This year's priorities will be cost-reduction, building a physician base, implementing new care models and, most importantly, preparing for 2014. As board members, senior management and physician leaders develop their strategies and budgets for 2013 and beyond, allocating limited resources grows more difficult. Hospitals and systems continue to walk a long, treacherous road as health care moves from fee-for-service to fee-for-value models, and providers will need to change or face becoming less relevant. Going forward, we should expect ongoing downward pressure on reimbursement, stubborn unemployment, low interest rates, acceleration in consolidation and a slowly growing economy. Here are the top 10 trends for this year and what trustees should keep an eye on as they look to 2014.
- Costs will continue to grow at a rate faster than payment increases. Medicare and Medicaid will aim to hold the line on payment in 2013. Various insurance exchanges will put downward pressure on premiums, which will result in lower payments in 2014. Further, the narrow networks in 2013 potentially will reduce revenue per unit as a trade-off for more volume. The trick is to gain market share. Expect more states to begin to put in place premium rate review/approval rules or at least an upward cap on premium increases as in Massachusetts. Also, use of less costly delivery sites — such as post-acute versus acute — will reduce hospital revenue.Trustees should keep an eye on: health plan premium and payment increases. Communicate with senior leaders to learn about both your organization's and your competitors' premium and payment increases. Listen to what health plans are proposing in terms of new products, insurance exchanges, narrow networks or new payment systems. Ask if your health system is going at-risk and having to operate within a budget, case rate or capitation for a defined population. At the same time, ask senior leaders to track patient acuity, out-migration, adverse selection to your organization and the number of complex, or multicondition, patients.
- Physician alignment will continue to be one of the top concerns for CEOs. Physicians will seek alignment with medical groups, hospitals and systems and, in some cases, health plans. Physicians are looking for stability, ability to attract patient volume, competitive benefits and an accommodating lifestyle. Hospitals will be focused on strengthening relationships with physicians through employment, economic risk sharing or shared savings with payers.Primary care is still "king," and episodes of care require a close, economically aligned specialty connection by major service line. Consider strategies including participation in the Medicare bundled payment programs, arrangements with commercial plans or comanagement agreements. All new models of care, such as accountable care organizations, clinical integration, bundled payments or patient-centered medical homes require a close working relationship, including economic incentives, between the hospital and physicians.Many physicians are approaching their retirement age, which will require new and innovative uses of this workforce. These physicians are dedicated and committed to serving the public. Offer them new models for part-time work supervising nurse practitioners or telehealth to take advantage of their expertise without a full-time schedule.Trustees should keep an eye on: independent physicians' associations, ACOs and medical group activity in your market. Stay knowledgeable about competitors' activities, including those in neighboring regions and states. Also, work with your chief medical officer and chief of staff to get a sense of your physician community's response to change, new opportunities and consolidation among physician organizations. This is going to be a fluid area, so stay alert.
- Health plans will evolve and spend their resources to grow and diversify into new lines of related business. They will be focused on health insurance exchanges (state and private) and ensuring they have attractive products and delivery networks to offer to the public. This likely will include high-deductible health plans and narrow networks. Also, expect them to continue to diversify their revenue sources to include infrastructure offerings to support accountable care, administrative services to support self-insured employers, and retail health businesses such as telehealth, durable medical equipment, hearing aids, urgent care centers, quick care clinics and eyewear. They will continue to increase access points through Costco, Walmart, Best Buy and Rite Aid to name a few.The health plans are trying to buy into the "medical-loss ratio" (set to be fixed at 85 percent for large groups under the Affordable Care Act). This may include reducing premiums for select groups as well as offering quality improvement incentives (which are included as a medical expense). Expect them to enter into new delivery models (such as telehealth, bundled payments, patient-centered medical homes), targeting management of chronic disease and complex patients. Health plans will continue to consolidate the market and acquire other smaller plans, targeting those with Medicaid or Medicare lives, as well as medical groups (especially those with health plans), but on a much smaller scale. Scale will be important as reducing administrative cost per dollar of premium becomes critically important.Trustees should keep an eye on: the development of the health insurance exchange in their state. Focus on benefit packages, premiums and co-pays. Ask senior leaders what discounts the plans are asking for, anticipate increases in bad debt and change in payer mix from better payers to worse payers. Monitor narrow network delivery systems to see if they can attract new market share.
- New models of care are coming your way. Given the anticipated cuts in Medicare and Medicaid payments, along with lower reimbursement from health plans through the insurance exchanges, hospitals will need to focus on new care delivery models. Evaluating and then pursuing new models of care, such as medical homes, home monitoring and telehealth, and payment will be very important. These new models are hard to embrace, adapt and get right. For the vast majority of providers, this is 180 degrees from how they deliver care today. This is a new culture that must evolve in your organization.Trustees should keep an eye on: developments of new delivery models as proposed by hospital and physician leaders. This may not be your formal medical staff leadership and, instead, may be your organized or younger physicians. It will be critical for administrators to change the payment and compensation systems along with the new care delivery models, or financial disaster awaits. Of significant note, you must change the way you get paid and the economic incentives of physicians and hospitals to impact behavior and improve the value of your services.
- Transparency will grow and data will become more available to the public, employers and purchasers. There will be increasing visibility of your organization's quality scores and pricing, making value much more important. A physician's recommendation, although with diminishing impact, still will influence patients and how they access health care. Expect employers, organized labor, the public, health plans, and, yes, even your competitors to access publicly available data to see your performance.Trustees should keep an eye on: the organization's quality scores, prices and corresponding value as seen by the public, employers and health plans. While some may argue that the data are flawed, the information is out there for the world to see. Hold management accountable to report accurate data. Request your organization's publicly available quality and pricing data, and understand how your organization compares with your market competitors. You need to know what the public knows.
- Driving volume to your integrated delivery system — physicians and facilities — is still key. This means capturing greater market share while per capita use rates continue to slide. Organizations will chase the same high-paying payer mix; the key is improving throughput and changing your delivery model to squeeze out waste, duplication and layers of oversight by demanding more of a smaller management team. As physicians are offered more and greater economic incentives to reduce inpatient care and move volume to outpatient and post-acute care providers, the inpatient census will decline and cause more economic stress. Many experts believe the impact of ACOs, bundled payments, medical homes, post-acute services, palliative care and others all will result in the lower use of hospitals — maybe 5 to 10 percent in 2013. Further, the continuing sluggish economy also will reduce the use of health care services, while the newly insured may offset the decline in 2014.Trustees should keep an eye on: the development of new care models in your market and new or different economic incentive models used by health plans or ACOs that will reduce the use of your hospital. Listen closely to managed care staff to identify new health plan products in the market that will lower the use of your hospital. Even a change in the ownership of a medical group or competing hospital can be a game changer in the market and reduce your volume. Specifically, you may consider decreasing the physical assets in your market, such as reducing four hospitals to three, and repurpose underutilized facilities to post-acute care. There is going to be a reduction in hospital use and growth in the post-acute care arena.
- Information technology will consume much of senior management's time. Many organizations have invested millions in ambulatory and inpatient electronic health records, picture archiving and communication systems, a data warehouse, interconnectivity and, in some cases, starting population analytics. Many also have qualified for Stage 1 meaningful use incentives. However, the time has come to get useful data into the data warehouse that is trusted by physicians regarding the quality and use of the data. Physicians are somewhat frustrated by poor communication between different systems. Some are wondering how to use and analyze the data and profile use patterns. As mentioned before, the new payment models require significant IT investment and practice use.Trustees should keep an eye on: the IT plan to make sure it is systemwide and includes ambulatory, post-acute, acute and physician providers. Ask for monthly updates from management on implementation progress, usefulness and results in better care or lower costs. More importantly, track physician input, participation and usage. Having a plan is not enough — you need users.
- Consolidation, consolidation, consolidation. Many trustees are wondering whether the organization should merge or form other partnerships. Just because many do consolidate does not mean it's the only or best option. Physician organizations will consider consolidation because they may lack capital, access to capital, IT investment in clinical systems or an ambulatory electronic health record. Hospitals will evaluate their access to capital, their overall needs, their ability to have meaningful physician alignment, IT investment, facilities and ability to grow market share.Both hospitals and physicians will look to local providers for opportunities for partnerships and also will evaluate the opportunities with less traditional partners: private equity firms, publicly traded organizations, health plans and other health care organizations.Trustees should keep an eye on: the organization's mission, vision and values. Potential partners may not embrace or support them. A partner will require your organization to make money and will not provide capital without the expectation of getting their money back with a return. A new system partner will need to focus on your requirements and investment to succeed in your market. Before agreeing to a merger or affiliation, the board and senior leaders should examine the potential partner's credit rating strength; leverage in the market; physician alignment; experience with managing care; service line strength; mission, vision and values; performance expectations and board representation; as well as your organization's decision-making power. Also, recognize the implications if your competitor merges or affiliates with another system or entity: evaluate the impact on physician relationships, competitive profile and payer relationships.
- Higher turnover, staff reductions and early retirements in the C-suite will continue. The C-suite will become more demanding, with more conflict from competing interests among physicians and greater demand for fewer resources. Health care leaders are dealing with unprecedented turbulence, and there is no sign of its abating. Changes in regulations, new delivery models, inadequate payment given the increasing cost of providing care, labor strife and declining inpatient volume mean the churn in hospital and system C-suites will continue. Many CEOs recognize that they will have to reduce the number of their own C-suite staff and restructure the organization, and many are worn out from the stress of the past four years.Trustees should keep an eye on: burnout or disengagement in the C-suite, reduced productivity due to sustained stress and a lack of focus on the organization's strategic direction. Some CEOs are looking to leave a legacy; as a trustee, help him or her find it. Close and constant communication with members of the C-suite will be necessary going forward, and attention to succession planning is critical.
- Branding. The public needs to know you, prefer you and connect with you. Marketing and IT departments will push for more investment in social media. Your organization needs to connect with its community through news, education, wellness and prevention programs. Quality ratings, blogs and health care apps will grow in use.Developing a strong preference for your services, physicians or access points is important. Aim to become the community leader for all things health-related. When the public uses the insurance exchanges, it needs to recognize your name and prefer your delivery systems.Trustees should keep an eye on: specific market segments. Hold management accountable for a social media and overall branding plan that targets different constituencies in your community. Older segments may prefer traditional media while a younger population, which likely uses the emergency department, obstetrics and pediatrics, prefers online communications and social media. Connecting your population to your health services becomes more important as a person's choice increases.
Continued Evolution
Whatever your hospital's current situation, expect 2013 to be another year of transition as you respond to the pace of change in your marketplace. Focus on delivering value, create opportunities for physician alignment and stay close to the activities of payers. Above all, retain an objective view of your organization's current position and its plans for evolving and adapting within this turbulent environment.
Steven T. Valentine, M.P.A. (svalentine@thecamdengroup.com), is president of The Camden Group, Los Angeles.
