A significant change is underway in the healthcare industry. New payment and care delivery models are forcing healthcare providers to actively seek out ways to improve quality of care while cutting costs and boosting revenue. This year was Huron's fourth annual Healthcare CEO Forum, which gives industry leaders a chance to talk about these changes and how to adapt. When a billion-plus dollar healthcare system is facing the need for a 20 to 40 percent cost reduction across the hospital enterprise, some serious thinking and planning are required. Huron Managing Director Jeff Jones sat down with Consulting to talk about some of the thinking to come out of this year's Healthcare CEO Forum and how healthcare executives are poising their companies to function under this new set of industry norms.
Consulting: How would you characterize the overall feeling of the hospital executives surveyed?
Jones: Over the four years there's become a familiarity among the group, the format, the approach and the focus. Each year there's been this ever-increasing comfort and openness about discussing critical issues they're all facing. That's the atmosphere in terms of engagement and participation. They're highly engaged, frequently having to stop conversations and sessions to move onto the next topic. In terms of tone, they're very energized around being able to make real change in the way healthcare is being delivered in the different markets they serve. I would characterize most of them as being very optimistic, they're looking at the changes that are occurring in the industry broadly and in their specific market as opportunities to really improve the delivery of care of their patients they're serving, and welcoming this new platform for change.
Consulting: What is putting this downward cost pressure on hospitals?
Jones: There are a number of factors changing the way they're paid for the care they deliver. It's different by different markets. If we look nationally, certainly the ongoing changes in Medicare reimbursement and some of the incentives to improve quality. There are changes at the federal level focused on both quality and ultimately cost because they see their overall reimbursement at a federal level going down, whether that's through Medicare or whether that's through the role the federal government plays with Medicaid and the state match. There's just less dollars in the system. So at the federal level they're forecasting there's going to be continued pressure on payments. Then they're looking what's going on in their local markets, that's lower rates of increase from the insurance companies they do business with, there's just not the same growth on the payment side they've experienced over the last several years.
Consulting: What's the single biggest challenge clients are facing in this environment?
Jones: There's really a parallel set of answers to that. I think the very pragmatic challenge they're facing is that they know no matter what they're going to have to lower the cost structure for how they're delivering care. This is because under any of the scenarios they can lay out going forward, they anticipate they're either going to be paid less for each service they provide and/or they'll be responsible financially for the services they're providing, so providing that service at the right cost point is going to be to their advantage under either scenario.
They know at a practical level they need to change their cost structure, probably between 20 to 40 percent. There's an opportunity to grow their revenue while they're making that change, so if during that time they can raise revenue 5 to 10 percent then they're in the 30-plus percent range in terms of improvement. If you take a healthcare system today that's a billion dollars, which is a fairly typical sized organization, you start to think about what 20 to 40 percent change looks like in terms of the cost and revenue structure, those are transformative changes. It's on a scale of change that at least in healthcare we haven't had to make this quickly in the careers of any of the executives in place today.
Consulting: What are clients demanding from Huron?
Jones: This is where we feel very fortunate. We've built a legacy of being leaders in terms of thinking about how to both grow revenue and how to strategically improve cost performance. We have deep experience and very deep expertise in how these health systems operate. Our clients are now starting to think about not just how to find efficiencies in their current business, but how do they also about thinking and transforming their business, changing where care is delivered and who's delivering it, changing how care is coordinated across multiple facilities. They're looking to us given our experience and expertise but also because we've had success working together in the past to solve difficult challenges.
On the cost side they're looking to us increasingly not just to improve the cost within their current organization and capability, they're asking us to help them think about how we actually change our business and find cost efficiency through a broader, most strategic redesign of the health system. We've built relationships based on trust and delivering improvements in the past, so as they're thinking not just about changing their cost and revenue structure but thinking more strategically about where their markets are moving.
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