Issue link: https://beckershealthcare.uberflip.com/i/148059
Executive Briefing: Population Health 22 Sponsored by: Shifting the Health System's Value Equation From Provision of Assets to Capabilities By Kate Lovrien and Luke Peterson, Principals, Health System Advisors W ith the increasing use of reimbursement models paying for the longitudinal health status of a patient, health systems' historical value proposition of simply being the provider of hard assets to the market is becoming less effective. In a fee-for-service environment, growing volumes and effective operations are the hallmarks of creating enterprise value. As the market shifts to more risksharing reimbursement models, the ways Is your organization effectively coordinating the major systems of care? Are you ready to manage systems of health? HealthSystemAdvisors.com System of Care System of Health HEALTH SYSTEM ADVISORS to create enterprise value require health systems to consider the relevance of their value proposition and create new capabilities. Those that do not make this shift are seeing their assets rapidly commoditized. Commoditization of the industry's "sickcare" assets should be a major concern for the asset-centric health systems in the U.S. As with any asset-centric industry segment, once there is a glut of assets, or once assets become commodities, the price commanded by those assets runs down to the variable cost until enough of the assets are bankrupt to bring the cost of building new assets in line with the price of the existing. With the costs of building new hospitals exceeding $2 million per bed, it might be logical to think the existing health systems are safe from being commoditized. However, consider most healthcare assets, be it hospitals or ambulatory centers, are operated at less than full capacity. Moreover, new delivery models are providing lowercost substitutes for many of the services provided through these expensive assets. As an example of this substitution, consider the growth of free-standing urgent care centers. With now more than 9,000 centers nationwide, free-standing urgent care centers are growing 7 percent or more per year.1 While much of the urgent care volume is siphoning off primary care visits from physician offices, a portion, as much as 17 percent, is volume that would otherwise go to the emergency rooms.2 Even as health systems are building out the urgent care model, the reimbursement is perhaps one-third of what it is in the ER for the same patients. To combat this commoditization of their core assets, many health systems have shifted their investments from inpatient facilities to outpatient facilities. This is proving to be a good, albeit short-term, strategy. As inpatient and hospital facilities are commoditized, they are typically done so by the lower-cost ambulatory facilities. As a result, ambulatory care utilization has been growing faster than inpatient care over the last several decades. Nevertheless, no sooner does the health system invest in an ambulatory asset as that asset itself becomes commoditized. It is as if the health system leaders have forgotten their core purpose is not to invest in capital assets but develop the efficient means to care for patients. Regardless of the types of assets being developed, attempting to compete by virtue of providing assets is a recipe for commoditization. How are health systems competitively positioned today? Unfortunately, we find the health systems in the U.S. today have redoubled their asset-based value equation in most markets across the county. Since at least the early 2000s hospitals have moved to focus on the core inpatient and asset-centric ambulatory businesses. This overreliance of the healthcare provider industry on capital and assets for competitive advantage has resulted in those that are big becoming bigger and the long-term growth of healthcare systems. In the wake of the Patient Protection and Affordable Care Act, small systems and independent hospitals scrambled to join systems for the protection size offered. However, studies have shown the advantage offered by a system tends to be only the increase of pricing power vis-a-vis the payers.3 Yet, as is being proven out in markets such as San Jose, Calif., Denver, Seattle and Boston, having a large base of assets does not make systems immune to the commoditization of those assets over