Report

Phillips Arena

Risk and Reward: How the Business Model May Change

As the payer mix continues to shift, the era of commercial revenue subsidizing low governmental payer margins is ending, Forum participants agreed. In this new environment, lean and efficient health systems will support margins by decreasing the total cost of care in an increasingly fixed-revenue business model. 

One of the Forum’s speakers, Joseph Swedish, president and CEO of Anthem, Inc., (formerly WellPoint), said covered lives in small group plans are decreasing significantly, while large employer groups are demanding more transparency regarding costs and outcomes, and resisting cost escalation.

Another guest speaker, Keith Pitts, vice chairman of Tenet Healthcare Corporation, told CEOs that the changing payer mix means the fundamental business model also has to change.

"Today’s growth is in the government-subsidized exchange and individual enrollees through employer-sponsored private exchanges. That is a very different model with very different challenges," said Pitts.

Potential Partnerships

Executives agreed that the evolving healthcare landscape creates the potential for innovative payer-provider partnerships. Teri Fontenot, president and CEO of Woman’s Hospital, said her organization is exploring new payment models.

"Our largest payer is Medicaid, which pays us a flat amount per day, so we've had the incentive for years to provide excellent care and high-quality outcomes on a fixed payment," said Fontenot. "We have told payers we are interested in experimenting with payment models that support population health. The key will be using data analytics to show that we can improve outcomes through this approach."

According to Gordon Mountford, executive vice president, Huron Healthcare, innovative provider-payer partnerships are still mainly in the planning stage.

"Fundamentally, hospital leaders are looking for the best strategies to provide high quality care while reducing costs," said Mountford. "The key to success is to combine a deep focus on operational excellence while optimizing human potential to provide the leadership needed for transformation."

"The key to success is to combine a deep focus on operational excellence while optimizing human potential to provide the leadership needed for transformation."

— Gordon Mountford, executive vice president, Huron Healthcare

Changing Leadership Needs

Times of transition are also moments of opportunity. Delivering the keynote presentation at the Forum, Jeb Bush, Governor of Florida, 1999-2007, focused on the qualities needed to capture those opportunities. "In order to lead," Bush said, "you must have a sense of optimism."

Charles Evans, president of the International Health Services Group and senior advisor at Jackson Healthcare, also addressed the challenges of leadership in these changing times. "In innovative and emerging markets, waiting for stability is no longer a viable pathway," he said. "There needs to be a sense of urgency and an entrepreneurial spirit."

Parker "Pete" Petit, chairman of the board and CEO of MiMedx Group, agreed. "In a disruptive environment, it is particularly important to take some extra risk. Being too cautious does not get results."

"In a disruptive environment, it is particularly important to take some extra risk. Being too cautious does not get results."

— Parker "Pete" Petit, chairman of the board and CEO, MiMedx Group

Pitts advised Forum participants to optimize fundamentals. "Move to more efficient service models with lower cost access points that provide safe, high quality care, while leveraging technology to take cost out of the system. That is a much more certain path to success and sustainability."

Ten Questions to Guide Transformation Strategies

The Forum made it clear that executives are working to build readiness and optimize performance as they prepare for the changing healthcare environment. "That effort is most effective when it is guided by a strategic plan, attuned to the unique dynamics of each market," said Curt Whelan, Huron Healthcare managing director.

Huron suggests ten questions for healthcare systems to consider as they develop their strategic path forward:

  1. How are costs aligned with revenue trajectory?
  2. What changes in patient care revenue streams are forecast and how quickly will these changes occur?
  3. What increases, decreases, or shifts in utilization are occurring across the system?
  4. What partnerships or alliances are shaping the market?
  5. Where are the greatest opportunities to drive more value in the care delivery – improving outcomes, experiences, or efficiency?
  6. Is there active engagement with physicians and patients?
  7. Do current hard and soft assets align with the strategy, revenues, and delivery model, and will they scale effectively?
  8. What changes in organization structure and incentives are needed to achieve desired future performance?
  9. What are the greatest opportunities today to strengthen the business, optimize revenues, and align costs?
  10. Are there clear, prioritized goals and the right governance and data-driven accountability to achieve them?

Download the Report

For more perspectives on risk and reward, and a summary of the keynote address by Governor Jeb Bush, download the full CEO Forum Report.

The views expressed by Forum participants are their own. Huron Consulting Group does not endorse or take positions on political candidates or perspectives.

Population Health: Building the Infrastructure

The transition to population health management is a multi-year journey that will ultimately change how healthcare is experienced throughout the country. At the Forum, Joseph Zubretsky, senior executive vice president of Aetna, described the transition in terms of changing membership pools.

"Members are flowing to us in much different ways," he said, "which means that in the next ten years, your patients are going to come to you in different ways." 
 
"The momentum toward population health management continues to grow,” said Christopher Drummond, Huron Healthcare managing director. "Organizations are responding to new quality and cost expectations by developing strategies for population health and building the necessary infrastructure, though persistence of fee-for-service still varies by market."

Putting the Pieces in Place

Mark Laney, M.D., president and CEO of Mosaic Life Care shared his organization’s experience with population health. "We've focused on population health because it is the right thing to do for our communities in terms of providing high quality care, and because it controls costs effectively. We are an early adopter because we want to grow our market share and differentiate ourselves."

"We've focused on population health because it is the right thing to do for our communities in terms of providing high quality care, and because it controls costs effectively."

— Mark Laney, M.D., president and CEO, Mosaic Life Care

Success requires aligning physicians, building trust, instituting case management, getting IT systems ready, and developing data analytics capabilities, among other challenges. “It takes three to five years to put those pieces in place,” Dr. Laney said.

Rob Schreiner, M.D., Huron Healthcare managing director, noted that the transition in payer models can accelerate under certain conditions. “When the proportion of value-based revenue in a given market reaches approximately 15 percent, a tipping point is achieved that accelerates the tempo of that financing change.”

"When the proportion of value-based revenue in a given market reaches approximately 15 percent, a tipping point is achieved that accelerates the tempo of that financing change."

— Rob Schreiner, M.D., managing director, Huron Healthcare

Indeed, the algebra involved in maintaining margins has grown increasingly complex, according to Jeff Jones, Huron Healthcare managing director. In the past, increased volume generally led to increased margin. Moving forward, the equation increasingly involves lowering the unit cost and total cost of care while increasing volume and quality.

"The payment model is growing more complex at the same time the payer mix is changing," Jones said. "We are in an environment where the collective actions that lead to improved cost and quality require strategic management and operational focus."

Considering New Partnerships

In his presentation, Zubretsky said many healthcare CEOs are looking at moving upstream and assuming more financial risk in order to have a sustainable business model.

Payers know how to look at populations of risk and stratify that risk in a way that adds real meaning to population health, he explained. “We bring risk management resources and you bring the clinical resources. We think the partnership in managing population health can be remarkable.”

Andrew Ziskind, M.D., Huron Healthcare managing director, noted that perspectives on payer-provider partnerships vary considerably by market. “There is significant interest, as well as a constant tension.” The cost transparency that helps make population health work can have a negative impact on margins under fee-for-service models, he explained. “That tension is one of the forces that is slowing the opportunity for payer-provider partnerships.”

"It is exciting to see CEOs so engaged and asking the right questions," said John Tiscornia, Huron Healthcare managing director. "There is no doubt that the answers they find and the solutions they create will benefit not just their communities, but the country’s health system as a whole."

Download the Report

For more on population health and data analytics, download the full CEO Forum Report.

The views expressed by Forum participants are their own. Huron Consulting Group does not endorse or take positions on political candidates or perspectives.

Consumerism: The New Normal

Many voices at the Forum spoke of the growing power of consumers. Keith Pitts, vice chairman of Tenet Healthcare Corporation, noted that transparency in price, cost, quality, and service will give potential patients new leverage.

"For every strategy we have," Pitts said, "at some point in this decade, consumers will take charge. Consumerism will be the new normal, and there will be nowhere to run and nowhere to hide."

For many organizations, this shift is already well underway. "As a payer, we are pivoting from the B2B world to B2C," said Joseph Swedish, president and CEO of Anthem, Inc. (formerly WellPoint)."The center of the universe has changed. The consumer is now at the center."

"The center of the universe has changed. The consumer is now at the center."

— Joseph Swedish, president and CEO, Anthem, Inc.

The shift toward provider-initiated transparency is currently in its early stages, according to Daniel May, Huron Healthcare managing director. "At some point – possibly within the next five years in many markets – consumer choice based on a transparent assessment of cost and quality will become a significant factor alongside referral patterns and plan steerage in determining volumes."

This trend gives providers increased incentives to enhance their focus on patients as customers and to look strategically at issues of cost and quality.

Organizations that invest the resources to engage consumers also see benefits on the cost side, said Andrew Ziskind, M.D., Huron Healthcare managing director. "There is growing evidence that consumers who are engaged and active in their own care are less costly to serve and have better outcomes. This is a key component of delivering higher quality care and also benefits the organization financially, under both fee-for-service or value-based models," Dr. Ziskind said.

"Consumers who are engaged and active in their own care are less costly to serve and have better outcomes."

— Andrew Ziskind, M.D., Huron Healthcare managing director

Driving Change at TBS

To gain insights on consumerism from other industries, CEOs also heard from Michael Quigley, vice president of Business Development & Multi-platform Distribution for Turner Broadcasting System (TBS).

Like the healthcare industry, TBS faced changing distribution dynamics, new competitive forces, transitioning revenue streams, and heightened expectations from newly empowered consumers. The choice TBS faced was innovation or irrelevance.

"When CNN was formed," he said, "the question was about how we could steal share from more traditional competitors, such as CBS Evening News or the NBC Nightly News. Now we compete not just with broadcasters and cable networks, but with every single digital outlet for news, entertainment, and sports. It is a huge sea change in the number of competitors we face."

Ultimately, meeting this challenge involved focusing on the consumer with the right vision, resources, and funding. "The feeling of empowerment consumers have is huge," Quigley said.

Download the Report

For more about consumerism in healthcare, including more insights from TBS and other industry leaders, download the full CEO Forum Report.

The views expressed by Forum participants are their own. Huron Consulting Group does not endorse or take positions on political candidates or perspectives.