The blog this week is from John Harris, DGA Partners.
As health providers adapt to health reform and an increasingly competitive marketplace, strategic responses are starting to come into focus. Some say there will be one successful model, but we are seeing diverse strategies, and the threat of disruption from niche players.
Health system leaders must be clear about their strategy and how their competitors may affect them. Here, we explore provider strategies and their implications for health system financing and strategic positioning.
Key Provider Strategies
Provider organizations are quickly staking claim to their core strategies to win the local market. Health system strategies with a high degree of physician integration appear on the right half of Figure 1. Locally, health systems (and independent hospitals) are choosing between a new focus on population health or a more traditional volume focus.
- Accountable Care: One set of health systems is focusing on developing the capabilities to manage population health, looking to new payment models that reward quality improvement and lower population health costs. Many of these health systems have significant employed or aligned physician networks. Since these models often drive down the use of hospital services, it is critical to gain market share to offset these potential volume decreases.
- Big Fish, Small Pond: Another group is holding to a more conventional volume-focused strategy, investing in physician alignment to secure the health system revenue stream. These health systems often seek to use their local market strength to get reasonable payment rates from health plans.
Both of these strategies can be successful, depending on the local market, the organization, and the payer environment.
Disruptors and Defenses
Health systems will need to keep an eye on potentially disruptive niche players:
- Doctor’s Orders: Physician groups can leverage their patient relationships and be rewarded for managing population health. Patient-Centered Medical Homes, physician-sponsored ACOs and risk deals provide primary care physicians with the opportunity to keep population health savings for themselves, and treat hospitals as cost centers.
These physician groups have the potential to compete successfully with hospital systems pursuing an accountable care strategy. While many such physician groups may be small, they could be scrappy competitors, driving down hospital utilization, and shifting referrals to lower cost or more cooperative hospitals.
The Defense: Health systems focused on accountable care can defend against these physician initiatives in three ways:
- Take steps to expand and strengthen their base of integrated primary care physicians
- Move quickly to get their accountable care programs established with physicians in the local market.
- Cooperate with and support physician efforts with the goal of gaining market share.
- Focus, Focus, Focus: Focused niche players may be a competitive threat to “Big Fish” health systems because of their ability to offer significantly lower costs than traditional hospitals. These niche players can include specialty hospitals, for-profit hospital chains, free-standing surgi-centers and urgent care centers, among others.
As insurers seek to reduce premium for products on insurance exchanges, they are taking steps to make consumers more cost conscious, including deductibles or tiered networks that steer patients to low cost providers. These initiatives may benefit these highly focused niche players, potentially shifting market share in highly profitable services, harming health system financial performance.
The Defense: Close alignment with physicians is a core strategy in defending against focused niche competitors. Health systems can continue to influence patient flow through physicians, whether through direct employment or other forms of affiliation and partnership. Integrated electronic health records that increase patient convenience and quality of care can also deliver value and help keep services within your system.
An alternative strategy is to partner with the niche players (e.g., urgent care centers or surgi-centers) and bring them into the health system’s offerings. This strategy may be helpful if the health system risks losing other market share if it cannot demonstrate a level of cost effectiveness.
Figure 1: Health System Strategies and Disruptors
John Harris is a principal at DGA Partners, a healthcare consulting firm that provides services in strategic, business, financial and facilities planning. Dan Grauman, President and CEO of DGA Partners, appears in many iProtean, now part of Veralon courses including Value-Based Purchasing & Accountable Care Organizations, Transforming Your Organization into an Integrated Delivery System, Financing Considerations for Integrated Delivery Systems, Affiliation & Consolidation Strategies Part One and Two, and the upcoming course, Employing Physicians. Look for it in your course library in the next few weeks.
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