4 Key Hospital Business Strategies for the World of Value-Based Care

As the healthcare industry shifts from a focus on volume to value-based arrangements, hospitals and health systems must adapt to the new model of care delivery, says Simon Gisby, managing director of Deloitte Corporate Finance.

In his work advising hospitals, Mr. Gisby says he has observed them using several key operating strategies to succeed in an industry focused on value and population health management.

"All of these strategies benefit the patient and benefit the consumer tremendously," he says. "They are all driving toward providing a better quality of care in the appropriate setting at the appropriate cost. That can only be beneficial to all of us."

Here are the four main operating models he has observed hospitals using to thrive in a world of value-based care. He notes that they aren't necessarily mutually exclusive, and many hospitals are using more than one at a time.

1. The innovator. Hospitals and health systems employing this business model focus on providing cutting edge treatment. "They're looking to differentiate themselves by providing these services that are regionally, nationally and internationally recognized," Mr. Gisby says.

Examples of well-known innovators include Cleveland Clinic, Rochester, Minn.-based Mayo Clinic and Johns Hopkins Medicine in Baltimore.

2. The diversifier. Organizations enacting the diversifier model seek to expand beyond acute hospital care and provide all of the services their patients need across the entire continuum of care, according to Mr. Gisby. "These health systems are branching out into adjacent and new lines of business," he says. "They're getting into adjacent service lines like home health, long-term care, rehabilitation, wellness centers retail pharmacy and in some instance health insurance."

For Providers employing this strategy, he says it's critical to ensure the different service options actually "talk" to each other in order to coordinate care across the continuum.

3. The aggregator. Some health systems look to drive down their unit costs by leveraging infrastructure across a greater number of hospitals, Mr. Gisby says. For instance, IT infrastructure costs are less expensive per unit if they're spread out across broader group of hospitals than a single faciity. "They're looking to reduce costs through economies of scale," he says. "By reducing costs, then they can focus on a providing care more cheaply and/or reinvesting a new services."  Examples of health systems that focus on this strategy would include many of the investor owned hospital systems.

He notes that if they look to aggregate not just hospitals but also ancillary services, physician practices and other service providers, these organizations can overlap with Diversifiers.

4. Health manager. The primary focus of hospitals and health systems using the Health Manager model is population health. These organizations collaborate with health insurers, large employers and others to help meet the healthcare needs of a specific population. They seek to adopt standard clinical protocols and encourage patients to manage their own health.

Although population health management remains their primary focus, health managers may also overlap with aggregators and/or diversifiers. "A health manager may say, 'I can manage the healthcare of a population a lot better if I have a hospital in a different communities or I can provide access to a broader continuun of care,'" Mr. Gisby says.

Overall, he says all of the strategies can lead to success, and providers using any one of the four can thrive in the same area.

"In many markets, we're seeing all four at the same time," he says. "It doesn't necessarily mean that one market is only appropriate for one particular operating model. You can have all different models be very successful in the same market."

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