Hospital and system leaders say that they are acclimating to the transformed health care environment, but risk-based contracts, pressure to grow and regulatory scrutiny continue to buffet their organizations.

Over breakfast, a small group of hospital and health system CEOs recently shared their challenges and compared notes. Here’s what I heard: They believe the U.S. health system is at an unprecedented tipping point.

They do not believe the “new normal” is a repeat of the past, nor do they think their management teams, boards and physician leaders necessarily comprehend its impact. They know that optimizing performance around operating efficiency, regulatory compliance, patient safety, physician engagement and revenue growth are table stakes: Doing well in these areas is no guarantee of success, regardless of their size, affiliation and market conditions.

These leaders believe the new normal is primarily affected by these three major challenges facing hospitals and health systems.

1 Preparedness for Risk-based Contracts

Health system leaders believe the transition from volume to value is real; they believe momentum will increase as payers embrace alternative payment programs. Their challenge will be responding to the myriad ways payers will seek to structure contracts.

Medicare will accelerate use of accountable care and bundled payments, while Medicaid will encourage patient-centered medical homes and case management for dual eligibles, or those patients eligible for both Medicare and Medicaid.

Employers will demand carve-outs, narrow networks and reference pricing, and individual consumers will force price competitiveness for routine diagnostics and lower-cost procedures that accommodate their high-deductible health benefits.

Ducking risk-based contracting is not an option. Gauging which payers and how much risk to take is the imperative. And in some cases, health systems may elect to implement their own plans as a hedge strategy to fend off private insurer efforts to commoditize the system’s services.

2 Scale and Smart Growth

Hospital and health system CEOs recognize that some organizations are too small to provide services at an appropriate scale: They can’t fund capital investments efficiently while pricing services competitively. As a result, mergers, affiliations and partnerships are on the table in every community. Additionally, CEOs recognize that the U.S. health system has an overcapacity of beds and undercapacity in primary care services to manage populations effectively.

Managing physician relationships as part of a smart growth strategy is a perplexing challenge. Though half of America’s physicians are now employed in hospitals, integrating physicians into viable team-based models and aligning their compensation with enterprise goals remains difficult.

As a result, CEOs are updating organization charts, re-deploying capital and engaging in partnership discussions at a frenetic pace.

3 Regulatory Intensity

CEOs believe their organizations’ risk exposure is increasing exponentially. The spotlight on fraud is intensifying. Health & Human Services says it collected a record $4.3 billion from fraudulent activity last year. Consolidation among providers — doctors, hospitals and post-acute facilities — is a megatrend.

The Department of Justice and the Federal Trade Commission are keen to assure taxpayers that competition is fair and consumer interests are protected. And the costs associated with unnecessary care — treatment that financially benefits providers with no clinical benefit to patients — is a point of focus for HHS’ Office of Inspector General and in the business community. Notably, the Wall Street Journal’s “Medicare Unmasked” series just won a Pulitzer Prize for reporting previously unavailable Medicare data. CEOs are keenly aware their risks are high.

Moving Forward

Not surprisingly, these three challenges help to make stress in upper management a huge issue. Burnout is a concern, turnover is understandable and easy solutions are hard to find. And the strategy of recruiting key talent with varied backgrounds to C-suite roles to implement nontraditional approaches also adds stress. Hospital and health system management teams tend to make life unwelcome to outsiders. Expanding boards to add industry expertise in health insurance, retail health, investment and negotiations is stressful where compensation and non-local representation are considerations.

But the CEOs at this breakfast meeting appeared up to the task and confident about the future in their organizations. They said they are cautious about moving too fast, but committed to moving deliberately from the status quo. And they are realistic about the barriers they face from internal naysayers who are more comfortable with keeping things as they are.

The breakfast ended punctually — of course, each CEO had a list of typical meetings, calls and obligations. But I’m sure at some point in their day, they’ll make a decision in light of their view of what is the new normal in health care. 

Paul H. Keckley, Ph.D. (, is managing director at the Navigant Center for Healthcare Research and Policy Analysis, Nashville, Tenn. He also is a member of Speakers Express.