With margins compressing and only 25% of hospitals in the black, rigorous processes must form the backbone for strategic decision-making, says a health system chief strategy officer.
For today's hospitals and health systems, competition isn't limited to similar organizations. Disruptors range from rapidly consolidating multistate health systems to employers and even Amazon. But smaller, regional health systems can still compete in an era of compressing margins.
Effective competitiveness starts at the top, where a visionary CEO and an ambitious C-suite take advantage of what assets they do have. Instilling a culture of growth is easy to articulate but tough to execute, says Matthew Gibson, PhD, senior vice president and chief strategy officer at Erlanger Health System in Chattanooga, Tennessee.
Gibson, who came aboard Erlanger in September 2017, says he joined the organization chiefly because of its culture of growth, which has contributed to a near doubling of the system's revenues, from $600 million only four years ago to nearly $1 billion. Only eight years ago, Erlanger was an organization whose future seemed somewhat gloomy as it struggled under a mountain of charity care costs.
"This organization has made a lot of progress from eight years ago," says Gibson. "That was when the organization was in a lot of turmoil and there was some question of whether it was going to continue. I'm new, but the team has doubled net revenue in the past four years and now we have our first out-of-state hospital in Murphy, North Carolina."
President and CEO Kevin Spiegel, who took over five years ago, and the board, felt that despite recent progress, future independence was not guaranteed—a stated goal for the board.
Gibson is the first to hold the chief strategy officer role at the organization, where he continues the culture of growth Spiegel created by integrating data and analytics into its strategic decision-making. His experience at academic medical centers, investor-owned hospitals, and a large multistate nonprofit health system will help inform his work, he says.
"Diversity of experience can serve folks in this role well," he says. "I know what works and what doesn't work."
Chief strategy officers can provide a critical voice to guide the health system in driving volume and value in a time of enormous change, says Adriane Willig, a consultant with Oak Brook, Illinois–based Witt/Kieffer, and an expert on strategy officer executive searches.
"The CSO is not necessarily charged with operationalizing a strategy, but with full execution and making adjustments," she says.
Gibson says he's focused on three strategies that have grown the culture of growth at Erlanger:
1. Multiple access channels
Erlanger is in the process of developing a new primary care strategy to build out its primary care network and more fully integrate the health system into the decisions patients make outside the acute care space, says Gibson.
Erlanger is also building out its affiliate network with smaller hospitals in the region, offering them GPO savings through Epic connect, which allows the hub—in this case Erlanger—to extend its Epic EMR license to affiliate "spokes." It's also helping those smaller affiliate hospitals with physician recruiting, building out EMS services, service line programming, and managing the hospital, which can extend to joint venturing or even direct ownership by Erlanger, if the local board desires that.
"We want them to connect with us at the points they want to connect," he says.
2. No-regret moves
Gibson says Erlanger is developing its culture of growth by focusing on what he calls "no- regret" moves—those that will likely work regardless of a value- or volume-focused environment. Risk hasn't penetrated its region to any significant degree yet, but Erlanger plans to be ready. It started its first foray into risk: a narrow commercial network ACO with Cigna, in January, and is a member of the Vanderbilt Health Affiliated Network, a large Tennessee clinically integrated network.
It's also on the verge of rolling out its primary care access strategy, which focuses on multiple access channels, which Gibson calls "a first for our market."
"Risk hasn't really evolved here, and that's an important consideration for any strategy officer," he says. "We've been telling everyone for at least the past five years that risk is coming but, the reality is, it just hasn't happened. It's an important litmus test for leaders in roles like this to know the pace toward risk and what makes sense."
3. Build on strengths
All of Erlanger's primary care practices are medical home–certified, and it's building more low-cost ambulatory capabilities to get further into the low-acuity side of the local healthcare market. Gibson says it's critical to build out the continuum because Erlanger has the advantage of being the low-cost provider in the market despite also owning the area's teaching hospital function.
Erlanger is partnering with Teladoc to launch telemedicine capabilities in May as part of its access strategy. It will provide on-demand low-acuity access for basic primary care services. That will allow patients to access Erlanger doctors not only during off-hours but will push access to outlying communities from Chattanooga.
The strategy is intended to enhance referrals to partner hospitals in outlying areas, says Gibson. Balancing volume within the network can provide a virtuous circle to prevent the main fear of every hospital Erlanger seeks to partner with: that Erlanger wants to supplement its volume by taking procedures away from local facilities.
"It doesn't do us any good as a super-regional to funnel everything back to the mothership," says Gibson. "With our Level I trauma center, we have major capacity challenges here."
Erlanger's acquisition of Murphy Medical Center is a perfect example, he says.
"We want to keep more there because it's contrary to our margins to bring low-acuity stuff here, and it's better for the community to keep it there," he says.
Despite the Murphy acquisition, Gibson says Erlanger's growth ambitions have their limits. His prior experience has shown him there's a sweet spot in terms of the right size of a health system. Erlanger's current size offers payers and patients a lot of value.
"When you look at aggregate data, bigger isn't always better," he says. "There's not much impact on quality outcomes, although you get some economies of scale. We're actually more attractive because our rates are lower. We don't have to merge with someone else."
Philip Betbeze is the senior leadership editor at HealthLeaders.