New environment, new approaches

While the Great Recession has ended, it's anything but back to business-as-usual for strategic and financial planners in the healthcare industry. The Affordable Care Act and the shift from the traditional fee-for-service payment system to an innovative fee-for-value system is seeing to that.
In a recent essay in Hospitals & Health Networks, futurist Joe Flower said the "strategic responses" of healthcare organizations to such changes are "sharply divided." At one end of the spectrum, Flower places organizations "using the chaos and fluidity of the moment to double down on the old way, aggressively seeking greater volume reimbursed at higher rates." At the other end are organizations "deeply engaged in moving toward 'value' by building new partnerships, affiliations, capacities and economic structures, striving to bring better health and health care to more people for less money."
Most organizations fall somewhere in between. They face a number of important financial questions, including: How do we make our money? How can we move forward? How rapidly?
Those answers, of course, vary widely. We can take comfort, however, in two important points: The time-tested principles of planning still apply, and there are professionals out there with the experience to help us find our way.

Familiar Starting Point
For all the change the industry faces, "the core principles and basics of financial planning have not changed," said Jason Sussman, who directs the financial planning and capital allocation practices at Skokie, Ill.-based consulting firm Kaufman Hall. "The fundamentals are more important than ever."
The major change is in the uncertainty in the methods of reimbursement for services and costs associated with care.
"Organizations that are doing strategic and financial planning well are enhancing their quantitative capabilities and focusing on the analytics," Sussman said. "As a basic fundamental, especially in times of uncertainty and change, you want to make sure that the analytics capabilities and tools you have to support those capabilities are as good as they possibly can be."
Kaufman Hall draws on tactics it employed during the early days of the financial crisis of 2008: Get back to basics.
Given the level of uncertainty and pace of change in the current healthcare market, Sussman encourages hospitals and health systems to "step back and say, 'Does our current integrated strategic and financial plan still make sense and still move us in a direction to position our organization for long-term success?'"

Willingness to Adapt
"In a perfect world you could flip the switch tomorrow and everyone would be ready for a fee-for-value world," said Mark McIntire, a senior vice president at Los Angeles-based consulting firm The Camden Group. McIntire leads the firm's debt and derivatives advisory team.
"The reality is, it takes many months if not years of planning for that transition," he said. "In my mind, that transition is limited by two things, intellectual wherewithal and capital constraints."
By intellectual wherewithal, McIntire is referring to an organization's need to access experts in tune with the latest evolution of payment reform, insurance exchanges, bundled payments, physician requirements and so forth.
Capital constraints in the current environment refer to funding available for "soft capital" expenditures, such as moves that enhance physician alignment, improve ways information is shared, and measure how patients are doing inside and outside the hospital.
"An integrated approach to financial and strategic planning is essential to know where we are and where we are going," McIntire said. "Having a starting point and trigger activities along the way are key to helping management and governance define and track success or lack thereof."

Moving Forward
Flower's essay reminds us that the leaders of contemporary healthcare organizations are not "passive sufferers" of the change process. "They are in fact, of all the players involved, the ones who have the most ability to direct the pace and shape of change in their markets," he says.
McIntire said forward-looking healthcare leaders must draw on "a deep bench of consultants, physicians and nursing experts" during the strategic and financial planning process. It's critical, he said, to learn from people who are "not only thinking about these challenges but also implementing and executing strategies every day at real hospitals and health systems."
Similarly, Kaufman Hall said they push their healthcare clients very hard to challenge their strategies and test for risk.
"An organization has finite resources and needs to allocate those resources to fund the strategies and initiatives that will continually move it forward," Sussman said.