Providers and physicians are worried about revenue, and payers and patients are worried about the quality and affordability of care. While there are many factors that contribute to the growing cost of health care, there is general agreement that the root cause is a payment system that rewards the provision of service volume, rather than value.

Fee-for-service increasingly is challenged to demonstrate the economic and clinical value of services provided. Payers are actively exploring how to change the way that physicians and hospitals are being paid. To date, these changes have come in the form of readmission penalties, bundled payment initiatives, accountable care organizations and use of comparative-effectiveness research.

The common thread among these initiatives is the demand for providers to demonstrate improved clinical outcomes while reducing costs. To meet this demand, hospitals and systems will need to think about patients and the care continuum in new ways. This will require increased transparency and accountability, and the ability to manage variation in cost and quality. Board leaders must understand this new direction and guide the organization in making the necessary changes.

New Approach to Quality, Cost

As hospitals and systems become more focused on managing cost and quality, the spotlight has centered on population health management. The term means moving past the current illness-based delivery framework and considering how to manage the health of entire populations over a broad continuum of care. This approach requires a systematic look at both health determinants and outcomes, with coordinated delivery of services for a defined set of people.

The practical demands of managing population health are significant and require underlying cultural and operational shifts. To tackle this challenge, an organization will need to develop a way to drive change in cost and quality through selective interventions with targeted population segments, and iteratively refine that effort. As part of this, it must measure and monitor outcomes across the continuum of care. This path to population health can be conceptualized as a series of seven interrelated elements that guide all aspects of the organization toward delivering value-based care and achieving outcomes at the population level.

1. Define the target population. This first step in the path will lay the course for the rest of the population health journey, and requires thoughtful con-
sideration. The target population should be narrowly defined, with the expectation that conclusions about effective interventions and process can be leveraged later to additional populations. The organization's leaders must determine the services they will provide to that population, how comorbidities will be addressed, and the role that external partners will play. Cost and treatment data on patients in the target population — preferably at the service level — across the care continuum will be needed to assess the total cost of care for the population and any segment within it. Gaining access to this data may require forming new alliances and partnerships with external providers or payers, and rethinking the structure of existing service lines.

2. Define benchmark spending and quality metrics. Next, organizations will have to set goals for cost and quality. This requires an understanding of how much it currently costs to treat the population, and determining the quality metrics for monitoring outcomes. Once a baseline has been established, external benchmarks should be chosen for comparison.

3. Identify priority population segments. It's critical to drill down to find those population segments that drive the greatest variance in cost and quality. Decisions about which population segments will receive interventional resources are complex, and call for careful analytics and appropriate input. The challenge is to have the greatest impact on overall cost and quality within the context of political, demographic and social constraints.

4. Analyze variation. After identifying the population segments that create variation in cost and quality, analyze financial and clinical data to identify the factors that explain these cost and quality outliers.

5. Define interventions and goals. Based on the analysis of the outliers in selected population segments, develop interventions to address the underlying contributors to high cost and suboptimal quality, along with implementation plans and targets for improvement. A range of internal experts should collaborate to help shape processes and define goals. These changes must become part of organizational operations, so investment is critical.

6. Implement interventions. Next, health care leaders will implement key steps toward meeting these goals. This part of the process requires redefining roles, clarifying accountabilities, and rethinking care paths across the continuum. Implementing change will hinge on the ability to get your team on board, including constructing incentive programs for providers and consumers that are closely linked to health outcomes.

7. Monitor results and refine. Finally, organizational leaders will have to monitor results, and update interventions as necessary. This includes both internal monitoring for compliance, and external review to ensure that the organization stays competitive with external comparators. This will guarantee that the organization continues to deliver better care at lower cost.

Beginning the Journey

Population health requires systematic and transparent delivery of services to improve the health of a given set of people, ultimately delivering better outcomes at lower cost for that population. Because this is a new business model for health care, boards must ask the right questions of executive leaders to ensure that the organization is prepared and able to compete. Those hospitals and systems that invest in developing these capabilities will be positioned for success.

Kimberly White, M.B.A. (, is a consultant and Christen Buseman, Ph.D., M.P.H. (, is a research analyst at
Numerof & Associates Inc., St. Louis.

Leading the Way

One thing is certain: Implementing population health management requires careful alignment among administrators, physicians, clinical staff and the board. This will be a team effort, and board members play an important role on the team.

Trustees are accountable for organizational performance in light of widespread changes in infrastructure, practices and procedures. This means challenging assumptions about the quality and cost of care, and developing effective ways to focus on the right issues at the right time. As board members prepare to guide their hospitals and systems down the path to population health, there are four critical areas where trustees must focus their efforts.

Redefine the business. The path to population health leads health care organizations away from a traditional fee-for-service system that rewards high-volume care delivery and toward a value-based payment system where outcomes — rather than activity — drive payments. This shift is going to require an organizationwide change in thinking about and redefining the hospital or system's business model. While the old model had organizations competing in the business of offering procedures to patients at large, owned facilities, the new model has organizations competing for a patient's loyalty to its network, in sickness and in health. While the old model profited from sick patients needing many procedures, the new model — and associated risk-sharing — will see organizations develop affiliations and programs to keep their patients healthy and out of the hospital.

Population health also leads organizations to a new understanding of the importance of coordinated care across the continuum, and should result in new mechanisms for achieving that coordination. Depending on the circumstances, a hospital may choose to compete with carve-outs like retail walk-in clinics or ambulatory surgery centers, or it may decide to establish a network arrangement with them. Those longer-term strategic decisions require an understanding of current capabilities, and where existing gaps can be filled by external partners and affiliated organizations. The system needs to define the spaces in which it wants to operate and develop service-level agreements with key partners.

Create a culture for change. In light of this fundamental shift in direction, the board should take an active role in creating a culture that is receptive to change. Organizations must cultivate alignment around the need for change among the board of directors and key administrative and clinical leaders as the network moves toward improving outcomes and managing costs more effectively. Trustees and executive leaders can build momentum by engaging in ongoing meetings that serve as a forum for dialogue about changing needs and roles, discussing ways the hospital will be affected if past performance continues into the future, and evaluating its mission and vision statements in the context of the transition from volume to value in service delivery and payment.

Building a culture of change will require more than alignment among leaders — it will involve a united effort that is coordinated across the entire staff. Trustees will be seen as leaders on this path and they can play a key role in bringing the rest of the organization along by broadcasting a clear, consistent message. This should be part of an integrated communication plan that articulates goals and individual roles in achieving those goals, regularly provides feedback on successes and failures, and explains unanticipated events that change priorities.

Trustees also must take an active role in ensuring that the necessary infrastructure to compete in this business model is in the C-suite's focus. Service lines may need to be restructured, and roles and responsibilities may need to be redefined. Organizations must establish clear expectations and goals at the employee level, and accountability for meeting expectations must be operationalized and tied to competencies to facilitate a tighter link between performance management and the organization's strategic goals.

The board and system need to engage clinicians and staff in new ways during this transition. Structuring physician and employee incentives that actively reward participation and other desired behaviors will be critical as organizations look to assume more risk. The board is not responsible for creating incentive programs, but it should hold the C-suite accountable for working collaboratively to develop and implement plans. Most organizations don't change until they believe they must, and it's up to the board to make change an urgent matter, because successful change takes time. Organizations that delay too long will find themselves unable to catch up.

Determine how to monetize value. As the market evolves, providers are facing new competitors: medical tourism and retail clinics. As a result, hospitals must demonstrate the economic and clinical value they provide to the populations they serve. Providers need to articulate what services they offer and the outcomes they are able to deliver; how their services address specific needs of the population; why they are better than the competition; and the economic impact of selecting their respective institutions.

The next step is collecting data that demonstrate quality of services provided, including how the organization compares against the competition and packaging it in a way that resonates with stakeholders. This type of research and data analysis is new to health systems. Boards should work with the executive team to ensure that these capabilities are developed and that the organization has sufficient data to tell a value story that links clinical and financial outcomes to ensure its competitive position. — K.W. and C.B.