Hospitals & Health Networks recently published an insightful article from John Kitzhaber, MD, a physician and former governor of Oregon, in which he addressed four forces he sees as shaping the future of hospitals and health systems: “the skyrocketing price of medical devices and pharmaceuticals”; “consolidation of the insurance industry,” which has given insurers more financial power over providers, paired with an increase in government-subsidized insurance; the transition from fee-for-service (which generates more revenue) to valued-based purchasing; and the proliferation of direct-to-patient providers such as ambulatory care centers, freestanding imaging centers, and healthcare services provided through retail stores.
Dr. Kitzhaber proposes that all of these changing conditions could easily have a negative impact on hospitals’ and health systems’ financial resources – if the hospitals and health systems continue to operate as they have for decades. He defines the traditional strategy of health organizations as trying to increase revenue through expanding market share – by building, acquiring, purchasing, etc. However, this is an ineffective strategy, according to Dr. Kitzhaber, because it does not address value, cost structures, or social impacts on health, and it produces an unmanageably large infrastructure that is not nimble for making change.
Dr. Kitzhaber argues that the way to be successful in the evolving healthcare scene is to focus on community health. The growth of Medicaid and Medicare, representing public dollars, should lead to enhancements in community health rather than enhancements in the revenue of a hospital or health system, and greater accountability for this may be demanded. In order to achieve value, greater risk will have to be taken on by healthcare organizations – they must become more highly invested in their communities to address the causative factors that bring patients in for treatment. This was further endorsed in a 2015 report from The Avalere Center for Payment & Delivery Innovation, which found that “the models that achieved the greatest values feature provider accountability for population health.”
A change of focus will have to take place, from employing, investing, and procuring to improving community health, with priority on such things as the gathering and usage of community health data and keeping infrastructure at a manageable size. The Advisory Board describes it as a change from growth as an “input” to achieving success to growth as an “output” that demonstrates that success has already taken place. In essence, hospitals must earn their market share, rather than buying it.
