Competitors should be able to cooperate to help transition to a value-focused business model, and the need is urgent, says the COO of Novant Health.
Healthcare is undergoing massive changes. Especially in the acute care space.
More healthcare is being moved outside this expensive site of care and many hospitals have closed or are on the brink, in large part, because of this shift.
For several years, hospitals and health systems whose leaders have foreseen this change have been trying to diversify their revenue stream by starting partnerships or acquiring primary care or post-acute care sites.
They've bought, sold, and partnered with a variety of organizations, not only to better manage care transitions, but also to move into higher growth areas.
They've also tried to cut costs, most successfully with group purchasing organizations and supply chain initiatives that reward volume purchases and standardization.
Related: How Postacute Care is Evolving
But all that may not be enough to ensure that health systems can fund the investments needed to make a 180-degree turn from pushing volume to pushing value.
Instead of just taking care of patients when they get sick, hospitals have to focus on prevention, wellness, and slowing the progression of chronic diseases, says Jeff Lindsay, executive vice president and chief operating officer at Novant Health, a 15-hospital system based in Winston-Salem, NC.
They can do that more easily and quickly if they're allowed to partner with competitors for back office functions. That cooperation would free up more financial capacity to invest in those new clinical focus areas.
"There will be winners and losers in this industry," he says. "Sixty [rural] hospitals closed over the past year. It will happen at an increasing pace."
You'd expect to hear this refrain from small hospitals that don't have the wherewithal to make the transition, for one reason or another, but not necessarily from Novant Health, a AA-rated credit according to Fitch Ratings, which averaged a 5.2% margin over a recent three-year time frame and posted operating revenues of $3.8 billion in fiscal 2014.
And while Lindsay certainly expects Novant to be among the winners, it won't just happen on its own.
Which is why he and the leadership team at Novant are seeking further partners, if the public and legal authorities will accept it.
"We're looking at how we can work together with direct competitors in ways that may not feel natural, but that will create value and benefit and free up capital to invest in the new model," he says.
He argues that while competition in clinical areas is good for consumers and innovation, it also has a flipside, especially in healthcare: because of expensive duplication of services and tools.
"We're so heavily regulated, it has led us to create an extraordinary amount of duplication and redundancy. So we really think there's an opportunity to address some of that," he says.
Think of collaborations around back office infrastructure, for example. Or IT infrastructure, or even—and Lindsay acknowledges this is the most controversial—collaborating on clinical programs to some degree.
Non-clinical Functions Ripe for Consolidation
Novant has plenty of partnerships with organizations outside its market, notably a supply chain cooperative deal with MedStar Health, a three-hospital system in the Washington, D.C. area, and Sentara Healthcare, a 12-hospital system based in Norfolk, Va.
Clinical cooperation among competitors may be the most controversial of Novant's ideas on cooperation among close competitors, but he argues that billing, paying, human resources, and other functions not unique to healthcare are ripe for such consolidation, which would free up capital for use in clinical and continuum innovation.
What's striking about what Lindsay espouses is, except for the clinical possibilities, is that everything else is already being discussed with certain competitors, although he says discussions are in too delicate a phase to name them.
He calls the first idea, of collaborating around back-office infrastructure, "pretty doable now."
"We've invested millions in that infrastructure and so have other health systems, and they essentially look the same from one facility to the next," he says. "We think the opportunity to back up and share infrastructure works across multiple health systems."
Just within Novant Health in recent years, consolidation of collections activity that had been fragmented based on sites of care—ambulatory, acute care, imaging, for example—yielded huge results. Consolidating collections into one entity saved $52 million just in that one sub-function, Lindsay claims.
Potentially Huge HIT Savings
"If we could do that across multiple health systems, it becomes two or three times that amount," he says. "The reality is it's all unique but not so much that we can't share a common platform if the payback is new resources we can devote to the community."
He also thinks huge savings could be realized in the IT arena.
"We spent $600 million deploying our EMR across all our facilities," he says. "Every health system has spent along that magnitude, depending on their size. There's an opportunity to work together consolidating IT and clinical record spend, even among closely competing systems."
Novant and other healthcare providers need to be able to communicate with competitors through the EMR anyway, for clinical reasons, he adds.
A final area of potential cooperation, though controversial, is in clinical programs.
He envisions partnerships that might share or develop programs together in cardiology, oncology, and neuro service lines, for example.
"We don't see collaboration on clinical programs very often in the healthcare space. Those things, we think, differentiate us, so that makes it hard. That's what we put on the billboards."
But taking out redundancy in those areas is a huge opportunity for savings, he says.
Outdated Regulations
"That's where the revenue is today. It may not be tomorrow, but is today. Are we building out the health system of the future by investing in duplicative services in a single market?"
Close cooperation among competitors in a region could mean investments can be made to help solve the mental health crisis or in preventive health—investments that may be lower on the priority list for healthcare organizations, but still hugely important for managing the health of populations.
"The one big challenge is the FTC and regulations. We need a marketplace that's regulated enough so it functions appropriately, but some of these rules are over 20 years old," he says.
"There's got to be a way to start a conversation about revising some of those rules and regulations to create a path not toward health systems dominating a market but serving it better. We ought to come together as an industry to rethink that regulation in way that would help us do a better job."
How quickly can any of this happen?
More quickly than you might think. Novant has started some conversations with competitors, although the clinical services area has not been broached.
"We can't have that discussion right now, although I think we need to. But at least from an infrastructure perspective, we've started some dialog with a couple of organizations and what that could look like."
On those discussions, Lindsay believes the end of the year may not be too soon to announce a deal, if the guidance it receives on current regulations is promising.
"As soon as we can get regulatory clarity we'll move something forward preferably this year," he says. "There are a lot of details to work out to make that happen but it's a priority for us."
He contends that while most health systems are focused on driving down unit cost and increasing productivity and improving quality within their four walls, the limit on what can be done in those areas is on the horizon.
"This is why we feel [it is] pretty urgent, and this is a quantum step, not an incremental step," he says. "The truth is we're going to hit the wall on wringing out more efficiency. So the timeline is pretty urgent for us."
Philip Betbeze is the senior leadership editor at HealthLeaders.