Children’s Hospitals Fight for Market Relevance

To succeed today, health care systems must prove their market relevance. Historically, this pressure has been less intense for children’s hospitals, faced with fewer governmental requirements, such as readmission penalties and CMS payer changes, than adult providers. However, mounting payer pressures from Medicaid programs, increases in consumerism, and fierce competition from non–children’s hospitals and other pediatric providers are requiring a new mind-set from children’s hospitals. They must take action now to communicate their relevance to strategic partners, payers and consumers.

With their strong missions, specialized services and expert workforce, children’s hospitals may be at a unique advantage in demonstrating relevance. However, similar to other academic institutions, their overall cost of care may be higher than their community counterparts. To differentiate their services and strengthen their position in payer negotiations, children’s hospitals must get creative in demonstrating their value in the delivery of safe, effective and efficient care. Sg2 believes children’s hospitals should consider the following strategic imperatives in their fight for relevance.

 Anticipate Clinical Demand and Meet It Where It Lies
Contrary to the growth seen over the past 10 years, the next decade marks an overall decline in nearly all pediatric inpatient services, even for children’s hospitals. With children’s hospital inpatient discharges projected to decline nationally by 4% (compared to 10% at non–children’s hospitals) and outpatient services projected to grow by 7%, children’s hospitals must plan to meet these shifts in demand. Ambulatory strategy will be key to their growth. Examination of institutional and market forecast data will help children’s hospitals determine future implications of pediatric services offered today and opportunities for developing and optimizing subspecialty niche services.

While building an ambulatory foundation has not been a traditional focus for children’s hospitals, this has changed over the past 5 years, due to rising outpatient demand. Their clinical capabilities and expertise position them well to differentiate themselves as best-in-class in outpatient as well as inpatient services. Showcasing their standardized care pathways, best practices, quality improvement initiatives and expert workforce, as well as providing specialist oversight to non–children’s hospital partners, will ensure the market relevance of children’s hospitals into the future. Leveraging virtual health technologies to increase access to pediatric subspecialists, investing in training and education of staff, and building cross-functional care teams to support outpatient growth are keys to success.

 Build a Progressive Approach to Partnership Development
Effectively meeting clinical demand also hinges on understanding System of CARE gaps and potential partnerships to best provide pediatric services across the care continuum. As a children’s hospital, start by identifying market gaps. Next, evaluate current partnerships and assess if they could be further developed. Finally, consider which additional partnerships would help you grow and deliver superior care. With their unique suite of services, expert workforce and collaborative abilities, children’s hospitals have an edge to attract partners to better serve their communities, but must keep in mind that these partnerships should be mutually beneficial. They may consider building strategic partnerships with community providers such as physician clinics, schools, public health entities and community hospitals.

An example of the types of community partnerships increasingly required are the ones ventured into by Children’s Health, Dallas, a children’s hospital with its own health plan. These strategic partnerships are helping Children’s Health better manage its population.


 Embrace New Approaches to Workforce Deployment
Unlike in the adult population where primary care physicians are at a shortage, the pediatric population faces a limited number of subspecialists. Appointment wait times for pediatric subspecialists, such as pediatric neurologists, can be upwards of 8 to 12 weeks. Children’s hospitals can counteract the shortage of pediatric subspecialists and clinicians (eg, nurses, respiratory therapists) through multidisciplinary collaborative care teams, cross-training of staff, and leveraging virtual capabilities to expand access and reach to patients.

Virtual health may be leveraged within inpatient settings, such as providing virtual NICU or PICU support, for pediatric ED support, or to enable teleconsults for subspecialists, such as behavioral health providers.

 Demonstrate Your Value to Payers
Even in fee-for-service models, the cost of care is being increasingly scrutinized. Narrow or tiered networks, used by payers to exclude or limit providers from their health plans, are primarily focused on costs to the payer. Children’s hospitals are not immune to exclusion from large payer networks based on prices alone, as has been established in markets across the US. In discussing recent negotiations with Boston Children’s Hospital, an Aetna spokesperson stated, “One of the things our customers expect us to do for them is keep a handle on their health care costs. We can’t do that without negotiating reasonable equitable contracts.”

Children’s hospitals must be able to prove their value by demonstrating the increased quality provided and perhaps even justifying the need for higher prices for complex conditions. For example, children with medical complexities account for 40% of Medicaid pediatric health care spend and receive 80% of their care at children’s hospitals. These children require the continuous care of multiple pediatric subspecialists and specialty diagnostics and treatment. Today, through a Center for Medicare & Medicaid Innovation (CMMI) grant, 10 children’s hospitals are collaborating to optimize care for this population, with the goals of transforming care delivery across the continuum, decreasing unnecessary hospital and ED utilization, and improving family, patient and caregiver satisfaction. Early indications show that value will be evident through improved patient outcomes and decreased total cost of care per month during the contracting process. This type of research may help to develop quality and cost metrics that justify higher pricing, which will be essential for successful contracting with payers.

 Develop an Appetite for Innovation and Disruption
As natural hubs for complex patient care, advanced research, cutting-edge technology, use of Big Data for learning, and much more, children’s hospitals have excelled in clinical care innovations. While the care innovations taking place are too numerous to list, it is important to consider the channels through which they are developed.

Creation of international relationships has enabled physicians and researchers to work collaboratively across centers to conduct research, creating clinical and practical applications for basic scientific findings. Children’s National Health System in Washington, DC, and Shanghai Children’s Medical Center have partnered to collaborate on information exchange and more, including rotations, speaking engagements, telemedicine and consultations. Boston Children’s Hospital has created another channel for innovation through its Innovation Acceleration Program, which is an organized platform to advance research to market applications.

In addition to clinical research, children’s hospitals must also focus on care redesign research, as it will be critical for pediatric health improvement and to prove their relevance.

Define, Develop and Defend Your Market Relevance
Sg2 is committed to helping children’s hospitals define, develop and defend their relevance. As instrumental providers of pediatric services that fill a definite need in the marketplace, they are well-positioned to do so. Children’s hospitals can begin to shape their destiny by starting with the crucial conversations around each of these imperatives.

Sources: Bartlett J. Aetna tells nearly 2,000 members it may lose access to a Boston hospital. Boston Business Journal. January 24, 2016; Impact of Change® v15.0; HCUP National Inpatient Sample (NIS). Healthcare Cost and Utilization Project (HCUP). 2012. Agency for Healthcare Research and Quality, Rockville, MD; IMS LifeLink® PharMetrics Health Plan Claims Database, 2011, 2013; The following 2013 CMS Limited Data Sets (LDS): Carrier, Denominator, Home Health Agency, Hospice, Outpatient, Skilled Nursing Facility; The Nielsen Company, LLC, 2015; Sg2 Analysis, 2016.

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