Hospitals Find Their Role Diminished

The traditional hospital has become not only a high-cost boogeyman, but also a sign of the limits of a CEO's leadership capabilities. Buttressing a financially vulnerable hospital's business with ancillary services is one way CEOs are being innovative. Now other industry players need to catch up.

It used to be easier for reporters to cover hospitals.

There were hospitals—defined by providing inpatient care almost exclusively—and there was everything else. And never the twain should meet.

But the definition of what a hospital is has been getting blurrier and blurrier over the years.

Hospitals, increasingly, are a part of the whole. If they have not grown by branching out into other areas of greater opportunity in recent years, they've been absorbed by other organizations that have already made the transition into owning more and more pieces of the healthcare continuum, from rehab facilities and surgery centers to health clubs and even hospice.

The hospital has become not only the high-cost boogeyman, but also a sign of the limits of your capabilities. No organization wants to be known as "X Hospital" anymore. At least on a corporate level, it's "Health" or "Healthcare," which is thought to connote the idea that these organizations are not just for acute services anymore—they are the soup-to-nuts answer for your healthcare needs.

Frankly, that's a welcome change, as long as health systems don't unfairly dominate one market such that it has de facto control over reimbursement rates in a given area. It reflects an acknowledgement by hospital and health system boards and senior leaders that in order to make the most of the transformation of the healthcare business model from volume to value, systems must influence and even control how patients move through the entire healthcare system, such as it is, not just through an acute phase of care.

Much of this transformation is understandable. For years, many have been pushing hospitals to be more cooperative with other sites of care. But that's been a hard sell. Regardless of how you feel about coordination of care, hospitals for too long decided that if it happened outside their four walls, it wasn't their responsibility.

And after all, why should it have been? The way they were paid certainly didn't encourage coordination, and patient outcomes were not part of any payment equation. But now that's changing, and no one wants to be known simply as a "hospital" anymore.

If you want to create an ACO, which, let's face it, whether substantive or not, is the way to show the world that you are truly focused on the continuum of care, you need all these pieces and parts. And you need innovative leaders to run them. Sure, you can create effective care transitions without owning the pieces, but it's more complex, and the last thing most healthcare leaders want is more complexity on their daily calendars.

However, successfully integrating such pieces of the continuum doesn't stop at acquisition, of course. Many who began their careers in hospitals and stayed there have little experience in managing these other lines of business. That adds to the fear that the capital required to re-engineer the business model may yet still be squandered.

First among CEOs' concerns has to be the fact that healthcare leaders need new faces, new skill sets, and new ideas on the system's leadership team. Managing a physician practice or outpatient surgery center requires a basket of skills and experience that most hospitals and health systems don't have.

Sometimes they make the mistake of pretending that such entities can be managed by those who grew up in hospitals. Usually, this is not the case, even if the misalignment comes more from a political and cultural place than in actual aptitude.

So CEOs are hiring executives from health plans to help manage risk. They're hiring physician executives to help re-engineer care, and they're employing a cast of people who can help patients manage through care transitions. That's effectively what all these experimental risk-based payment systems have been asking them to do.

Which brings us to the second main concern of CEOs: The payment system has an even longer way to go toward truly paying for patient outcomes, even if hospitals and health systems are scrambling to put the pieces of the new business model together, often at great expense.

Pay-for-performance schemes have been around for years, especially from commercial payers, but they have been crude, largely experimental, and not robust or expansive enough to truly influence behavior change among providers. CMS has also made strides, but the fact remains that only a small percentage of healthcare reimbursement is at risk currently, and the number will remain small in at least the medium-term future.

Hospitals and health systems have long been criticized as bastions of the status quo, when the status quo is playing a big part in bankrupting the country.

Now, as many recent conversations and events have proven to me, hospitals and health systems being innovative by accumulating expertise and pieces of the healthcare system that they never much cared about in the past, on the promise or threat, depending on your point of view, that payments will move toward value and away from fee-for-service.

Now, it seems, it's the rest of the world that needs to catch up.