Healthcare’s faster, bigger, broader disruption demands of hospitals and health systems delivery strategies redesigned for the consumer-centric Internet economy.1 An old-economy mindset and old- economy strategies are serious threats to legacy organizations going forward. Huge acquisitions across healthcare sectors are occurring rapidly and creating ever-larger players. The questions—what are the needs of the populations in our targeted regions, and where and how should we deliver services to meet those needs—are top of mind among these players (see sidebar on page 3).
Driving industry disruption and transformation is the reality that U.S. healthcare is too expensive. To reduce costs while improving quality, outcomes, and the consumer experience, health and healthcare services will need to be delivered at lower-cost sites and settings. Healthcare’s historically risk-averse, inpatient- focused, and slow-to-change culture will need to be reoriented for a fast-changing, highly competitive, high-tech environment, comments Kenneth Kaufman, Chair of Kaufman, Hall & Associates, LLC.2
Health systems can best succeed if they alter their delivery systems to reflect the new realities.
Vision-Setting for Delivery System Redesign
Delivery system redesign involves re-visioning. Vision-setting by boards and executive teams should encourage creative thinking, asking the question, “If we started from scratch, what would we offer in our community, and where and how would we deliver that care?”
More than tweaks to the distribution of services are needed for health systems to retain relevance in their markets. Major delivery system redesign will be required to provide the access, pricing, and quality consumers want. Redesign initiatives must incorporate the right care, in the right place, and through the right caregiver/delivery model, asking the what, where, and how questions shown in
Figure 1. Responses will and should vary based on the populations to be served, and general intrinsic and competitive characteristics of the marketplace.
For example, primary care, one of the care types listed under the dark blue box, can be delivered in a number of care sites itemized under the royal blue box, including retail clinics, physician offices, and emergency departments. Primary care also can be delivered through multiple care models, such as patient-centered medical homes, telehealth, and other approaches.
With the “what type of care” question, most health systems are likely to want to provide primary and outpatient care, emergency care, and inpatient care, but not necessarily all care models within these large buckets or at each care site. Each of these dimensions requires solid data, careful analysis and purposeful strategic decisions.
FIGURE 1. KEY QUESTIONS FOR SYSTEM REDESIGN FOR SPECIFIC POPULATIONS
Foundational insights about consumer needs and wants should inform decisions, and the business strategies the health system pursues. Solutions will vary based on organizational capabilities to serve different populations in different communities. Differing healthcare needs of various patient populations should be treated in different ways, as appropriate.
Articulation of a point of view about the need for organizational transformation is an important early step for leadership teams in re-visioning delivery design. Recognition that the organization will not be able to be all things to all people and that “one size does not fit all” is important for most organizations.
Also important is the goal of identifying delivery strategies that work in different payment environments, across risk and fee- for-service arrangements. Some of the organization’s markets may continue to be primarily fee for service, but as such, will be vulnerable to disruption. Low-intensity services provided by hospitals are particularly at risk. With Anthem Blue Cross Blue Shield leading the charge, hospitals can increasingly expect payers to deny payment for ambulatory, non-emergent services performed in hospital-owned settings. Steerage of patients by payers and employers to lower-cost, and often more convenient, freestanding locations is now common.3
Essentiality and relevance of services offered therefore are must-have attributes for community providers, making them less vulnerable to traditional and new-market disruptors and payer leverage.
Articulation of a point of view about the need for organizational transformation is an important early step for leadership teams in re-visioning delivery design.
A framework can be helpful in identifying the types of strategies health systems should consider for delivery redesign (Figure 2). The X-axis represents sites of care by acuity level or the where dimension. Site infrastructure-related strategies can create a more accessible and efficient care delivery network for all populations served. The Y-axis represents the care model or how dimension, based on the resource intensity appropriate for a particular population segment. Both where and how dimensions are spectrums with many points along the axes within and between the quadrants.
The lower right quadrant—services distribution—includes high- acuity sites (e.g., hospitals, EDs) for patients with lower resource needs. For example, leaders can consider moving services for patients treated in inpatient facilities, such as those with dehydration or pneumonia, to lower-acuity hospital or ambulatory sites under a different model of care. Leaders also can consider shifting outpatient services from hospital to non-hospital sites, including imaging centers and ambulatory surgery centers.
In the lower left quadrant is an ambulatory network consisting of clinics, physician offices, and other facilities for patients with low- acuity and low resource-intensity needs, such as wellness services and primary care. To grow the ambulatory network, leaders can consider the composition and mix of services and alternate delivery models, such as virtual, urgent care, and retail care, that will further enhance access and decrease costs.
In the upper left quadrant are patients with high-resource intensity needs, but low acuity status. These patients might best be cared for under an advanced primary care model, such as a patient- centered medical home that provides continuity of care.
In the upper right quadrant are patients with multiple chronic conditions and/or comorbidities—and thus, high resource intensity and high acuity needs—who would be cared for under a complex care program. To achieve high-quality, efficient care, leaders may need to consider consolidation of programs for these patients across hospital sites, for example, complex cardiology, neonatal, cancer, etc.
Clinical variation lies at the center of the framework. Strategies to reduce unwarranted clinical variation, as well as inappropriate and/ or avoidable care, should be considered across patient resource intensity segments and care delivery sites.
FIGURE 2. FRAMEWORK FOR DELIVERY SYSTEM REDESIGN
Leaders may need to be participating in all four quadrants. The questions are:
- How and where are we serving our patients now?
- How and where should we be serving them in the future?
- What information can we gain on consumer preferences and behavior to inform our answers to the second question?
Responding to these questions can be dauntingly complex. Offered here is an approach to system redesign that can be accomplished by organizations with a relatively broad footprint of hospitals and ambulatory sites within an approximately six-month time frame.
Planning Process in Action
High-quality planning starts with a thorough analysis of data relevant to potential what, where, and how strategies for service delivery by service line or business and population segment. Obtaining the right data and using tools that enable the right analytics by the right team are key. Historical inpatient data by service line for hospital systems often are easier to obtain than outpatient performance data, but both will be needed to develop a clear understanding of past service line performance and future potential.
Internal data can be compared along cost and quality dimensions with benchmark data from regional or peer-group organizations. Market and patient population characteristics and projected growth trends in the targeted service areas also should be assessed. Data sets include volume/utilization, market share, cost, quality, patient characteristics (e.g., age, insurance coverage, clinical disposition/ conditions, and other factors), clinician market characteristics (e.g., number of specialists, age, and location), competitive landscape, relevant consumer research, and stakeholder perspectives.
Using a structured approach, the efficiency and effectiveness of each business and service should be evaluated, as should the organization’s ability to sustain the business or service’s relevance in a changing market. The strategic values to payer networks of each business or service, and of the overall organization, are important considerations in this regard.
Analytics provide clear visibility into past and potential future volume, cost, and profitability across clinical service lines. Such visibility is increasingly important for both long-range and tactical planning activities. Access to and use of good data and analytics enable organizations to identify and test the right set of initiatives, and fully understand the opportunity and roadmap for execution.
During this assessment process, observations about which and how services might be better distributed across the delivery system begin to emerge for redesign teams. For maximum effectiveness, such teams should include nurses, physicians, executives, service-line leaders, managed care executives, and new personnel, such as innovation officers. Team members often can suggest strategic initiatives worth nominating for pilot testing. These initiatives or opportunities then can be prioritized, vetted by a leadership steering committee, and tested through one or more redesign interventions. The next sections provide a case example with details on how one regional health system executed this process.
Using a structured approach, the efficiency and effectiveness of each business and service should be evaluated, as should the organization’s ability to sustain the business or service’s relevance in a changing market.
Where Should We Provide Care?
Armed with the thorough data and analytics described in the previous section and choices regarding care type, the health system’s redesign team considered the where dimension. The team evaluated care sites, including hospitals, emergency departments, freestanding ambulatory centers, physician offices, retail clinics, and virtual care, asking important questions related to each:
- What is the market opportunity for this specific site-of-care strategy?
- What are the competitive dynamics of the market (current and expected) for this care site?
- What payment models will impact this care site?
- What level of cost is associated with this care site?
- How willing are customers to seek care at this site?
The health system’s redesign team identified three core challenges that would benefit from initiatives related to care-site redesign:
- With nontraditional competitors offering low-intensity surgical services in retail and ambulatory settings in the region, attrition of the system’s campus-based outpatient surgeries might accelerate, requiring a different site-of-care strategy to maintain presence in this space.
- Market demand appeared to warrant fewer neonatal intensive care units (NICUs) in the region, which suggested that consolidation of NICU services may be appropriate.
- Consumers may want more accessible ambulatory care, preferring to receive care somewhere other than at a hospital campus.
To assess the first challenge, for example, the team looked closely at data related to the volume of current hospital campus-based outpatient surgical cases associated with low (i.e. better) American Society of Anesthesiologist (ASA) classification scores for fitness for surgery. These patients could be eligible for off-campus surgeries in competitor- or system-owned ambulatory surgery centers (ASCs). Averaging across its three hospitals, the data showed that 76 percent of the system’s total outpatient surgeries involved patients with ASA I “healthy person” or ASA II “mild systemic disease” scores (Figure 3).
To dive deeper with this challenge, the team assessed the financial impact to the health system if the bulk of these patients shifted to lower-cost sites with lower payment rates. The team forecasted rate reductions for Medicare, Medicaid, and commercial payers, based on current CMS payment rates and typical commercial ASC rates in the market. Estimates included consideration of the different mix of specialty services, procedures, and volumes by payer.
The assessment indicated that if patients moved from hospital outpatient departments to a freestanding ASC, the following would occur:
- Medicare rates would drop by 35-45 percent
- Medicaid rates would drop 65-85 percent
- Commercial rates would drop by 77 percent
While rate reductions would significantly reduce profitability for these low-intensity surgical services in a system-owned ASC, losing customers to new competition would be even more detrimental.
Using the redesign framework in Figure 2, Figure 4 summarizes the strategic responses developed by the team for all three challenges.
To address challenge No. 1 in the lower right quadrant, the health system’s redesign team recommended expanding its service distribution by developing a multifaceted ambulatory surgery center for low-intensity surgical services, with operating rooms, physician clinics, and ancillary services, and considering a broader, robust strategy for ASC development.
With challenge No. 2 in the upper right quadrant, analytics indicated that NICU beds across the system’s hospitals were indeed oversupplied, so the three NICUs would be consolidated into one NICU that could efficiently and effectively provide complex care for high-acuity and resource-intensive neonates.
With challenge No. 3 in the lower left quadrant, research in the region indicated that consumers do indeed want additional accessible ambulatory options for their non-emergent care. The redesign team recommended ambulatory network development through a micro-hospital/freestanding facility for patients who want their lower-acuity care needs fulfilled in more convenient settings. The facility would be equipped as a short-stay option, with an ED and observation unit. Physical therapy, retail pharmacy, and advanced imaging also would be offered.
Successful implementation of the three site-of-care strategies would require alignment with physicians who would drive value- based care, and development of sites with “the right” size and scale of operations. Also essential to the success of the care sites would be provision of care-delivery models (the how question) appropriate to each site and patient segment, as described next.
Getting serious about delivering the care consumers want at more convenient, lower-cost settings requires a holistic approach to the efficiency of the enterprise.
How Should We Provide Care?
In considering the how dimension, the health system’s redesign team started with the premise that no one-size-fits-all model would meet the health needs and preferences of different patients or member groups. Instead, a patient segmentation approach would more appropriately address how care should be provided to patients with differing disease burdens, health risks, utilization behaviors, preferences, and insurance coverage.
The team looked first at the approach to primary and immediate (non-emergent) care, since all patient segments would require some of these services. The team’s goal was to consider a unique approach, which would allow for multiple primary and immediate care models.
In-depth consumer research and surveys were conducted to understand the different primary and immediate care needs and preferences of different patient segments, and how such segments likely would seek and use primary and immediate care across the organization’s delivery system.
Looking beyond solely payer categories (such as commercial, Medicare, Medicaid, uninsured) to disease burden and socioeconomics/ demographics, the team defined three segments as follows:
- Young and healthy/working well (ages 18-64)
- Rising risk/at-risk based on 3+ chronic conditions (ages 18+)
- Medicare eligible (ages 65+)
Data and analytics related to the system’s current patients and prospects in the region informed these definitions. Developing the right care model for the Medicare Advantage (MA) members in the third segment was of significant interest because the health system was operating under at-risk arrangements with this patient population. MA members might overlap slightly with the second and third segments.
To start assessing the how dimension, in-depth consumer research probed primary care utilization (i.e., the number of annual visits to a clinic or physician’s office), and patient preference regarding provider type, whether a physician or a non-physician, such as a nurse practitioner or physician assistant.
Figure 5 shows the results. The segment defined as “young and healthy” had primary care utilization averaging 1.3 visits per year. Seventy-five percent of this cohort would be willing to see a nurse practitioner or physician assistant instead of a physician. For the Medicare-eligible population, with an average of 5.3 visits per year, that percentage was 70 percent. For patients with three or more chronic conditions and an average of seven primary care visits per year, 65 percent would be willing to see a non-physician.
Access to primary care would be a key issue. Based on study of the comprehensive data collected earlier and further consumer research, the redesign team identified three access issues that might benefit from strategic redesign initiatives:
- Many patients want primary care visits on a same-day or next-day basis.
- Nurse practitioners and physician assistants can provide much of the desired primary care in office, clinic, and other ambulatory settings.
- A significant portion of immediate care (urgent care and emergency visits) can be delivered through alternative means.
Again, the team evaluated each issue. For example, to assess the third issue, consumer research was conducted to determine the percentage of consumers who considered the care they received in an urgent care or emergency department to be necessary or unnecessary. If
the latter, alternative care models would be appropriate. Figure 6 shows the results: 38 percent said their care in an urgent care center was not necessary; for EDs, the percentage was 12 percent.
Further research indicated that these consumers were using ED and urgent care for non-urgent or non-emergent needs because they couldn’t get a primary care appointment in the next few days at a time that fit their schedule. Eliminating utilization of this higher-than-needed level of services through offering more convenient care options would take significant costs out of the system, while improving patient satisfaction.
The team prioritized numerous strategic responses for how-related delivery redesign (Figure 7). One strategy was development of delivery alternatives within the organization’s growing ambulatory network. As shown in the figure’s lower left quadrant, new retail clinics staffed by nurse practitioners and physician assistants would offer convenient primary care for the young and healthy/working well segment. Telehealth would be offered to ensure same-day access and care, and user- friendly digital interfaces would enable video visits, scheduling, prescription refills, and other services.
For patients ages 65+ with Medicare Advantage insurance, the organization developed an advanced primary care model (upper left quadrant of Figure 7), which would be a clinic with a
care team resourced to handle older patient populations with higher needs. Clinic staff would focus on management of patients with advanced, progressive chronic illnesses to reduce avoidable ED visits, hospitalizations, and the total cost of care, while maintaining quality of life and extending independence.
The health system developed a unique approach to primary and urgent care, based on patient needs and preferences. No singular model could span care needs across healthy, sicker, and older populations. Instead, a variety of care models, using different types of providers working in different care sites, would be effective. As implementation of the recommendations of the redesign team progresses, the team will continue to assess performance of each element, and make adjustments as needed.
Building a Balanced Portfolio of Strategic Interventions
As disruptive forces threaten to erode the financial strength, consumer loyalty, and relevance of legacy healthcare organizations, such organizations must proactively reshape their delivery systems. Dramatic changes will be needed in care models, sites, and providers.
Getting serious about delivering the care consumers want at more convenient, lower-cost settings requires a holistic approach to the efficiency of the enterprise. The approach includes divesting or repurposing services or facilities that are duplicative or low performers, reducing unwarranted clinical variation, and dramatically redesigning processes for better quality and efficiency.4 A balanced portfolio of strategic interventions likely includes those new to the organization, new to the market, and new to the industry. “What if healthcare were designed so that in-person visits were the second, third, or even last option for meeting routine patient needs, rather than the first?” asked two authors in a recent article in The New England Journal of Medicine.5
Core requirements of all system redesigns include organizational readiness, board and executive sponsors, provider/caregiver engagement, incentive alignment, and effective change management. Vertical integration with insurers and technology providers, and access to provider risk models may play an important role in the success of future hospital redesign efforts.
Delivery system redesign is hard—really hard. Be prepared to work in all four “how and where” quadrants, and never underestimate the power of inertia. It’s far better to disrupt your own organizations than to have a competitor do so.
1Kaufman, K.: “Faster, Bigger, and Broader: Healthcare Disruption in 2018.” hfm magazine. January 2018.
2Kaufman, K.: “The 2018 To-Do List for Healthcare Providers.” Kaufman Hall Blog from the Chair, Jan. 24, 2018.
3Kaufman, K.: “Payers to Hospitals: Enough.” Kaufman Hall Blog from the Chair, Sept. 21, 2017.
4Morrissey, W.: “Reconfiguring the Portfolio: Tough Decisions Ahead.” Kaufman Hall Report, Fall 2017.
5Duffy, S., Lee, T.H.: “In-Person Health Care as Option B.” The New England Journal of Medicine, 378(2): 103-106, Jan. 11, 2018.