Becker's Hospital Review

Executive Briefing: Hospital & Health System Strategy 46 Sponsored by: Strategically Positioning Health Systems in a Dynamic Environment By Kate Lovrien and Luke Peterson, Principals, Health System Advisors Supporting Authors: Adam Baker, Jeff Heidenreich and Victoria Schmitz, Strategists, HSA The healthcare industry is undergoing large and fundamental changes with implications that are not fully visible. The Patient Protection Accountable Care Act, which was an important catalyst for the industry upheaval, turned three years old in March and yet many of its provisions are still waiting to be defined and enacted, causing continued uncertainty in the industry. And, while health insurance premiums continue to grow, it is not translating to better margins Is your organization effectively coordinating the major systems of care? Are you ready to manage systems of health? HealthSystemAdvisors.com for health systems as elective healthcare volumes continue to decline and demographics continue to shift the patient base to older and sicker populations who require more healthcare services. 123 Both systems and independent organizations have increased acquisition and merger activity as organizations seek the perceived security size brings in the face of an uncertain future.4 Even though finding partners is a natural response for hospitals and health systems in an uncertain world, it will be years before many of these systems recognize any significant benefits from coming together.5 Moreover, size will not guarantee success or future security during the industry transition from fee-for-service reimbursement model to the risk-sharing models of population health. Without the right strategic advice and positioning in the market, large and small health systems are at risk of becoming commodities and losing their position as leaders in the U.S. healthcare industry. In these times of industry uncertainty, health systems must be actively working on four major strategies to be positioned for the future. These groupings of strategies include: Growth, Effectiveness, Relevance and Capabilities. While Growth and Effectiveness strategies have been a staple of every health system strategic plan over the past two decades (e.g., grow x, y, and z service line, improve service, deliver worldclass quality, etc.), the massive industry upheaval brings into increasing importance strategies related to Relevance and Capability. It is no longer enough to simply drive growth and effectiveness, most must fully reinvent their capabilities to remain relevant in light of the industry shifts. System of Care System of Health Growth strategies Definition: strategies to affect expansion HEALTH SYSTEM ADVISORS Growth strategies are focused on the efforts by the organization to expand their services and ultimately, their revenue and mission. In a market where the future direction and competitive rules of the industry are generally clear, those that grow the fastest win. Until recently, growth has been the primary focus for healthcare organizations. Growth strategies take on a number of forms including: volume, payor mix, new markets, additional geographies, reputation, size and scale and span of services, specific populations, etc. Growth is a high-impact, aggressive strategy and is often seen as a sign of strength and success in the American social fabric. Organizations looking to increase margin have two major options: savings through cutting costs and increasing revenues with growth. Many organizations consider growth and cost savings two aspects of the same process; however, this is not the case as savings can put the relationships with patients in jeopardy and thus often leads to a decrease in margin6 while growth enhances these relationships and leads to sustained increases.7 Further, while cutting costs may appear to be an entirely internal operation, inevitably customer satisfaction will be affected8 perhaps through reduced patient services, longer wait times or discontinuing/ limiting a product or service. These implications hardly encourage consumer loyalty, which can stunt business growth by 50 percent or more9. Increasing revenues with growth has a different effect entirely. Focusing on growth has shown better results than cost savings or even a combination of the two, including a higher return on investment. Growth will often increase the availability of new services and access to existing services, which leads to a loyal and growing customer base. This preference for growth across industries is further evidenced by the stock market reaction. While surprise announcements of each strategy adds some immediate market value, investors react more strongly to sustainable and persistent growth revenue changes over the change in expense that cost savings represent.10 The differential in investor reaction is even more pronounced in growth stocks versus value stocks11.

• Cover