2015: On to Clarity and Execution
Like a too narrowly programmed Pandora station, chatter in the health care industry seems to play the same songs over and over. Over the past few years, the soundtrack of health care has been dominated by three perceived “shifts”—the shift to value-based payment, the shift to ambulatory-centric care delivery and the shift to an increasingly retail health care market. The chatter around these shifts has kept vast server farms working 24/7 and filled out the conference schedules of luxury hotel chains. To be sure, Sg2 has weighed in with its own perspective on these topics. At the beginning of this new year, we’d like to take stock on these three shifts and look ahead to what will matter in 2015.
The Shift to Value-Based Payment. It is clear to us at Sg2 that the accountable care organization (ACO) model has run its course. We should not have been surprised that the economics of ACO contracts would not work, the revenue losses associated with better managing a population easily overwhelming the shared savings rewards. We have learned from the early adopters that the open access principle of ACOs opens the door to crippling network leakage. And we have seen how the power politics of local health care markets can overtake the idealism behind the ACO movement. But that doesn’t make Sg2 nihilists on the whole exercise. Health care providers are now making more informed decisions about their future business models—some accelerating toward full-bore risk contracts, others reverting to fee-for-service (or never having left), others considering whether a mixed model is viable.
The Shift to Ambulatory-Centric Care Delivery. This has been a long road; it has taken a long time for hospital-trained leaders to wrap our heads around what it takes to execute an effective ambulatory strategy. Many of us began by making “deals with docs”—which often meant funding all the capital, giving away half the revenue and covering all the downside risk just to be in the ambulatory game. Slowly, we mastered the compelling economics of ambulatory surgery and the intricacies of hospital-based payment—often just before Medicare reshuffled the payment incentives, spoiling our carefully laid plans. Lacking a comprehensive view of the ambulatory services chessboard, we had to try something. But it’s 2015—we now have a better picture and can make smarter decisions. At last, the data are there to enable us to achieve a holistic, yet granular view of our ambulatory services market so that we can master how patients flow through our Systems of CARE.
The Shift to a Retail Health Care Market. It’s about drugstores, but it’s really not about drugstores. Yes, the activity of players like Walgreens, Walmart and CVS has driven the retail health chatter. CVS operates 900 clinics across 35 states and is opening three new sites per week. Walmart (after a pause in its strategy) is back in the clinic game, is selling health insurance via a new partner and has stated its intentions to be the number one health care provider in the industry. Can we really take these drugstores seriously? Consider that US hospital emergency departments report 130M visits in total each year; Walmart has 150M visits each week. But the shift to retail is really not about drugstores. It’s about time, real estate and price. Retail clinics draw patients because they are available when people want them, are conveniently located with good parking and are competitively priced. It just so happens that CVS and Walmart know a lot about optimizing time, real estate and price. We need to learn, fast.
At the beginning of this new year, Sg2’s stance is: enough with the shifts! We’ve done enough theorizing and ruminating about the themes of our time. Most health system strategic plans we see today embrace value-based payment, focus heavily on the ambulatory arena and nod to retail themes like price transparency. The truth is, most of your strategic plans look very much alike—your strategy isn’t as distinctive as you might think it is. What will distinguish your organization is how effectively you carry out your strategy—how you organize, what you measure, what you reward, what you talk about and how you make decisions. Effective execution is also about managing creative tensions. Speed is to be prized, but we also must know when to “let things evolve” or not force too much change at once. Nimbleness is a virtue, but taken too far it can lead to strategic attention deficit disorder and sow confusion in your organization. So clarity and execution are our watchwords for 2015.
At that time, we’ll also identify a series of wildcards worth watching in 2015:
- Too big to succeed?—Against what seemed an inexorable tide toward consolidation, will we see a major health system breakup in 2015?
- The independent physician group strikes back—Against what seemed an inexorable tide toward physician employment by large health systems, is there a backlash in the making?
- Hospital-based ambulatory services market under assault—Price transparency, patient steerage and benefit incentives drive a dramatic market share shift of key profit centers.
- Virtual health and the Internet of things—Who really knows the health of your patients and is relevant to them every day?
- Leadership torch is passed—The American College of Healthcare Executives (ACHE) reports that CEO turnover reached 20% in 2013, the highest level in over 30 years. Is this a leadership crisis or an opportunity?
Collectively, these wildcards and others point to an industry that is undergoing overdue structural change. In 2015, Sg2 looks forward to helping you navigate that change as you deploy new strategies for growth and success.