An important Perspective article was published in the New England Journal of Medicine by Michael Porter and Dr. Thomas Lee entitled, “Why Strategy Matters Now.”(1) Their premise was reprised in a recent Hospital & Health Networks article as “Six Essential Questions for Developing a Value-Based Strategy.”(2) Its implications are important and profound. This is the second installment in our two-part series exploring the ramifications to cardiovascular services, part 1 can be accessed here.
As cardiovascular consultants, we thought it would be useful to take Porter and Lee’s six questions and consider them from a Cardiovascular Service Line perspective, with examples that would be most relevant to the CV service line administrator. The shift away from fee-for-service to payment for value (and, as they stress, payment for value not on a hospital level, but on an individual service by service level) creates new, critical considerations.
- What is our fundamental goal? While profitability rules in business, healthcare, of necessity, has always been more complex. In the past, it has been possible to be profitable without delivering good results to patients. Porter and Lee suggest that profitability will not be the primary driver of strategy for hospitals, but rather the results of strategy. While hospitals could historically seek multiple goals (good patient care, satisfaction among physicians, research, profitability), today there is only one overriding goal – improving value for patients. To succeed, all corporate strategy must focus on maximizing value. As the article states, “Value is defined as the health outcomes achieved for patients relative to the costs of achieving them. It is the only goal that can guide strategy in health care, the only ‘true north’ that can resolve the difficult choices organizations will have to make.”
A Hospital network establishes the penultimate goal of increasing value for select CV patients as a primary strategy. The Business Unit (i.e., the CV Service Line) reflects corporate strategy in its own business planning. The financial performance of both the network as a whole and the individual clinical service lines are enhanced through strict management of the value equation.
- What business are we in? The traditional answer in healthcare has historically been, “we run a hospital.” Porter and Lee assert that this is not where value is created. “Value is created by improving the outcomes of patients with a particular condition over the full cycle of care, which usually involves multiple specialties and care sites.” True value can only be measured among homogenous groups of patients. In CV, think CHF, AF, peripheral vascular, congenital heart defects, and so on, as relatively homogenous groupings. If you can measure the defined needs of discrete groups of patients (typically ones with chronic diseases), then you can measure how well you care for these patients over time. The CV Service Line thus becomes the focus of creating value for discrete sets of patients with similar acute or chronic conditions. To focus on the CV Service Line patient population in total would negate any tangible homogeneity and thus render value creation (specifically outcomes and cost comparisons) less meaningful.
A hospital system in the upper Midwest develops multi-disciplinary task forces to develop and implement consensus-based guidelines for the care of specific patient groupings across facilities and across the continuum of care; patient grouping “care team” concept is debated. The rollout of pilot projects across the system is now pending.
- What scope of business should we compete in? Historically, hospitals have made choices about what level of service they will provide, based upon a wide range of both internal and market-based criteria. Are we a full-service CV program, or are we a community-level service, or a basic, noninvasive program? Porter and Lee rightly suggest that “Attempting to serve every need of every customer is a recipe for failure, leaving organizations vulnerable to rivals that choose to concentrate on specific conditions or complexity levels.” This is a reasonably well accepted principle, but has never been more important and more relevant than it is in today’s value-based environment. This question is exacerbated by certain national trends in cardiovascular volume, particularly in cardiac surgery and percutaneous coronary intervention. It is also complicated by the ongoing shift of procedural volume from inpatient to outpatient settings.(3) Every hospital must look at its CV Service Line and its component service offerings and ask itself the difficult question framed by the value equation: what CV services do we need to provide that can be optimally delivered in a value-competitive environment?
Two hospitals in California will drop low-volume CV surgery programs when approved by the State to perform elective PCI without on-site surgery; other hospitals are in the process of deliberating the same question.
Another hospital is debating whether to pursue full-service CV services versus more limited service provision,as minimal existing service volumes cannot support the additional resources required to improve performance. It is projected that the provision of full-service CV capabilities will increase volumes for the existing services, as well as open new markets for the new services.
- How will we be different in each business? The next question becomes the classic marketing case for how we will differentiate ourselves in the businesses we choose to compete in. What can your hospital do for, say CHF patients, which other hospitals cannot? Why should a value-centric patient (or their payor) choose your hospital over another? Think better, faster, cheaper and more conveniently. Porter and Lee suggest that this demands reorganizing care focused on homogenous patient conditions by multidisciplinary care teams (integrated practice units or IPUs) with the deep understanding and resources to produce good outcomes efficiently and effectively throughout the continuum of care.
Ultimately, these care teams need to participate in bundled-payment/pay-for-performance opportunities whenever possible to hone their skills and develop the clinical, organizational and financial experience necessary to successfully compete. These new financial incentives will ultimately attract more patients and enhance the value equation. CV programs are beginning to embrace alternative programming, re-engineering care practices(4) and team-enhanced care models to tackle specific patient categories such as CHF, or specific procedures such as “same-day” PCI. While CMS has already rolled out its mandatory bundled pricing for select orthopedic procedures, bundling for select cardiovascular procedures can’t be far behind.
A mid-Atlantic health system develops a program for center of excellence contracting for CV services with bundled pricing. Care provision is successfully redesigned, standardized treatment protocols implemented and COE packages successfully sold to several major businesses in the region.
An East Coast health system with multiple cardiovascular surgery sites dictates that all TAVR procedures will be concentrated at the flagship hospital to capture available volume and enhance quality outcomes.
- What synergies can we create across business units and sites? This strategy favors hospital systems or networks with multiple facilities. These systems have the ability to plan for the deployment of services over multiple facilities and sites to maximize value by emphasizing access, customer experience and potentially, better outcomes and lower costs. Concentrating secondary and tertiary services in full-service CV programs benefits the entire system by concentrating patients into homogenous conditions that can be best managed centrally and in sufficient volume to make an impact. Routine CV services, even emergency PCI for example, can be performed in community hospitals or some outpatient facilities most cost-effectively. Eliminating unnecessary duplication and excess capacity and potentially rationalizing CV services across a system is fraught with practical and political considerations, but must be considered in an overall value-based CV strategy.
Example: A mid-Atlantic health system builds its regional flagship hospital into a cardiovascular center of excellence, including a dedicated building to house a full-range of CV-related programs and services. Local, community hospitals in multiple states are limited to invasive/interventional CV capabilities (with rare exception).
- What should be our geographic density and scope? Lastly, Porter and Lee ask if the hospital system has the appropriate concentration and types of services and sites. The large numbers of mergers and acquisitions going on in the healthcare industry is partially a response to this issue. Does the CV program have the volume of patients (and resources, skills and staffing) required to create real value for a specific patient population? If not, can it obtain this through enhanced market presence, new outpatient facilities or sites, or expanded affiliation or partnerships with non-system providers? These options always have to be viewed within the framework of creating value, not only at the system (corporate) level, but at the service line and patient condition levels as well. In the past, most mergers and acquisitions focused on enhancing revenue or building market share; now they must focus like a laser beam on value creation.
A Regional network affiliates with other non-network hospitals outside their geographic region to concentrate the volume of complex cases and shift less complex cases to community partners as lower cost settings.
A community hospital in the upper Midwest affiliates with a well-known children’s hospital in another state to bring additional expertise and brand-awareness to its local program. Affiliation includes pediatric cardiology expertise.
Setting strategy and successfully implementing it demands that leaders make hard choices. Fundamental change is challenging, but the current trend towards value creation is real and here for the long term. The Cardiovascular Service Line is such an important business unit of any hospital’s clinical portfolio and reflective of its overall brand that it demands its own strategy as a component of overall corporate strategy.
As Porter and Lee conclude in their article: “In the emerging competitive marketplace, only organizations that truly understand strategy will thrive.”
As always, CFA welcomes your comments, suggestions and questions.
- Michael Porter, PhD, and Thomas Lee, MD. “Why Strategy Matters Now,” New England Journal of Medicine, April 30, 2015.
- “Executive Corner: Six Essential Questions for Developing a Value-Based Strategy,” Michael Porter, PhD, and Thomas Lee, MD, Hospitals and Health Networks, May 2016.
- For the first time in many years, there has been a net decline in the number of hospital cardiac surgery programs nationally, reflecting the downward trend in volume and the increasing challenge of successful operation at low volume levels or meeting state-mandated minimums. In California, there are currently 40 hospitals doing a total of 100 or less total cardiac surgeries per year. Having recently instituted licensing for elective PCI without on-site surgery, several hospitals with surgery have concluded that they will divest low-volume surgery if approved to do elective PCI.
- For example, moving from femoral access to radial access, developing “same-day” PCI, streamlining chest pain programming, and so on