This was the main theme during an executive learning session at Becker’s 12th Annual CEO + CFO Roundtable. Sasha Preble, vice president and practice lead for strategy & transformation, and Greg Shufelt, vice president of strategy consulting — both of Optum — discussed market trends and financial headwinds facing health systems and strategies for developing and implementing sustainable growth strategies.
Four key takeaways were:
- Continuing growth of low-acuity, low-margin services, compounded by a challenging reimbursement environment and increasing competition, are straining healthcare organizations. Health systems are facing a confluence of challenges. “We’re seeing volume shift to ambulatory and even at home settings, with more Medicare patients coming into hospitals producing lower margins than ever,” Ms. Preble said.
At the same time, health systems are facing intense reimbursement challenges. According to research cited by the speakers, Medicare Advantage (“MA”) denials surged by nearly 56% between June 2023 and January 2024. In response to these reimbursement challenges from MA plans, 16% of health systems plan to stop accepting one or more MA plans and 45% of health systems said they are considering doing so.
Also, according to research cited by the presenters, projections suggest that one-third of the primary care market — which is currently estimated at $260 billion — will be handled by non-traditional providers by 2030.
“We’ve seen continued downward reimbursement pressure from payers, and we’re experiencing competition from non-traditional, new market entrants who are not plagued with the infrastructure and expense base of hospital-centric health systems,” Ms. Preble said.
- Evaluating performance across the Medicare book of business (and other lines of business) and developing a roadmap to achieve sustainable enterprise margin is critical for future success. A comprehensive break-even strategy should include:
- Optimizing current operations through cost management, clinical efficiency, and revenue cycle initiatives
- Evaluating excess utilization and service delivery profitability to understand root-cause performance and better manage avoidable, low-margin admissions
- Defining contracting strategies to drive sustainable top-line revenue growth and more equitable sharing of value creation in both fee-for-service and value-based arrangements
“There is no funding for material rate increases,” Mr. Shufelt said. “Healthcare leaders should “follow the money” in Medicare Advantage. CMS paid approximately $12 billion to Medicare Advantage plans in Star rating bonuses in 2024. This represents funding tied to patient experience and quality outcomes. Additionally, even with significant changes to coding and risk adjustment methodology, CMS continues to allocate more funds to higher acuity, higher risk members. Health systems should broaden their contracting negotiations with payers beyond focusing on rate increases to driving more incentives (and funding) for quality, patient satisfaction, accurate risk capture, and managing total cost of care.”
- Focus on areas that can lead to profitable growth. As market conditions continue to drive margin pressure for healthcare organizations, health system leaders must work to maximize existing investments, identify new growth opportunities, and transform to improve quality and value.
Four key areas to achieve growth in this difficult climate are: 1) differentiate products and services; 2) acquire and retain customers; 3) integrate care delivery and 4) achieve value-based care transformation.
One health system leader in attendance reinforced the importance of establishing and preserving connections with community physicians to create a strong referral network and help attract and retain patients. These regular, in-person connections are a valuable strategy to continue to develop relationships, listen to providers to hear their perspectives regarding potential care gaps and other needs, share about advancements made in available services, and remind providers of specific services and resources (e.g., scheduling support).
- Define your comparative advantage. In an environment where patients, providers, and purchasers have choices, health system leaders must make trade-off decisions to define where they will play and invest to excel in those areas and where to bring in partners. Several health system leaders in the audience spoke to the importance of creating the right ecosystem of clinical partners that, for example, can best serve patients across primary and specialty care.
Health leaders must also decide what they will not do to create the capacity to invest in their areas of distinction. Sustainability is only possible when leaders make tough choices and commit to high-performing execution of those decisions.
