The Two Biggest Mistakes Hospital and Health System CEOs Are Making

CEOs responding to HealthLeaders Media's 2015 Industry Survey seem to be undecided on whether healthcare really is headed to a value-based future. One prominent hospital CEO, Ron Paulus, MD, says it's a big mistake to think value-based care won't make big inroads or that it has already happened.

Some hospital and health system CEOs are making two critical mistakes: They either think value-based healthcare is a passing fancy that will fade away or that the biggest disruption in healthcare is already behind them.

That's the view of Ron Paulus, MD, president and CEO of Mission Health in Asheville, NC. He sees his peers making these strategic mistakes as healthcare transforms due to a variety of factors.

Paulus and I reviewed together some of the results from the Premium Edition of HealthLeaders Media's 2015 Industry Survey, which debuted in January. Indeed, it seems as though respondents, including the CEO subgroup, haven't quite made up their mind whether a value-based future is really where healthcare is heading, despite all the indications that it is gaining traction in fits and starts.

In Figure 1 of the survey, 37% of CEOs characterized their organization's transition to value-based care as at the investigation stage. Only 28% of the total group of survey respondents said that. So maybe Paulus is onto something when he says many leaders think—erroneously, he says—that value-based care won't make big inroads (certainly the 10% who chose "not pursuing" fit in this category) or that it has already happened (possibly the 7% who say the full rollout is complete or nearly complete).

"I take away from this response that pretty much everyone is just beginning, but in every CEO meeting I'm in, this is the No. 1 issue on the agenda," Paulus says. "As for Mission Health, we are underway with active pilots and some of them are being rolled out."

Table stakes for the value-based game seem to include a substantial investment in data analytics, whether in-house or with a partner that can help dissect and disseminate data. And CEOs are well aware of the need for that investment in order to be able to compete in a value-based world. In Figure 6 of our survey, 77% of CEOs cited data analytics as among their top three investment priorities, while only 62% of all respondents chose that item. Still, both groups picked data analytics most often among their top three investments, outpacing even other value-based or accountability tools, such as investments in care redesign (53% of all respondents), in patient experience improvements (51%) or in nurse navigators and care coordinators (45%).

For Paulus and Mission Health, data analytics is a "top priority for me." As for the difference between the CEO group and all respondents, he attributes that largely to the "siloization effect."

"Everyone's kind of touching the elephant in a different way," he says. "If you're not working on the data, you're less likely to see it and feel it. But at the CEO level, I feel it because that's where we're putting a huge amount of money."

He says most of that money goes to two things: trying to get better analytical data out of the electronic medical record, and integrating that data so that it can be used effectively in treating patients. Mission has a Cerner platform, but because Paulus says his health system "can't wait," he's made a separate investment in HealthCatalyst as the data analytics partner in the "medium term."

"In the long run I want one solution," he says. "We're using the Cerner platform for certain aspects, like health information exchange, while HealthCatalyst is generating a vendor-neutral data warehouse. Building the databases is like shoveling snow, but integration of the data is like building snow castles," he says.

Because moving to value-based care takes a war chest, CEOs are looking for the best way to fuel financial growth over the next five years as they hope to make a transition to reimbursement that is also predominantly value-based.

The most popular answer for both groups of respondents was that they will fuel financial growth through expanding outpatient services: 63% of all respondents and 60% of CEOs. But other strategies were less similar. Some 32% of CEOs said they would fuel growth at least partially through developing their own or partnering with existing convenient care facilities, while only 22% of total respondents chose that as a strong growth area. Developing a health plan business unit was also higher on the priority list for CEOs than for the entire group of respondents, at 27% and 18% respectively.

Paulus was surprised that only 27% of CEOs expected to acquire or develop a health plan business unit. At a recent eight-CEO dinner he attended, he said all eight, including himself, were interested in getting into the health plan business in some fashion, whether that means building a Medicare Advantage plan, participating with proprietary plans in the exchanges, or even commercially, with employers.

What's different this time

But haven't hospitals and health systems tried to get into the health plan side of the business before? And didn't they lose vast amounts of money on the experiment two decades ago?

"That's a fair concern," Paulus concedes, harking back to his experience as Geisinger Health System's chief technology and innovation officer, prior to becoming CEO of Mission Health. During his tenure, Geisinger was one of CMS's Physician Group Practice Demonstration participants (CMS's first pay-for-performance initiative).

"At Geisinger, we had an interesting control trial because we were able to compare the PGP demo and our MA plan side by side," he says. "We saw that we were very successful on the MA plan and only marginally successful in the PGP demo."

He says the PGP project earned money in early years, "but when you net out not just what you spent but what you cannibalized, it was at best neutral and may have been a loss."

Conversely, on the Medicare Advantage side, "you get 100% of premium, not just a percentage after a threshold, but also important, you can directly interact with the consumer; you have all the data stream immediately, and when you have a delivery system, you can intervene on those consumers."

That's difficult in an ACO model with retrospective attribution, he says.

"I realize there's prospective plan, but it was really the partnership with doctors and patients that made it work," he says of his Geisinger experience. "It wasn't always true that the health plan and the clinical enterprise got along, but in the Medicare Advantage plan, one of our department chairs who had been most antagonistic toward the health plan realized that across 20 clinical parameters, we were statistically significantly better in 19 of the 20 in our Medicare Advantage plan. He stood up in a meeting and said with the data, we now know the Medicare Advantage plan is like a drug that works and it would be unethical to withhold this drug because patients do better with it than without."

That's why providers should really consider developing a health plan, he says.

Paulus says he tries to avoid making any of the top four strategic mistakes he's identified by measuring how well leadership is focusing on avoiding them every day. They are:

• Not focusing on the patient first: "Not in a flippant way, or holier than thou—we have our own struggles—but sometimes we can be so caught up in all our own troubles that we're not doing the things the patients most need and want, and that includes focusing on the service experience, convenience, access, and price. That's hard because it's asking us to change our model before we have the incentives to change it, and in ways our docs and nurses or administrators may not like."
• Focusing on cost reduction and not quality improvement: "You get cost reduction by improving quality. Cost and quality go hand in hand. They are friends. Yes, it's harder to lower costs by improving quality than it is to just cut things, but it is the only sustainable way."
• Thinking that things aren't going to change: "This is living in denial."
• Thinking they already have changed: "Another form of denial. We're like a chimera right now—part one animal and part another. At least partially, we're still living in the fee-for-service world from the '60s. But change is here."