Becker's Hospital Review

Sign up for the COMPLIMENTARY Becker's Hospital Review CEO Report & CFO Report E-Weeklies at www.BeckersHospitalReview.com or call (800) 417-2035 Remember When it Was Called a "Hospital System"? (continued from page 1) services at a flat rate for employees. Maybe this organization also partnered with a revenue cycle management company or IBM. Based on these examples, how many tries do you think it would take for someone to guess that your description is that of a hospital? Some of the most well-known health systems and academic medical centers across the country are acting less like the very thing they once built themselves upon: hospitals. There will always be a need and demand for high-quality acute healthcare, but large, integrated systems know they must now be known for other skills and services to see the most success. The tricky part is no one knows what these "other skills and services" are, precisely. I spoke with three strategy executives from a large, integrated health system in different markets, and each said what makes their jobs challenging is the lack of a roadmap. This is new territory for even the most sophisticated systems. Take UPMC, previously University of Pittsburgh Medical Center, for example. It is a pioneer for diversification, but only began branching out more aggressively about seven years ago. "We don't know exactly what the future holds and a lot of organizations are trying multiple strategies," says Julie Carmichael, system vice president and chief strategy officer of St. Vincent Health in Indianapolis. "We're piloting some things and trying to learn more about ourselves. What are we good at?" This question is leading many organizations to uncharted territory, whether that's acting like an insurer, moving into foreign countries, offering advisory services or leading board room negotiations with multinational technology corporations. What is a health system good at? The answer, of course, varies. It's no longer about heads in beds The strategy executives I spoke to said the work they are doing today is not something their predecessors would have expected five or 10 years ago. And while that might be true in many industries, the federal reform law has made it even more prominent in healthcare. "The skills necessary to be successful in the healthcare world are no longer just putting beds into hospitals and opening your doors," says Howard Gold, executive vice president and chief managed care and business development officer for Great Neck, N.Y.-based North ShoreLIJ Health System. New York officials approved the 16-hospital system's commercial health plan this year. It made its way onto the health insurance exchange in October at one of the lowest price points in the Long Island area. Chuck Bogosta, executive vice president at UPMC and president of the system's international and commercial services division, said something similar. UPMC knows what it wants and doesn't want to be known for. "We want partners to say we're not like the stereotypical academic medical center," he says. "We're entrepreneurial. We sometimes move faster than even our corporate partners." UPMC is on a multiyear journey to have a "significant portion," or at least 25 percent, of its revenue come from alternative sources. How is it defining alternative? Any venture that doesn't fall within its primary sources of revenue, which are patient care and health plans. UPMC has one of the most diversified revenue streams of any health system in the country, with a multitude of international, commercial and advisory relationships, but Mr. Bogosta says these alternative ventures have yet to make a serious dent in its revenue model. U.S. patient care and health insurance products still comprise most all of the organization's $10 billion annual revenue. Before health systems navigate strategies that take them away from hospitals' traditional acute care, before they expand across time zones and skill sets, they must figure out something that is seemingly simple: Which ideas and partnerships, however appealing, should they actually pursue? These days, there are many to choose from. Discerning decisions In America, a financially healthy, integrated health system is probably in high demand for various partnerships. "There's not a day that goes by that someone doesn't call and say, 'We want to explore a relationship with you,'" says Mr. Gold from North Shore-LIJ. These potential relationships come in all shapes and sizes, from joint ventures to affiliations, sponsorships to management agreements. But to really hold North Shore-LIJ's attention, the partner and proposed model has to fit the system's vision of providing high-quality care that's highly accessible to patients. "We don't just do things based on what's opportunistic," says Mr. Gold. "We reject far more offers than we accept." Although UPMC began to diversify its revenue streams about 13 or 14 years ago, the system really grew more aggressive about it six or seven years ago. During this time, Mr. Bogosta says the phone rang every week with an interested partner on the other end. As one of healthcare's pioneers for alternative revenue, UPMC was less discriminating in the early days. "We were going after everything," he says. The organization considered many partners and potential relationships, roughly 200 over five years, but not all were meant to be. "In the end, we probably did 15," says Mr. Bogosta. UPMC took some lessons from this, and the system 15 narrowed its focus to two or three types of relationships. Mr. Bogosta says he's still "pretty sure we're on the short list of most companies' potential partners," even though UPMC has become much more selective. This type of discernment is crucial, not only for system's long-term strategic plan, but for executives' focus. Ms. Carmichael with St. Vincent Health says the pace of healthcare strategy is nothing short of frenetic. "If you're not clear about what you aspire to be, you might run the risk of getting involved in too many things that take you off point," she says. "If an organization isn't clear about who you are and what you aspire to be, it makes any kind of strategy, especially one that is unchartered, very difficult." Opportunities to expand, partner or diversify can present themselves so frequently that executives come to think of them as temptations. It's critical for leaders to evaluate each opportunity with a series of questions to determine if the deal's short-term benefits are linked to the system's long-term goals. Ms. Carmichael always brings opportunities back to what she calls her "touchstone" question: Does this relationship allow us to do more for our customers, and deliver the services to them at the location, cost and quality they deserve and demand? North Shore-LIJ and UPMC didn't decide to pursue their advisory services and health plan with a phone call. Rather, the respective developments were reactive to market trends. A series of events and interactions led each organization to conclude each business development was simply the next link in their strategic chain of events. Lessons from launching a health plan North Shore-LIJ's new health insurer capabilities were hardly an overnight development. The system's roots in care management stem back to 2008, when it launched a health plan for about 20,000 non-union employees and their families, in which workers were kept in-network with North Shore-LIJ's providers. The plan's costs never grew beyond 2 percent annually, year over year. At the same time it saw success with its employee health plan, North ShoreLIJ saw some pinches on its budget sheets. "We were getting downward pressure on revenue from payers when, at the same time, we saw we could manage our own employees in a reasonable way," says Mr. Gold. "We said, 'Why don't we take this plan and sell it in the general marketplace?'" North Shore-LIJ applied for its insurance license from New York regulatory officials and received the green light about five months later, in August. Its CareConnect, the first provider-owned commercial health plan in New York, went on the state's health insurance exchange Oct. 1 for small groups and individuals. The system hopes to enroll up to 15,000 people in the plan's first

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