Developing a Strategy for Change

The U.S. healthcare system has been described by the Institute of Medicine (IOM) as too complex and costly. Pervasive inefficiencies exist, including a reward system poorly focused on key patient needs. Due to these inefficiencies and our country’s inability to afford them, business cannot continue as usual.¹

In 2006, the McKinsey Global Institute compared healthcare spending by country and concluded that the U.S. spent nearly $650 billion more than other developed countries on healthcare. Further, they found that the cause of this discrepancy was not due to a sicker population compared to the rest of the world. Instead, the growing capacity of outpatient services, cost of technological innovation and increase in patient demand in response to the available services were identified as contributing factors.

Waste was also found to be a significant concern. The IOM claims that approximately $91 billion—or 14%—of total healthcare expenditures in the U.S. are due to inefficiencies or redundant administrative practices.² More recently, former Centers for Medicare and Medicaid Services (CMS) administrator Donald Berwick, MD, estimated that waste consumed between $476–$992 billion—or 18%–37% percent—of healthcare spending in 2011.³ Much of this waste has been attributed to our fragmented delivery system.

Despite our outspending all other developed nations, studies have shown that the U.S. healthcare system ranks last or next-to-last on five dimensions of a high-performance health system: quality, access, efficiency, equity and healthy lives.⁴ If the value of a healthcare system is measured by the quality of care received based on the costs incurred, then clearly there is significant room for improvement. Put into mathematical terms, the slope of the value curve (i.e., change in quality/change in cost) needs to increase positively. The “Triple Aim” of  healthcare—improving the patient experience of care, improving the health of populations and reducing per capita costs of  healthcare—has been proposed as a viable method for increasing the slope of the value curve.⁵ Integrated delivery systems (IDS) have been designed as a solution for eliminating excessive waste by reducing fragmentation and lowering costs.

Equally important, the Triple Aim promises to increase quality by improving care coordination and clinical integration. It is because of these potential capabilities that integrated delivery systems are currently being developed. However, due to the existing entrenched, fragmented delivery model, transforming an organization into an IDS is fraught with challenges. We can, however, learn much from outside industries about the importance of successful adaptation in response to environmental changes.

Strategic Inflection Points

The first challenge is recognizing the need for transformation. Andy Grove, the former chief executive officer of Intel, describes how companies survive and even thrive after a strategic inflection point.⁶ Grove defines a strategic inflection point as a time in the life of a business when its fundamentals change. By this definition, every hospital and healthcare organization in the U.S. is in the middle of a large strategic inflection point. This is important to acknowledge because if organizations do not recognize something has changed and do not adapt to that change by transitioning to a new way of doing business, they may not be competitive when a new equilibrium is reached. In other words, organizations that do not adapt will either provide suboptimal care or no care at all, worsening quality and access.

Grove uses an apt analogy that compares strategic inflection points to sailing a boat. When the wind shifts, a sailor needs to sense that something has changed, recognize the need to alter course and do things differently. Otherwise the sailor could run off course or, worse, wreck the boat. In healthcare, organizations need to adapt how they deliver care, since the old model of reimbursement for volume will not likely be successful in the new paradigm of payment for value to which we are now transitioning.

But what fundamentals have changed? Adapted from professor Michael Porter’s competitive forces analysis, the two largest transformations are the regulatory changes leading to substitution—or in this case need that the service be delivered in a different way (fee-for-service to pay-for-performance)—and changes in customers’ attitudes and expectations.

The first force is the regulatory change that alone has created a considerable strategic inflection point. The old way of doing business simply cannot be sustained. The IOM emphasized the need to create incentives based on payment policies that reward innovation, outcomes and continuous performance improvement instead of the old model of paying for the delivery of care itself.⁷

CMS has responded with alternative payment models incorporating clinical performance measures, integration, utilization and patient-reported outcomes such as satisfaction into reimbursements for both hospitals and physicians. Further, CMS has indicated this new payment environment of reimbursement for keeping patients well will only increase as it attempts to provide additional incentives for value-based purchasing (that is, using market leverage to promote quality and value).

The second force is a changing customer. Due to the push for public reporting of performance measures and the overall drive in government and media for increased transparency of quality, customers’ expectations have shifted. Gone are the days when patients accepted their physician’s medical decisions with little to no explanation. Now patients and families rightfully expect shared decisions and transparent quality indicators. These industry transformations necessitate the adaptation of delivery models away from the current fragmented and costly system to an integrated and efficient standard of care.

Understanding that change is necessary is only one challenge, and in this case, likely the easiest one to overcome. It is considerably more difficult to take action. Strategies that leaders and organizations used to deliver care prior to the strategic inflection point simply will no longer work. It takes clarity of vision from leadership to start the difficult steps to adapt.

In this case, hospital administrative and physician leadership must function collaboratively, with aligned incentives. Messages delivered must contain clarity of vision regarding the new direction. It is imperative for physicians to fully buy into this new direction, as this is necessary for true cultural change. All healthcare providers, including nurses, pharmacists, social workers, paramedics and physicians, must transition from the conventional fee-for-service model to the new integrated model, which requires new behaviors. If an organization is to be successful in this transformation, physicians must be at the table from the beginning.

Once leadership has fully bought into the new vision, the next step is resource redeployment. Currently, hospitals are organized based on the fee-for-service model. Because of this, resources have been allocated more heavily toward actions that have historically provided a higher profit margin, such as procedures and radiographic studies. In our new environment, integration of care, which has as its fundamentals care coordination and clinical integration, will be better rewarded.

Organizations will need to innovate in order to use their already constrained resources to meet the needs of populations. One example of this type of innovation designed to improve care coordination and integration is mobile integrated healthcare practice (MIHP), where EMS systems deliver more tailored, patient-centered care in different environments based on the patient’s needs.⁸ Organizations will need to encourage further innovation to adapt to their local and national dynamic healthcare environments.

Finally, strategy—and, more important, strategic actions—will need to align the organization’s new culture, routines and beliefs with the current environment. Actions such as integrating electronic healthcare, use of clinical decision tools, and investing in becoming certified patient-centered medical homes or achieving various Joint Commission certifications will help align the organization, strategy and environment. It is only when these three aspects are aligned that organizations can achieve long-term success in the delivery of safe, high-quality healthcare. Strategies that do not align an organization’s culture with the environment are doomed to falter over time, lowering the value of healthcare for a population.

Surviving a strategic inflection point is difficult in any industry. Healthcare, due to its fragmentation and entrenched delivery models, is burdened by many barriers that make this challenge exceedingly arduous. However, this also presents everyone who provides and uses healthcare services in this country with a remarkable opportunity.

We can do better. We must increase the slope of our healthcare value curve. Leadership, both administrative and individual, must recognize and guide their organizations towards integration. Leaders must create an environment where innovation of delivery models is welcomed, and strategic actions align the culture of the organization with the new healthcare environment. Our goal can and should be to emerge from this revolution much healthier than we entered it.

References

1. Hagland M. Institute of Medicine report: The path to continuously learning healthcare in America. Healthc Inform, 2012 Oct–Nov; 29(9): 30–3.
2. Lallemand NC. Reducing waste in health care. Health Affairs, www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=82.
3. Berwick DM, Hackbarth AD. Eliminating waste in US health care. JAMA, 2012 Apr 11; 307(14): 1,513–6.
4. Davis K, Schoen C, Stremikis K. Mirror, Mirror on the Wall: How the Performance of the U.S. Health Care System Compares Internationally, 2010 Update. The Commonwealth Fund, www.commonwealthfund.org/Publications/Fund-Reports/2010/Jun/Mirror-Mirror-Update.aspx?page=all.
5. Berwick D, Nolan T, Whittington J. The Triple Aim: Care, Health, and Cost. Health Affairs, 2008; 27(3): 759–69.
6. Grove AS. Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company. New York, NY: Doubleday, 1996.
7. Institute of Medicine. Crossing the Quality Chasm: A New Health System for the 21^st Century. Washington, DC: National Academy Press, 2001.
8. Beck E, Craig A, et al. Mobile Integrated Healthcare Practice: A Healthcare Delivery Strategy to Improve Access, Outcomes, and Value. www.wakegov.com/ems/about/Documents/MIHP_whitepaper%20FINAL.pdf.

Daniel J. Castillo, MD, is the medical director in the Division of Healthcare Quality Evaluation at The Joint Commission. In this role, he leads clinical, research and patient safety issues within the division, and provides clinical expertise in the development of health care quality evaluation tools including standards, survey processes, and performance measures for Joint Commission accreditation and certification programs. Castillo also works with external stakeholders, such as physicians and national organizations, to improve the evaluation of health care quality and safety.