Integrating Population Health Management into Your Strategic Plans

Marian C. Jennings, M.B.A. and Jennifer Swartz, B.A.

 

Many hospitals and health systems envision and embrace a future of population health management but face the challenge of “when to flip the switch from volume to value.” Today, more effectively managing congestive heart patients may be the right thing to do, but it may negatively impact revenues and the bottom line. Tomorrow, it may be a financial imperative.  Additionally, organizations are struggling to leverage the data they already have to support evidence-based decision making for not just an individual patient but a population of patients.

 

Despite these challenges, however, the steady movement toward alternative payment models is accelerating— so how can health care organizations prepare?

           

The first step in incorporating population health management initiatives into a strategic planning process is to determine your organization’s market stance—or how it goes about realizing its vision. An organization’s market stance will depend on a combination of factors, the degree of uncertainty facing its particular market, the amount of risk it is willing/able to undertake, its culture, and its strategic position and capabilities—including its financial strength/capabilities.

 

M. Jennings Consulting stratifies strategic intent along three “Boards of Play,” which describe three levels of risk associated with enacting an organization’s vision.

 

Board 1: “No-Regrets Moves”

 

A Board 1 strategy, or “no-regrets move,” is a lower-risk strategy focused on enhancing performance based upon the rules in place today. For example, Medicare has created financial incentives, and downside penalties, related to its value-based purchasing program. A “no-regrets” move would be to focus on performing exceptionally well against the clinical outcomes, patient experience, and other domains both in place today and those planned for the next several years. This way, the hospital will earn the maximum financial bonus and will also learn how to adapt when payment approaches change . . .

 

Board 2: “Hedge Your Bets”

 

A good Board 2 or “hedge your bets” strategy allows the organization to learn about different “new rules” without a long-term, major commitment. This enhances the organization’s agility as the market evolves. Some examples of hedged-bet strategies for population health management include:

 

  • Seek demonstration grants to “experiment” in population health management without assuming full financial risk.
  • Experiment with payment bundling for certain services (e.g., ortho, cardiac); or perhaps to participate in a Medicare Shared Saving Program.
  • Develop and learn from a “mini-ACO” for your own employees.
  • Develop highly desirable physician employment models and infrastructure to prepare for an era of population health management, but be very selective about employment.
  • Strengthen alignment, short of merger, with key parties—including area hospitals, FQHCs or community health centers, vertical integration players (e.g., home care), and potential tertiary care ACO partners.

 

Board 3: “Big Bet”

 

A Board 3 or “big bet” strategy is visibly risky.  If the market does not evolve as expected, it can be disastrous. We went through this in the 1990s with catastrophic results when some health systems moved too quickly toward a future of population health based payments, which then never materialized.  Some Board 3 examples for population health management might include:

 

  • Actively pursue risk contracts for managing population health with Blue Cross or major insurer.
  • Buy or build your own health plan.
  • Move from pluralistic medical staff to fully employed physician staff (e.g., mini-Geisinger model) as quickly as possible.
  • Actively seek a merger with another local community hospital to create greater critical mass of patients/population to support population health management.
  • Create an exclusive referral relationship with a large regional health system (and participate in its population health management initiatives/ACO development; develop seamless EHR interface or install their system, etc.)
  • Pioneer at-risk or other value-based contracts in your market.

 

iProtean subscribers can read the full article in the upcoming course, Integrating Population Health Management into Your Strategic and Financial Plans, Part One. Marian Jennings is one of the expert presenters in the course, which is being readied for publication.

 

iProtean thanks Marian Jennings and Jennifer Swartz for submitting this article for publication with our population health management courses and for this blog newsletter.

 

 

 

For a complete list of iProtean courses, click here.

 

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Moody’s Releases 2014 Medians; Profitability and Growth Are Main Features

Not-for-profit hospitals and health systems healthcare medians for 2014 show improved profitability margins with balance sheet measures continuing their favorable trajectory, according to Moody’s Investors Service report on final medians for 2014.

 

The median highlights include:

 

Median annual revenue growth rate surpassed median expense growth rate by a wide margin in 2014. Median annual revenue growth was 5.2 percent; median expense growth was 4.6 percent. The spread in these growth rates is at an historic high. Consolidation in the hospital sector, benefits from enrollment in public exchanges and Medicaid expansion, and generally favorable utilization trends contributed to rising revenues.

 

Medicaid exposure grew markedly and there was continued growth in Medicare exposure. Self-pay declined and risk-based payment arrangements remained marginal. Median growth of government revenue streams increasing as the uninsured rate declines and transition to risk-based payment methodologies is gradual. Moody’s expects margins will remain pressured.

 

Profitability rebounds to 2012 levels; operating cash-flow growth surges. Operating cash flow growth is at a multi-year high while margins return to levels seen in 2011 and 2012, after weakening in 2013.

 

Sector-wide margin recovery and solid investment returns, accompanied by slowed capital spend, contributed to strengthened balance sheet measures. Median unrestricted cash and investments grew 10 percent in 2014 while median debt declined; 43 percent of the portfolio spent less than annual depreciation expense on capital.

 

(iProtean thanks Moody’s Investors Service for permission to quote from its report: “Strong Business Conditions Bolster Profitability and Growth, Moderating Fundamental Sector Risks,”  Moody’s Investors Service, September 10, 2015)

 

 

iProtean subscribers can access the full report, “Strong Business Conditions Bolster Profitability and Growth, Moderating Fundamental Sector Risks,” in the Resources section of the upcoming course, Integrating Population Health into Your Strategic and Financial Plans, Part One. This course will be published at the end of the month.

 

 

 

Consumerism: Strategic and Financial Implications, Part Two is in your library now. In this course, Mark Grube (Kaufman Hall), Marian Jennings (M. Jennings Consulting) and Nathan Kaufman (Kaufman Strategic Advisors) discuss organizational characteristics for a retail strategy, the financial implications and “must-do’s” for hospitals and systems. And coming up in late September, part one of Integrating Population Health into Your Strategic and Financial Plans.

 

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

Hospitals Continue Hiring Surge

Hospitals have added about 134,000 jobs in the last 12 months, according to seasonally adjusted figures in the monthly labor report for the Bureau of Labor Statistics. August employment grew by 16,000 workers, following July’s increase of 5,000 workers.

 

The healthcare sector in total added 41,000 jobs in August. Of these, a little more than half were in ambulatory settings. Because of a long-term shift in the location of care, there are now almost seven million people working in ambulatory settings, versus just under five million working in hospitals. (National Center for Policy Analysis, Health Policy Blog, September 4, 2015)

 

Some analysts noted that continued hiring may indicate acceleration in spending. “Labor costs comprise a large share of health spending, so we should interpret this as another signal that the slowdown in growth of health spending that has been recently celebrated is fading into the rearview mirror.” (National Center for Policy Analysis, Health Policy Blog, September 4, 2015)

 

However, in August, analysts from the Altarum Institute, a nonprofit health systems research and consulting organization, noted that the reported acceleration in healthcare spending appears to be moderating. “National health spending in June 2015 was 5.7% higher than in June 2014, down from the 8-year high growth rate of 6.7% in the first quarter of 2015.” [emphasis added] (Health Spending Acceleration in 2015 is Moderating, Altarum Institute, August 2015)

 

Other key findings from the jobs figures include:

 

  • Healthcare job growth in July reached 3 percent year over year for the first time since 2002.
  • The 2.6 percent year-over-year growth rate for hospitals in July was the highest rate since May 2008.
  • Healthcare prices in June were only 1.1 percent higher than in June 2014, the third consecutive month at that rate and barely higher than the decade-plus low of 1 percent that occurred in August 2013.

(“Hospital Job Surge Continues,” HFMA Weekly, September 11, 2015)

 

 

 

Consumerism: Strategic and Financial Implications, Part Two is in your library now. In this course, Mark Grube (Kaufman Hall), Marian Jennings (M. Jennings Consulting) and Nathan Kaufman (Kaufman Strategic Advisors) discuss organizational characteristics for a retail strategy, the financial implications and “must-do’s” for hospitals and systems. And coming up in late September, part one of Integrating Population Health into Your Strategic and Financial Plans.

 

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

Healthcare Outlook Improves from Negative to Stable

Note: iProtean will take a short holiday over the Labor Day weekend. Look for the next post on September 9.

 

Things appear to be looking up for U.S. hospitals and health systems. Moody’s Investors Service has revised the outlook for business conditions from negative to stable, signaling “an expectation of aggregate improvement despite continued headwinds.”

 

The analysts noted that the revision to stable “expresses our view that fundamental business, financial and economic conditions for the not-for-profit and public healthcare sector will neither erode significantly nor improve materially over the next 12 to 18 months.” (Not-For-Profit Healthcare Outlook Stabilizes; Cash Flow Buffers Long-Term Pressures, Moody’s Investors Service, August 26, 2015)

 

Moody’s analysts attributed the revision to:

  • Significant gains in the number of people with insurance
  • Growing patient volumes
  • Sizeable reductions in bad debt

 

Key points in the argument include:

Operating cash flow growth: is at a multi-year high following several years of little to no growth.

  • The number of patients with insurance has grown, reducing bad debt expense and increasing the share of paying patients.
  • Patient volumes have returned to growth after years of decline.
  • Multiple years of good expense control are contributing to cash flow growth.

 

Moderation of cash flow growth: temporary and one-time factors such as Medicaid expansion and volume gains pushed recent growth.

  • Recent factors are unlikely to repeat: number of insured has ramped up and will begin to taper off; patient volumes increased by a heavy flu season.
  • As a result of the temporary and one-time factors, the bar has been reset, representing a much faster cash flow growth than has been historically achieved.

 

Long-term risks: reimbursement pressures remain but are outside the 12-18 month outlook horizon.

  • Investments in population health will put pressure on margins. Strategies that lower hospitalization and use of expensive medical services will result in lost revenue unless hospitals successfully enter into risk-sharing contracts or make investments that lower cost settings.
  • Exposure to government programs is growing, and government insurance reimburses at rates lower than commercial insurance, thus pressuring margins.
  • Changes in patient behavior (consumerism), regulation and insurer consolidation are on the horizon.

 

The analysts noted that the outlook could change to positive if the operating environment continues to improve and hospitals/systems experience above-average growth in operating cash flow. However, it could change to negative if the expected growth in cash flow is below medical inflation.

 

 

Consumerism: Strategic and Financial Implications, Part Two is in your library now. In this course, Mark Grube (Kaufman Hall), Marian Jennings (M. Jennings Consulting) and Nathan Kaufman (Kaufman Strategic Advisors) discuss organizational characteristics for a retail strategy, the financial implications and “must-do’s” for hospitals and systems. And coming up in late September, part one of Integrating Population Health into Your Strategic and Financial Plans.

 

 

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.