Hospital and health system CEOs are prioritizing revenue growth in 2019, according to a new survey.
Revenue growth overtook cost control as executives' top priority, Advisory Board Co.'s survey of 90 C-level executives found. While administrators still aim to develop nuanced strategies to cut costs, their focus is now on improving ambulatory access, minimizing clinical variation, boosting primary-care alignment and adapting to population health.
"They still haven't taken their foot off cost-cutting, but they can't cut their way out of this economic challenge," said Rob Lazerow, a managing director at the Advisory Board. "They need a balanced margin-management strategy."
Only one of the top-five areas of interest from 2018 remained in 2019: innovative approaches to expense reduction. Last year's No. 1 topic, preparing for sustainable cost control, fell to No. 11 out of the 29 included.
Not-for-profit hospitals' revenue growth beat expense inflation in 2018 for the first time since 2015, but their margins are still low, experts said.
When asked to narrow their priorities to one, revenue growth led at 21%, followed by population health and accountable care organization strategy at 20%. There was a three-way tie for third between cost containment, physician network alignment and "systemness" at 13%. Last year, 24.5% of executives chose cost containment.
As hospital admissions wane, executives are eyeing ambulatory and primary-care access points and the potential downstream revenue. They are also looking to build nontraditional revenue sources.
"Diversifying through new revenue streams is an important part of the equation for a lot of health systems," Lazerow said. "But I have concerns with how health systems are pursuing them."
Providers need to be cognizant of the risks and not be overly reliant on new revenue streams, Lazerow added. They need to reinforce an organization's overall mission and deliver a clear strategic advantage, he said.
The potential is attractive—what starts as an alternative revenue source can become the new norm, said Rob Thames, a consultant and former CEO of Northern Arizona Healthcare. Health systems need to adapt their service offerings of yesterday to align with non-acute services and value-based payments of tomorrow, he said.
When asked to rank multiple topics, improving ambulatory access was a primary focus of 57% of executives surveyed between January and March of 2018, rising from eighth in last year's survey.
The outpatient market was primarily fueled by tech innovation and a clinical differentiator. Now, it is driven by health plans and government payers seeking the lowest-cost sites of care, Lazerow said. But it is increasingly hard to stand out from an uber-competitive sector that is a prized referral hub, particularly in areas with high population growth, he said.
"They haven't always invested in or deployed the right assets for ambulatory growth, plus it's hugely competitive," Lazerow said, noting a wide variety of physician-owned or third-party competitors. "They are competing for downstream revenue."
Competitors, particularly in the private equity and insurance field, are seeking physicians. The 53% of executives looking to align primary-care operations recognize a newfound instability in the physician marketplace, Lazerow said. In certain markets like North Carolina, doctors are leaving health systems to create or join independent physician groups.
The opportunity of the doctor-patient relationship, which is based on experience, trust and access to data, is huge, said Dr. Scott Fowler, CEO of Holston Medical Group, an independent physician group based in Kingsport, Tenn.
"Professionalism will be the cornerstone of the relationship," Fowler said, adding that it centers around doing what's best for the patient, void of conflicts of financial interest. That will determine where doctors go, he said.
A group of around 90 doctors who left Atrium Health's Mecklenburg Medical Group formed an independent practice, North Carolina-based Tryon Medical Partners. Tryon recently announced that it joined the new North Carolina State Health Plan Network, which uses a reference-based pricing model under which providers are reimbursed at Medicare rates plus an average of 82%.
"We get calls from all over the nation wanting to know why, how and what is the formula," Tryon CEO Dr. Dale Owen said. "Every week it is at least a half-dozen to a dozen calls from organizations throughout the country calling us about the process."
As more surgeries are pushed into the community, that will make for a more concerted and competitive ambulatory surgery center strategy, Lazerow said. The CMS, which for the first time rolled out a bundled-payment model for outpatient procedures last year, has been pushing for cardiovascular and orthopedic outmigration, he said.
Site-neutral payments could also realign the competitive scales, Lazerow said.
Would health systems rather be closer to the patient but at a lower price, or continue to build around the perimeter of their network?
"Site-neutral pay pushes leaders to question the assumptions of their expansions, asking how much is that decision predicated on provider-based billing," Lazerow said. "If they don't have the pricing advantage, is it still worth the investment?"
