2019 HEALTHCARE OUTLOOK

Transcription

1 2019 HEALTHCARE OUTLOOK The fundamental shift underway in the U.S. healthcare industry stands to redefine the health delivery ecosystem. The challenge for leadership teams is not new: balancing preparations for an uncertain future while sustaining appropriate focus to manage through the real and immediate demands of today s environment. HEALTHCARE LEADERS SHOULD CONSIDER FOUR IMPERATIVES AS THEY CONFIRM ORGANIZATIONAL PRIORITIES FOR 2019 AND BEYOND. EMBRACE DIGITIZATION IDENTIFY WHERE TO PLAY IN THE VALUE CHAIN RETHINK CAPITAL On the vanguard of healthcare. EXECUTE TO CREATE REAL VALUE

2 Imperative 1: Embrace Digitization Digital health is reshaping the industry as we know it. Some of the promises of a fully digitized healthcare future still may feel tenuous; but the digitization of healthcare delivery is actively underway and over the next several years we will see its continued evolution and expansion. The ever-growing diversity of healthcare access points and information modalities already availed through technology provides evidence to the breadth and depth of solutions emerging through digital health (see Figure 1). Yet, the move to digitized health is more than a list of technologies or tactics. Digitization will result in a fundamentally different healthcare delivery network model, one that places the individual and the digital delivery network at the center, as opposed to the traditional model that places acute care as the network hub. Figure 1: Examples of technology-enabled healthcare solutions ON-DEMAND virtual consults and care CONNECTED SOLUTIONS such as wearables that extend diagnostic capabilities outside of traditional sites of care to drive decision support, monitoring and interventions A variety of SELF-SERVICE OPTIONS for consumers to seek and find health and disease information, manage appointments and other administrative items, as well as order prescription refills and actively manage their own health records, with an increasing portability of health and medical information Digital process AUTOMATION driving changes to myriad back office and some clinical functions MEDICAL ADVANCEMENTS including incorporation of patient-specific data to inform personalized care Harnessing digital health to reduce costs and improve quality should enable organizations to address several fundamental challenges of the current delivery model. For example, the aging population and associated increasing healthcare demand puts material economic and capacity pressure on provider organizations. While there is a mental model to associate digital health with younger generations, technology-driven solutions should in fact be central as providers redefine and implement new models to manage and care for their aging patients. For other communities, particularly those in rural areas, constraints on provider capacity and reimbursement will continue to challenge organizations ability to serve the needs of their populations. Thinking beyond bricks and mortar to harness new models of digital service provision is vital to solving the access and cost problems that face rural providers. Page 2

3 Provider organizations and markets are in highly variable places in terms of how they conceive of and approach digital health. There s surely not a single answer for when, where or how organizations should start on digital. Still, digitization should be an active topic for all leadership teams to be discussing and planning. Ensuring a purposeful approach to digital health will help organizations harness the potential of digitization, while mitigating against common risks. z Digitize to transform. Digital health is not merely about adopting an app or adding a bot to digitize current processes and practices. It is about fundamentally redefining what is possible. There are surely digital options that will offer incremental improvement opportunities. For example, moving a clinical interaction from an in-person visit to a virtual visit can save the patient and the provider time and energy. But was that visit even necessary? The real promise of digital is to fundamentally upend the entire care model to drive outcomes and reduce costs. Moreover, digitizing inefficient and ineffective operating models will not actually allow provider organizations to stay competitive. Foundational technology connectivity and data sharing capabilities as well as core operational and performance improvement are prerequisites to a successful entry into the digital space and a place for all organizations to start. z Apply an enterprise-wide perspective to digital health-related planning and implementation. A major risk for providers beginning work within digital health is the temptation to dabble. The digital health space includes a wide array of new technologies and services released across a very fragmented field, making it easy for different parts of an organization to make a series of small choices and decisions within their individual silos. Yet, this model represents a missed opportunity. Allowing for experimentation to flourish across an organization is vital; yet, it is also crucial to connect the dots between disparate efforts to foster organizational learning from successes and mistakes alike and position to scale innovation. Leaders should establish a holistic, coordinated approach to digital planning and implementation, defining clear mechanisms to coordinate and collaborate across the myriad digital forays that will eventually permeate all parts of the enterprise. z Make a well-timed, financially viable transition. There is an endless amount of spending that could go into digital health as a category. Yet, this is a crowded space with a lot of likely failures and missteps, and it is not always clear when the market is or is not ready to move. The experience following the Patient Protection and Affordable Care Act (ACA) offers a cautionary tale for some organizations that went head-first as early movers in this space, only to get far ahead of a market that was not ready for risk. Select organizations will be well-positioned to pave the way in the digital arena while others risk overinvesting in digital capabilities and technologies, only to be ill-positioned to reshape the market or realign their economics to support financial sustainability. This is not a reason to stagnate but is a reminder to proceed with deliberation. z Reorient to the consumer. With the digitization of healthcare, consumers will be at the center of the delivery network. Many organizations have discussed a patient-centric orientation for years and more recently have begun to talk about their patients as consumers. Yet, in their actions, most providers still are consistently orienting around what works best for their physicians, their acute care enterprise, and/or are anchored to their established operating models. As non-traditional entrants bring an inherently more consumer-oriented model to bear, individual expectations for convenience, access and affordability will only escalate. Provider organizations that have not oriented to consumers will risk losing whatever incumbency advantage they may currently hold as the established and trusted brand in the market. For most organizations, consumer-orientation constitutes a cultural and operational shift that will require leadership commitment and vision to redefine the consumer as the center of the evolving healthcare ecosystem. DIGITAL HEALTH IS NOT MERELY ABOUT ADOPTING AN APP OR ADDING A BOT TO DIGITIZE CURRENT PROCESSES AND PRACTICES. IT IS ABOUT FUNDAMENTALLY REDEFINING WHAT IS POSSIBLE. Page 3

4 Imperative 2: Identify Where to Play in the Evolving Healthcare Value Chain In any industry, a value chain is the full set of activities that a business conducts to bring a product or service to the market. The traditional healthcare delivery value chain has centered around the diagnosis and treatment of a given illness or condition from the time the individual patient enters the healthcare delivery system through treatment and follow up. Already today, the lines and boundaries around this value chain and the activities within it look different than they did a decade ago and most definitely will be different a decade from now. Major dynamics that are actively reshaping the healthcare value chain include: Movement from a model centered on care delivery, or treatment of illness, to one inclusive of health management and wellness expanding the needs, services and products included in this value chain; Exponentially expanding information availability and access and changing ownership, including digital health developments and technology entrants making data more portable unlocking new roles for information in driving behavior, decision-making, and creating and experiencing value; New service and interaction models available through innovative technology that supports direct distribution and on-demand access and erodes the criticality of in-person, physical, real-time interaction in geographic proximity; Constantly evolving diagnostic and treatment options through scientific innovation; An erosion of the traditional layers between purchasers, insurers, intermediaries, provider organizations, physician decision-makers and end users, i.e., patients as untenable cost increases motivate new models that remove layers to rein in costs (e.g., direct to consumer; employerprovider; payor-provider relationships); Individuals holding increased financial accountability, along with new access to information and changing expectations increasing individuals primacy as decisionmakers as they engage as consumers of health and care. Page 4

5 What emerges is a complex health ecosystem where traditional roles are reimagined, and in some cases, materially upended including both the role of the individual user and that of the organizations developing and delivering health services and products. It is impossible to predict the exact timing and order of magnitude of every specific change or new entrant that is coming. Still, provider organizations should examine their current role in the value chain to understand where they are most vulnerable. Many organizations may need to reposition in some cases even disrupting themselves before it is done to them, in order to avoid a longer-term loss. Leadership teams should also develop the organizational flexibility to nimbly react to unexpected market change. As organizations conceive of their current and future role in this transitioning value chain, providers may determine it prudent to exit some of what they own and offer today. In other cases, organizations will identify the need to expand or deepen capabilities to survive and thrive. Leadership teams should evaluate build/buy/partner decisions across the board; few, if any, organizations will be able to own it all. Partnerships are essential. And the nature of these arrangements will diversify in terms of the viable options for whom to partner with and how to do so. For example, as the healthcare delivery and payment spaces converge, providers and payors are exploring options to replace transactional interactions with increased collaboration. Without fundamental changes to reimbursement, providers face a financial non-starter to accelerate the care delivery and health management transformation they aspire to lead. Yet, most providers will not have the scale or capital themselves to be viable as payors. Instead, providers should consider how to align with plans or employers to reframe their economic models. Page 5

6 Imperative 3: Rethink Capital In this emerging health ecosystem, there are countless new entrants (e.g., Alphabet (Google), Amazon, Apple, Facebook, Microsoft and Uber) with substantial available capital that outpaces that of even the largest, most successful health systems. Additional players from venture capital, private equity and industry are also seeking to commercialize innovation and monetize improvements to what is seen as a fragmented and inefficient delivery system with ample opportunity. Meanwhile, many providers self-generated income available for investment and overall investment performance is declining, with eroding margins driven by reimbursement pressures from commercial and government payors alike and increasing operating costs, a challenging 2018 stock market, plus competition for and in some cases a decline in philanthropy. Most providers also face increasing capital demands requiring decision-making and tradeoffs, from near-term requirements such as replacement capital to maintain an aging asset base, to longer-term investment requirements to develop and advance non-physical capabilities such as digital health modalities. Those seeking to fundamentally reposition in the new healthcare value chain and reorient towards consumers will have even more potential needs. Of course, not all health systems are capital-constrained; many leading providers are well positioned. Yet, it behooves all leadership teams to reconsider how they conceive of and approach their capital needs and sources. Leadership teams can revisit and confirm or refine their criteria and processes for navigating competing demands for capital, tying capital investments closely to strategic imperatives. Teams should also be prudent with their build/buy/partner decisions to manage required outlays as they seek new capabilities. Some organizations may also explore non-traditional sources of capital. There are significant investment dollars flowing into the healthcare delivery space from private equity, to venture capital, to institutional investors and others. To date, much of this funding is going to technology companies, digital health startups and other non-incumbent players seeking to disrupt the provider industry or operate in adjacent, related spaces of health and wellness and consumer engagement. Yet, across the provider space, material investments are also being made in non-profit and for-profit provider systems alike, physician organizations, as well as newer entrants like retail, ambulatory surgery and urgent care businesses. Evaluating access to capital through such alternative mechanisms may propel organizations into territories unknown. While it may feel unfamiliar or uncomfortable for many non-profit health systems, contemplating how private equity or venture capital may fit into the organization s future is a worthwhile conversation to begin. These dollars are bound to influence the industry and market overall so it only stands that provider organizations should consider how to best position to access capital through these channels. Provider organizations will need to make the case that they are an attractive partner and worthwhile investment so starting with a clear idea of what the organization has to offer to the market is vital. Page 6

7 Imperative 4: Execute to Create Real Value The opportunity for performance transformation within healthcare remains ample. Some provider organizations have brought discipline to operating performance or have addressed more traditional low hanging fruit improvement opportunities such as revenue cycle enhancements, group purchasing to address supply costs and reduced labor costs through operational benchmarking. Still, other providers have cycled in and out of cost reduction efforts, with initial wins followed by a creeping back up of costs. In some organizations, continued access to revenue-side opportunities through strategic growth and favorable reimbursement has permitted delaying the level of material change that is required to tackle more sustainable long-term performance and cost improvements. LEADERSHIP TEAMS SHOULD CONSIDER HOW TO PURPOSEFULLY TAKE ON THE MORE COMPLEX, DIFFICULT INITIATIVES REQUIRED TO FUNDAMENTALLY ADDRESS MARGIN. For example, teams can address those items most squarely in the realm of clinical care delivery such as clinical variation, clinical service rationalization, provider and care team roles and clinical processes. Concerns about keeping physicians happy has been a barrier to change for many organizations. Yet, if approached intentionally and with appropriate clinical leadership and alignment, there stands to be a long-term benefit to physician satisfaction and engagement in addition to margin that will result from a more effective and efficient operating model. Still, the work required will not be painless. Strong leadership and organizational commitment to operational and cultural change management are essential to achieve sustainable results. Recent and anticipated market consolidation only amplifies the imperative to execute. With increasing public attention on the impact of provider consolidation on pricing and healthcare affordability, organizations are under increasing scrutiny to clearly create and demonstrate the value of consolidation to the market and to share that value with the community. Leadership teams need to face the question of whether they are truly ready to execute the changes availed through organizational integration to achieve its full potential benefit. For example, organizations often consolidate and aggregate networks without addressing sensitive areas such as rationalizing their combined assets or tackling highly variable clinical care or operating processes and performance. For the many organizations that have grown through partnership, a full review of opportunities across the existing enterprise is warranted in complement to consideration of future partnership pathways and execution requirements. Page 7

8 Partnering Effectively to Lead Through Change Across each of the four imperatives described above, the need for partnerships is evident. As organizations contemplate both their existing relationships and evaluate new options, they need to ask hard questions of what the partnership truly offers to both the partnering organizations and the populations they serve and what new complexities are introduced. For example, in horizontal partnerships where providers are evaluating parties outside of their traditional geographies, the historical drivers of value from partnership need to be re-examined. The benefits and risks of a partnership in a distinct, distant region may be materially different than what the organization has experienced to date with local partnerships, where integration of operations and clinical programs have delivered both cost-side synergies and revenue-side opportunities for shared growth. In partnerships with non-traditional players such as technology companies, providers need to evaluate whether an integrated, joint venture pathway will create enough benefit to warrant such an investment and organizational commitment, or whether a more standard, time-bound vendor relationship will suffice. NOT ALL ORGANIZATIONS WILL NEED THE SAME SET OF PARTNERSHIPS YET FEW, IF ANY, WILL BE POSITIONED TO GO IT ALONE. Leading organizations will equip themselves to cultivate and manage a partnership portfolio across a pluralistic set of relationships as they chart their course for 2019 and beyond. For media inquiries or to schedule a call with a member of our leadership team, contact: Jim Brown National Marketing Director jbrown@chartis.com Page 8

9 About The Chartis Group The Chartis Group (Chartis) provides comprehensive advisory services and analytics to the healthcare industry. With an unparalleled depth of expertise in strategic planning, performance excellence, informatics and technology, and health analytics, Chartis helps leading academic medical centers, integrated delivery networks, children s hospitals and healthcare service organizations achieve transformative results. Chartis has offices in Atlanta, Boston, Chicago, New York, Minneapolis and San Francisco. For more information, visit Atlanta Boston Chicago Minneapolis New York San Francisco 2019 The Chartis Group, LLC. All rights reserved. This content draws on the research and experience of Chartis consultants and other sources. It is for general information purposes only and should not be used as a substitute for consultation with professional advisors.