Sg2 Letter: Leadership Priorities and Market Realities

Primal forces are driving action in local health care markets and forcing health systems to prove their value and relevance to consumers, payers, employers and other stakeholders. Last month’s Sg2 Letter on this quest for relevance urged a return to fundamentals: defining strategy for profitable growth, creating a defensible System of CARE footprint, developing a deep understanding of patient flow and crafting sensible pricing strategy.

At this month’s CEO Forum, hosted by Sg2 and MedAssets, we learned how systems across the country are pursuing their own definitions of relevance. Among the diverse topics addressed through presentations and panels, it became evident that 2 challenges have moved to the top of the leadership agenda: 1) assuming risk and 2) entering new partnerships.

These are strategic issues that frequently provide fodder for the Sg2 Letter. They warrant another round of exploration, however, for 2 reasons. First, risk and partnership today mean radically different things in different markets. Second, leading health systems are now well into the execution phase of taking on clinical or incidence risk and implementing conventional and unconventional partnerships. The decisions they have made may be instructive as you shape your own strategy.

Assuming Risk—Time to Set a Deliberate Course
The widely used but imprecise phrase “volume to value” has at last given way to a sensible discussion of what type of risk health systems are willing to assume, how quickly and why.  Health system leaders who attended the CEO Forum agree that the future is about managing the total cost of care. They rightly differ on what role providers should play in taking on that responsibility.

Differences in appetite for risk could not be more dramatic. At one extreme, we heard from Pacific Northwest–based Providence Health & Services. Providence recently restructured its offerings to include a comprehensive population health division spanning everything from its own health plan to payer contracting to growth strategy and population analytics. The health system already assumes risk for more than 1 million lives. Providence has recently signed a multiyear contract with Boeing that will take its risk contracting to a new level. Beyond the aggressive (and confidential) financial terms of the deal related to the cost and quality of health care services, Providence also committed to exacting standards regarding enhanced access, patient outreach and communication, care management for complex patients, and pharmacy interventions.

At the other extreme, we heard from a health system CEO from Montana who was wary of the “faddish” nature of risk contracting discussions. The herculean challenge of serving a large rural geography and Montana’s already low utilization rates made the idea of taking on risk more than daunting. In his view, the imperatives of old-fashioned cost reduction and day-to-day execution are the keys to market relevance and continued financial success.

If you’re like most Sg2 members, your views on assuming risk are probably somewhere in between these extremes. In the end, it is not the wide variety of approaches to risk that we find so compelling but, rather, how firmly they are grounded in strategy and market realities. 

Entering New Partnerships—Filling in Your Missing Ingredients
At the CEO Forum, even leaders from the largest health systems agreed that much of their future success will be tied to partnerships that enable them to build competencies, enter new markets and position to increasingly take on the total cost of care. In years past, a discussion of partnerships might have focused on provider-to-provider consolidation. This year, however, we listened to CEOs speak enthusiastically about new relationships with payers, vendors, analytics companies, community organizations and, yes, even competitors.

We will save specifics on some of the unconventional models for a future Sg2 Letter—what we found most instructive was hearing CEOs describe their philosophies and tips for making today’s partnerships work more effectively. Some of the highlights follow.

  • Find alignment quickly, but expect to make many concessions.
  • When working with payers, insist on obtaining prospective claims data.
  • Seek partners who have similar cultures for (and approaches to) decision making.
  • Assess the culture of each and every new partner.
  • Don’t be afraid to partner to tap into another organization’s brand identity.
  • Remember, your vendor partners (eg, medical device companies) need an upside too.
  • Start today to round out your partnership strategy in the tough areas of end-of-life care, behavioral health and patient communication.
  • Recognize that the data you share with your partners becomes the intersection of your strategy and structure.
  • Remind yourself where the health care consumer fits into all of your partnership discussions.

One CEO took a moment to connect his organization’s journey toward risk contracting with the many new partnership arrangements it has entered in the past 2 years. “The reality of being a leader today,” he said, “means that you have to develop an appetite and comfort with different types of risk. Entering partnerships exposes us to a type of execution risk we have never faced before. It’s not the job I thought I’d have 5 years ago, but here I am.” 

Every opportunity we have to spend with executives who, day to day, must work through the realities of industry change enables us to translate national trends to the market level. Whether you are considering taking on risk, entering a new partnership or something else altogether, Sg2 is committed to helping you sharpen your local market view and prioritize your leadership agenda.

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