A Pulse Check on Healthcare Consulting

Healthcare is the industry to be in," says Ted Chien, executive vice president at Ingenix, a healthcare consultancy based in Eden Prarie, Minn. And he has plenty of evidence to back him up: It's an industry that is the great equalizer, touching all people in all geographies at all income levels. And because it's an industry facing much change, it's certainly a great space for healthcare consultancies. Between talent, consolidation, insurance and consumer choice issues, the healthcare industry is also a multi-front war. And organizations are looking to tackle the problems before them—but with an eye to the future.

That's certainly what Susan Kavnik says she's seeing. She's a senior associate, healthcare knowledge leader, at Point B, an industry agnostic consultancy that does a third of its work in the healthcare field. And, in turn, the firm's approach has been shifting. "We started out and still are in large part about helping our clients get from where they are to where they want to be—[but] we're finding ourselves doing that but at the same time also helping them articulate what their future should look like," she says.

One of the issues that will certainly shape that future of the healthcare industry is the availability—or lack thereof—of talent.

"You've got a real labor crisis; there's a much-publicized nursing problem," says Gordon Mountford, a Los Angeles-based managing director in Huron Consulting Group's Wellspring Partners practice, which specializes in healthcare. "But if you look below that, you've got shortages in lab technicians and therapy positions. So there just continues to be more and more crises at the operational level at each of these hospitals."

C.J. Bolster, vice president and general manager of Philadelphia-based Hay Group, a consultancy that, like Point B, works in a number of spaces, agrees that the challenge is universal. "An issue that every one of our clients is working on is talent," he says.

Additionally, some facilities aren't lacking in talent, they're lacking in specializations.

"It really varies around the country, but we're seeing fewer physicians going into primary care practice," Mountford says. The cause? A work ethic shift, he says. "The quality-of-life issues have crept in. It used to be that doctors would work around the clock, and the work ethic just changed. You just have a lot of doctors who want to work 8 to 5 like everybody else." The result? Understaffed emergency rooms and diminished patient care, he says.

Bolster advocates that clients proactively look inward to solve the talent problem. "This is an industry that really has basically hired talent from the outside historically," he says, adding that consolidation has brought in more talent and more options.

Mountford, however, says the administration and physicians both need to look at the numbers to understand the problem. "The first thing we do is help them understand the business reality [and] understand the demographics of their patient base and their physician base," he says.

In addition, Mountford advises clients be very knowledgeable before hiring. [We help them understand:] What kind of doctors do you need? What kind of doctors should they be recruiting? [And] for the physicians that they do have, which ones should be investing in? We look at their physician relationships. We get involved a little bit with the actual implementation of physician recruitment, but there's only so much we can do."

Another solution some consultants have is a pay-for-performance model. "There's not a single plan I think we have that doesn't have a serious improvement in service and satisfaction as a major measure of an incentive plan," Bolster says.

"I think it is a solution to a problem we have," Chien adds. "How do you motivate employees to meet their goals and objectives that businesses have? This incentive system that we've built up seems to be effective in getting people to be aligned around the right things to get the right behaviors that we need." It's also a solution that's been proven in other industries, he says. "That premise of getting people motivated and aligned to some sort of incentive system seems to work everywhere else, [so] why wouldn't it work in healthcare? There's a huge opportunity."

But Kavnik cautions that it may not be the answer. "Hospitals are usually measured as a group and physicians are usually more at an individual level. [And] you don't know what some of the mitigating factors might be." But looking at incentive-based ideas is certainly "a step in the right direction," she says.

Challenges to Revenue
As the Baby Boomers age and require more care, one might think hospitals are getting more and more profitable. But such is not the case. Consolidation hasn't brought the savings many hospitals had hoped, and Medicare and Medicaid, the federal and state insurance programs, respectively, are seeing policy change, leaving more payment responsibility on the patient. "There's not as much economies of scale as one would hope," Kavnik says.

Even though many facilities are running admirably lean, the revenue cycle is something healthcare consultants are charged with addressing because "every percentage counts," Mountford says. "In my mind, it's back to basics. It's looking at everything. How do you operate a hospital; what technologies are out there that we can use to enhance productivity? And making sure that we're working as efficiently as possible."

One of the answers to the business challenge, Chien says, is communication—which leads to innovation. "Clearly there's more collaboration taking place in this industry where payers, providers, employers and government are all getting together in some sort of form to really talk through how is that all the stakeholders actually work together to create the right system," he says. Though this is only happening in pockets currently, there's still good to come out of the sharing of ideas.

"In many respects that can be a good thing because you have a lot of incubators that are testing out different solutions. Hopefully you will at some point see something rise to the top and become something that can be more of a total industry solution." But that solution has a lot more collaborating and innovating to go, he acknowledges. "In the meantime, it's very much a lot of laboratories, if you will, trying to test out different solutions. Hopefully we'll have something that we can take forward.&rdquo

Payer Models Changing
The future of the Medicare and Medicaid systems is something on the minds of all consultants within the healthcare space.

"Medicare continues to tighten the belt in terms of reimbursement. The government pays 40 or 50 percent or more of the bill at each hospital," Mountford says, adding that this can be especially challenging for hospitals as costs around labor and supplies continue to go up. "And I don't really see any change in that in the foreseeable future."

Changes to Medicare, Medicaid and even private insurance policies have forced consumers to often take on more of the financial responsibility of care. And that has put an emphasis on customer service that hasn't existed before, Bolster says. The result is a retail-like model that puts power in consumers' hands. But hospitals, thus far, have been slow to catch up. "Not very many hospitals systems are set up to sell their services retail," he says, adding that the existence of health savings accounts also are conducive to the growth of a retail environment in healthcare.

So it's no surprise to Bolster that the organizations best set up to provide retail health services are the ones already providing other retail services, such as CVS, Target and Wal-Mart, many of which offer low-cost medical services on site.

"People are making some choices that they didn't have to make before," Kavnik says.

Technology
It seems a bit paradoxical that an industry that relies on new products to save lives is slow to embrace administrative changes, such as computerized physician order entry programs, which could help the organizations run more efficiently and give better—and more accurate—care. But, as Chien confirms, "The healthcare industry has somewhat been a little bit slower than other industries [in terms of] innovation [and] the use of technology."

But, Kavnik says, it's important for hospitals to look past the price tag and stay current—especially as the ones who don't begin to fall into the minority. "I see in some cases sometimes the price tag can seem a little overwhelming. But it most cases … it's not a matter of if, it's just when."

But Bolster says making a bad investment can be just as devastating as falling behind. "It's got to work. At the end of the day we're spending way, way too much money for this not to make a serious difference," he says. That difference means reducing physician drug-ordering error, which the Institute of Medicine of the National Academies puts at affecting 1.5 million patients per year, at a cost of $3.5 billion annually.

But getting a doctor used to relying on a computer brings its own brand of challenges, Kavnik says. "The feeling is generally if you make automation a time saver for physicians—and some say that's not possible … and if you're bringing information that's useful, [then] they're engaged with the computer and then more readily available and more interested in the administrative pieces that go along with that." Engaging physicians in reverse just won't work, she says. "If you start out with the administrative pieces, you often just don't get the physician to the computer."

EMR: A Benefit or a Burden?
On the surface, electronic medical records sound like something innovative that will instill some order in an industry whose processes and procedures are very unique to each organization. According to the National Center for Health Statistics, in 2005, one-quarter of office-based physicians had some sort of EMR, up from 18 percent in 2001. Clearly adoption is growing, but so is the controversy around them. Their creation, possession and cost come with their own brand of complexity, one not lost on consulting firms.

In fact, Point B's Kavnik sees it as an intersection of business, technology and healthcare. "More physicians don't have EMR than do. That adoption is somewhat slow because they're in the business of healthcare, not of IT." Consumers in the end are the ones benefitting most from the existence of these streamlined files, "and yet they're not paying for it," she says.

Her idea? "If we could do essentially some cost shifting or getting other people to participate in that cost, that could clearly help with not only the adoption but the sustainability of the EHR." The tool is also one that can be leveraged to attract talent. "Hospitals are interested in finding ways to engage physicians who are in the community around them, and one way to do that is to offer them at some discount access to the EMR," Kavnik says. She adds that President Bush's plan is for everyone to have an EMR by 2014, but that's going to take perhaps some outside intervention. "Maybe we need, and I don't usually say this, more regulation and control to help with this implementation and adoption."

Mountford agrees the current model needs a change. "The concept is very simple, but the implementation is very complex," Mountford says, "and squeezing the benefits out of that is I think at times hard to measure."

Challenges Ahead
The future in the healthcare consulting space will be shaped by all these and more factors—and more.

Mountford says the key challenges going forward will be to ensure the viability of the overall hospital operation, including making sure the bills get paid—which leads to the other challenge, choosing the right payer partners, which he describes as "people who have an interest in maintaining the health and welfare of the community that these hospitals serve."

Bolster says he sees consumers and organizations looking at the bigger picture in the future. Hospitals will return to a focus on larger strategy projects, he predicts. And consumers will be evaluating hospital programs more closely to find a good fit—especially if the cost is coming out of their wallets. He cites the recent example of Ted Kennedy, who interviewed a number of surgeons before going under the knife for a brain tumor. But his story highlights why consumers can be at a disadvantage with regards to choosing their own care. Bolster points out that Kennedy had both information and money on his side. "Obviously he had some advantages that the rest of us don't." But while an income may not be flexible, the option to gather as much
information as possible before a procedure is. "The data to make that decision is available," Bolster says.

Chien meanwhile emphasizes the importance of communication and collaboration. "To us, it really is about how do you build a system—different stakeholders to find the right solution that benefits everybody. I think the more of these we see and the more collaborations that we can demonstrate that can work, that can really be truly transformational."

Sidebar: Forces of Change in Pharmaceuticals
The pharmaceutical industry is an important segment of the healthcare market—and according to Ray Hill, general manager of IMS Health Consulting in Norwalk, Conn., a lucrative one as well.

"It's the most profitable segment. Every time you do a project for a hospital, it's practically nonprofit because they make 2 percent or lose money in most cases," he says.

But the pharmaceutical industry is facing challenges of its own. "The big change that has been happening over the years is that the primary care market has been slowing and has in fact gone to negative growth. And that's driven by a number of factors; new drug launches have been declining [and] there's been a tremendous amount of safety pressures on the industry." And, he says, "there have been a number of drugs that have faced failure to get approval."

That has resulted in a number of changes. For one, IMS has been called on do to some business processing outsourcing work, particularly as these companies cut costs. "And because we're involved in so many steps in the value chain … we're very well positioned to help pharmaceutical companies run those processes more efficiently."

On a larger scale, many of these companies are also changing their entire business model. Gone are the days when the only way to do business was to have a sales representative detail a doctor. Instead, drug companies realize they need to communicate directly with consumers.

"The whole problem historically in U.S. healthcare has been that payment is dissociated from the consumer. You go in and see a doctor and you typically want to see the best obviously, and you don't really care about cost because the insurance company is paying it and you just pay a co-pay. The whole logic in this consumer-directed healthcare is to … make the consumer responsible for payment and therefore let the market work in your favor."

Hill says he's also seeing another key trend: emerging market growth. He says the bright spots in the growth story have been places like China, India, Turkey, Russia and Brazil. "Those markets are very, very big growth opportunities. They're growing two to three times roughly the rate of the developed markets, so the U.S. will be in the range of 4 to 5 percent, Europe the same thing. And these emerging markets are all double-digit growth," he says.

Additionally, he says, pharmaceutical companies are looking at ways to emphasize what they offer to patients themselves. "The smart companies are looking much more at how they can demonstrate the value of their medicine," he says.

Companies that recognize and embrace these key trends will survive changes to an industry whose current model has existed for 40 years. "These companies need to change and they need to change now," Hill says.

Sidebar: (Healthcare) Decision 2008

The upcoming presidential election could have significant ramifications for the healthcare—and healthcare consulting—worlds.

"I think everyone's anticipating a pretty significant change," says C.J. Bolster, vice president and general manager of Hay Group, adding that changes to Medicare and Medicaid could be quite a factor in how services are contracted. "There's a lot of interesting dynamics going on out there," he says.

But the impact is being felt now, as well. "I think in some ways, in the short term, it puts a little bit of a hold on progress because you don't know who's going to win, and as a result, who's going to promote what platform," says Ted Chien, executive vice president of Ingenix. "But that's a short-term issue. The longer term presents a lot of opportunities. You know there's going be change with any administration and when that change gets more well known as far as who the next president is going to be, what his agenda's going to be, we'll see an influx of new thinking that comes from whatever the president-elect decides is the platform by which he wants to run and what Congress wants to do."

And Chien's certainly informed on the issues. "We're spending a lot of time with the various staffers and influencers on both [Barack Obama's and John McCain's] campaigns just to see what policies might come out, how we might be able to support [that] through our consulting, our technology, our tools, ect., whatever they might be thinking about," he says.

And Chien says he does not see a universal healthcare plan being on the radar for either candidate. "The prospect of a universal healthcare system is probably a little longer away than what the near term is going to provide. So I don't think people are thinking about that."

But regardless of who wins, Chien says, it will be a time of great debate—and of new ideas. "It always seems to be right after an election or just preceding it, [when you] get a lot of new thinking that arises." But the waiting can take its toll, all the same: "I think it's a little frustrating not to know exactly today where we're going to be."