Most healthcare organizations have a half-dozen or so strategic objectives in mind as they seek to navigate the changing landscape of the industry over the next few years. Progress in many of these objectives can be achieved much more effectively by utilizing different types of alliances, contracts, and other forms of affiliation.
The latest deliverables from HFMA's Value Project provide tools to help the Association's member organizations identify and evaluate options for acquisition and affiliation. These tools (available here) can be used by providers of all types to determine the right approach for partnering in the move toward value-based business models.
Consider the approach used by the leadership team of a fictitious community health system with ample cash on hand and access to capital, an A-rating, a high-quality brand and reputation, and the dominant position in a two-hospital market. Let's say that, despite the system's strong standing, the leadership team takes note (as well it should) of the manner in which some larger regional health systems are transforming themselves to prepare for a very different market environment.
As the health system's leaders begin considering how to reshape the organization for the future, they pose these questions:
- What are our highest-priority new initiatives?
- How fast can and should we change?
- What is the cost of change, and how do we pay for it?
- How do these questions relate to the discussions regarding mergers and affiliations that are taking place with us and around us?
Based on their answers to these questions, they develop a matrix to support their analysis of the highest-priority objectives and potential approaches to achieving these objectives, as shown in the exhibit below.
The team's top objective is to cut costs, which provides a cushion as fee-for-service payments decline and opens up earnings from other sources to pursue opportunities such as building an infrastructure for population health management.
The team identifies three distinct approaches to cutting costs:
- Process re-engineering
- Scale economies
- Regional-level joint initiatives
The leaders think revenue cycle and supply chain improvements can be achieved through large-scale, national arrangements, and they hope to achieve cost savings at the regional level by re-engineering clinical care processes. They acknowledge that a single approach to cost savings no longer is sufficient.
Beyond achieving cost savings, the leaders want to find ways to improve on the health system's already-strong market position, ideally before the transition to value-based payment. Adding to the primary care base is the first priority, and the team also sees a chance to add selected specialists—such as those in orthopedics, oncology, and cancer surgery—who can work for the system under a fee-for-service model and continue to do so under value-based payment.
Looking ahead, the team knows much work will be needed to prepare for value-based payment. Just getting started in population health management involves seven major initiatives, several of which require substantial time and investments. (These initiatives are listed in the exhibit above under the heading "Prepare for population health management.") The leaders know time is of the essence because the longer they stay with fee for service, the more their revenue will be affected by decreased utilization and lower payments. They believe it will be important to participate in the gains associated with improving efficiency.
The health system leaders take a broad view of their options, understanding they do not have to use the same approach with every initiative. They do not have to limit themselves to one contractor or even to one form of affiliation. Moreover, they can leverage the transformation efforts that other organizations have begun.
As the leaders explore their options further, they identify options for assistance with re-engineering processes from contractors, a large not-for-profit collaborative, two strong regional systems, and two national for-profit systems. They also identify options to create a regional approach to population health management, spanning a significant geographic area—for example, through combined clinically integrated networks (CINs).
The team is attracted to a regional health system that is far along in preparing for population health management. Along with expertise in that area, it would provide an expansive footprint, the opportunity for large-scale economies, and the possibility of linking to other large systems.
The leaders consider merging with a national system to gain the kind of scale economies they seek, but also recognize the need for a regional network. They begin to think in terms of combinations of options.
The leadership team forms a special committee of board members, management, and physicians to work through a systematic process that includes:
- Early education on the linkages between build, buy, and affiliation options as arrayed against the organization's strategic needs
- Discussion of the pros and cons of the specific options available to the organization in its specific market
- Assessment of detailed information about potential partners
- Identification of combinations that can get the organization where it needs to go, such as elements of affiliation or contracting that might be necessary even if the system merges
Tackling the range of issues and initiatives independently would be too expensive and too time-consuming for many organizations. Most will piece together a combination of building, contracting, affiliating, and merging.
Even if the community health system in our hypothetical example merges into a national system (e.g., for-profit or Catholic), it still may need a regional collaborative or a CIN to optimize population health capabilities. The key is navigating the right combination of options and implementing them in the right time frames, while avoiding unpleasant surprises.
Keith D. Moore is CEO, McManis Consulting, Denver, and a member of HFMA's Colorado Chapter.
Katherine M. Eyestone is a senior consultant, McManis Consulting, and a member of HFMA's Colorado Chapter.
Dean C. Coddington is a senior consultant, McManis Consulting.
Publication Date: Friday, August 01, 2014