1. Reducing costs by standardizing practices. Lack of care standardization is a significant cost for hospitals, as providers order unnecessary tests or overuse limited resources while the hospital accepts fixed rates for procedures. With Medicare reimbursement declining, hospital CEOs will have to determine how to standardize practices across their organizations — an especially daunting task for facilities where the majority of physicians are independent. "In the vast majority of hospitals, their medical staff is independent. In an independent physician association their ability to truly drive and get compliance with care management and order sets [is limited]," Mr. Whelan says. "The governance structure is not there."
As hospitals move toward reimbursement for quality rather than volume, the next wave of substantive cost reductions will exist in care and utilization management, Mr. Whelan says. The challenge is convincing independent physicians to adhere to standardized "best practices" when they have likely spent the majority of their careers being rewarded for increased volume.
2. Risk-sharing and population management. With the advent of accountable care organizations and risk-sharing, hospitals are moving toward accepting a fixed payment for a segment of the population. In order to make money on this enterprise, hospitals need to focus on managing the health of that population, turning their focus to preventive care rather than hospital admissions. "Profitability for hospitals could actually increase," Mr. Whelan says. "Instead of the volume-based model where they kept compressing the payment on the transactional volume, you go to a different model and you end up carving out populations and then increasing their profitability." For this to work, hospitals need to take responsibility for disease management, which means improving primary care, nurse triage, access to services and community education. For communities struggling with health problems, this may prove both a struggle and a tremendous opportunity.
3. Consolidation. The healthcare industry is awash in mergers and acquisitions, as health systems look to lower costs by leveraging economies of scale. The wave of consolidations brings a change to a historically fragmented industry, and hospital systems are struggling to merge diverse facilities into standardized links on a chain. The divide between for-profit and non-profit facilities also poses a challenge: Ascension, one of the largest Catholic non-profit hospital systems in the country, just announced a for-profit division to take advantage of opportunities in private hospitals, which comprise 20 percent of U.S. facilities. Despite the buzz around mergers and acquisitions by ever-growing system giants, Mr. Whelan thinks the industry will still preserve smaller groups of hospitals, as long as they have the capital to keep up with compliance, IT investments and requirements imposed through healthcare reform. "There are going to be mega-systems that will be the real power players, moving the trends of reimbursement and care, but [there will still be] a lot of smaller players who have developed competency to be able to fund and capitalize themselves," he says.
4. The race to implement IT. Hospital systems are racing to implement information technology in order to achieve stimulus support, even if it means sacrificing significant capital to achieve a relatively small initial stimulus fund. Still, most healthcare experts agree that information technology is absolutely essential for successful hospitals in 2011 and beyond. "[IT] is the only way you can fundamentally manage population, standardize care, maintain compliance [and have active reporting] instead of historical reporting," Mr. Whelan says. "This is the key leverage point for a lot of the more sophisticated systems. They're so far ahead that they can leverage these systems to provide immediate value to a potential partner." He says IT may provide the key to changing independent physician behavior; if the physician practice, clinic and ambulatory setting is integrated with the hospital inpatient setting through IT, physicians will find it easier to comply with standardized practices and manage patients who have left the office.
5. Physician integration and clinical process improvement. One of the biggest challenges for hospital CEOs over the next few years will be integrating and aligning physicians without employment, Mr. Whelan says. For systems that choose to employ their physicians, the process of alignment is much easier; the system has much more power as far as physician governance, and compensation is tied to hospital finances rather than physician reimbursement. But at least for now, most hospitals and health systems are largely dependent on a base of independent physicians, a position that may introduce challenges as facilities attempt to align physicians on strategic goals and process improvements. Instead of opting for full-on employment, Mr. Whelan says many facilities are giving physicians options for partial alignment. "They're basically providing a menu of alignment options so they don't alienate the independent medical staff," he says. "This includes everything from activating them into your quality structure and paying them stipends for administrator-ships, getting them involved in your care councils and your IPA, [involving them] in your IT infrastructure. Then there are the joint venture aspects that drive behavior because there's mutual financial benefit."
He says physician integration and employment trends may change as the older generation of physicians retires. "Most folks coming out of medical school favor employment. It's more predictable and more manageable," he says. "It really is one of those decade-long issues. We'll wake up in 10 years and we're going to be in a highly-aligned model."
6. The rise of the healthcare consumer. Historically, physicians exercised substantial control over where their patients received care. Referrals were key, and patients were relatively submissive to the advice and directions of their providers. Not so anymore, Mr. Whelan says: In the age of information and social media, patients are acting as consumers, conducting their own research on hospital outcomes to determine the best place to spend their money. "More and more things are becoming publicly available as it relates to quality metrics, and it ultimately ends up being consumer choice," he says. Because of this trend, hospitals may have to shift their focus from influencing referral patterns to improving direct-to-consumer marketing and publicized outcomes. He says the increasingly public nature of quality outcomes may be difficult for facilities where publicity would demonstrate a poor rate of compliance to national benchmarks. "If you go on the Dartmouth-Hitchcock website, they publish everything form pricing to quality," he says. "Sixty-five percent [of hospitals] are not ready for that game. The mortality, the infection rates, the sentinel events — this not exactly the type of information you want publicly available." The availability of this data will force hospital CEOs to put more pressure on improving outcomes, which, again, means standardization of care and physician alignment.
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