Narrow networks, stubborn payers, disruptors: 4 healthcare leaders name their top threat

At the Becker's Hospital Review CEO Strategy Roundtable in Chicago on Nov. 5, five leaders from the healthcare industry discussed the changing state of healthcare, noting the biggest challenges they face, the politics that shape their environment and their own advice for the next generation of healthcare leaders.

Panelists included Teri Fontenot, FACHE, president and CEO of Woman’s Hospital, Steven Goldstein, president and CEO of Strong Memorial Hospital, Dean Gruner, MD, CEO of ThedaCare, Doug Luckett, president and CEO of CaroMont Health, and Greg Koonsman, senior partner at VMG Health. The session was moderated by Scott Becker, JD, CPA and publisher of Becker's Healthcare.

On threats and challenges facing healthcare

Mr. Doug Luckett: Being carved out of larger networks is one of our biggest threats. I don't know if I've ever seen a cost reduction occur after M&A. So our realm is to stay independent. We're trying to focus on employers and what their needs are because they pay 80 percent or more of the employee premium.

Dr. Dean Gruner: I would say there are two threats. The internal threat is our people. How do we get people to work together? How do we develop talent more rapidly? The external threat is not from our competitors or integrated delivery systems. It's from emerging new entrants. Maybe it's Smart Choice MRI, Walmart or Walgreens. Then you've got smart people at Google and Facebook who are all thinking about how they want to do that. They want a primary relationship with all their customers. [Health system leaders are] commonly thinking about other health systems and I don't think that's where our real threat is.

Ms. Teri Fontenot: For us, the biggest threat is getting the payers to understand and be willing to work with us to lower costs. It's not just our hospital, but other hospitals too, where payers like Blue Cross, for example, have 60 to 70 percent of the commercial market. They have not, at this point, been willing to pay based on quality and outcomes, and we just keep asking for it. This has been very frustrating. Negotiations have been contentious with them for many years because they also would have a very difficult time selling their health plan without us. So it's been, at times, not productive to negotiations. We really want to change that.

Mr. Greg Koonsman: We have seen an increase in the hospital transaction market. In reality that market is not consolidating as fast as I thought it would. You look at that hospital market and there are about 5,300 hospitals in the U.S.; 80 percent of those are nonprofit, 2,000 of those are in systems of greater than two hospitals. Roughly 40 percent of the market is standalone hospitals. So there is a long, long way to go in terms consolidation.

At the same time, if you really look at all the health systems across the country, the nonprofit systems, the average operating margin for those systems is less than 10 percent, So when I think about the risk or the issues, I think about the fact that if you're in a health system operating at 10 percent margin, you've got to put 5 to 6 percent of revenue back into the facility just in terms of maintenance capital. Then you've got to pay your bonds and your debt service, so there's very little free cash flow.

In my mind, with the uncertainty of the payment models that are coming forth, there is very little room for stress. If we stress the health system market from an economic point of view, there will be a lot of problems with the sustainability of those systems. I think this would force those who are fiercely independent today to seek out partnerships. That, to me, is the only thing that’s going to really push more consolidation.


On politics and PPACA

Mr. Steven Goldstein: As far as the midterm elections, I don't think they are going to make anything easier. I think there will be a lot of undermining of tenets of the Affordable Care Act. There has been a lot of pushing and pulling. As I think everyone knows, there has not been unanimity of thought for quite some time, and I don’t see any change in that in Congress.

TF: There may be more things going to the White House to be considered now that both the House and Senate are of one authority, but that doesn't necessarily mean they're going to work together. Hopefully, regardless of either party, what I would like is a little more cooperation and peacefulness. I don't like the word compromise, but if that's what it's going to take folks to move forward, then that's what I would like to see come out of elections.

GK: I think one of the most interesting things about the PPACA is that a real core part of it has yet to be implemented and that's the commercial insurance pricing mechanism. I think it will cause commercial insurance to increase dramatically. That hasn't happened yet for political reasons. When it does happen, companies like mine are going to take ourselves out of the system and go sell to insurers. I think there will be a lot of self-funded and partially self-funded plans out there that are very interested in how much they spend on an MRI, for example.


Advice for future healthcare leaders

TF: Learn to stay calm. It takes a lot of patience these days to try to influence others to do what you would like them to do. Recognize that there is going to be change and we have an opportunity to design how we are going to address that change. I like to plan and be proactive. I don’t care for reaction. There are a lot of individuals who, when you’ve been successful, have a hard time understanding why you need to do anything more.

DL: Get a better base of quantitative movement. With the payer environment, anecdotes don't cut it. We need to know ourselves and know our data. Learn how to use quantitative data after you've got it. In terms of how the CEO role has changed, I think I've played two rounds of golf in six years.

SG: From my vantage point, it's all about having a strategy for success. The question is: Success for whom? We have so many different constituents. It's not only our population that we serve, but the faculty, the private medical staff, our employees, university employees, as well as all the businesses in the community and the government entities, state or local. Everyone has a perspective on what they think we should be doing. The question for us is: How do we frame that and bring that together so our institution is serving its public need and, at the same time, its responsibilities to everyone else?

GK: I think that's the hardest job in the world, being a CEO of a health system today. With physicians, payers and all these changing models, I have a lot of respect for folks putting themselves in that role. I don't do that on a day-to-day basis. I do know that there will be change and I think those who figure out how to react to the change in their market and those who can figure out how to roll with the change in the right way will succeed.

DG: In our industry, we've worked really hard to earn the opportunity to do something special. There has never been a time that we've needed to transform healthcare more than today. The opportunity is there for us, so I would tell [future leaders] go seize the day.

More on leadership and management:

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