The business models that will emerge in the era of healthcare reform are still unclear, but leading hospitals and health systems are already positioning themselves to adapt when they do come into focus. They're taking the first steps toward becoming accountable care organizations even before anyone knows for sure what an ACO will look like—or even if they'll ever come to fruition. They're figuring out how to reduce costs while improving quality and efficiency ahead of reimbursement changes. And they're looking to strengthen their market positions through partnerships, collaborations, or mergers and acquisitions. Why? Because even though it's not yet entirely clear which strategies will be most successful in the next five years, organizations can't afford to take a wait-and-see approach.
"The ones who are not feeling the pressure [to change their business models] right now are going to be the last ones in, but eventually everyone will feel some pressure. It's just a matter of what they can tolerate," says Peter A. Pavarini, partner at the Columbus, OH, office of the law firm Squire, Sanders & Dempsey LLP. "If you are going to survive in an accountable care world, you have to have a degree of coordination that only comes from affiliation. You can't have it in the free market."
Hospitals that do not conform, collaborate, and work together will suffer, says Frank M. Lee, MD, vice president of medical affairs at The Exigence Group, an Amherst, NY-based urgent care and ED management firm. "And you'll see some close, just like in any industry," he predicts.
An eye to the future
The good news is that there is opportunity ahead for all healthcare organizations—from small community and critical access hospitals to large integrated systems. Among the many changes experts predict will take place in the new healthcare landscape: increased collaboration, even among competitors; an uptick in partnerships with alternative care, ancillary service providers, and outpatient clinics; more mergers and acquisitions of hospitals and other healthcare organizations, such as long-term care facilities; a trend toward specialization; and hospitals and health systems that are no longer the center of the healthcare universe but instead work with patients and physicians as those patients move along the continuum of care.
To take advantage of those opportunities, however, healthcare organizations will have to take some risks-changing or modifying business strategies based on predictions about where the market will go.
"The real question is, what do you want to be ten years from now?" Pavarini says. An independent hospital with geography in its favor can survive, with a caveat: "Some of those will have a longer timeline to determine where they fit, but they, too, will reach a point where independence is not a long-term strategy."
The healthcare industry, of course, is not known for its ability to swiftly implement change-let alone make those changes in advance of final government rules. "Disruptive innovation" might be a trendy topic, but can hospitals and health systems really shake things up in any significant way?
In healthcare, change tends to be incremental, says Stephen Wunker, managing director of New Markets Advisors, a consulting firm in Washington, DC. In some respects, incremental improvement has worked extraordinarily well for the healthcare industry--such as improving operational efficiency and safety.
The ability to achieve significant change depends on the type of organization, Wunker says. For example, a health system in a small rural town has enough market power that it has to stay in business--it is, in effect, too small to fail.
"But when it comes to business strategy, for a lot of healthcare systems that's not going to cut it," he says.
Moving forward no matter what
Premier, the Charlotte, NC?based performance improvement alliance, has gathered together 40 organizations that are betting that collaborative care coordinated by a hospital or health system is the healthcare business model of the future.
The collaborative's aim is to help each member develop its own skills, team, and operational capabilities needed to become an effective ACO "capable of lowering costs by improving care coordination, efficiency, quality, and patient satisfaction," according to Premier.
The collaborative will build the knowledge and expertise needed to transform a healthcare system from one that treats illness to one that delivers health and wellness, improving healthcare outcomes at the most cost-effective price for patients and taxpayers, says Susan DeVore, Premier president and CEO.
Aurora Health Care in Milwaukee joined the collaborative in August. The 13-hospital system says it is committed to creating ACOs in its markets and accepting accountability for the care delivered to patients by improving care coordination, efficiency, quality, and patient satisfaction.
"There's no question that meeting the demands of healthcare reform will require providers to assume greater accountability for community health," says Nick Turkal, MD, president and chief executive officer for Aurora Health Care. "Keeping people healthy is the best way for health systems to add real value, control healthcare costs, and increase overall satisfaction. We truly believe that ACOs are the future."
That future will include a number of components, from patient-centered health homes to physician compensation models that reward care coordination, efficiency, and productivity. Among the organization's goals: to build integrated relationships with specialists, ancillary providers, and hospitals; to negotiate provider-payer partnerships and reimbursement models that incent improved outcomes and reward value over volume; and to create a population health information infrastructure, including health information exchanges, to enable care coordination across provider networks.
As an integrated delivery system, Aurora is well-positioned to meet those goals, says Patrick Falvey, senior vice president and chief integration officer. That means pulling together all of the pieces that make up the delivery system along the continuum of care, he says, from home health to pharmacies to physician practices to hospitals. And Aurora has begun crafting deals with ancillary providers to fill some of the gaps in the system, such as long-term care facilities.
Aurora will pursue the model whether or not ACOs come to fruition and even if healthcare reform is repealed, Falvey says. "If it does change, I think we're agile enough to [respond]," he says. "Whether it comes or not, this is a direction we've been moving in for years."
Like Aurora, the Rocky Mountain Hospital for Children in Denver (the pediatric arm of the 325-staffed-bed Presbyterian/St. Luke's Medical Center) is betting that its strategy will position it for success in the reform era marketplace. That strategy includes affiliations with community hospitals and a somewhat unusual philosophy that the hospital is not the center of the patient's universe.
Each of the six full-service hospitals in the Denver-based HealthONE Presbyterian/St. Luke's Medical Center health system went through a rigorous affiliation process that included an evaluation of clinical services, quality and outcomes, staffing, equipment, community relations, relationship with primary care providers, the scope of pediatric subspecialty services on site, and ED capabilities. The process was led by the chief medical officer to ensure that the review focused not only on administrative capabilities but also on clinical competencies.
Those hospitals that made it through the affiliation process must adhere to strict quality standards based on demonstrated best practices, contained in a 6-inch-thick binder. "We regularly assess that what we say we're doing is what we're actually accomplishing," says Rocky Mountain President and CEO Mimi Roberson. "You don't put the binder on the shelf."
Rocky Mountain coordinates care with its six affiliated community hospitals so that patients can be moved closer to home as soon as they are stable, allowing them to continue treatment closer to family and friends, improving patient satisfaction, and also strengthening ties with the affiliated community hospitals and referring physicians.
"We don't consider ourselves the home hospital," Roberson says. "The important thing for us to do is recognize that people choose their community hospitals because there's a level of trust there." The relationship between patient and primary care physician is similarly personal, she adds. That's why it is so important to return patients to their home hospitals and their primary care physicians as quickly as possible. "We support wholeheartedly them retaining their relationships."
Physicians should get used to this kind of collaboration and coordination of care, Wunker says. "Physicians need to drop the historical aversion to hierarchy and having others coordinate care. The train has left the station and the old model of Marcus Welby coordinating care may work in a handful of isolated communities but is not what payers, ACOs, and health systems are going to desire. The evidence is pretty clear that more coordination is needed," Wunker says.
You can have a physician who is totally out of line with the systemic approach you want to take with a service line, says Pavarini. "It's better to have an independent physician who shares governance and oversight and is with the program than an employed physician who is there to pick up a paycheck and doesn't give a hoot. We've fallen in love with employment, but to me it is a limited model."
At Rocky Mountain, says Roberson, the relationship with providers—whether physicians, specialists, affiliates, or competitors—is one of trust. "And we have never betrayed that trust," she says.
"I don't think good medical care should be proprietary," Roberson says. "I don't own patients. Nor do I own the physicians. Whether physicians are employed or not, patients deserve choice. And if we can create and support choice, the humanitarian part of healthcare has been accomplished."
Parts of Rocky Mountain's strategy echoe CMS' initial description of ACOs, which will, according to CMS, "facilitate coordination and cooperation among providers to improve the quality of care for Medicare beneficiaries and reduce unnecessary costs." CMS also says ACOs must demonstrate that they are patient-centered and that they must pay attention to both clinical and administrative systems--two aspects of the Rocky Mountain model.
Although she is not quite ready to say whether the organization will pursue an accountable care model since it is still unclear how ACOs will "play out," Roberson says the organization is refining the business model it has developed over the two decades that the hospital has been open, with a renewed focus on quality and outcomes and a mission to deliver what patients, physicians, and the community need and expect. "Our strategies are solid and flexible, which allows us to be nimble," she says.
Cooperation with competition
Rocky Mountain doesn't just maintain relationships with its affiliated hospitals and physicians—it also does so with other hospitals in its market, even those with which it competes. An outreach program provides resources to rural hospitals and hospitals in underserved areas, including on-site clinician training programs, for example. And any hospital in the region can call Rocky Mountain for free advice on a patient, day or night, regardless of affiliation. "The right thing to do is to support the community where those patients live and work," Roberson says. "Because of our collaboration and affiliation, we're all working toward a united goal."
And to skeptics who say this strategy is all goodwill and no ROI, Roberson says, "When you do the right thing, the business usually follows." Working with rather than against physicians and other hospitals not only boosts patient satisfaction and positive word of mouth, but also supports appropriate referrals, since physicians and organizations know you won't try to "steal" their patients. Further, it allows the hospital to focus on the most acute cases.
Hospitals are used to working with referring physicians and physicians are used to working with specialists, but the next phase of integration will be linking all specialty services, such as cardiology programs and even, eventually, specialties that have traditionally been independent, such as urology, even if they are competitors, Pavarini says. Key specialties will likely be a part-ownership or employment model, or will at least form very close relationships with hospitals (within the limits of state regulations, of course).
Another reason to work with competitors: bundled payments shared among hospitals and postacute care facilities with no additional payments for patients who are readmitted within a certain time frame—a structure that will create a strong incentive for providers to ensure coordination of care and high quality of care all along the continuum. "That's a radical change," Pavarini says. "If providers want to reduce costs and maximize reimbursement, they'll have to work together."
Specialize to compete
Specialization is a strategy that will likely become more common in the reform-era world, Wunker says. Hospitals must find their competitive advantage by examining what makes them indispensible and what services are dispensable. Some hospitals may differentiate themselves by being low-cost providers and more hospitals may vie to become destination providers. There could also be an increase in organizations that seek market domination through mergers and acquisitions.
Another result of such specialization: The so-called technology arms race may begin to cool. Now, many hospitals feel pressure to invest in clinical technology even if they won't often use it because their competitor down the street has it. Owning the latest piece of equipment is a shorthand way to show your organization is cutting edge. But specialization as well as increasing transparency about quality and outcomes data may mean hospitals do not need the technology to prove their worth, Wunker says.
How organizations choose to specialize depends on several factors, chief among them market dynamics.
A consolidated system with a large chunk of market share has more ability to succeed by creating change in the healthcare system, Wunker says. On the East Coast, for example, Massachusetts-based Partners Health System is well poised to dominate with advanced IT systems and a large stable of physicians. "They should push those advantages as far as they can," he says. But, he adds, in some crowded markets with many different independent organizations, it would be difficult for one dominant force to emerge. "If we're talking about South Florida, then it may be that trying to become the colossus there is too difficult—it's too fragmented."
Meanwhile, the big brand-name players are expanding into new markets through acquisitions and affiliations—they'll continue to do so and will likely succeed with that strategy, he adds.
Joint ventures with ancillary service providers is another way for hospitals to focus on their core business as well as improve efficiency and reduce costs.
One of the toughest challenges facing hospitals today is ED overcrowding, which is predicted to get worse when roughly 30 million new patients are insured under healthcare reform.
If a pessimist sees the difficulty in every opportunity and an optimist sees the opportunity in every difficulty, Jim Greenwood, CEO of Concentra, an urgent care provider based in Addison, TX, that runs 300 clinics, is surely the latter. There is a "tremendous opportunity" for urgent care models to help alleviate ED overcrowding, he says. And they won't necessarily be stealing patients from hospitals—especially if the hospitals partner with them.
Founded in 1979, Concentra originally partnered with larger employers to care for employees who had sustained work injuries. But, Greenwood says, the company recently realized that there was a need to control rising healthcare costs due in part to unnecessary and expensive ED visits. (A trip to the clinic costs about $125 while an ED visit costs an average of $600 for the same type of condition.) The company partnered with three school districts that wanted to put more focus on health, wellness, and preventive care for their combined 25,000 employees. "We need to get people to the right care, at the right time, for the right price, and we need to focus on prevention," he says.
The business doesn't necessarily compete with hospitals, he says. In fact, it has entered into 10 joint ventures with hospitals. Concentra manages and delivers care in the clinics; inpatient care is a collaborative effort with the hospitals.
Such models—with closer collaboration between providers and employers in an outpatient setting or on the job—will continue to thrive, Greenwood predicts.
Increasingly, hospitals and health systems have begun to align with facilities beyond outpatient clinics--especially those that provide postdischarge care, including long-term care facilities, home health agencies, and outpatient clinics, in part to prepare for payment changes that will penalize readmissions and reward quality.
One of Pavarini's firm's clients is a large long-term care provider that delivers postacute, hospice, home, and nursing home care. The firm is working to connect the organization with hospital systems to perform these services for them under accountable care—a far stretch from simpler models such as bed reservations. At one time, a request for such an extensive partnership would have "fallen on deaf ears," he says, but a large hospital quickly expressed an interest.
"Collaboration is now not theoretical. It is real and present, and I think we're going to see more traction than ever before," he says.