Strategies for Facing the Accelerating Transformation of U.S. Healthcare

Given the recent Supreme Court decision on the Patient Protection and Affordable Care Act, and regardless of continuing "institutionalized uncertainty" throughout the federal, state and local governments, there is an accelerating transformation of the healthcare industry. New business models are emerging with increasing velocity, characterized by clinical integration across many fronts, economic attribution based on value and the inevitable transition from fee-for-service medicine to non FFS, or value-based, payment models.

Additionally, participants in all healthcare industry sectors are dealing with challenges and risks related to an unprecedented competitive landscape and the fact that the regulatory environment at all levels is dynamic and will continue to be challenging to anticipate and manage.

To better understand and anticipate the potential implications of this transformation, healthcare organizations should begin to explicitly include the detailed scenarios associated with the transition to non-FFS payment models within their operations planning horizon (typically, three-to-five years). This would include conducting a gap analysis of current capabilities against what will be required to manage the health of a defined population, including infrastructure, technology, skill sets and related programs, to support the new care delivery model. The cost of remediating these gaps should be included in the plan, as well as various "war gaming," and required clinical integration and economic attribution model scenarios. Organizations will also need to explicitly define their transformation programs and projects according to explicit long-term strategies as they begin the transition.

Some of the longer-term strategic areas to consider include:  

Address the shrinking balloon. A reduction in healthcare cost reduces revenue within the healthcare ecosystem, so the transformation is not revenue-neutral. At the same time, revenue will not only reduce but also shift among organizations. Leaders need to determine what defines winners and losers in the new industry ecosystem and remember that for successful organizations, "winning" is more than simply "maintaining." An effective strategy also includes leveraging data to both support value-based payment models and, potentially, to generate revenue from unique intellectual assets.

Determine a meaningful compensation equation for health and wellness. Healthcare leaders need to have a clear understanding of the value chain and their organization's place in it. This means calculating return on investment for health and wellness, knowing how your organization will be affected by the growing importance of individual rather than physician decisions, and maintaining a focus on specific population groups while providing platforms to support these groups. It also means preparing for new developments in genomics and health prediction, as well as intelligent information.

Understand where your organization fits within the shifting intersection of risk and reward. In today’s prepaid healthcare model, "real" risk is borne by employers and the general populace. As risk shifts further to the individual and population managers, you need to fundamentally understand levels of risk assumption, what infrastructure and capabilities are required to manage that risk, and how new levels of risk assumption fit within the culture and mission of the healthcare organization. In addition, you need to keep track of the intelligent-information requirements in the expected shift of this risk. This includes viewing quality and value as more than simply pitch-points, but rather as key economic reward drivers.

Leaders at healthcare organizations also need to consider critical transformational themes — leveraging data across multiple domains, healthcare IT enablement, clinical integration, clinical practice change and associated business model implications — through a longer-term lens as well as a nearer-term planning horizon. The ability to rapidly move from strategy to near-term planning and tactical execution will define the winners as healthcare transformation accelerates.

For example, payment model disruption is a critical business issue in the transformation from FFS payment models to value-based models incorporating accountable care principles. Planning and forecasting associated with disparate payment models must consider that the financial incentives inherent in each are by definition not aligned. Simply put, the core strategic question is whether or not any organization can be both committed to non-volume-based care economics (regardless of the payment model) while at the same time working to sustain a volume-driven reimbursement status quo. The institutional schizophrenia that emerges in this instance may simply be unmanageable if the ultimate goal is refined revenue streams based on payment under accountable care principles.

More importantly, organizations need to recognize that payment model transformation will not occur along a smooth curve or in incremental fashion. In fact, traditional planning approaches may no longer work. If the critical inflection point is beyond the traditional one-to three-year (for operations) and five-year (for capital) planning horizon, those organizations have either underestimated or ignored the velocity and timing of payment model transformation, which could be a potentially fatal business mistake. To manage this critical business issue, planning approaches must consider actively managing the inflection point well inside the routine planning horizon of the business.

To successfully address this revenue transformation, organizations will have to bring the inflection point inside their planning horizon and consider the potential for a step change in their business models (like, for example, the impact on traditional film and camera companies with the emergence of digital media). These changes will not be simple or easy. However, the winners in healthcare — whether payors, providers, life science companies or other organizations — will be defined by their leadership in recognizing the necessity of change and then planning and executing effective strategies based on this recognition.

Additionally, change leadership will be a critical success factor. As we know, change is easier to talk about than to actually accomplish. However, the need for transformative change leadership is greater now than at any other point in the history of healthcare. The organizations that survive tomorrow are the ones willing to act today.

Brad R. Benton is the National Account and Advisory Sector Leader for KPMG Healthcare. Joseph F. Kuehn, Jr. is a partner in KPMG's Management Consulting Practice in New York and a member of KPMG Healthcare's Transformation Steering Committee.
This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP.

More Articles on Healthcare Transformation:

4 Reasons Why Even a Repeal Won't Stop Healthcare Reform, Accountable Care
From Treating the Sick to Managing Community Health: Hospitals' New Role in Managing Population Health

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