Strategic Planning in Healthcare Organizations

To a great degree, your hospital’s success under the Affordable Care Act will depend on your medical staff’s ability to respond to change and embrace a collaborative approach to patient care. This is the first in a series of articles HSG is offering to help hospitals and health systems educate physicians about the ACA’s provisions and their impact on the practice of medicine and overall healthcare delivery.

Though healthcare reform is widely discussed, busy providers often fail to focus on how the Affordable Care Act will affect the practice – and the business – of medicine. At HSG, we see seven key issues that will affect physicians going forward.

Risk Will Grow. Physicians will be expected to deliver value and the government will define what value is. Those that don’t meet government-defined metrics will pay a price. Thus far, the pressure has largely been on hospitals, but physicians won’t escape this challenge. Like it or not, physicians will be rated, and if a physician receives a low rating, there will be certain consequences.

Rates Will Flatten, Mostly. With the exception of primary care physicians, rates are not going up. PCPs benefited from reallocation of Medicare dollars, at the expense of specialists. They will benefit from Medicaid rates at Medicare levels. And private insurers are paying higher rates for medical homes. The fix for these underpaid providers will likely eat up most, if not all, the resources available for physician pay increases.

Volume Will Be Soft. Hospitals around the country are telling us that volumes are soft. At the same time, the media reports that the rate of growth for healthcare expenditures has slowed, both nationally and for Medicare. Based on discussions we’ve attended with clients, we see a change in provider mindsets, with a greater focus on quality metrics and efficiency. While perhaps too early to tell, it seems these issues are related. The Affordable Care Act already seems to be having some of its intended effect by increasing the focus on efficiency.

Payer Mix Will Improve, For Now. Uninsured patients will have Medicaid or plans they buy on the exchanges, resulting in a short-term improvement in payer mix. However, the longterm economic effect of the exchanges could be negative for providers. You should expect price pressure; in fact, we are aware of hospitals accepting rates 27 percent below their standard rates to participate in exchange products. If rates are significantly lower, small employers may decide to send employees to exchanges rather than provide insurance. And inevitably, patients will find their way to these cheaper products.

Narrow Networks Will Reappear. Who remembers 1995? HMOs with limited networks were in style, right up to the point that the economy got better and employers felt compelled to offer better coverage to attract employees. In 2013, they’re reappearing with a twist. The exchanges allow insurers to sell a narrow network one individual or family at a time, rather than to an employer. Under that scenario, narrow networks are much more acceptable. And that acceptance could lead to expansion into the employer market.

Consolidation and Affiliation. Though all the above factors are driving industry consolidation, it doesn’t mean that physicians need to go to work for hospitals. But it does mean that doctors will need to be under a bigger umbrella to give them market power and the resources they need to compete.

Those that choose not to be employed by hospitals can develop market power by joining a multi-specialty or large single specialty group. Otherwise, they may face an unforgiving market alone.

Efficiency through Care Management. Cost management will be crucial, but it will need to go beyond cutting housekeepers and nursing personnel. Care processes will need to change, with patients treated based on best practices. That will lead to softer volumes, but the new economic incentives make it inevitable.

Last month, I had a physician approach me after a strategic planning meeting and ask if I could provide his performance information at a DRG level (his hospital could not). More doctors will have to take an interest in that data, not just for the hospital, but also for the entire episode of care. Those who do will position themselves well.

Physicians as Leaders, Again. Many physicians lament their position in the market, believing that insurers and health systems will dominate the healthcare system, with a few large physician groups holding their own. There is some truth to that. But health systems in particular require physician leaders to be effective, and increasingly, doctors will be the driving force in successful systems. The type of influence physicians exert will evolve, but their influence will be tremendous.

Conclusion. The interesting issue is how physicians perceive these changes. Some seem to embrace them, preparing for the new world. Others resent them. Others continue to hope they will be repealed. The latter two groups are at risk. The changes that require increased efficiency are here to stay, so those physicians best get moving!


David W. Miller

Founder and Chairman

Travis Ansel

Chief Executive Officer and Managing Director, Strategy