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Strategic Options: It's Not ACO or Nothing

By Mark DuBow, for HealthLeaders Media  
   September 02, 2011

The national dialogue surrounding accountable care organizations seems to include a barrage of discussion pieces around the pros, cons, and requirements of becoming an ACO. While an important consideration for many, it is critical to take into account a much broader spectrum of strategic options that lay before healthcare organizations even in this era of reform.

This is a critical time for organizations to distinguish between operational initiatives and strategic plans and update their strategic direction.

Keenly aware that just to survive they must be effective in delivering value-based care, many providers have been rushing to implement operational plans that address care redesign, electronic medical records, and various forms of clinical integration.

However, an organization that pursues those activities in the absence of having a clear definition of its strategic role to provide a framework for its transformation and future direction runs substantial risks.

A medium to long-range perspective on the transformation of the healthcare industry suggests that seven emerging strategic roles will exist. In addition to ACO, they include the following which we define as: low-cost leader, niche clinical service provider, research/innovation institute, island, virtual health organization, and vantage integrated provider.

An organization may be highly successful in any of those roles if it meets the associated critical success factors and the role is a good fit with the culture of the organization.

As with ACOs, most providers will not have all of the critical success factors in place for any single role. But after reviewing the criteria for each, hospital leaders can identify the likely best fit based on their capabilities and competencies as well as the market opportunities.

They can then establish a clear future-oriented strategy in their annual management/board retreats and strategic plan updates. Subsequently, this roadmap can be used for focusing goals, action plans, and resource allocation decisions.

The following is a more comprehensive description of the features that define each of the six strategic roles that differ from the ACO framework:

1. Low-Cost Leader
  • Selective scope of services is provided
  • Strong brand identity based on low cost and patient convenience
  • Build and serve a large patient pool (high volume leads to reduced cost per patient and enables reduced charge per patient)
  •  Build volume via contracts and "word of mouth" with little to no investment in aggressive marketing
  • Care is provided in lowest cost, "no frills" settings
  • Operational standardization and efficiency are maximized
  •  Just-in-time clinical supplies inventory
  •  Mid-level providers are used to reduce and supplement the number of physicians and nurses providing care
  •  "Bare-bones" administrative personnel
  •  Electronic connectivity and outsourcing are applied to utilize the resources of others
  •  Where limited capital investment is made, the focus is on achieving a lower cost position, allowing for a lower charge structure

2. Niche Clinical Service Provider

  • Narrowly defined array of clinical services (generally a single service line or a subset thereof)
  • Thorough knowledge of "target" customers (e.g., market size, usage patterns, value sought from provider, decision criteria used in selecting provider)
  • Structured and systematic approach to developing and managing patient referral networks on regional, national, and international levels
  • Thorough understanding of competitors (e.g., performance, approach to positioning, strategies used, and vulnerabilities) applied in setting a distinctive approach to differentiation
  • Brand identity based on clinical expertise (skills and outcomes) and ongoing innovation
  •  Proactive in establishing and managing new strategic relationships, enabling the provider to enhance its clinical capabilities, enter/serve new markets (regionally, nationally, and internationally), gain expertise, and "franchise" its brand identity
  •  Ability to recruit and retain a clinical team renowned nationally and/or internationally
  • Standardized, efficient operations (from patient's first point of contact through completion of relationship) enabling high patient throughput

3. Research/Innovation Institute

  • Focused on bench and translational research
  • Thorough knowledge of the value sought by "target" customers specific to the services and products being developed
  •  Ability to anticipate where multiple trends (e.g., technology, industry, political, social, economic) intersect and are interdependent and use that information to identify new services and products
  •  "Open innovation network" – critical mass of highly talented, entrepreneurial individuals working in proximity (real or virtual) with effective knowledge transfer and clear incentives
  • Strong relationships with a diverse array of public and private funding sources
  •  Legal skills to take new services/products through regulatory approval and retain intellectual property rights
  •  Ability to achieve implementable services and products more quickly and at a lower cost than competitors
  •  Maintain organization features attractive to physicians, scientists, and others
  •  Minimized bureaucracy and ownership related to the commercialization of the products and services developed

4. Island

  • A sole provider in a region. May be any size.
  • Scope of services meets the majority of the needs of the population served and is supplemented with patient transfer agreements, tele-medicine, and coverage agreements for needed specialists
  •  Strong outreach strategies and resources
  •  Ability to limit out-migration by patients via meeting their needs (access, clinical skills, service)
  • Ability to protect "flanks" from invasion by competitors
  • Strong relationship with local community
  • Financial strength to support access to capital
  •  Creative in recruitment and retention of clinical staff

5. Virtual Health Organization

  • Entity that contracts to support other providers. Does not own or operate a care delivery site.
  • Delivers healthcare resources (e.g., physician/nurse/technician on-site staffing; remote consultative support [eICU, Nighthawk, etc.]; remote monitoring of implantable, wearable, and tabletop monitoring devices; databases via multiple modes of telecommunication connectivity)
  • Thorough knowledge of "target" customers
  • Strong marketing and sales capability; "retail" skills
  •  Large, geographically dispersed network of resources available on an extended schedule
  •  Strong network management capability ensuring rapid response/turnaround and delivery of a standardized set of services/products
  •  Strong client installation/implementation, training, and service capability
  •  Strong IT and telecommunications resources compatible with a diverse array of providers

6. Vantage Integrated Strategy

  • Essentially, an ACO "on steroids"
  • Provider, payer, or other party that assembles and coordinates a network or system that consists of providers, financial resources, and a broad array of other strategic alliances.
  • Strong IT and telecommunications resources compatible with a diverse array of providers
  •  Access to capital
  •  Legal skills to form network relationships and manage within the regulatory guidelines
  • Understanding of the businesses and the management strength necessary to integrate the operations and cultures of diverse members of the network

While it may appear tempting to take a "wait and see" perspective on the transformation of the industry, doing so is risky as other providers that are proactive will carve out their position and limit the options for laggards. Similarly, it is highly risky to arbitrarily select a strategic role because it appears attractive/desirable without careful consideration of the factors which determine the fit with the market dynamics and each organization's core capabilities and culture.

Applying the appropriate strategic role and using it as a framework for decisions enhances the likelihood an organization will achieve the following five benefits:

  • Quickly identify the strategic options that are a strong "fit" and those that should be eliminated, thus truncating analytics and decision-making
  • Enable the organization to take advantage of narrow windows to capitalize on emerging opportunities
  • Achieve implementation faster and at a lower cost
  • Achieve more fully aligned strategic and operational initiatives – avoiding operational disconnects and assuring clarity of operational objectives
  • Attain a higher return on investment in a financial, strategic, and operational context

This is a critical moment. Those with effective visioning and accompanying strategic plans are likely to succeed while the remainder may be forced into a role or simply fade from existence.

 

Mark DuBow is a senior vice president in the strategy practice for The Camden Group. He may be reached at mdubow@thecamdengroup.com.

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