BOSTON, MA (September 12, 2018) – The Department of Health and Human Services under the Trump Administration may have slowed the Centers for Medicare and Medicaid Services’ (CMS) drive towards value-based care. But evidence from L.E.K. Consulting’s annual survey of hospital executives indicates that progress towards more accountability and value-based contracting is continuing apace.

The ninth annual Strategic Healthcare Landscape Review from global management consulting firm L.E.K. Consulting combines responses from hospital decision-makers with economic data and other insights. New this year, the study was conducted in collaboration with the American Hospital Association, which surveyed its members.

“Accountability for outcomes, and payment for value instead of fee-for-service – ‘value-based care’ – are here to stay,” says Jonas Funk, Managing Director in the healthcare sector and leader of the MedTech practice at L.E.K. Consulting, as well as co-author of the report. The study indicates that many hospitals are deliberately and strategically growing their footprint in non-acute care facilities like urgent care centers, outpatient surgery centers and doctors’ offices so they can better influence and manage total population care and cost across the continuum.

In addition, hospitals want suppliers to partner with them to help respond to a new era of value-based care (VBC) and cost reduction. Suppliers ranging from healthcare IT (HCIT) companies to medical device manufacturers are being asked to help reduce barriers between care settings via telehealth and other technology-based solutions, provide advanced consulting services, share risk and find ways to deliver care more effectively and efficiently.

The study shows that good partners are in demand: Health system decision-makers are twice as likely as they were two years ago to indicate a strong interest in working with external suppliers – 54 percent in 2018, up from 26 percent in 2016.

Accountability and value-based care are here to stay: Systems respond by expanding, diversifying beyond acute care and developing service line strategies

Decisions such as CMS’ move to step back from mandatory episodic payment models, also called “bundles,” such as the Comprehensive Care for Joint Replacement Model (CJR) for Medicare and Medicaid patients are having only a limited impact on the industry.

“The most important development we’re seeing is that hospitals are acquiring – or organically growing – non-acute care facilities,” Funk says. “This has several advantages. It’s a way for hospital systems to expand their patient base and to capture revenue from the continuing shift to outpatient surgery. But more significantly, it allows them to deliver better outcomes by managing patients across more of the healthcare continuum.

“If your system includes doctors’ offices, post-acute facilities and ambulatory surgery centers, you can better direct patients to the appropriate care settings in order to manage outcomes and balance costs more effectively,” says Monish Rajpal, Managing Director in L.E.K.’s healthcare sector. “The alternative is to sit in your hospital doing procedures and letting someone else deal with the outcomes. But payers may no longer be willing to tolerate that. Even if CMS has slowed its pace, private payers and large employers are demanding that systems deliver outcomes.”

“To achieve their value-based care, or VBC, goals, hospital leaders are looking for deeper and more impactful partnerships to help address their fundamental needs, pain points and priorities in addition to extending their footprint across the care continuum. They are increasingly open to suppliers who can help them improve clinical care, efficiency and total cost. Thus, leadership at both hospital systems and supplier organizations would benefit from a shared view of the goals and deeper partnerships that can help transition care to a VBC environment,” says Rajpal.

Hospitals are taking more deliberate steps to define their service line strategies in terms of which specialties they will (and won’t) focus on and invest in. “For some specialties, such as oncology, cardiovascular and neurology, we’re seeing growing divergence across hospitals in terms of their intended participation and investment. This implies a growing consolidation of procedures within these emerging centers of excellence,” adds Ilya Trakhtenberg, Principal in L.E.K.’s MedTech practice and co-author of the study.

Other major findings: Suppliers face pressure to deliver value, but can seize opportunities, especially by offering solutions and enabling technologies to help respond to the demands of VBC

Among the study’s other major findings:

  • Hospitals are increasing spending focus on better information technology systems and care delivery infrastructure. Hospitals expect to increase spending the most in areas such as physician labor (identified as a priority by 66 percent of respondents), healthcare IT (60 percent) and facilities (56 percent). On the other hand, survey respondents indicated that MedTech categories, such as therapeutic devices are the least likely to experience spending increases. Importantly, this underscores a broader need for the industry to expand its participation beyond products to maintain strong growth.
  • Hospitals are not the same and should be segmented to uncover key variations in how they want to engage suppliers: Findings from the survey reinforce the need for suppliers to more proactively segment hospitals. For example, hospital systems that are actively taking on accountability and integrating with non-acute facilities, or “progressives” as the L.E.K. study labels them, are far more receptive to bypassing group purchasing organizations (GPOs) and working directly with their large, preferred suppliers (versus smaller, stand-alone hospitals).
  • Hospitals, particularly large, “progressive” hospitals, want their suppliers to deliver more insights to help standardize best practices. They want more insightful data to inform/identify best practices and help in standardizing products and protocols. They also want risk-sharing agreements and lower total cost of ownership.
  • A growing opportunity for enabling technologies. Hospital systems are turning to outside partners for enabling technologies that allow them to more efficiently move patients to lower acuity settings and/or reduce variability in care delivery. For example, hospital executives highlight areas such as patient engagement tools, “telehealth,” predictive analytics and clinical decision-support tools as areas in which external partners can provide significant value.

“Overall, we expect the big progressive systems to continue to get bigger, and to drive the continuing shift toward a new, value-based care model,” Funk says.

About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance, and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,200 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.