In a day and age
where hospitals wear a dozen different hats, those that demonstrate excellence or market
dominance for one thing remain sought-after partners.
5. The extent of risk being pushed to systems in each of core payer areas — commercial,
Medicare and Medicaid. CMS says the shift to risk-based payment models is accelerating, with
the agency announcing in March that it met its goal of tying 30 percent of Medicare payments to
quality nearly 10 months ahead of schedule. CMS got the ball rolling with its valued-based
programs, and commercial insurers followed suit, leaving health system CEOs to manage the
uncertainty arising from the shift in the industry.
Some health system CEOs are skittish about taking on risk-based contracts, and it appears they
have good reason to be. According to a recent survey by KPMG, a majority of healthcare
providers expect their organization’s finances to suffer with the move to value-based care. Risk-
based contracts come in a variety of forms, from full capitation to lesser-risk contracts such as
Medicare shared savings and bundled payments, providing systems some flexibility in how much
risk they take on. However, with the creation of mandatory programs such as CMS’
Comprehensive Care for Joint Replacement Model, risk is being pushed to systems whether they
are ready for the change or not.
6. A shrinking pool of acquisition candidates. In some markets, health systems are beginning
to encounter the aftermath of five years of rapid hospital-health system consolidation and
physician employment. In the south, one CEO says he sees systems that still have a large appetite
for acquisitions, but the remaining organizations are too big or, if they are small, more selective
about merging with a larger entity.
To avoid the challenges of acquisition, many systems are turning to affiliations. By providing a
low level of integration, affiliations are oftentimes a more attractive option for smaller hospitals
that wish to gain access to capital resources and enhance services, while retaining control of
operations. Affiliations are also beneficial to the larger organization, which can leverage the
smaller hospital to improve care coordination efforts.
7. The return to the basics of execution and business. Build or maintain a dominant system
and market position. Know what exactly drives revenues and profits. Constantly recruit and
retain talented people. Test new areas but double down on the winning areas. Apply the 80/20
rule to most opportunities, talent, revenues and costs. Agitate to constantly improve. And finally:
Acknowledge that there is no single strategy, but define a few core plans and goals.
For CEOs, what once seemed old is new again. As executives come up for air from five years,
give or take, of intensive strategizing with consultants and countless promises of the next Uber of
healthcare, many are rediscovering the basic principles that drive countless successful companies
and household brands. New strategies may be exciting, but they also run of the risk of resonating
less and less with what is going on in the real world and what works.
Like any human being, a CEO has potential to fall for the next bright shiny object. Chief
executives must constantly exert energy in the form of discipline. Sometimes it does take
encounters with the wildly innovative and imaginative to make one again appreciate the tried,
true and sensible rules that keep the core of the business healthy.
8. The impact of the cost of pharmaceuticals and impact on healthcare costs for systems. As
hospitals strive to provide high-quality care at a lower cost, CEOs of health systems across the
country are concerned about skyrocketing drug prices. Fueled largely by spending for new
medicines, particularly specialty drugs, total prescription drug spending rose 12.2 percent in
2014, faster than the 2.4 percent growth in 2013, according to CMS. An analysis by Bloomberg
Business of 3,000 brand-name prescription drugs revealed the price of 20 drugs had at least
quadrupled since December 2014.
Health system leaders are deploying a number of strategies to combat rising drug costs, including
negotiating better prices based on utilization by joining a group purchasing organization. A 2014
Healthcare Supply Chain study credited GPOs with cutting hospitals costs by as much as 18
percent. GPOs are expected to reduce overall healthcare spending by up to $864.4 billion by
2022.
9. The competition with private equity for high-margin business. Private equity firms made a
strong showing in the healthcare market in 2015, and they’re investing in lines that previously
helped nonprofit systems’ margin. Last year, $23.1 billion was reportedly invested in healthcare
by private equity funds. Although that number is down slightly from $29.6 billion in 2014, the
number of deals worth $1 billion or more grew from five in 2014 to eight in 2015, according to
Bain & Co.
As health systems remain focused on inorganic growth opportunities and PE firms shift capital to
healthcare, competition for assets that offer high reimbursement potential, such as medical
groups that specialize in pain management, will continue. This trend will likely lead more
hospital CEOs to consider partnerships with PE buyers.
10. The pushing of procedures out of hospitals and the efforts to backfill. In 2015, a group of
the largest for-profit hospital operators in the U.S. recorded increased inpatient admissions for
the first time since 2008. Don’t bet on that occurring again, Fitch analysts were quick to advise.
“A repeat performance of positive growth is unlikely in 2016, since the improving economy and
Affordable Care Act provided a lift that can’t overtake longer-term headwinds to growth, like
pressure by payers to reduce short-stays and readmissions,” Megan Neuburger, managing
director with Fitch Ratings, said in a statement.
Overall hospital demand is not expected to increase like it has in the past. What was forecasted
for years is beginning to noticeably play out at certain health systems. Improved care
coordination and management is successfully keeping patients with chronic conditions out of the
hospital, moving what was once appropriate for inpatient care to the outpatient or home setting.
An Advisory Board analysis in 2014 suggested that aggressive population health management
efforts could reduce inpatient volume growth by more than 6 percentage points over 10 years. As
a result, hospital and health system CEOs are put on a highwire act to work with their executive
teams, boards, physicians and payers to craft a growth plan that accounts for this change in
revenue.
More articles on leadership and management:
6 thoughts on the state of healthcare from Scripps’ Chris Van Gorder
There are 4 leadership styles. What’s yours?
9 questions with AMN Healthcare CEO Susan Salka
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