Philip Ikoku and Dan Juberg, Strategic Partnerships, Lumeris
The not-for-profit health system sector was already battling a business model under significant pressure. And then along came 2020. Between COVID-19, ballooning unemployment, and a sharper focus on inequity, 2020 has reinforced healthcare’s ever-present quagmire: a system where society expects an efficient and streamlined industry, but with the most robust and innovative advances.
Executive attention throughout healthcare has completely shifted to the financial and clinical pressures of the ongoing COVID-19 crisis – and rightfully so. As society and communities grapple with the very concept of budget allocations and their impact on managing persistent issues, so too must healthcare organizations. As organizations navigate possible surges and look to help their communities, one eye must be focused on a sturdier re-build while the other remains with the community during these unprecedented, uncertain, and trying times.
The risks of not taking steps to evolve traditional health system models have been made all too apparent. There will be different strategies necessary to guide health systems to recovery and sustainable growth through the choppy waters of the post-pandemic world. To help their organizations navigate, what are some of the questions Board Members are posing as they convene for their slated summer sessions?
1. What does volume look like in the now, near, and far? Is this a blip?
Before the pandemic, many aspects of the business world and society existed on the brink – requiring perfect circumstances to maintain already-razor thin margins. Rather than proactively adapt their models, many industries were waiting for a tipping point to significantly and materially transition (retail, cinema, office space/commutes, etc.). So, what does that look like in healthcare delivery?
The long-awaited tide of virtual visits arrived, and most don’t expect it to recede. But that is only half the story. The hospital and health system sector has experienced serious financial pain from COVID-19 and lacks both the margin strength and nimble business infrastructure necessary to quickly shift toward a new medium of patient interaction. Not to mention the inherent challenge of aligning interests of all necessary stakeholders.
So, the question morphs into “What volume can stay away and what must come back to bricks and mortar?” Early signs of negative payer mix shifts are troublesome for systems, so recapturing in-person patient volume from pent up demand in the short term is necessary. However, consumers have new expectations for provider interaction and they increasingly do not align with the business model of getting patients in the door. Therefore, how does the rapid growth of remote healthcare change patient access, provider network, and capacity planning strategies post-pandemic as cost efficiencies and changes to reimbursement from remote access become the new normal? What does that new normal look like, and how does your organization not only evolve but stay ahead of the ever-advancing curve?
2. How can we better diversify our revenue going forward? Would it have helped us better weather this storm?
The business model for health systems was acutely broken over the last few months. While some felt it more significantly than others, a consistent theme emerged: the transition to a state of diversified revenue streams will be a necessity in the near future. Most health systems have dabbled in value-based and advanced payment models, but the overwhelming majority of revenue is still directly linked to volume-based, fee-for-service (FFS) incentives.
However, the risk of high exposure to the FFS model was fully realized by the COVID-19 catastrophe. The conversations about at-risk revenue must now be revisited and redefined. Provider reluctance to embrace value-based models should be scrutinized and discussed head-on—the stark reality for health systems is that getting the same quantity and type of patients “through the door” cannot be guaranteed moving forward.
How would health system financials be different today with a more diversified revenue portfolio that balanced capitated and risk-based payments with the traditional FFS model? It is helpful to understand the margin profiles of organizations that own the premium dollar, or even have moved more progressively to diversify their revenue streams, for hints to how value-based portfolios of revenue are performing vs. FFS-heavy systems this year. Striking the right balance for margin generation, progressively moving toward the future of reimbursement, and hedging against events that disrupt business as usual are essential to create a stronger foundation capable of supporting an organization in future. While managing more of the premium dollar and investing in value-based care capabilities carries palpable risk, how do we adequately measure against the risk of not learning from this most recent financial shock?
3. Are we even positioned to succeed in such a transition toward revenue diversification? How prepared are we today to manage more of the premium dollar (i.e., the total cost and quality of patient care)?
Do we have a complete understanding of what it takes from a capabilities perspective to succeed in value-based care? The transition to accepting total cost of care risk in a substantial percentage of attributed lives does not happen overnight, but the PPACA became law over a decade ago and many have been “preparing” for value-based care for even longer. While peer organizations across the country have had varying levels of success in downside risk, how do we stack up in the realms of supporting infrastructure, provider network engagement, and value-based contract structure and performance? If we are not “there” yet, how do we assess what is preventing us from being the highest value health system for our community?
The speed of transition to a value-based healthcare system will only accelerate considering massive government budgetary deficits and the CMS’ pre-pandemic intent to erode the FFS model by further pressuring providers to commit to value. Therefore, what else can we be doing outside of participating in contracts/models with private payers and the federal government to better position our organization for revenue diversification over the long haul? Do present market conditions provide any opportunities to fortify current positions or develop future ones? (e.g., M&A, provider-sponsored health plan, physician alignment)?
How will the physician community in our market change as a result of the pandemic? Independent physicians have arguably been as negatively impacted as any other stakeholder group as a result of the current crisis. This issue is generating a lot of uncertainty for health systems in the coming year. What are the tools and support that can be uniquely facilitated by the health system to assist in managing the evolving market dynamic for independent providers? Looking at it from another perspective, what is the referral risk from the aligned physician base if there are shifts in the provider community away from the health system to organizations like payers, private equity backed physician aggregators, or direct competition? To avoid a painful disruption, what is the menu of options to partner with physicians to keep them both independent and aligned? Are there market opportunities to further align our community and better position our organization to manage more of the premium dollar?
4. Who are the payer partners that will help us emerge stronger – who can we trust to be collaborative during challenging times?
There have been a few “winners” during the recent challenges. In general, large and well-diversified private payers (both geographically and by line of business) have been able to benefit from the drop in normal healthcare utilization that occurred over the last few months. However, the stakeholders that finance the healthcare system, principally governments and employers, are facing budgetary shortfalls that may be the largest in history. This creates a unique environment where, on the one hand, private administrators of payments may be better positioned in the short-term, but the fundamental sources of payment will look for more aggressive solutions to curtail the rising healthcare spend. This presents both opportunities and risks for health systems, but it requires an accurate assessment of the existing payer environment. What hurdles does our organization face with respect to our existing payer environment and are there any true collaborative payer relationships that we can expand in favor of relationships that are more adversarial?
Further upstream, we should expect federal and state governments to target medical spend after the dust settles. To prepare for that pressure, our organization must adapt to be ready for higher levels of transparency and responsibility for controlling cost. Similarly, employers are in crisis mode. What is our strategy to support the business community to get their employees back to work? Are there opportunities to innovate in partnership with them to help manage medical spend while also creating affinity between the health system and local employers over time?
In the months and years to come, what lessons have our payer partners learned? More importantly, what have we learned about them?
5. How do we define a public and community health crisis? What is the Board’s role in helping organizations to address health inequities in our communities?
Our communities are faced with a confluence of public health crises at the moment. The pace of our patients returning looks slow and uneven. Unemployment breeds uncertainty and changing payer mixes. Something as simple as your ZIP Code can portend significant differences in life expectancy. There is a growing understanding that social determinants of health—the conditions in which we are born into and in which we live, work, and age—are critical drivers of health inequities in our communities. Housing insecurity, lack of access to quality schools and healthy food, and racism itself (both structural and direct) have documented effects on health outcomes and the well-being of our citizens.
The COVID-19 pandemic has further highlighted many of these inequities. Those infected, those essential workers most likely to bear the risks of continuing to work, those most likely to receive lower standards of care – these last few months have been an unpleasant reminder of the vast differences in how life is experienced by segments of the American society. Much of this is to be addressed at the policy level and extends beyond healthcare. But what should a health system’s role be in further helping to bridge the gap?
Healthcare executives have a significant opportunity to further lead the charge. A better healthcare system (and community) won’t be built in a day, but progress in this direction is necessary and will be immensely impactful.
Boards are typically comprised of a diverse group of representatives from different sectors of the community overseeing its best interests. Boards play a vital role in holding health systems accountable and pushing necessary advancements in an ever-evolving, and often challenging, healthcare landscape.
It is an understatement to say that healthcare organizations play a critical role in their communities. Ensuring financial durability is paramount. So too is supervising both the adherence to and evolution of a health system’s all-important mission to meet the trying moment that so many communities face today.
Asking the tough questions to help successfully navigate the current rough waters and achieve these twin aims would certainly be a legacy of which we could all be proud.