5 challenges facing health systems

Hospitals and health systems will face ever more pressure in 2014 to establish the core skills needed to thrive in a rapidly changing healthcare market.

In a brief, Huron Healthcare Consulting said that healthcare executives will need to improve their performance by evaluating every key operational, clinical and governance function. They also need a strong vision for the future, the ability to act on it and the leadership to bring stakeholders along with them.

[See also: Scorecard: Only 11 percent of provider payments are value-based]

While the market is heading toward value-based purchasing, as long as there is substantial fee-for-service reimbursement, "the CEO dilemma is how to prepare for the future while not creating an adverse financial situation in the short term,” said Andrew Ziskind, MD, managing director of Huron Healthcare Consulting, in comments to Healthcare Finance News.

The infrastructure to support value-based purchasing is continuing to be deployed. Whether the movement toward value-based purchasing will speed up or slow down in 2014 is hard to say, he said. "Trying to stop the infrastructure momentum toward value-based payment models is very difficult once you start engaging stakeholders in new ways of working," Ziskind said. "Providers are recognizing the validity of value-based care delivery."

And regardless of what is happening with the rollout of the Affordable Care Act and government payers, "commercial payers continue to provide much of the market momentum, and they are shifting towards value-based payment models,” he said.

Among the biggest challenges that healthcare executives are confronted with this year are:

1. Pacing the shift to value-based models. Healthcare leaders continue to put infrastructure and governance practices in place to support value-based models even as providers still have significant fee-for-service revenue. However, many providers are concerned that they may be reaching a point at which the cost of building and maintaining their value-based organization is not supported by their fee-for-service reimbursement model.

2. Responding effectively to the economic dynamics of local markets. Health organizations that are migrating to value-based models must contend with the realities and limits of their local economies, the strategies of large employers for reducing their healthcare costs, concentration of the payer market and physician practice alignment.

3. Securing and growing market share. Gaining market share remains a big concern regardless of the pace of the payment model change. Providers must weigh market strategies, including consolidation and traditional and non-traditional partnership and strategic relationships, even as volume continues to drive a large share of revenue.

4. Developing alternative revenue streams. Health systems with cash reserves and strong margins are better positioned to make investments that are related to, but not necessarily directly in support of, their core patient care business. Investments that can supplement declining revenue from payers can include ambulatory care centers, telemedicine, business software development and pharmaceutical research.

5. Containing core operating costs. Health executives continue to seek approaches to rein in the costs of their core operations, reduce utilization through standardization, and manage care variations. Even high-performing organizations can obtain additional cost containment by taking a systems approach that is rigorous and transparent.

These pressures won't subside while the “gap between current cost and quality and where everyone needs to get to is still significant,” Ziskind said. The building block is operational efficiency, such as optimizing staffing and managing the supply chain efficiently. "But fundamentally changing the way care is delivered with the right providers at the right place at the right time, reducing unnecessary services and focusing on value – that's where the next wave of benefit is going to occur," he said.