It's no secret—Health systems face immense and unprecedented challenges. These include workforce shortages, supply chain issues, revenue risks, and economic headwinds.
These broad challenges raise questions about the strategies, investments, operating models, and revenue growth drivers that health system leaders are deploying to improve short-term performance and stabilize their organizations for long-term, sustainable results.
To gain more perspective on these strategies, Becker's Hospital Review recently spoke with three prominent industry experts:
"Like most hospitals and health systems across the country, we've fully realized at UChicago Medicine that the new normal post-pandemic phase isn't going to be normal," Jackiewicz said.
Bajner concurred. He sees "lower post-COVID 'return-to-normal' volumes" for many communities, especially for inpatient surgical care.
From O’Quinn's perspective, "The single most serious challenge facing the industry, certainly facing our system, is completely related to the workforce: it is workforce availability and salary escalations. The absence of folks in the workforce has made it difficult for us to continue to grow."
Health systems that have never had material financial challenges are now experiencing major crises due to rising labor costs, supply chain issues, and lower revenues — the latter stemming from lower patient volumes, reimbursements that fall short of cost inflation and shifts in site of service. Additionally, high-acuity patients who are hospitalized, especially those with Medicare or Medicaid, often occupy more beds with longer average lengths of stay — driving higher costs.
Bajner commented that while health system executives are accustomed to having annual margin headwinds of 1.0 to 1.5 percent that require performance improvement initiatives, most systems are confronting gaps of 3.0 to 5.0 percent, or even more. Addressing these gaps will require dramatic actions such as sizable operating improvements, downsizing of non-patient care-facing roles, or even downsizing or eliminating unprofitable service offerings.
But the financial hardships health systems face is only part of the story. Health systems must also address issues related to increased competition, health equity, cyber risks, and a variety of public health issues, including behavioral health and gun violence.
Thus, the "new normal" is very different from the old normal and requires dealing with financial and operational challenges as well as issues of access and equity.
In light of these challenges, organizations are working to address them and plan for the future by identifying priorities, articulating strategies, and making investments. O’Quinn offered CommonSpirit's perspective: "We are making investments in key areas that we think are going to help us long term."
In the short term, CommonSpirit Health has raised wages and enhanced benefits to remain competitive by attracting and retaining employees. But, as O’Quinn acknowledged, "That's not a sustainable strategy long term."
What is a better and a more sustainable long-term strategy is investing in technology. "We live in a technological age," O’Quinn said. "And we have to use technology to make our organizations more efficient . . . so, we're investing heavily in technology that will allow us to enable our workforce to do more with less."
These investments are in administrative areas, such as automating and streamlining the documentation process, as well as in clinical areas by investing in virtual care and remote monitoring. "I think hospitals have to invest heavily in technology to enable organizations to effectively manage a larger case load with less staff to be more efficient and to see a broader base of patients," O’Quinn said.
O’Quinn believes the transformation enabled by technology also requires a cultural shift. "You've got to create a culture that's different than the culture that we've had historically," he said. This culture involves being comfortable with and embracing technology, along with becoming a technologically advanced organization where people constantly enhance their skills. He believes creating such a culture will attract clinicians and staff who want to be part of an organization that is on the cutting edge of technology.
At UChicago Medicine, priorities include improving patient access, reducing the length of stay, becoming more consumer focused and continuing to be a national model in addressing health equity.
Improving access has meant geographic expansion by investing in more outpatient locations, ambulatory clinics and cancer centers. UChicago Medicine is also taking a lead role in organizing 12 safety net hospitals, health systems and federally qualified health centers on the South Side of Chicago to create a coordinated model of care and shared technology platform, supported by state funding.
Reducing length of stay to record-low levels at UChicago Medicine since the start of the COVID-19 pandemic has been achieved by improving care team coordination, co-locating care teams, extending ancillary services availability, and other operational enhancements. To become more customer focused, UChicago Medicine has created the new position of chief experience officer, who works closely with other senior leaders on improving the patient experience. And, to ensure health equity is a sustainable, high-impact priority, UChicago Medicine has integrated equity into its operating system. This approach ensures that equity is embedded in all major initiatives including quality, operational excellence, strategy, HR, marketing/communications and patient care services.
UChicago Medicine is also an active member of the National Health Care CEO Council on Gun Violence Prevention & Safety. This is a relatively new but highly motivated group committed to sharing best practices and advocating for gun safety measures. UChicago Medicine’s Violence Recovery Program is one of the national models sharing its approach to achieving a violence recidivism rate under 1 percent at its trauma center.
The strategies being implemented at CommonSpirit and UChicago Medicine — which include investing in IT and digital capabilities, employing new clinical models, and focusing on cost efficiency — are among the strategies that Bajner and Guidehouse have seen industry wide while working with organizations in more than 40 states to improve financial performance.
Bajner said that based on Guidehouse's experience, market leaders are typically looking for cost improvement of 2 to 3 percent. Organizations with stressed assets are seeking cost improvements of 3 to 6 percent. And distressed organizations need savings of 7 to 10 percent. In addition to deploying technology, organizations are reevaluating their corporate overhead and are trying to attack premium pay.
However, while cost savings and efficiency may be essential, so too is revenue growth — even in challenging circumstances. "While growth is difficult, growth is both possible and necessary for health systems to fund their capital requirements, invest in their infrastructure, and continue to innovate in their clinical programs," Bajner said.
Health systems are looking to boost revenue with new network strategies that reduce leakage, increase market share in the rapidly growing ambulatory care market, accelerate digital care offerings to connect with consumers, rethink payer partnerships and participation in value-based care contracts, and identify opportunities for higher-margin services.
CommonSpirit is focused on revenue growth through network integrity and keeping patients in their network by serving them effectively. "One of the areas that we're heavily focused on is network integrity, keeping the patients within your network who've already made the decision to use [our network] by expanding our networks and enhancing the quality of care we provide," O’Quinn said. This means making the network as complete as possible and enhancing the patient experience by, for example, easy scheduling of appointments.
To increase revenue, UChicago Medicine is focused on growing service lines in specific regions along with building Chicago’s first freestanding cancer center to make cancer care more accessible, particularly for residents of the South Side.
Along with the service line focus, Bajner sees health systems increasingly focused on building financial plans by line of business, including Medicare, Medicare Advantage and Medicaid, in addition to their traditional service-line approach. "Health plans have traditionally looked at profitability by line of business, such as Medicare Advantage, commercial or exchange, which has enabled plans to better understand the economics of the members they serve," Bajner said. "Given the rapid growth in both Medicare and Medicaid populations, health systems are beginning to look at and set financial targets."
The pressures health systems face are resulting in rapid, innovative operating model changes. Jackiewicz said that UChicago Medicine sees a disciplined operating model as foundational to its work in expanding access and optimizing capacity. O’Quinn explained that a key part of CommonSpirit's operating model is centralization of many services to realize economies of scale. He sees CommonSpirit putting even more emphasis on centralization to realize even greater value.
Some of the operating model changes that Bajner and Guidehouse see include more efficient corporate overhead; new approaches to managing an under-supply of clinical labor; telemedicine and hospital-at-home programs; new community partnerships; and a rethinking of value-based care. Bajner said that while health systems previously talked about profitability of Medicare patients, Guidehouse is now spending significant time helping systems evaluate and set performance goals specific to the growing Medicare Advantage business.
Health systems are also exploring the potential outsourcing of certain back-office functions, such as revenue cycle, utilization management, and information technology — solutions that Guidehouse provides through a full suite of both outsourcing and advisory services.
These challenges can't be met by doing more of the same. Leading health systems are planning for the future by making investments in technology to improve efficiency, modifying operating models to increase capacity and derive more value from economies of scale, and outsourcing some back-office functions, such as revenue-cycle management.
While the financial headwinds and economic uncertainty are immense challenges, improvements to operating models, investments in technologies, and new ambulatory focused care models will position health systems to better serve their communities and address the growing needs of their patients.
This interview previously ran in Becker’s Hospital Review.
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