Insights Series Issue 8: "Seven strategies for thriving in a market with COVID-19"

This paper offers practical suggestions for how healthcare organizations can thrive during the current crisis, and emerge stronger and better prepared to withstand similar challenges in the future.

Insights Series Issue 8 transforming-care-delivery Seeing opportunities, not barriers: seven strategies for thriving in a market with COVID-19 A paper authored by ECG Management Consultants – A Siemens Healthineers Company SIEMENS Healthineers About Siemens Healthineers Insights Series the New Normal | Preface Healthcare systems across the globe are grappling with similar issues: managing rising costs, achieving better outcomes, developing more patient- focused care, and adapting to new technologies. In addition to these ongoing challenges, the COVID-19 pandemic has created extraordinary new pressures and risks, not only for healthcare providers and staff but for entire communities and countries. At Siemens Healthineers, we are aware of the urgency and complexity of these issues. We see it as part of our mandate to offer the best possible support to healthcare providers, with innovative new products and solutions, as well as fresh ideas, insights and analysis. A key component of this effort is our Insights Series, which provides a forum for leading experts to share knowledge and address current issues. Supplementing the ongoing Insights Series, we have now launched a new set of publications, Insights Series – the New Normal. This special edition series makes our thought leadership efforts even more relevant and timely, sharing front-line experiences and strategies on how to confront the SARS-CoV-2 outbreak. The Insights Series – the New Normal provides recommendations on preparing for the next pandemic, as well as ways to shape the new healthcare landscape and emerge stronger from the COVID-19 pandemic. As your partner during this challenging time, our goal is to work with you to effectively deploy digitalization throughout the healthcare system in order to expand precision medicine, transform care delivery, and improve the patient experience. We look forward to working with you on turning healthcare challenges into opportunities. Please visit Executive summary In the face of the COVID-19 pandemic, we have seen providers, payers, and regulators work in partnership to rapidly shift operational models and set aside regulatory barriers and red tape to enable clinicians to practice at the top of their license, deploy virtual health technology, and marshal scarce resources. Now, many in the industry are realizing that once we are on the other side of this crisis, we may never return to business as usual. We have a deep financial hole to climb out of, and ECG Management Consultants conservatively estimates that the financial impact of COVID-19, net of government stimulus, has been a collective reduction of approximately 5.6% of net income for all US health systems before losses from employed medical groups, as of this writing. How we view and fund public health in the US, and how hospitals, health systems, and our clinical workforce position themselves for the future, may be quite different from the healthcare world as we knew it just a few months ago. Healthcare leaders need to be thinking about this “new normal” now to address two essential questions: 1. What are the implications for our organization in the immediate aftermath of this crisis? 2. How can we position our organization to thrive under these implications? Siemens Healthineers Insights series · Issue 8 3 The challenge Implications that will shape future strategies COVID-19 and the related economic issues will present myriad strategic challenges as well as opportunities for organizations. Among these, several major implications will reset C-suite and board agendas over the next 12 months. Seven strategies may provide a clearer path to thriving in this changing environment. 4 Issue 8 · Siemens Healthineers Insights series The solution Financial positions are compromised, prompting market repositioning Financial positions are compromised, prompting market to providers when requesting financial support from repositioning. Revenue has rapidly declined on rising payers. Those payers making strategic plays to preserve costs, driven by the loss of elective procedures and membership will be staying close to employers and will outpatient services. Many health systems are taking a need to stabilize their provider networks. practical and conservative view that volumes will come back slowly; there will be a backlog of cases that need In addition, health systems should partner with payers to be addressed in the coming months, resulting in on commercial and Medicare Advantage products to something of a surge, though many other cases may be secure more of the premium dollar in value-based deferred due to continuing concerns around COVID-19. contracts. This crisis has demonstrated the imperative of Some expect that payer mix will erode as unemployment effectively managing at-risk patient populations and spikes and the economy struggles to recover, causing ensuring they receive preventive services and care in the further margin pressure for hospitals. most appropriate settings. Providers should share in those risks and rewards. Providers must stabilize their operations and rebuild their financial position in a sustainable manner. Some providers will seek refuge via consolidation or partnerships. Strategy two: Others will seize the opportunity to pursue strategies Reshape service lines to bolster margins that seemed too aggressive just a few months ago. Hospitals will need to create financial stability. Reshaping their clinical portfolio is a key step. Although health Strategy one: systems have aggregated hospitals over the past decade, Aggressively renegotiate health and many have successfully transitioned from a holding plan contracts company to an operating company model, most have shied away from consolidating service offerings. It is Even with support from the CARES and Families First common to see the same system in the same geography Coronavirus Response Acts, providers will experience duplicating resource-intensive services (e.g., open revenue shortfalls of roughly two years’ worth of heart programs). operating margin, with some faring much worse. Payers have not experienced the financial hardship that hospitals As the COVID-19 crisis subsides, health system leaders will have; they need to be part of the solution. Providers have the opportunity (and for some, it will be a necessity) should reopen contracts and pursue terms that address to consolidate their clinical portfolio, shed low-margin rates, care management fees, and payer investments services, and reshape consumer expectations for how and in public health. where care is delivered. The political pushback (e.g., physician resistance, community expectations) that Public support for hospitals and healthcare providers is has long hindered this approach will likely be low. Leaders at an all-time high, and the endorsement of large need to seize the moment to reshape clinical delivery employers and the broader community will be essential systems into more sustainable, high-value enterprises. Siemens Healthineers Insights series · Issue 8 5 Outpatient growth will accelerate As the crisis abates, providers are likely to see a rebound Organizations that take advantage of this market opportunity of patient activity in the form of rescheduled elective to expand their ambulatory footprint can address short- procedures and physician office visits; however, consumers term consumer fears about place of service, respond will seek facilities that feel safer in terms of potential to growing consumer demand for greater convenience, for virus exposure (e.g., ambulatory settings as opposed and position themselves to expand market share. to hospitals). This will further accelerate the ongoing outpatient migration Strategy four: and force health systems to diversify their ambulatory Revisit capital investment plans assets, emphasizing the need to reconsider capital- intensive hospital investments and ensure efficient cost Most hospitals quickly pulled back capital investments as structures. Health systems may leave some revenue on the crisis developed. Long-range financial plans need the table due to site-of-service reimbursements differentials, to be updated and run against multiple scenarios regarding but that’s better than losing cases altogether to a competitor future volumes and revenue streams. Accordingly, that can accommodate patients’ and physicians’ needs. capital investments will require greater scrutiny, particularly those related to significant hospital facility improvements. Health systems should reevaluate capacity Strategy three: requirements, assess opportunities for capacity optimization Invest in building the ambulatory network and/or rationalization, and potentially divest or plan to wind down under-performing or unnecessary assets. Despite the criticism of being hospital-centric, health system Likewise, some hospitals may not survive the financial leaders have known for years that an effective and distress caused by COVID-19, and health systems will be robust ambulatory network is vital to long-term success. presented with opportunities to evaluate acquisitions In light of the pandemic, there is even more reason to and partnerships. Historically, most hospital acquisitions aggressively build an ambulatory network. Consumers will have been approached with the thought (or obligation) seek safe havens, and a tertiary hospital managing of continuing inpatient services; there may be opportunities infectious populations will deter some patients from to consider redefining and rationalizing services. seeking care in that setting. Adding ambulatory sites to delivery networks makes it more feasible for health systems to offer a safe and convenient “COVID-19 free” environment to both patients and providers. Moreover, many ambulatory centers are struggling from the cancellation of elective cases, positioning health systems to acquire assets at a lower cost. Investing in ASCs, imaging centers, and other diagnostic/therapeutic centers also offers health systems the chance to further align with physicians through joint ventures and other alignment models. 6 Issue 8 · Siemens Healthineers Insights series “Systems will need to make significant investments going forward to optimize their telehealth capabilities. That said, providers should be prepared for a decline in reimbursement per visit.” Telehealth will reshape medical group economics It will be difficult to put the telehealth genie back in the Strategy five: bottle; adoption is surging already, and patients and Change the economic and service relationship providers alike see value in virtual healthcare solutions. between physicians and consumers Systems will need to make significant investments going forward to optimize their telehealth capabilities. Consumerism has been a buzzword in healthcare for the That said, providers should be prepared for a decline in past several years, but financial pressures have inhibited reimbursement per visit. Two factors will drive this: many medical groups’ ability to improve the consumer experience. With COVID-19 prompting a surge in digital 1. Medicare and other payers will eventually reinstate a health and intensifying consumers’ desire for access, payment differential relative to faceto- face visits. progressive medical groups have an opportunity to reduce their reliance on traditional fee-for-service payments 2. The visit mix will migrate to lower-paying codes (e.g., and diversify their economic model. PCPs, in particular, an in-person E&M visit will be replaced by an e-visit need to seek additional financial relationships with such as HCPCS 421). patients, employers, and health plans that help pay for the consumer experience. To maintain current financial performance, most medical groups will need to increase visit throughput, reduce Millennial and Generation Z population segments are operating costs, or alter their economic model. seemingly willing to pay membership or subscription fees that support convenience and on-demand use. Partnership fees via employers or health plans (typically in a per member per month form) are also a diversification strategy. For example, One Medical’s adoption of this strategy has resulted in its membership/partnership revenue representing an increasingly larger portion of its total net revenue: 22%, 32%, and 48% of total net revenue for 2017, 2018, and 2019, respectively.1 Achieving this additional revenue is more feasible than managing higher productivity expectations and the related implications (e.g., burnout, quality concerns, physician dissatisfaction). Whether through membership fees, partnership management fees, or some other service premium, providers can use this opportunity to introduce new relationships with consumers, both from clinical delivery and economic perspectives. 1 “2019 Annual Report,” (1Life Healthcare, 2020), Siemens Healthineers Insights series · Issue 8 7 Health plan networks will become bigger competitors for health systems and their physician networks Physicians and ambulatory providers will turn to health Don’t limit strategies to just employment or acquisition. systems for financial support; however, many hospitals will Providers are seeking stability; health systems should be not be in a financial position to provide the desired seeking alignment. Various tools besides employment, stability. This will open the door for health plans ‒ flush such as joint ventures (potentially with a payer) or with cash ‒ to seek greater alignment with medical professional service agreements, can be deployed to groups, ASCs, and other ambulatory providers. If achieve the desired alignment. successful, this will have the single biggest impact on how care is organized and delivered in a local market, with profound implications on provider networks, degree Strategy seven: of plan directedness, and benefit design. Restructure health system physician enterprise organizations Strategy six: Most health systems have made adjustments to stabilize Partner with independent medical groups physician compensation during the crisis. Most also realize that physician compensation and the overall Some health system leaders and boards were already leery financial support required to maintain a health system about their mounting investments in employed physicians. physician enterprise will continue to be an issue going However, leaders will need to rethink their capital forward. deployment and look beyond the main campus. Securing market share (think members/lives, not inpatient discharges) ECG’s annual provider productivity and compensation will be critical. If payers continue to aggregate ambulatory survey indicates health systems’ average investment per providers, hospitals will increasingly become a commodity employed physician is now approaching $240,000 per in a very lowmargin, difficult-to-manage business. FTE. While hospital margins are facing greater pressure than ever, there is no better time for health systems Over the coming months, many hospital leaders will be to address the elephant in the room: the economic presented with an unprecedented opportunity to align model of their physician enterprise organizations is not with medical groups and ambulatory providers that sustainable. historically have been staunchly independent. Doing so will feel risky, but remaining stagnant may prove even It’s time for health systems to reevaluate their entire riskier as health plans secure even greater direction over physician enterprise strategy. Everything should be on who provides care and where. Health systems can the table: provider mix, size, and distribution; revenue reposition and bolster their ambulatory delivery network, streams; economic relationships with consumers; though doing so will require leaders and board members productivity and compensation; staffing levels and to let go of a campus-centric mentality and embrace a operations; organization and governance; and even geographically diverse ambulatory network. ownership structure. 8 Issue 8 · Siemens Healthineers Insights series Conclusion A time for healing ‒ and leadership The US healthcare system will be forever scarred by the COVID-19 pandemic, but it will recover. The economy Suggested follow-up on and healthcare will be critical platform issues in the upcoming 2020 elections, and the future of public health transforming-care-delivery and healthcare funding and delivery will be the subject • of much debate for years to come. Healthcare providers Siemens Healthineers Insights Series, issue 7: Do one thing, and do it better than must not only have a leadership role in the unfolding anyone else national dialogue, but they must also take charge of • Siemens Healthineers Insights Series, issue 4: defining their immediate future and design the elements Achieve twice as much but only work of change that will create sustainable advantage. half as hard • Siemens Healthineers Insights Series, issue 2: Culture of diversity, respect, and inclusion Many providers and health systems will want to return • Harvard Business Review: Transforming to a historical normal or business as usual. For others, Care delivery to increase value this experience may radically reshape their organizations. All will have a new appreciation for the fragility of the underlying healthcare economic model in the US, and Information: weathering the financial shock will occupy C-suite H. The Siemens Healthineers Insights Series is agendas in the months ahead. Out of this pandemic will our preeminent thought leadership platform, emerge many opportunities, and perhaps a few imperatives, drawing on the knowledge and experience that will be organization and market specific. of some of the world’s most respected healthcare leaders and innovators. It explores emerging issues and provides practical Navigating through this period calls for clarity of vision solutions to today’s most pressing healthcare and bold action. It requires strong leadership. challenges. All issues of the Insights Series can be found here: Siemens Healthineers Insights series · Issue 8 9 About the authors Kevin Forster Principal + 1(800) 729-7635 [email protected] Andy Bachrodt Principal + 1(800) 729-7635 [email protected] thought-leadership 10 Issue 8 · Siemens Healthineers Insights series At Siemens Healthineers, our purpose is to enable healthcare providers to increase value by empowering them on their journey towards expanding precision medicine, transforming care delivery, and improving patient experience, all enabled by digitalizing healthcare. An estimated five million patients worldwide everyday benefit from our innovative technologies and services in the areas of diagnostic and therapeutic imaging, laboratory diagnostics and molecular medicine as well as digital health and enterprise services. We are a leading medical technology company with over 120 years of experience and 18,500 patents globally. With about 50,000 dedicated colleagues in over 70 countries, we will continue to innovate and shape the future of healthcare. Siemens Healthineers Headquarters Siemens Healthcare GmbH Henkestr. 127 91052 Erlangen, Germany Phone: +49 9131 84-0 Published by Siemens Healthcare GmbH · Printed in Germany · 9374 0620 · ©Siemens Healthcare GmbH, 2020

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