Issue link: https://beckershealthcare.uberflip.com/i/731691
55 55 CEO/STRATEGY 10 Things Keeping Health System CEOs Up At Night By Molly Gamble and Ayla Ellison H ealth system CEOs are asked to per- form the highwire act of managing change in the industry while keep- ing operations steady and finances healthy. Whether the CEO of a large integrated system or a smaller regional organization, health sys- tem leaders are confronted with many of the same pressing issues. Here are 10 issues leaving health system CEOs most concerned. 1. The speed of movement from volume to value and potential im- pacts. e rate at which an organization moves from traditional fee-for-service pay- ments to novel pay-for-performance contracts is oen compared to having one foot on the dock, one on the boat. Although CMS and commercial insurers have set clear deadlines for their progression to value-based payment, the transition is less clean-cut for many pro- viders. is leaves executive teams grappling with certain questions. e jury is still out on whether a health system needs its own health plan, thereby controlling more of the premium dollar, to succeed under value-based payments. CEOs are also strug- gling with risk assessment, an atypical skill for many executives who devoted their careers to the provider side of healthcare. As one CEO said, it's difficult to explain risk to an organi- zation not accustomed to taking it on. For ex- ecutive teams that aren't on the cutting edge of value-based payments, the magnitude of loss that could occur under an unfamiliar payment model remains a source of anxiety. 2. The cool-off as it relates to provid- er-sponsored health plans. Between 2010 and 2014, the number of providers offering one or more health plans grew from 94 to 106, according to McKinsey. Since this is the latest data available, it is too soon to say whether the number of providers offering health plans has decreased, although subjectively the fervor shared by a great segment of the hospital in- dustry to launch a health plan has lost intensity. For one, the performance of these plans re- mains mixed in all markets. Secondly, newly launched or acquired health plans produce large operating losses in their initial phases. Last summer, Standard & Poor's analysts not- ed the possibility of more volatile system-wide operating performance due to provider-spon- sored health plans, although this forecast pertained more to organizations with newly launched or acquired plans versus those inte- grated systems that have long had health plans such as Oakland, Calif.-based Kaiser Perma- nente and Pittsburgh-based UPMC. As health insurance co-ops under the Afford- able Care Act go under, major insurers pull out of the ACA exchanges and executives wait to see whether Hartford, Conn.-based Aetna or Indianapolis-based Anthem will prevail against the government's challenges to the mega-mergers, it is safe to say the payer indus- try is tumultuous and markets are volatile. A couple of years ago, many healthcare providers looked to the option of health plans and verti- cal integration with excitement. Now enthusi- asm is lukewarm and consensus is lacking on whether this is a wise business decision. 3. Traditional M&A continues while nontraditional alliances grow more prevalent. M&A is oen compared to mar- riage, and in this spirit, health systems are increasingly finding value in dating several partners versus committing to one for life. In an effort to expand patient populations, dou- ble down on clinical strengths and grow brand awareness and market share, systems are working with payers and providers via insur- ance-related partnerships, direct-to-employer contracts, clinical affiliations, joint ventures and other arrangements that could be collec- tively called merger lite. "I hear more about strategic alignments than traditional M&A," said the CEO of an independent 168-bed hos- pital in the South. When a health system is a partner to many, this changes the daily life of the CEO. One chief said he is out of the office four days a week to work with partners and better under- stand how to increase the patient population and align services under insurance products. 4. Growth in ancillary systems and al- liance efforts with best-in-class opera- tors. e phone practically won't stop ringing for the CEO of an independent specialty hos- pital. She noted her organization is inundated by other providers, who approach with inter- est to replicate and leverage her organization's clinical expertise for women's health. "Do one thing and do it well," the Zen-like proverb spoken by a soware developer, rings true for hospitals that have secured an edge for certain clinical areas, research capabilities or oper- ating functions. In a day and age where hos- pitals wear a dozen different hats, those that demonstrate excellence or market dominance for one thing remain sought-aer partners. 5. The extent of risk being pushed to systems in each of core payer areas — commercial, Medicare and Medic- aid. CMS says the shi to risk-based payment models is accelerating, with the agency an- nouncing in March that it met its goal of tying 30 percent of Medicare payments to quality nearly 10 months ahead of schedule. CMS got the ball rolling with its valued-based programs, and commercial insurers followed suit, leaving health system CEOs to manage the uncertainty arising from the shi in the industry. Some health system CEOs are skittish about taking on risk-based contracts, and it appears they have good reason to be. According to a recent survey by KPMG, a majority of health- care providers expect their organization's fi- nances to suffer with the move to value-based care. Risk-based contracts come in a variety of forms, from full capitation to lesser-risk contracts such as Medicare shared savings and bundled payments, providing systems some flexibility in how much risk they take on. However, with the creation of mandatory programs such as CMS' Comprehensive Care for Joint Replacement Model, risk is being pushed to systems whether they are ready for the change or not. 6. A shrinking pool of acquisition can- didates. In some markets, health systems are beginning to encounter the aermath of five years of rapid hospital-health system con- solidation and physician employment. In the south, one CEO says he sees systems that still have a large appetite for acquisitions, but the remaining organizations are too big or, if they are small, more selective about merging with a larger entity. To avoid the challenges of acquisition, many systems are turning to affiliations. By provid- ing a low level of integration, affiliations are oentimes a more attractive option for small- er hospitals that wish to gain access to capital resources and enhance services, while retain- ing control of operations. Affiliations are also beneficial to the larger organization, which can leverage the smaller hospital to improve care coordination efforts. 7. The return to the basics of execu- tion and business. Build or maintain a dominant system and market position. Know what exactly drives revenues and profits. Constantly recruit and retain talented peo- ple. Test new areas but double down on the winning areas. Apply the 80/20 rule to most opportunities, talent, revenues and costs. Ag- itate to constantly improve. And finally: Ac- knowledge that there is no single strategy, but define a few core plans and goals. For CEOs, what once seemed old is new again. As executives come up for air from five years,