The Road to Recovery: Healthcare’s Long Journey to Value

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After all the uncertainty that surrounded the passage of the Affordable Care Act, healthcare professionals were hoping for clarity. What they got instead is more uncertainty.

When healthcare providers were (barely) coping with the recently passed Affordable Care Act (ACA) a few years ago, veteran consultants insisted that they had never witnessed the industry in more turmoil. Now, most healthcare leaders would give anything to return to those halcyon days.

Today, healthcare providers are “learning how to operate in a period of uncertainty concerning just about everything,” asserts Sanjay Saxena, Americas Leader of The Boston Consulting Group’s Payer and Provider Practice. “I would argue that there is now even more uncertainty than what we experienced when the ACA was being contemplated and then passed into law.” Nearly all healthcare consulting leaders point to the same culprit behind this unprecedented uncertainty: the shift from volume-based payments to value-based payments. This pivot qualifies as a genuine transformation. Providers need to fundamentally rethink and then re-engineer how to operate profitably. “In the past, it was generally clear how healthcare providers ‘won,’” Saxena continues. “Today, it’s not clear what defines ‘winning,’ nor is it clear what a successful model actually looks like.”

The healthcare exchanges are struggling. The affordable care organizations (ACOs) that were supposed to be the model of the future now, according to some, seem poised to mirror the demise of HMOs. New payment models are emerging, but none have distinguished themselves as the best mode. It turns out that value is an elusive concept for providers to master. “We’re looking at a value equation of quality of outcome over cost,” says Dr. Bill Fera, Principal of EY’s Advisory Health Care Practice, “and think [healthcare providers] are having trouble defining both the numerator and denominator.”

In that way, the quantity-quality transformation is creating a “cascade effect” of related challenges, according to Pivot Point Consulting Partner Jon Melling. Costs must be identified, and then slashed. Growth and consolidation opportunities must be evaluated, charted and executed. Patient experiences must be more personalized. This means that consumer and patient data needs to be managed better, which requires upgrades to legacy information technology (IT) systems, the development of new data analytics capabilities and the optimization of electronic healthcare record (EHR) data that providers have invested millions on in recent years.

Additionally, new regulatory requirements—particularly the Medicare Access and CHIP reauthorization Act of 2015 (MACRA)—must be addressed amid a slew of other challenges. These issues include revenue cycle management, population health, bundled payments, board governance, disruptive competitors, emerging technology, and patient safety concerns. Outside of regulatory differences, most of these challenges also confront healthcare providers in many other countries.

“There are multifactorial impacts in terms of the way the payment system is changing,” says Huron Healthcare Managing Director Jeff Jones. “At the same time, there is a major change in how care is being delivered.” The industry’s challenges are evident in veteran consultants’ adjectives as well as their analogies.

“There is tremendous pressure on the systems to change,” says Mitch Morris, Vice Chair and Global Leader for Deloitte’s Health Care Sector. “The metaphor we use is a person standing with one foot in two different canoes. It’s an inherently unstable situation.”

Better is No Longer Sufficient

The cascading challenges generated by the move to value-based reimbursements place new stresses on executive teams. “Leaders have guided organizations through more transactional approaches to change,” Jones explains. Those improvements typically focused on making the existing enterprise operate more efficiently and more effectively.  “Today, it’s no longer about making the current organization run better,” Jones says. “It’s about fundamentally transforming the enterprise to run differently and to run better. That requires a very different kind of leadership role in the C-suite and at the VP level.”

That transformation will be difficult, notes Patrick Pilch, BDO’s Managing Director and National Healthcare Advisory Leader. “Real transformation requires the entire organization to progress along a path of behavioral change,” Pilch says.

Succeeding on this count requires healthcare leaders to address numerous challenges, among which the following issues feature prominently.

A Cost-Reduction Crisis

Most of the major cost-reduction initiatives conducted within healthcare organizations during the past few years have concluded. Those efforts typically involved staff reductions, basic process improvements and supply-cost reductions.

“Now cost-reduction must come from other sources,” notes Fletcher Lance, Managing Director and Global Healthcare Lead at North Highland. These new targets tend to be located on the clinical side of the organization, and they pose complex challenges. Lance points to physician capacity and productivity improvements as examples of current cost-reduction areas. These initiatives are more difficult to execute, Lance adds “because organizations need deep physician engagement and agreement, strong change management oversight and executive sponsorship in order to meet their cost-reduction goals while maintaining and improving clinical quality.”

The staggering cost of healthcare qualifies as a national concern—and threatens to become a full-fledged “existential issue,” according to Cumberland Consulting Group Managing Partner Dave Vreeland. National debt is currently 105 percent of gross domestic product. By 2050 national debt could reach 140 percent of GDP, according to Congressional Budget Oversight projections.

“If you look at those projections, says Vreeland—who does so regularly— “you will see that the increase is all healthcare, it’s all Medicare and Medicaid. Providers are starting to get the sense that, for macroeconomic reasons, they’re going to see reimbursements drop during the next 10, 15, or even 20 years. That seems likely because we’re going to go broke as a country if we don’t deal with it. There is major pressure on healthcare systems around the country to reduce costs.”

Two Dimensions of Personalized Care

Healthcare providers need help making their offerings more personalized on two fronts. First, when it comes to patient care, providers want to tailor clinical services to address each patient’s individual health needs and their unique genetic makeup. Providers want their plans to be “patient-centric from a medical record perspective,” notes IBM Healthcare Chief Nursing Officer Judy Murphy. They’re also interested, developing the ability to personalize care based on individual genomes as well as on proteomics, she notes.

Second, providers want to improve the overall consumer experience by understanding more about their customers’ preferences desires so they can fulfill them. “That means knowing what’s important to me,” Murphy continues. “It might be a really nice facility, convenient parking or Saturday hours—the consumer aspects of personalization.”

Fera agrees. “Not only do you see a move from volume-based payments to value-based payments,” he says, “but you see providers needing to treat patients more like consumers by focusing on customer experience.”

Technology and Data Analytics Upgrades

The current state of healthcare IT is “a bit of chaos in motion,” according to AlixPartners Co-Head of Life Sciences and Managing Director Yogesh Bahl.

Following years of EHR efforts, the industry remains in an early stage of digitization and data-sharing. “I’m still seeing a lot of practices on the provider side with a version of healthcare IT that consists of various reports that have been scanned and are now in PDF formats,” Bahl says. “That information cannot be mined. A large bucket of companies have yet to embrace healthcare IT as a mode of using anonymized patient records and outcome information related to patients taking specific drugs and then analyzing that data to improve future health outcomes.”

IBM Healthcare Chief Medical Information Officer Michael Weiner agrees. “All of the hospital providers have spent hundreds of millions of dollars on electronic health records,” Weiner says. Now the question facing providers as well as the larger healthcare ecosystem is:  How do we get value from the EHR implementation? “The optimization of EHR can greatly help enable the transition to value-based payments,” Weiner says, noting that EHR data need to be put to work to help decrease readmissions, improve outcomes, bolster prevention and achieve other performance measures. “How do you take that data and bring insights to get to value-based care?” Weiner adds. “How do you set up an ACO? How do you use that data to deliver better bundled care payment? It’s all tied together.”

Yet, the talent needed to make all of those data connections is scarce. “There is a huge shortage of data scientists in this industry,” Melling says. “Hospitals don’t have the people who can help them architect their data in useful ways so that they can see what it means.”

Other fundamental IT challenges also linger. Vynamic COO Jeff Dill notes that many healthcare organizations “are struggling to realize technology’s full potential” due to un-integrated systems, duplicate applications and disparate IT processes within different facilities.

‘Nonstop’ Regulatory Pressure

Regulatory pressure within the healthcare industry operates in only one mode, Vreeland asserts: nonstop. For the moment, MACRA is the latest set of rules providers need to address. Drafted by the Centers for Medicare & Medicaid Services (CMS) and passed with bipartisan support last year, MACRA replaces Medicare Part B reimbursement rates with value-based reimbursements. These performance and payment measures will be phased in starting in 2019, and major adjustments will be needed within the next two years.

“Many healthcare organizations that don’t really know how well they’re performing are busy trying to figure out what this means for them,” says Bill Copeland, Deloitte’s Vice Chair and U.S. Life Sciences & Health Care Industry Leader. Copeland notes that the new rules’ implications are far-reaching, and that it is causing many providers to think how adhering to MACRA may require fundamental changes to their overall operating model.

MACRA’s hefty compliance requirements are likely to drive more small and mid-sized physician practices into the largest healthcare systems.  “It’s just not possible for even a midsize physician practice, a 50-physician practice, to keep up with the reporting and quality requirements of MACRA as they begin to phase in,” Vreeland says.

In addition to MACRA, a number of other CMS initiatives are under way. Most of these rules “are focused on transitioning to a value-based world, driving quality, sharing of data, patient satisfaction, population health management, and personnel shortages,” says Dill, who notes that all of these coming rules changes “can impact the bottom line if health systems can’t overcome the related challenges.”

A Short List of Long-Term Opportunities

All of the challenges described above are generating significant healthcare consulting work. Given the state of the industry and the forces enacting on it, the demand for work in those, and many other, areas, seems unlikely to abate during the next several years. The type of healthcare work that consultants are most bullish about include the following areas:

Soul-Searching and Streamlined Strategic Planning

The intensity of industry change is sparking serious soul-searching by healthcare leaders. “In periods of uncertainty, you have to know who you are and who you want to become,” says BCG’s Saxena. What will a community hospital be in the future? Can it even exist? Should a larger health system continue to offer 20 different services, or should it winnow those lines down to seven? Should that same system expand into new geographies or should it improve its operations in the three areas it currently serves.

Strategic planning activities need to address these fundamental questions at a time when organizations also need to pivot quickly in response to external regulatory and competitive changes. “The strategy work we’re now doing is much more dynamic in nature,” Saxena explains. Five-year plans are becoming scarce. BCG and partners develop core plans that include a combination of “no-regrets” actions combined with sets of trigger points that, depending on how they play out, influence which, and how, related actions are executed. BCG refers to this scenario-based approach as “dynamic strategy development,” and Saxena says that it marks a significant focus right now.

New Consolidation Considerations

Healthcare consolidation activity has been hectic in recent years, and most consultants expect that to continue. “Some of the larger healthcare providers in the country are just getting bigger and bigger,” says IBM’s Weiner. “I think the market will continue to consolidate for the next three to five years … I don’t know how many small physician offices and how many small community hospitals are going to be left that are not part of a larger, integrated, healthcare network.” Vreeland agrees, projecting that there will eventually be about 1,000 large regional healthcare systems in the U.S.

AlixPartners has done substantial work with private equity firms’ acquisitions of rehabilitation centers and mental health facilities, Bahl notes. Other consulting leaders report that insurers and providers are examining joint-venture opportunities.

This consolidation activity has increased the demand for a number of consulting activities, including strategic planning, restructuring, due diligence and a large amount of integration work, especially related to systems integration.

“We’re doing lots of work around traditional mergers and acquisitions as well as work around the reconceptualization of business models and operating models for organizations,” Saxena says.

Patient and Customers Experience Management

A recent Deloitte analysis compares a widely used patient experience rating (the Hospital Consumer Assessment of Healthcare Providers and Systems scores) with financial performance measures. The work shows that hospitals with high patient-reported experience scores boast higher profitability. The association is not definitively causal, but a relationship exists, and healthcare providers seem increasingly aware of the connection.

“We’re seeing a lot of interest in our digital and customer experience offerings from healthcare clients,” says Morris. “A lot of organizations want to figure this out for good reason. If you look at what low-performing hospitals have in common, nearly all of them have a substandard patient experience.”

Saxena reports similar interest from clients seeking assistance in becoming more customer-centric. He says that more healthcare provider leaders want to “understand everything from segmentation and targeting to how they can become more consumer-centric, even more ‘retail,’ in their offering.”

Managing the Data Value Chain

How well healthcare providers manage their volume-to-value transformations largely hinges on the how well they can manage what Fera describes as the “data value chain.” This process involves digitizing information and then storing, analyzing, sharing and protecting it in a highly disciplined manner (i.e., optimizing it). “This continues to be a challenge for providers,” says Fera. Deloitte’s Copeland and Morris agree, noting that healthcare generally lags behind other industries, especially financial services and retail, when it comes to harnessing big data and conducting data analytics. This need is also sparking hundreds of companies—traditional players like Oracle and IBM, but also a large number of smaller and start-up firms—to barrage providers with analytics solutions. “There’s a gazillion smaller-niche companies out there,” Morris reports, “and that’s contributing to a lot of market confusion right now.”

Many providers understandably feel exhausted by the prospect of new technology spending following the significant investments they’ve made in EHR. “Right now, some providers are slow to invest in analytics, but there remains tremendous interest and, more important, tremendous need,” Morris notes. “I think this area will continue to be a hotspot for the foreseeable future.”

Some providers are ahead of the game, including those deploying analytics to better understand unit costs, more effectively manage bundled payments and help clarify the profitability of different service lines. Analytics are also being used to equip organizations with sharper insights into physician performance. “If you’re a hospital system expanding your network, you want to acquire above-average practices,” says Morris. “Well, what does above-average mean, and how do you measure that? Analytics are emerging as an important method of understanding quality.”

To summarize, healthcare providers are hungry for consulting related to strategy, consolidation, data analytics, customer experience and lengthy lists of process improvements. Delivering this expertise requires consulting firms and practices to make some major changes of their own (see “Is Project Consulting Flat-Lining?” below).

“According to the old model of healthcare consulting, a firm could have a team working on revenue cycle management and another team doing strategy for the same client, and those teams would never talk to each other,” Pilch says. “Now, under the new model, those teams have to come together. Everyone has to come together. You need clinical expertise, data expertise, regulatory policy expertise, financial expertise and, in some cases, you’re going to need banking expertise as well. Ideally, you need people who know how to run these organizations—people who have been CEOs, CFOs, COOs, etc. and who know how to turn around organizations.”

And all of these consulting experts and client partners have to come together “under the umbrella of identifying how any change or improvement is going to help the organizations progress from volume to value,” Fera adds.

Sidebar: Is Project Consulting Flat-Lining?

As the challenges healthcare providers confront become larger, more integrated and more complex, experienced consultants say the nature of their services is changing.

Vynamic COO Jeff Dill asserts that “cross-sector lens is very important.” BDO Managing Director and National Healthcare Advisory Leader Patrick Pilch says that his firm’s healthcare center of excellence is brimming with former healthcare executives, clinicians, regulatory and policy experts, banking experts, risk managers and more. “CFOs and chief medical officers need to work together closely on the provider side,” he adds. “Physicians in large practices need to understand the need for capital.”

The nature of healthcare consulting work is veering away from traditional projects to something, well, longer lasting. Healthcare clients, notes Huron Healthcare Managing Director Jeff Jones, “are moving away from a project focus to more of a ‘journey’ focus. That means fewer requests for discrete projects (e.g., patient scheduling improvements) and more requests for deeper, longer-term partnerships. More clients, Jones adds, are looking for help with strategic planning, design and implementation. “The nature of this work,” he adds, “has become more continuous.”

As the challenges healthcare providers confront become larger, more integrated and more complex, experienced consultants say the nature of their services is changing.

Vynamic COO Jeff Dill asserts that “cross-sector lens is very important.” BDO Managing Director and National Healthcare Advisory Leader Patrick Pilch says that his firm’s healthcare center of excellence is brimming with former healthcare executives, clinicians, regulatory and policy experts, banking experts, risk managers and more. “CFOs and chief medical officers need to work together closely on the provider side,” he adds. “Physicians in large practices need to understand the need for capital.”

The nature of healthcare consulting work is veering away from traditional projects to something, well, longer lasting. Healthcare clients, notes Huron Healthcare Managing Director Jeff Jones, “are moving away from a project focus to more of a ‘journey’ focus. That means fewer requests for discrete projects (e.g., patient scheduling improvements) and more requests for deeper, longer-term partnerships. More clients, Jones adds, are looking for help with strategic planning, design and implementation. “The nature of this work,” he adds, “has become more continuous.”  —E.K.

Sidebar: Unbundling the Healthcare Industry’s Beyond-Value Challenges—Symptoms to Watch

While healthcare providers are squarely focused on navigating the highly disruptive shift from volume- to value-based payments, an imposing assortment of other challenges—some related to value-based reimbursements, others not—also loom. These issues are reflected in the following trends:

1. Healthcare costs are a global problem. As is the case in the U.S., other developed countries face demographically driven healthcare-cost problems. Yet, many developing countries with younger populations are also challenged by soaring healthcare costs. Lifestyle choices and other factors can burden 30 year-olds in developing nations with the health challenges that 50-year-olds in developed countries deal with. “Governments are very worried about the healthcare-cost problem,” says Sanjay Saxena, Americas Leader of the Boston Consulting Group’s Payer and Provider Practice. “The need to transform healthcare is really a global problem. We get as many requests for help outside of the U.S. as we do inside the U.S.”

2. Healthcare challenges are also leadership and board-governance challenges: Given the magnitude of the transformation healthcare companies must undergo, more boards are assessing their current leaders to determine if they’re suited for the journey ahead, notes AlixPartners Co-Head of Life Sciences and Managing Director Yogesh Bahl. Many boards are also seeking new perspectives as well as new directors with specific expertise, such as strategic risk management, reports Patrick Pilch, BDO’s Managing Director and National Healthcare Advisory Leader.

3. Population health capabilities are in their infancy. As more healthcare data is collected, “providers need help determining how to find value in heaps of information,” notes Fletcher Lance, Managing Director and Global Healthcare Lead at North Highland. Lance’s firm has embraced a focus on Latino and Hispanic communities in the U.S. through a program called Emerging America. “There are issues and diseases that impact this group more than the general population,” Lance adds, “and Hispanics have been woefully underserved.”

4. Revenue cycle management remains a major need. “The shift to value-based payments is placing revenue cycle systems under greater stress,” says Pivot Point Consulting Partner Jon Melling. “We’ve got to help our clients understand what they need to do with regard to revenue cycle to support their shift to value.” Cumberland Consulting Group Managing Partner Dave Vreeland agrees, noting that consolidation activity requires integration between the revenue cycle and the clinical side of the organization.

5. The physician shortage will intensify. While most healthcare providers are focused on managing and improving patient and customer experience, Cumberland Consulting Group CEO Brian Cahill notes that a worsening physician shortage will challenge customer experience management efforts. A recent study by the Association of American Medical Colleges indicates that the U.S. will face a shortage of physicians in the coming decade “under every combination of scenarios modeled.” By 2025, the study estimates a shortfall of between 14,900 and 35,600 primary care physicians and a shortfall of between 37,400 and 60,300 non-primary-care physicians. “The combination of more demanding consumers who want to be more involved with their care and fewer physicians to provide that care will pose challenges,” Cahill says.

6. U.S. patient safety must be addressed. As the use of performance and value measures increase, the focus on patient safety—the ultimate measure of the patient experience—will require attention. “If we think of value as outcomes,” says Dr. Bill Fera, Principal of EY’s Advisory Health Care Practice, “then safety and medical errors are a huge issue. Unfortunately, the healthcare industry still struggles with this.” Research published in the British Medical Journal earlier this year, indicates that medical errors in hospitals and other healthcare facilities are the third-leading cause of death in the United States. —E.K.

 

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