Leadership in the healthcare industry during the next three years: Insights from the Oliver Wyman Healthcare CEO Survey 2014
Last Tuesday on Perspectives, Ted Schwab reported on the results of Oliver Wyman's recent survey of health system C-suite executives. Today his analysis continues with five more fascinating predictions from industry leaders.
According to respondents, cost reduction and clinical rationalization are clouds with a silver lining: The process of centralizing shared services has mostly run its course. Now, to get significant further cost reductions, healthcare organizations have little choice but to move — at last — to clinical integration.
Meanwhile the industry can expect more consolidation. Respondents predict that at least one more nationwide physician organization will emerge and that regional delivery systems would expand into post-acute care and "retail" medicine.
The next round of cost reduction comes from managing three things: populations, chronic care and transitions in care. Driven by a shortage of primary care physicians, respondents believed that community-based nurse clinics will provide "front line" care, while clinical teams increasingly focus on complex and chronic patients. Respondents unanimously believe that within three years the vast majority of primary care, and most specialty physicians, will be employed by or partners in very large physician organizations. Our respondents believe that these organizations, in some sort of alignment with big delivery systems, will drive clinical integration.
If these executives shared one belief, it was that healthcare should put its trust in innovation. "Great American hospitals have always found a way to innovate through tough times," one told us. "Insurance companies have three indispensable skill sets: the ability to measure risk, manage large amounts of data and innovate," said another. They said that hospitals will increasingly innovate around MSO risk and non-risk products, new national clinical alignment models, and e-medicine and care models that negate the need for navigational services. Also they believe that international opportunities will cross-fertilize both U.S. and non-U.S. healthcare innovation.
Our respondents expect insurance companies to fail dramatically in their forays into care management subsidiaries, data analytics and ownership of providers, and they believe health plans will shift to more commoditized services. But expect some real innovation from health plans: in developing innovative products for the public and private exchanges, in using their actuarial acumen to partner with providers over the management of financial risk and in creating the underpinnings for a new generation of provider-sponsored health plans.
Healthcare leaders are increasingly concerned about how change is affecting their corporate culture. Phrases like "change fatigue," "initiative overload," and "organizational stress testing" crept into the interviews, showing a clear concern with both the scale and speed of transformation. As healthcare moves from models centered on hospitals and institutions to models centered on communities and populations, leaders are keenly focused on managing their cultures.
They are addressing change overload by retooling into teams built around patients. They believe that flexibility and focus will be keys to success; that they will spend more time thinking about the front line; and that communication with physicians regarding the transformation will be important. They do not believe that technology will provide an answer. On the contrary, they believe that we are years away from technological solutions that will reduce cultural stressors and that for the next three years technology will continue to be a problem, not a solution.
Our respondents said they are elongating their planning cycles while shortening implementation. For example, one reported setting 20-year organizational objectives, while at the same time employing monthly rapid-cycle implementation tools. They acknowledge that this bifurcation is caused by organizations making the quantum leap from the productivity-based operational models to budgeted care-based business models. Phrases like "each foot in a different canoe" and "jumping the S-curve" came up frequently. Leaders have become resolved to the ambidextrous nature of their jobs and are developing managerial tools for both worlds.
Their two biggest concerns are that there are not enough physician executives to fill leadership roles and that they won't be able to manage the financial transition necessary to fund future capital requirements. Respondents were nearly unanimous in believing that three years from now successful organizations would be meaningfully populated by physician board members, executives and managers — and that the industry faces a dire shortage of physicians able to fill these roles. They also expect an industry shakeout with clear winners and losers. They were openly concerned about the industry's ability to generate capital from historical sources, which are undergoing unprecedented margin compression.
The respondents see the next three years as a time of change and choices. As the industry moves from one business model to another the leaders are making choices around investments in population health management, data analytics and clinical integration at the expense of bricks and mortar. This becomes the forcing function to make organizations focus on a "new" core business. As a result they have to choose to aggregate or be aggregated; play offense or defense; and to chase international opportunities or focus on the American market.
Most importantly they talk about choosing the right partner. They believe that their future success will be determined by their health plan, hospital and physician partners. A new affiliation and alignment business model is emerging that relies less on command and control and more on collaboration and joint ventures. They see an industry full of increasingly complex relationships that are managed through influence, not direction.
These leaders see an industry in the middle of generational change, chaos and innovation. They see demonstrative economic dislocation, many fewer community hospitals and irrevocable shift of financial risk. Yet they are an upbeat group that sees this transformation as an opportunity to reduce misaligned incentives and redirect the business model to the patient. They are energetic, excited and fearless.