Sponsored by Value Project Phase 3
Leaders at Pyramid Health, a multi-hospital system, ask, “How can we continue to pursue system-wide economies, but also respond to regional issues and opportunities?”
Assessing the Situation
Pyramid is a national for-profit health system with 75 hospitals of varying sizes. Pyramid’s hospitals are located in 15 states. The system also includes 10 large medical centers, including seven that are widely recognized for excellence in both efficiency and quality. Another 30 are suburban community hospitals, and 35 are smaller, rural facilities.
The system has already leveraged its national scale in areas such as supply chain and revenue cycle, and produces excellent financial results. Leaders see ongoing opportunities to maximize efficiency by standardizing as many approaches as possible. However, this is not always possible given legacy IT systems, differences in size and sophistication among the hospitals, and different market and state government environments.
Across the 15 states, Pyramid’s markets vary greatly in size, demographics and competitiveness. The payer environments also vary. Initially, many of the markets were slow to move to value-based payment, but Pyramid is seeing clear signs of escalation of that trend in most of its marketplaces.
Given the unique characteristics of the organization and the general characteristics of the markets in which it operates, Pyramid leadership has articulated the following prioritized organizational needs:
- To move from fee-for-service to value-based payment and population health management without diminishing Pyramid’s outstanding financial performance.
- Be number 1 or 2, in terms of market share, in each existing market. Pyramid leaders believe larger patient populations are critical to attain the benefits of care management at the population level. They also believe this degree of market presence is vital to ensure success as inpatient utilization in general declines.
- Add population health expertise and infrastructure.
- Build on Pyramid’s system-wide economies by tailoring its approaches regionally.
Pyramid’s strategies are market-specific; however, at a high level, they include:
- Continue to purchase community hospitals, but do so more selectively than in the past. Pyramid aims to be extremely selective about adding inpatient beds to the system.
- Seek the development of regional hospital clusters. Pyramid believes that a “cluster” approach will provide the ability to effectively compete for new payment agreements and to achieve new levels of efficiency, quality and patient involvement.
- When key hospitals, expertise or infrastructure for population health cannot be purchased within a region, collaborate.
Pyramid leaders find that many potential collaborators in most markets are willing to talk with them about options. In some markets, these potential collaborators include current competitors.
Pyramid uses these discussions with potential collaborators to refine its strategies. Leaders anticipate tailoring their approaches and timing to reflect the distinct markets, capabilities, and cultural differences across its system. Pyramid leaders characterize the viable options for consolidation as the following:
- Partner (or purchase) the expertise and infrastructure to pursue population health, rolling it out in stages across the system.
- Build clusters of hospitals and integrated delivery networks in good markets.
- Team with others in markets where Pyramid is weaker.
- Use organizational scale to develop special relationships with payers and others.
Pyramid is prepared to offer equity or dollars (e.g., via a national consulting contract) to meet its needs for expertise and infrastructure. It also can work with a combination of acquirees and collaborators in each market, as appropriate.
Pyramid leaders meet with several highly regarded potential partners that they believe will help their local hospitals and integrated care networks to evolve into successful population health managers.
All of this information helps Pyramid leaders to tailor and refine its options by market. The table below shows how these options vary depending on local and regional market characteristics and differing organizational needs by region:
Figure 7. Pyramid Health’s Approaches by Market
(Weak Market Position)
(Advanced Market Position)
Pyramid owns two hospitals, offers to acquire a third, and has plans to build a fourth. Regional systems (HR, legal, finance…) serve all regional hospitals and physician networks.
Shared regional contracts bring pre-and post-hospital care.
Pyramid is a lesser player in this market. Pyramid’s hospitals and CIN join a larger system’s hospitals and CIN to form a large enough organization (a joint CIN) to compete for population health contracts and to create a recognizable brand.
Pyramid’s local network is advanced and ready for population health. So is this marketplace. Pyramid, its affiliated physicians, a major insurer and a major player develop a capitated agreement (with corridors to protect all parties in the event of a bad year).
Pyramid also develops national agreements with two population health organizations and with a post-acute option. These are rolled out to Pyramid care networks based on readiness/need.
By utilizing different approaches to consolidation in different markets, Pyramid leaders effectively layer highly situation-specific approaches to regional economies and population health options on top of standardized systems that achieve national scale economies.