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Does Innovation Mean Cannibalization?

Philip Betbeze, for HealthLeaders Media, August 13, 2012
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Leadership overrated?

So how deeply should the CEO lead his health system into reformed payment initiatives at this early stage? It's a sensitive topic that poses real risk to one's career and to the viability—short-term viability, at least—of one's organization.

"It's a tough decision for CEOs," says Ron Van Horssen, senior vice president with the Camden Group, a healthcare management and consulting firm with offices in New York, Los Angeles, Boston, and Chicago. "The cannibalization question is different in healthcare than in other industries because of the inertia that exists in healthcare on market share, which doesn't move the same way as in other industries."

He says it's difficult to say how deeply a health system ought to experiment, but that its leadership also can't afford to continue to assume that the value-based trend won't touch them, or that their tenure will end before the new model becomes widespread. In short, it's exceedingly difficult because "the right decision at the wrong time may end up being the wrong decision," Van Horssen says. "If you change your revenue stream too soon, you chew up financial resources before you have to. You should make sure you're part of the conversation, but you don't always have to lead it."

What Eustis was doing seemed bold and innovative for an influential healthcare executive, and boldness and innovation are already in short supply in efforts to reform a healthcare cost growth pattern that—even with recent declines in healthcare inflation—still outpaces the annual inflation rate for everything else threefold. Given the margin pressure involved, will hospitals and health systems be even more reluctant to try to cut costs through these efforts?

It's too early to tell, but Van Horssen concludes that hospitals or health systems must employ a bit of game theory in making the decision to transform.

"Unless you are already capturing capitated revenue and you're already managing populations, you probably want to shift away from fee-for-service as late as possible so you don't cannibalize cash flow that's coming from fee-for-service," he says—different from Fairview's leadership approach to
the transformation.

While not speaking directly about Fairview or any organization, Van Horssen says that the rush to create ACOs has blurred strategic decision-making for many organizations.

"Many have kind of rushed headlong into developing an ACO without adequately assessing the way it might impact fee-for-service business," he says. "However, you may have no choice if you're looking at market share being taken away from you by the payer, and you have to assess that."

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