émber/Decè

2008

Trends and Strategic Planning: Implications for the Board

Until recently, hospital boards would review environmental trends percent ofthe quality measures; Asians
receive worse care on 21 percent ofthe
once or twice a year—either as a kickotlto the hospital's strategic measures; and Hispanics receive woree
planning process or as one of many presentations at the annual care on more than half of the measures.
Access to care for these populations
leadership retreat. Today, however, the results of environmental showed similar results.
scanning activities are becoming a regular agenda item at more The number of Americans with one or
more chronic health care conditions also is
and more board meetings. expected to increase by 37 percent
The need for constant attention to the Readiness Assessment for boards and between 2000 and 2030 according to the
changing environment is not surprising. hospital leaders to gauge whether their Environmental Assessment—and not just
As care delivery becomes increasingly organizations are behind, in line with, or among the growing number of Baby
complex and challenging, the range and ahead ofthe curve in their understanding Boomers, but across populations of all
depth of issues facing hospitals and their of and responses to environmental change. ages, races and economic means.
boards are staggering. Keeping abreast of A contributing factor to this increase is
demographic and consumer trends, the growing rate of obesity. The AHA's
économie and financial issues, advances
DEMOGRAPHIC AND CONSUMER 2009 Environmental Scan reports that
in infonnation and medical technology,
ISSUES . obesity costs U.S. businesses $13 billion
relationships between hospitals, each year. According to a study by the
employees and physicians, insurance and CHANGrNG DEMOGRAPHICS and Centers for Disease Control and
coverage issues, and ever-present consumer behavior are now having a Prevention (CDC), 66 percent of
concems about quality of care and patient profound effect on hospitals. All Americans are now classified as
safety are daunting, to say the least. indications are that America is getting overweight or obese.
Having a working knowledge of these older, more racially and ethnically diverse, Deaths caused by poor diet and
issues is important for effective and more chronically ill. physical inactivity liavc increased by 33
governance. By helping hospital leaders Relative to diversity, the American percent over the past decade as well. Self-
separate key environmental issues that Hospital Association's 2008 Environ- management plans can help patients take
will have a significant impact on the mental Assessment reports that, in 2004. greater control over chronic conditions.
organization's strategies and goals from about one-third of adults and 40 percent However, only about 60 percent of
those that are less likely to have a major of children in the country were identified chronically ill adults reported having these
impact, the board can focus on the high- as black, Hispanic, Asian, American plans in 2008.
leverage issues and trends most likely to Indian or Alaska Native. The Assessment
have significant near- and long-term also reported that hospitals have not
implications for their health care delivered the same standard of care to Trustee Workbook is
organization's success. -A these populations as they have to whites. made possible through the
generous support of
This workbook discusses the impact A 2005 study of 46 quality measures
that critical demographic and market conducted by the Agency for Healthcare
Research and Quality showed that blacks,
WITT/KIEFFER
forces make on tbe organization and
suggests steps boards can take to deal Alaska Natives and American Indians
with those forces. It also includes a receive worse care than whites on 40

CENTER FOR
HEALTHCARE BY JOHN H. (HANK) DUFFY, MARY K. TOTTEN AND JAMES E. ORLJKOFF
GOVERNANCE
Nov»mber/Deceinber 2008 Trustee
 Ability to pay for care is also
tightening. Nationally, the uninsured and
underinsured population now exceeds 45
million, with the sheer size of this group
affecting the hottom lines of hospitais well
beyond those designated as "safety net"
institutions. About 50 percent of middle-
income families report serious difficulty
paying for health care and insurance., as
health insurance premiums for employer-
sponsored insurance have risen more than
80 percent since 2000. A January 2007
report from the Commonwealth Fund
indicates that high premiums and out-of-
pocket health care costs are Americans'
top health care concern.
Not only are Americans sicker and less
able to pay for care and treatment., they are
also requiring more from iheir health care
experience. Baby Boomers as well as
younger patients are demanding more and
more care with a consumer-based focus.
These patients want to be involved in
decisions about their treatment and have
the latest health infonnation at their
fmgertips—and they want to share and
discuss that information with their care
providers.
They constitute a growing group of
well-informed consumers seeking a
"partnership" with their primary care
physicians, who they view more as
"managers" ofthe care experience. The
care experiences these consumers seek
must be easy, accessible and convenient.,
of high quality, safe and participatory.
MARKET FORECAST
SEVERAL MARKET FORCES are
continuing to create a fmancial squeeze
for both hospitals and physicians,
particularly primary care physicians.
The growth of public payment
programs, such as Medicare and Medicaid,
coupled with consolidation among health
insurers has concentrated market power
among fewer, more powerful payers able
to put pressure on providers to invest in
infonnation technology needed to respond
to their changing requirements. It is also
clear that, eventually, the govemment will
no longer be able to pay for health care
under the current reimbursement system.
As a result, a new era of value-based
reimbursement is emerging. Medicare's
Tiastee Noveraber/Oecetnber 2008
pilot program ofthe Physician Quality
Reporting Initiative (PQRI) is the first
step toward requiring perfomiancc data
about physician performance submitted by
physician practices for reimbursement. As
part of this pilot, govemment payers are
funding providers that deliver cost-
effective, quality care based on the use of
tools such as electronie prescribing
technology.
Commercial payers also have multiple
pay-for-performance (P4P) programs
aimed at improving both process and
clinical outcomes as the basis for
reimbuniement. Related to these
initiatives, proposals for a Centers for
Medicare & Medicaid Services' (CMS)
requirement that electronic medical
records be a condition for reimbursement
are being considered by regulators as a
key tool to increase health care efficiency
and measure clinical cost-effectiveness.
Several markets also are experiencing a
building boom, with hospitals rapidly
expanding both inpatient and outpatient
capaeity to meet increasing patient
demand. At the same time, competition
between physicians and hospitals to take
advantage of this growing demand is
becoming more intense.
Studies also show that health eare
delivery and disease management will
likely move beyond hospital inpatient and
even outpatient settings. Research
condueted by the National Center for
Heaithcare Leadership describes
characteristics of a not-too-distant health
care future that supports this trend, such as:
• The emergence of a global health
care system focused on Wellness and
preventive care;
• The transition of treatment from
disease management to prevention, or
minimizing the impaet of disease rather
than just managing it at existing levels;
• More Americans receiving health
care from specialized centers for chronic
disease; and
• Diagnostic processes enabled by
electronic data collection and monitoring
devices that patients can use at home.
These trends, along with the increased
use of Pharmaceuticals that are taking a
significant share ofthe health care dollar,
are already shining the profile of national
health care spending: From 1994 to 2004,
the proportion of spending on hospital
care decreased from 34.1 percent to 30.4
percent.
During the same timeframe. money
spent on prescription dmgs almost
doubled from 5.6 percent to 10 percent,
according to a 2006 report by the Kaiser
Family Foundation.
Another trend for boards and hospital
leaders to consider is consolidation of
payers, physicians and hospitals within
each of their groups that will continue to
affect selected markets, as they will be
influenced primarily by the "dominant
consolidator" in that market. For example,
some markets wiii be heaviiy infiuenced
by large hospitais. such as Carilion Ciinic
in Virginia; by iarge physician groups,
such as the Summit Medicai Group in
central New Jersey; or by iarge payers,
such as Anthem.
The impact of these consolidations can
either be oppressive or empowering to a
provider organization. They can contribute
to increased rationalization ofthe care
delivery process and wiil often lead to a
reshaping of reimbursement incentives.
Whatever the type of consolidation, there
is increasing pressure for physicians to
align with either large groups and/or
hospitals as a way to survive, if not
prosper.
Howçver, even with consolidation,
independent community physicians will
not disappear entireiy in part, because of
the nature of particular markets and
because some physicians wili continue to
value independence more than income.
Changing hospitai-physician
reiationships and physician supply are also
fostering development of a new, more
integrated medical staff model. Reframing
the traditional relationship between
hospitais and physicians wili become
increasingly important as the number of
primary care physicians continues to
shrink and as physicians who vaiue the
more predictable iifestyle associated with
employment join larger institutions and
group practices rather than pursuing
independent practice.
The movement toward more employed
physicians—in both primary eare and
specialty medicine—wili be supported by
tight affiiiation agreements between
hospitais and independent physieían
groups, and a dependence, but with more
connectivity, between hospitais and
 community physicians based on meeting
mutual needs to provide accessible, high-
quality patient care and service.
The new medical stafTmodel able to
fulfill these objectives in a growing
ambulatory-centric environment will have
three primary attributes:
" True partnerships between facilities,
community physicians—whether
employed or affiliated—payers and
patients to help grow the medical enterprise
for the benefit of the entire network;
• Agility to respond quickly to
changing market requirements and
opportunities, coupled with flexibility to
adapt to unique local market conditions;
• Connectivity across the delivery
system to provide true care coordination
and convenience, coupled with the ability
to demonstrate value and outcomes to all
key stakeholders.
The need for technology to support
hospitals in responding to environmental
change has never been greater. More than
50 percent of hospital respondents to a
recent Healthcare Information
Management Systems Society (HIMSS)
Annual Leadership Survey said that
implementing technology to decrease
medical erTors and improve patient safety
was their top priority.
However, progress in bringing
technology online is slow. Technology
implementation also is costly, and benefits
accrue primarily to patients and payers
rather than to hospitals.
While experts estimate that only about
10 percent of U.S. hospitals use health
information systems that include
electronic health records and physician
order-entry functions, the good news is
that electronic medical record use in
ambulatory care settings is being adopted
faster than anticipated.
However, their adoption will create
challenges and opportunities. These
include: the need to plan for and
negotiate interoperability—ease of
communication and data transfer—
between vendor systems and databases at
the delivery system level; and the
opportunity to offer an increasingly
discriminating patient a seamless and
coordinated health care experience.
Hospitals coordinating care with
physicians through shared use of an
electronic medical record will lead to
TIPS FOR BOARDS
Boards can help their hospitals focus on key Issues and trends and their implications
for the organization's future by:
• Deveioping the organization's vision/mission. Boards should participate In
heiplng determine where the hospitai wants to position itseif in relation to the issues
and trends highiighted in the main text of this workbook. For example, shouid the
hospitai become a dominant player in a iocai or regional market or a center of
exceiience with nationai or globai reach? Answers to questions iike these are
essential because they will often dictate very different strategic priorities and goals.
• Maintaining an ongoing environmental scanning process. This process should
Involve outside resources that can provide fresh perspectives, share what is working
in other markets, help formulate different approaches to new challenges, and
provoke out-of the-box thinking. Results should be discussed at board-of-directors
education sessions and retreats and not only should inform the strategic planning
process overali, but also should help inform board committee work to assess
implications and develop recommendations for addressing them that can be shared
with the fuli board.
" Assessing organizational readiness. How prepared is your health care
organization to address important environmental issues and trends? Use the
attached Readiness Assessment as a springtmard for discussion among board
members and other leaders about where your organization stands.
• Maintaining a consumer connection. Boards shouid ensure that their
organizations use a variety of mechanisms to stay close to consumers, such as
satisfaction surveys, patient advocates and "mystery shoppers" who can help
evaluate the patient care experience objectively.
• Exploring options as part of the decision-making process. Boards should ensure
that their hospitals have evaluated altemative strategies to reach their goals and
have adequateiy considered the risks and rewards of each before committing to a
course of action.
• Seeking information and answers. One of the most important things a board
can do is to resist accepting all information at face vaiue. Boards have an obligation
to ask management probing questions about proposais they are asked to evaluate
and ensure that adequate information and analysis are brought to bear on each
strategic issue confronting the organization.
• Setting strategic priorities. Boards shouid guide selection and priorltlzatlon of
key strategies the hospital or system intends to pursue over the next three to five
years and beyond.
• Monitoring and measuring performance. Establishing measures, monitoring
performance against them and evaluating the organization s progress in meeting
strategic goals are all part of performance oversight, a set of activities and skills
that is coming to be viewed as a key board competency.
increased hospital-physician gluing, working to chart the future course for their
suggesting that because of increased hospitals. Clearly, the rise of informed
loyalty from common data sharing and health care consumers willing to look
control, new and innovative ways to beyond their community hospital to
achieve more cost-effective, higher identify providers who can best meet their
quality care will be developed. needs suggests that the global market of
the future is becoming a reality.
Those seeking a more consumer-
IMPLICATIONS FOR
focused health care experience will favor
GOVERNANCE physicians and facilities that can address
their needs in a coordinated, efficient and
THESE ISSUES AND trends have several inclusive manner. An accessible,
implications for boards and other leaders convenient, high-quality patient care
November/Deeembar 2008 Trustée
experience with documented outcomes is
increasingly the standard that patients and
payers will require, whether or not
providers are legally integrated.
Organizations that leam to manage
clinical experience data also will be the
long-term winners. As these data become
Increasingly available to the public, all
providers should make their clinical
outcomes and cost-effectiveness efforts
transparent. Hospitals that "map" the
planned use of data (see chart) will be
better positioned to manage the clinical
experience.
Winners in the emerging medical
marketplace will broaden their concept of
the market and will think more often in
terms of ambulatory care.
Maintaining financial viability requires
hospitals to shift treatment into lower-
cost, ambulatory settings. Attracting and
maintaining a strong community
physician network also will be critical to
this ambulatory focus.
Forging stronger connections,
especially with primary care physicians
and key specialists, depends on hospitals
taking both a more active role in
supporting and/or creating employment
alternatives for a new generation of
physicians with ditTerent interests and
priorities and engaging independent
physicians in ways that meet mutual needs
and goals—all with aligned incentives. T
John H. (Hank) Duffy is the founder
and president oftheJHD Group, an
Addison. Texas-based consulting firm
that assists large physician organiza-
tions to improve their market position,
operations and financial results. He can
be reached at hduffy@fhdgroup.com.
Reprint requests for 100 or more copies
should be addressed to:
Margaret Jablonski (312) 893-6890
e-mail: mjablonski@healthfomin.com
RESPONDING TO ENVIRONMENTAL CHANGE: HOSPITAL
READINESS ASSESSMENT
How equipped Is your health care organization to identify and address environmental
challenges? To gauge your organization's readiness, have board memtwrs and key
executive leaders separately answer the foilowing questions and score their
responses using the scale provided. Then have both groups meet, share and discuss
their responses and the impiications for action.
YES NO
1. Do we have a process, in addition to the annual ieadership
retreat, for routineiy looking beyond the day-tOKlay to evaluate the big
picture that influences and helps define how our organization operates? D D
2. Do we have mechanisms to keep us in touch with the needs and
expectations of our consumers, inciuding patients, employers, payers
and physicians? D
3. Have we committed to a trusting relationship with our physicians
based on Joint pianning processes, transparency and confidentiailty, a
common market strategy, and aiigned incentives?
4. Are we leading the market in physician empioyment, ieasing
a n
affiliation, and/or network development and providing tangible support
and opportunities to all of our physicians—i.e.. the medical staff model
of the future? D D
5. Are we reaching out into the market and providing more services
and points of access, and a patient-friendiy referral process? D D
6. Are we leading the market in adopting an integrated
(Inpatient/ambulatory) electronic medicai record (EMR), and do we
have a road map for how we are going to leverage data and
Information? D D
7. Do we provide continuity of care and a predictable patient
experience? D D
8. Are we actively developing proposals for "value-based
reimbursement" to take to our payers and employers? D D
9. Have we developed an ambulatory strategy based on a foundation
of market-supporting initiatives such as facility Joint ventures,
physician recruitment/development, service-line
development/outsourcing, gain sharing, participating bond
transactions, management services organization/practice management
services, and EMR Stark safe harbor investments? D D
10. Do we have dedicated ambulatory care leadership and are we
demonstrating ambuiatory care knowledge in the marketplace? D D
Rating scale: Tabúlale (he nitmher of times you answered yes to the questions and compare
your total with the following scale: I to 2-y^ou are in trouble; 3 to 5—you have a foundation
for effectively addressing environmental challenges but need more development: 6 lo H—you
can move forward with confidence: 9 to 10—you have achieved star/best practice status.

CONCLUSION While complexity and challenge are accepted as a matter of course in leading
and governing health care organizations, effective leaders help their organizations see the forest as
well as the trees. By helping their hospitals zero in on the key issues and trends likely to have the
greatest impact on performance and success and ensuring mechanisms are in place to address
them, boards can provide the clarity, direction and focus that are the hallmarks of good ,
govemanee. - ' _ ' . '
Tiustee November/December 2008