In the past, healthcare has been an adversarial arena for participants – including providers, payers, clinicians, administrators, technologists and, dare we say, patients. The economic engines behind our industry have wrongly incented volume- over value-based behavior, at a mounting cost to society. And all too often, technology and services suppliers have been part of the problem.
As the cumulative stresses of demographic, regulatory and economic factors place unprecedented strain on the system, there is intense pressure to use resources more efficiently to improve value for the patient/consumer. Payers, providers, vendors – indeed, anyone who contributes to the healthcare ecosystem – is increasingly expected to focus on finding new ways to distribute resources and deliver better care.
With these revised expectations for quality and value comes a need for higher degrees of coordination and new models of strategic partnership among all of participants in the healthcare economy. Many hospitals, payers and community organizations are already finding ways to work together as partners to deliver new care delivery options or payment choices to patients. However, in most of these "partnership" arrangements, the parties are simply trading better long-term prices or more broadly scoped service and purchasing agreements. While these types of collaborations can make near-term incremental improvements, they are still not aligned to meet the long-term challenges of the new healthcare economics. As long as partner incentives are not hardwired to health system objectives aimed at benefiting end consumers, the power of the relationship is still limited by its inherently transactional nature.
To drive the transformational change needed to meaningfully impact the metrics that matter to patients, hospitals and all participants in the care delivery system need to deconstruct and rebuild the healthcare delivery value chain. We have to create new business models that bond partners through shared risk and shared purpose to reinvent that way we work together.
Technology suppliers in particular must offer new kinds of service that increase the value of their offerings to health system payers and patients. Previously content to "sell and ship," they must now refocus their value proposition around optimizing actual outcomes − not the technical means of getting there. In a true performance partnership structure, suppliers will be expected to absorb complexity and risk tied to the outcomes providers require for payment. In reality, their provider customers will no longer buy assets (that age) or manage complexity (that compounds inefficiencies): they will purely buy better outcomes and solution business models that match their economic realities.
Creating an Innovative Business Model
The traditional business models of healthcare have been almost entirely linear (i.e., moving in one direction from supplier to the buyer) and transactional. In this type of business model, the buyer (typically the hospital) retains all risk and responsibility for the effective use of the technology or service to provide high quality, cost-effective care to patients. The vendor is incented to sell more technology and service to make up for downward pricing pressures, but not to improve the value of those offerings within the customer's greater value chain.
Instead of linear, transactional models, hospitals and health systems need to pursue new business models and performance partnerships that integrate their suppliers deeply into their care delivery system. Risk, reward, and – perhaps most significantly – a deep understanding of the hospital's challenges, must be shared. Below are a few characteristics of such innovative business models:
1. Hospitals are connected higher up in the vendor supply chain. Hospitals are able to move from "off-the-shelf" services and products by being directly integrated into the R&D and factories of their partners. This gives them both greater visibility and influence into where technologies are headed and offers access to customized solutions that meet their specific needs.
2. The system moves from a linear structure to a closed-loop model. In traditional models, equipment, services, software and even patients move through the system with little relation to tangential (or previous) parts of the system. In innovative business models, there is full transparency and visibility to the impact all players in the system have; therefore, each partner can be assigned accountability and participate in continuous improvement activities.
3. Partners share risk (and reward) for outcomes. This is a particularly critical component as our healthcare market shifts from a volume- to value-based model. In the most innovative business models, risk (financial, clinical or operational) is appropriately distributed to each partner to ensure a shared focus and contribution to the joint goals of the partners.
4. Partners build a long-term environment for new value creation. While the other components of new business models are all critical, this is potentially the most powerful and valuable. Successful partnerships are built not only on well-structured business models, but have as a key enabler an environment and platform that supports continuous innovation and collaboration to support the shared goals and vision of the partners.
Making a New Business Model Work
Hospital CEOs must undergo a huge change management initiative to create sustainability for the future. As they increasingly turn to new business models to drive that change, healthcare executives must consider what makes partnerships work in a shared accountability model.
1. First, the C-suite needs to create a rock-solid vision for its own hospital or health system. Health systems need to clearly understand – and then identify partners and build partnership models to support – their patient populations and unique challenges. When the vision is unclear, it's hard for partnerships to meet the expectation.
2. Similarly, health systems need to determine what they need from a partner to be successful. For example, a health system focused on acquiring smaller hospitals and practices may need a very different partnership agreement than a system struggling to stay afloat.
3. Finally, health systems must survey the readiness and commitment of their entire organization, as well as their partner's. Any innovation is difficult to implement across a health system and its hundreds or thousands of employees, but a major shift to the core business model requires roles and responsibilities for many people on both sides to change. Both sides need to understand the reasons for the change, accept the fact that those changes may be disruptive and difficult at times, and adjust mindsets accordingly.
In this increasingly complex healthcare climate with multiple financial, structural and regulatory pressures, hospital CEOs must look to new innovative business models in order to survive and thrive in the long term. Merely tweaking what's worked in the past is only a Band-Aid solution. By turning to their partner network to develop strong, integrated models of doing business, health systems will be in the best position to dynamically adapt to financial and operational issues and improve patient care.