Top 10 in 2010: Ten Forces Framing Strategic Discussions for Healthcare Leaders

By any account, 2009 was a watershed year in which politics, the economy, public sentiment and the media all played a significant role in framing a new environment for health care over the next decade. With tumultuous challenge to the first significant overhaul of our nation’s health care system since the introduction of Medicare in the mid-1960s, health systems are still trying to determine the likely impact of payment reform initiatives on health system strategy. Here is a round-up of the most significant market forces that will shape strategic discussions over the next year, and most likely for the foreseeable future.

Top 10 in 2010: Ten Forces Framing Strategic Discussions for Healthcare Leaders

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President Signs Health Care Reform Act; Now What?

This week, President Obama signed into law the most significant social legislation since the 1960s. The Patient Protection and Affordable Care Act (H.R. 3590) extends health insurance coverage to 32 million uninsured Americans ― at a cost of $940 billion over the next decade. The legislation ensures that by 2014, nearly all Americans will be required to be insured, and by 2016, the majority of the uninsured (30 million people) will be covered.

To do this, the legislation expands Medicaid to cover families making as much as $88K a year. It also creates state-supervised exchanges to expand coverage access to individuals and small businesses. Other goals of the legislation are to improve affordability and accountability, crack down on waste, fraud and abuse, and ensure fiscal sustainability.

What Didn’t Get Passed? There is no government-run insurance plan. People can buy coverage through the state exchanges, but these will be private, nonprofit plans.

How does this impact the major health care players? Some of the key tenets are described below:

• Extending Coverage for all Americans – On one hand, it is believed that the bill will benefit hospitals because more people will have insurance and hospitals will have to provide less charity care, which should result in fewer ‘write offs’ and a reduction in bad debt. However, expanded Medicaid enrollments could be a mixed blessing because Medicaid often pays hospitals less than the actual cost of care.


• Improving the Quality and Efficiency of Care – It provides incentives for doctors, and hospitals that improve quality while providing for better coordination that helps to reduce harmful medical errors and healthcare-acquired infections. The bill will also provide payment reforms so providers are rewarded for the quality of care they provide, rather than just additional tests or treatments. And it rewards innovative practices where doctors and nurse practitioners provide more primary care that is coordinated with every doctor or specialist involved with a patient’s care.


• Focusing on Prevention – This legislation will promote prevention, wellness, and the public health and provides an unprecedented funding commitment to these areas. It directs the creation of a national prevention and health promotion strategy that incorporates the most effective and achievable methods to improve the health status of Americans and reduce the incidence of preventable illness and disability in the United States. It increases prevention and wellness services for Medicare beneficiaries by waiving co-payments for most preventive services and by fully covering an annual wellness visit and personalized prevention plans for American seniors on Medicare.


• Expanding the Healthcare Workforce – The act will fund scholarships and loan repayment programs to increase the number of primary care physicians, nurses, physician assistants, mental health providers, and dentists in underserved areas of the country. With a comprehensive approach focusing on retention and enhanced educational opportunities, the Act combats the critical nursing shortage. And through new incentives and recruitment, the Act increases the supply of public health professionals so that the United States is prepared for health emergencies.


• Transparency and Program Integrity – Doctors with financial interests in imaging services, like MRI services, must inform the patients in writing that they can obtain the recommended imaging service from a person other than the referring physician, and provide a contact list. The Act also requires all drug companies, device, and medical supply manufacturers to fully disclose and report any gifts they make or financial arrangements they have with doctors, a physician practice or group. Providers enrolled in Medicare, Medicaid and CHIP programs will undergo increased scrutiny for new compliance requirements. The bill calls for increased governmental auditing and revenue oversight requiring providers to become more efficient and accountable for utilization, quality and cost of care.


• Funding the Program -- Funding for the landmark legislation will come from a variety of initiatives, including increased Medicare taxes for high-income individuals and an excise tax on insurers offering high-premium plans. In addition, hospitals agreed to help pay for the costs of the legislation and will contribute $155 billion over 10 years, primarily through lower Medicare payments. Health systems will also see reduced disproportionate share funding payments and cost-saving provisions resulting from program cuts for high-cost, less efficient hospitals in high cost markets. Moody’s Investors Service speculates that not-for-profit hospitals will struggle with reimbursement and efficiency pressures under health care reform legislation, triggering spending cuts, mergers and changes to revenue streams.

Most of the initiatives won’t take effect until 2014; however, the time for health systems to address both short and long term implications of the legislation is now.

Coming next: What to Expect from Industry-Leading Health Systems

Innovation Won't Thrive where Creativity isn't Valued

In Sparking Innovation (Harvard Business Press), Stanford University professor Robert Sutton describes how the ‘hippie’ founders of Lotus woke up one day to realize that a multi-billion dollar company built on creativity was stifling the very innovation that made it successful.

This ‘face the mirror’ moment came when they decided to put the resumes of the company’s creators (under assumed names) through its human resource screening system and discovered that they couldn’t even get a call-back for open positions. As the company grew, it brought in ‘suits and ties’ that could operate the business and sell the products but not create innovations to sustain competitiveness.

Health system CEOs lament the lack of innovation in their organizations and are perplexed as to how quickly innovation initiatives fizzle out. All too often, health system structures, operating systems, policies, culture and hiring practices form the antithesis of innovation. Our business practices, reward systems, hiring and promotions policies support left brain thinking and behaviors. We crave the orderliness of it, find safety in its logical processing, relax in its familiarity.

By contrast, while we love the output of a creative, right-brainer – be it a work of art, a brilliant book, or a breakthrough product innovation – we are mystified, even fearful of the creative process. It’s messy, non-linear, riddled with risk. So, we tend to hire to our safety zone – and end up with a company of smart people that can build organizations, systems, flowcharts and spreadsheets to manage the business, but can’t create the value innovations that drive growth, profitability and future success.

Sometimes “the difference between innovative work and routine work are the types of people who do the work.”

As with most things, the key is to strike a balance. If health systems are to spark the innovations needed to thrive in an industry undergoing massive transformation, they’ll need to address not only ‘how’ to acculturate the creative process but also ‘who’ is sitting around the table.

Karen Corrigan

Industry Transformation Requires a Long View Strategy for Health Systems

Over the next decade, the US healthcare system will undergo an unprecedented era of reform and transformation, driven by the tenets of government-led reform. A shift of this magnitude changes the underlying basis for competition and will challenge even the most successful of health systems to stay ahead of the curve.

In the short term, the end point and exact design of health care reform are less important than the wheels being set in motion regarding increased industry consolidation, physician integration, care coordination, cost restructuring and competitive positioning. Over a longer horizon, however, the elements of success for health systems will be dramatically different than today, requiring a vision-driven approach to evolving and transforming the enterprise.

Now is the time for health systems to take a fresh look at their strategic plans, and assess whether they are prepared to compete in a value-based marketplace with increased emphasis on cost, quality and access.

Success will require executives, board members and physician leaders to develop a shared understanding of industry changes, adopt a vision for the future of the health system, anticipate the pace of market transformation and maintain focus through the stages of strategy execution.

Here are 7 key questions to get the conversation going at your next leadership meeting:

• How does the leadership of the health system believe the future is likely to unfold?
• What will be the fundamental requirements of success and how do those differ from today?
• What role do you want to play in that future and what will it take to get there?
• In what businesses and markets should the health system invest its resources, either through ownership or partnership?
• What core competencies will create sources of advantage and market leverage?
• How should the parent company influence and relate to the businesses under its control?
• What changes will be required in the operating and leadership structure to achieve the vision?

A defining characteristic of leadership is the ability to drive strategy-critical change in the face of uncertainty. This is certainly one of those times.

Karen Corrigan