January 18, 2017
Last week, MiraMed's senior executives attended the JP Morgan Healthcare Conference in San Francisco along with top executives from more than 450 private and public companies in biotech, pharmaceutical, medical device and technology, as well as healthcare providers, payers, private equity and venture capital firms. Presentations provided a glimpse of the future in terms of strategic thinking and trends among some of the nation’s largest providers, vendors and investors.
Strategic plans were presented by CEOs and CFOs of over 20 of our nation's largest healthcare delivery systems representing over $100 billion or 10 percent of the roughly $1 trillion that flows through hospitals and healthcare delivery systems annually. The average organization presenting had over $6 billion in annual revenue, 15 hospitals, close to 30,000 employees and thousands of physicians on staff.
The presentations provided a comprehensive picture of both what's happening in the real world today as well as investments being made in anticipation of a future in which the status quo is no longer a viable option.
Primary views, trends and strategies covered included the following:
The Affordable Care Act
The general consensus was that the Affordable Care Act (ACA) has flaws, but has been a great first step in improving access to care. The CEOs and CFOs who presented shared a strong view that whichever steps are taken under the new administration must build on the ACA, not destroy it, and that replacement must happen at the same time as repeal.
From a financial impact perspective, several health systems said that the ACA has had a net neutral effect. More specifically, one major health system stated that favorable reductions in charity and bad debts were substantially offset by Medicare cuts and increased Medicaid losses.
The bigger issue was overall uncertainty as to what form the “replacement” plan will take. Many believe this uncertainty will be the new norm for some time and that they need to stay the course strategically, continuing to focus on high quality affordable care and overall population health, while they wait to see the future of the ACA.
Managing Margins and Reducing Cost
Affordable care and reducing cost were consistent themes and strategic priorities highlighted in nearly every presentation. Cost management has become a board-level strategy as providers continue to see downward pressure on revenues, a shift to ambulatory care, and a movement to risk-based, bundled contracts in high-volume and high-value specialties.
Significant investments are being made in staff performance improvement as part of the continuing focus on margins, and the movement into bundled contracts for specialties such as orthopedic and cardiac care.
From a technology perspective, organizations are investing in more advanced cost accounting systems to better understand both cost and margins. This supports a focus on clinical standardization and reducing variation, from a quality and cost perspective.
Revenue Diversification, Ventures and New Lines of Business
Finding new streams of revenue was also a hot topic as healthcare providers have recognized that their business model has to change. The biggest focus appears to be on new ventures, which has become a board-level imperative as the leading form of business innovation. Many of the organizations presenting have set aside significant sums for direct investments in private equity, and some have acquired their own revenue cycle company to serve their needs as well as become part of their investment portfolio. In summary, major health systems are recognizing they need to find new ways to drive value, deliver on their mission and create a more viable, sustainable enterprise.
Growth of Value-Based Contracts
The expansion in access points across the continuum within a single healthcare delivery system has led to an increased willingness to take on risk and value-based payments in a large-scale population setting. Most of the presenting companies have a licensed health plan, but all have taken on some form of risk-based contract.
Focus on Mental and Behavioral Health
The strategic plans of many health systems now include a clear focus on mental and behavioral health, with one organization achieving a 23 percent reduction in emergency room visits as one benefit of their team-based approach to mental health treatment.
Digital Tools and Data
Having an electronic health record was a baseline assumption, with virtually every organization already utilizing either on Epic or Cerner. While these systems have been in place for many years, the primary benefit of the continuing evolution in this area is that the data is now more available and accessible. While there is still a long way to go, many organizations are now able use that data to improve outcomes and drive down cost.
Additional topics included the continued shift to ambulatory care, a focus on quality and outcomes, aligning incentives with physicians, and the shift from treating patients to building relationships with a major focus on the experience of care.
While this eAlert focuses on the current thinking of some of our nation’s largest organizations, it is clearly relevant to organizations of any size preparing strategic plans and budgets for purposes of resource allocation. Such tasks require assumptions about the future and although many aspects of the future of healthcare remain uncertain, most recognize that the greatest risk is standing still.