Scott B. Clay

Healthcare leaders are bravely facing a unique convergence of challenges. It's as if they have been stricken by the purported curse "May you live in interesting times."

Like the rest of the world, we in health care are reminded daily that we are in the midst of an historic recession-and this time, we have been invited to participate. But unlike the rest of the world, we are also inside the potential unfolding of "interesting times" in the structure and financing of U.S. health care. Although the impact of the recession will likely abate over the next 12 months for much of the economy, the new world of healthcare financing is only beginning.

Whereas prior attempts to transform health care focused primarily on universal coverage, reigning in the cost of health care is front and center in the current debate. Translation: Providers will need to deliver care more effectively at lower costs-period. So while other industries may be able to temporarily adopt a "bunker mentality" to wait out the recession, healthcare leaders clearly need to do the opposite and think about how they will transform with the industry-or be left behind. In short, we are likely entering an era in which transformational rather than incremental leadership is necessary. So what are some of the actions this transformation will require of its leaders?

Take Preemptive Action

Although the future holds boundless uncertainty, one thing is clear: We need to deliver health care at lower costs. This is not to suggest a reckless slashing of costs, but unless your organization has undertaken recent initiatives to meaningfully reduce underlying cost structure, you may already be running behind. We have all read the headlines over the past six months. During this recession, many hospitals have been forced to (or been given the political cover to) reduce their fixed costs through organizational restructuring and other measures. Many of the more successful organizations did so preemptively-that is, they reduced costs in anticipation of softening revenues to maintain rather than restore margins.

Several recent reports have indicated that proprietary systems are faring better in this downturn than their not-for-profit counterparts, with the ratings agency Fitch noting that, as a group, the proprietary chains have taken more aggressive action on cost controls and have been able to hold the line on bad debt through proactive up-front engagement. Although this comes as no surprise, it does beg the question, Will an extended period of downward revenue pressure force not-for-profit hospitals to adopt a leaner/meaner for-profit-type operating profile? How could it not?

Of course, the proprietary chains are not the only success stories in round one of the transformation (i.e., cost reduction). The Beth Israel Deaconess story is an inspirational example of managing cost reductions through full grass-roots participation and shared sacrifice-maybe leaner without being meaner.

Read the Tea Leaves

Although a deep dive on improving efficiency and reducing cost structure is necessary under almost any likely scenario, it will not be sufficient to create a sustainable healthcare enterprise over the next decade. A move toward "value-based" purchasing in health care is the prevailing theme in healthcare payment trends-with models such as medical home and bundled payments leading the way as serious contenders to address incentives for preventive care, chronic care management, and coordination of care.

If the models for value-based purchasing appear to be leading toward a shift of funding to preventive care, coordination among multiple levels of care, and management of chronic care, then a key question for healthcare leaders is, What role should we play, and what infrastructure will be necessary to play this role?

Forward-thinking organizations have already moved beyond "reading the tea leaves" to "brewing them" by engaging in strategic thinking in their organizations about how they will be positioned to participate in this new landscape.

Challenge Conventional Wisdom

Over the past 20 years in the healthcare industry, one thing has become clear. We have a strong herd mentality. As a herd, sometimes we are buffalo and sometimes we are sheep. Whether it is the rush into primary care employment of the 1990s or the resurgence of physician employment today, we want to assure ourselves that others of our kind are doing, or have successfully done, the same thing. Our herd mentality has been both an advantage for sharing good ideas and an impediment to our ability to radically innovate. It is a natural product of our industry structure. As a national group, no industry shares a stronger bond of common interests and external constraints; yet we compete only at the local or regional level, so unlike many industries, shared experiences across regions are both highly applicable and competitively benign.

The disadvantage of this dynamic is that individual healthcare organizations are less likely to take new risks and try new ideas that may be transformational for them and ultimately the industry. As a result, transformational leaders must struggle all the harder in convincing their colleagues and their boards to try something that has never been done before. This is in sharp contrast to industries in which competitors only survive by making their own products obsolete every year or two. (How old is your mobile phone or handheld device?)
When healthcare providers do innovate, such as Geisinger did with its warranty-backed bundled payment services or medical home models, they are highly celebrated in the industry. However, these bold experiments seem relatively rare for an industry as large and as important as health care.

Maybe by just increasing our awareness of the built-in industry bias for groupthink, we can check ourselves and transform our thinking. So the next time you reflexively ask, "Who else has already done this?", why not ask, "What solutions can we try that no one else has thought of?"

Seek Opportunities Beyond the Immediate

Despite the current pull-back in the general economy and uncertain reform challenges on the horizon, healthcare leaders have to look beyond the pessimism and uncertainty to see a new set of opportunities that are emerging and commit to decisions that will position their organizations favorably.

In an environment where most are taking a "wait-and-see" approach, a differentiating strategy is to "seek and find." This may mean launching a higher number of test initiatives (with minimal initial investments) to probe for opportunities, evaluate their merit, and quickly consolidate gains on those that are successful and flexibly retreat from those that are not. Not all new opportunities will require capital investment or operating subsidies. Many will be new forms of partnerships, particularly given the growing emphasis on coordination of care. Perhaps some of the test funding can go toward "intrapreneurship" programs to encourage individuals at the departmental and staff levels to apply for and test new processes and approaches.

Because "necessity is the mother of invention," we are likely to be participants in one of the more inventive periods of our industry. If that's true, we may find that living, and leading, in interesting times is a blessing rather than a curse.

Scott B. Clay, FHFMA, is a senior principal, Noblis Health
Innovation, Norcross, Ga., and a member of HFMA's Georgia Chapter (

Publication Date: Saturday, August 01, 2009

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