As the U.S. healthcare industry shifts from the current fee-for-service model to one focused on value, outcomes and better patient experiences, bundled healthcare is already proving its merit.
Bundled care — which sets a single flat price for all services associated with a specific medical procedure or condition — is increasingly popular with physicians, payers, employers and patients. We have written on how hospitals and health systems can determine which bundled-care offerings to develop (see “The Four Ps: Critical Success Factors for Bundled Care.”) At the same time, health systems need to assess the capabilities and investments required to successfully launch the products.
The term "capability" refers to a health system’s ability to reliably and consistently deliver a distinctive outcome, relevant to its business, through the right combination of processes, tools, knowledge, skills and organization. A capability system is a combination of a few mutually reinforcing capabilities that distinguish a health system and allow it to create value in its chosen market. At a fundamental level, capabilities are the link between strategy and execution; building the right few is the key to unlocking a health system’s bundles strategy.
Today, hospitals and health systems vary widely in their bundle development capabilities and approaches. Through our client work and research, Strategy& has determined six capability groups that all health systems must have — either by developing them internally or buying them through M&A — to successfully offer bundled-care products. These capabilities are mutually reinforcing and, when implemented correctly, can differentiate the health system in the emerging market for bundles.
1. Data and analytics
The ability to determine accurate costs and pricing models, as well as monitor and modify those decisions, will be the cornerstone of successful bundles. Accordingly, data collection, analytics and market intelligence are baseline capabilities that health systems will need. These allow the health system to gather comprehensive cost and quality data for all procedures, group them into bundled products, identify controllable variance, and analyze the competitive landscape to determine the most attractive opportunities. Rigorous data analysis also allows the health system to determine appropriate risk corridors and develop a pricing strategy, which should be managed on a bundle-by-bundle basis, and communicated to all stakeholders.
For many health systems today, this level of data aggregation and analysis is extremely challenging. Organizations often have incomplete information patched together on an ad hoc basis from data warehouses. To improve, health systems will need to make the strategic investments required to upgrade accounting systems, electronic medical records, and quality metrics (which may not currently exist within the organization). Health systems will also need to determine how they will price their bundles offerings, by working in conjunction with physicians.
By providing the horsepower required to create and execute bundles, this data and analytics capability reinforces all others within the system.
2. Collaboration with physicians and other care providers
The central problem with the current health system — fragmented care — can only be addressed if health systems can improve the way they engage physicians and align incentives. In turn, this requires determining the best methods by which to reach physicians and gain their trust. The right engagement models may include forums with physician leaders grouped by specialty, where both sides can discuss issues on an ongoing basis and share information regarding physician quality and performance metrics (which may influence calculations of bonus payments). In terms of organizational structure, collaboration also includes the people and processes required to negotiate and manage the financial relationships for bundles, along with supporting providers in setting up necessary administrative technology and processes, and meeting any legal/regulatory requirements for physician engagement and payment.
Physician-buy in is critical — and health systems cannot wait until late in the process before securing it. Instead, health systems will need to negotiate contracts with physicians — such as pricing and risk arrangements, based on credible data — well before designing bundled-care products.
In addition to physicians, there are other care providers who are essential to delivering a full continuum solution. For example, post-acute care providers will be needed to ensure patients recover appropriately and prevent readmissions. There are a number of different ways health systems can approach the question of developing a comprehensive network of providers including acquiring, establishing risk-based arrangement or simply contracting on a fee schedule basis. Health systems should consider how strategic and how influential each piece of the network is as they determine how to acquire it.
3. Marketing and sales
When marketing their products, health systems need to understand the perceptions of stakeholders regarding bundled care, and they need a process — and requisite investments — to drive demand. The outreach capability includes identifying payers, employers and patient populations interested in specific bundled products, and building relationships with those players.
The design and implementation of this capability will vary based on the strengths and reputation of the health system creating the bundles. One potential approach is to maintain relationships with specific payers and employers, as well as dedicated marketing to spur their interest. Health systems will need a mechanism to identify target patients (such as focus groups or a patient survey tool) and engage them on an on-going basis (e.g., through advertising or social media). Worth noting is that while many of the capabilities required to create and deliver bundled products are focused on the health system’s internal abilities, the outreach component relies on building external market demand for bundled care.
4. Innovation in care delivery
To derive maximum value from bundled products, health systems will need to redesign the delivery of care and continue seeking innovation to remain competitive. This capability focuses on establishing new care pathways to improve quality, deliver superior outcomes and increase efficiency. It requires seamless coordination among multiple providers throughout the bundle continuum.
At a minimum, the health system should work closely with the physicians who will be responsible for initial care delivery innovation and conduct a periodic review of care pathways to identify new opportunities to improve care. The system may support their work by providing analysis and support (e.g., for uncovering drivers of cost variance and benchmark measurement), as well as in measuring outcomes. Health systems will also need to build out their capability to coordinate care, so that they may more effectively guide the patient through their journey through the bundled product. Coordination could include educating patients, scheduling and ensuring smooth transitions between providers. Additionally, health systems will need to build relationships with post-acute and ancillary service providers (if they do not have this in place already), continually monitor and evaluate relationships with those providers and address any problems that arise.
5. Administrative backbone
In the short term, fee-for-service will still be the dominant model for health care provision and payment. As a result, the health system must be able to administer the bundled product efficiently and transparently without disrupting existing fee-for-servicesystems. In this capability, the health system could potentially employ a separate team to manage all administrative aspects of the bundle or could partner with someone to gain this capability. On the patient side, this includes setting up automated ways to identify patients participating in bundles, guiding patients through the process of signing up and paying, collecting all claims included in the bundle and generating a bundled bill. On the physician side, the administrative team could manage the system for bonus payments and track various other aspects (such as deciding which procedures and physicians to include, rates, risk adjustment and so on).
Critically, this capability requires the health system to think about care in terms of comprehensive products, as opposed to individual services.
6. Product management
An overarching capability that will be new to most health systems is the ability to manage a bundle as an end-to-end product that encompasses all care across the care continuum. This will require coordination and oversight across different care settings to ensure a seamless experience for the patient. This capability ensures that all the pieces of the bundle are working together harmoniously and that improvements or innovations continue to occur. Additionally, effective product management is able to make strategic decisions about how bundles can spur growth, influence a position in the market or support the overall strategic agenda of the organization.
Developing feedback mechanisms is an essential piece of the product management capability. Without a continual feedback loop to evaluate and improve its products, health systems — even those with initially successful bundles — will not be able to adapt them in response to changing demands or market environments. This feedback capability includes performance monitoring to collect and analyze cost and outcomes data for every patient participating in a bundle. Additionally, it includes processes to assess the patient's experience along physical, educational, emotional and potentially spiritual dimensions. The product managers would then need to be able to quickly be able to identify and respond to problems and modify care pathways accordingly.
Capability design considerations
Many health systems are already developing these capabilities. Based on our national, multi-stakeholder survey on care bundles, 46 percent of surveyed hospitals have assessed their organizational capability gaps, and 33 percent have begun investments in technical or organizational capabilities required for bundled care. Building capabilities requires time, investment and patience on the part of the health system leadership and staff. As the organizations think through capability design, they need to consider the following questions:
- How does the capability differentiate us in the market?
- How it is different from what we do today?
- What it will look like “in action”?
- What are the implications for the organization, including:
- Skills and knowledge
- Tools, technology, and systems
- Organizational structure and design
In conclusion, the market for health bundles is still emerging, meaning there is a clear opportunity for health systems to differentiate themselves by seizing the initiative. However, developing bundled-care offerings is not a simple process — even after deciding to pursue this opportunity, the real question is how. We believe that building up the capabilities identified here will give health systems a strong foundation to evolve beyond the current fee-for-service model and toward the healthcare landscape of the future.