Four Keys to Competition Under Bundling

If you're leading a part of or an entire health system, life is about to get a little tougher—at least in the short-to-medium term. Healthcare reform has galvanized the president and lawmakers, and they clearly aren't impressed with its high cost and relatively low quality.

That unimpressed feeling is probably mutual behind your closed door, but they do have the power of the purse strings, controlling about half of your reimbursement dollars. They hope to make healthcare more cost-effective by finding ways to make sure care is coordinated and that more emphasis is placed on keeping people healthy rather than on procedures.

Part of the talk among lawmakers is the idea of bundling healthcare payments. You already know what it is, but most of you have no idea how to make it work for your system. Well here's some good news. The kinds of things you need to do to prepare for bundled payments are good business practice regardless of how healthcare reform shakes out.

I hope you got a chance to check out my June cover story on the issue. While bundling of payments is only one part of healthcare reform, it's a big part. In last week's column, I argued that trying to handicap how legislators might reform healthcare is not only impossible, but can get in the way of effective strategic decision-making. That doesn't mean you can't anticipate broadly how healthcare delivery might change based on what's coming out of Washington—and further, that you can't make some changes of your own in advance of health reform law.

Preparing for healthcare reform effectively—even if it doesn't materialize as part of a law—makes good business sense. Following are four important steps you can take now to make sure your hospital or health system is better positioned when a healthcare reform bill passes—and even if it doesn't.

1. Focus on your strengths. Your hospital might have high quality scores in orthopedics, while not doing so well in other specialty areas. Many of the experts I talked to for my story say that hospitals need to move away from being all things to all people. Now, you still have to operate some money-losing services, but get away from those that don't contribute to the bottom line.

2. Eliminate the losers. This is really a corollary to the first tip, but it takes a lot of guts to do away with specialties that are money losers or where you don't have a competitive advantage. Why? Because there's often a lot of political power stored in even the most unprofitable of service lines in a hospital. Plus, it means taking on the difficult job of retaining those workers you can retrain and reassigning them to more lucrative pursuits. What's most difficult in closing a service line is that you might send some valuable employees to the local competition. But if you don't want to compete in obstetrics, for example, the competitor's gain isn't necessarily your loss.

3. Take the savings and invest. Now reallocate the resources you were going to spend on the closed program—salaries, equipment and the like—to the service lines in which you do have a competitive advantage. You might have a top cardiology program that desperately needs more resources to compete with competitors who are nipping at your heels or you might want to spend some of the cash on developing a strategy to buy or build complementary services, such as wellness centers and rehab centers. Part of your reimbursement under bundling will depend much more on how the patient progresses over a longer period of time, with penalties for rehospitalization.

4. Develop alliances and sub out parts of the healthcare continuum. Of course an alternative acquisition or organic growth into support services like rehab, imaging or wellness is building strong contractual relationships with providers who will take care of your patients once they leave your high-acuity facility. Even Geisinger, held up as a model of effective bundling of healthcare services, doesn't own its rehab facilities. They're owned by HealthSouth, but since the facility depends on Geisinger for about 80% of its patient census, it has a vested interest in keeping those patients, and Geisinger, happy with the care outcomes.

Granted, this is only a column and is not a substitute for your own due diligence in these matters, but I sense a feeling of helplessness among many of the leaders I talk to about being held hostage to a constantly moving target that is healthcare reform. By preparing in broad strokes for a future that is less procedure-based and more holistically based, you're doing the right work, even though you're not sure how the reimbursement landscape might ultimately change.

I'd love to hear from those of you who have retooled in the face of growing pressure to achieve value in healthcare. I'm sure there are lots of great ideas out there, and I'm excited to see how hospital leaders plan to transform their organizations strategically.