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Navigating the Choppy Waters of Healthcare Reform

How healthcare providers can create resilience and opportunities in a period of uncertainty.

The healthcare industry is regrouping once again after Congress’s failed attempt to pass the American Health Care Act (AHCA), which would have partially repealed and replaced the Affordable Care Act (ACA). But this is no time for healthcare providers to sit back. Although the AHCA bill appears dead for now, it is likely that reforms to the ACA will be made at some point. Whatever happens with federal legislation, regulatory changes to reimbursements and technology will continue to disrupt established business models. And millions of individuals and employers still struggle to access and afford healthcare. At the same time, many health organizations — notably community hospitals, safety net providers, and academic medical centers — are operating on a razor-thin margin and can’t afford another shock to the system.

However, health organizations are no strangers to uncertainty, having ridden through multiple cycles of major legislative actions and legal challenges to these actions. Some have survived and even thrived by becoming more operationally fit and developing more sustainable models for serving complex, underinsured populations. It may impossible for you to know precisely what form healthcare legislation will take in the coming years. But providers who pursue the following five suggestions will be in a better position to navigate choppy waters.

Know the difference. Although fast trends tend to garner attention, it is the slow, longer-lasting trends that wind up driving change. As you monitor the headlines for the latest twists and turns of the fate of the ACA, don't forget about the fundamental and irreversible changes in your market. You have to make sure your assets and investments can withstand the tectonic shifts and faults in the market and not just the latest tremors. These changes include demographic shifts, which will make Medicare the fastest-growing (albeit modestly reimbursed) segment, thus presenting unique requirements and opportunities. Reimbursement and technology shifts are reducing the need for expensive inpatient capacity in favor of retail, virtual, and home settings. And the health ecosystem is continuing to shift so that it will revolve more around consumers.

Know the need. Energized by the debate over the ACA/AHCA, communities around the country — and your own employees — are showing an unprecedented level of concern and passion about health, coverage, and cost. That’s placing a heightened need on providers to understand their true relevance to the community and its major stakeholders, and to take steps to further increase that relevance. Providers are increasingly recognizing that social determinants of health — housing, transportation, substance abuse, and nutrition — have an outsized impact on health outcomes. Regardless of what happens at the national policy level, you must start tracking the clinical and social needs of their communities proactively and move to address them locally — or be ready to tackle them in your emergency room.

Know who your friends are. Given the competitive, regulatory, and market pressures, it is increasingly difficult for institutions of any size to achieve better results by going it alone. This period of ferment is a good opportunity to examine your strategic partnerships to make sure you have access to the right capabilities at the right cost. (These partnerships will be internal to the enterprise as well as external — indeed, the need for trusted relationships between clinicians, patients, and administrators is more critical at this time than ever before.) Rather than build up new capacity, organizations might instead consider assembling a coalition of local providers, payors, employers, and community organizations. In this environment, you may find previously recalcitrant stakeholders more open to collaborating around affordability and access. Meanwhile, take a critical look at the many functions your organization performs. Have you built a health plan? Do you operate a lab or a pharmacy? Are these functions necessary to create a strategic advantage, or could some of them be performed faster, better, and cheaper by a newfound partner? In particular, the capabilities around price transparency and risk management will be essential going forward.

Know what you want. The lesson of the ACA is that major reform is not possible without the provider buy-in — and now is the time to determine what it would take for your organization to buy into the next round of changes. Hospitals and health systems have an opportunity to put forth their proposals and advocate for them rather than waiting for the new rules to be handed down. For example, a group of innovative health systems have urged the Trump administration not to slow down the transition to value-based care. The administration has also committed to reducing the regulatory burden, prompting health organizations to ask for relief from regulations such as the Stark Law. Although federal rules will continue to be a source of complexity and uncertainty, it will become paramount to have a strong policy position at the state and local level. Whether it is accepting Medicaid expansion or setting up exchanges, we have already seen the enormous impact that state-level decisions can have on the healthcare marketplace. Every provider should be focused on building a cohesive, unitary message and updating its policy agenda and that of its regional hospital association.

Now is the time to determine what it would take for your organization to buy into the next round of changes.

Know the risk — and embrace it. Nothing helps health system executives sleep at night like a set of scenarios accompanied by contingency plans. Knowing just how sensitive your margin is to lingering reform-driven uncertainty is a first step toward improving the resiliency of your organization. You can create resilience through greater cost discipline, a more balanced portfolio, and better data-driven decision making. Along with many other health systems, you might also find that modeling the future leads you to look more carefully at the current drivers of cost and risk. Chances are, hospital-acquired infections and cyber threats may damage your bottom line more than a regulatory change. And for every health system, the question of risk readiness continues to loom large — will your organization be willing and able to assume risk for outcomes and populations? Every organization should model the impact of potential regulatory changes and risk scenarios, identify key vulnerabilities, and prioritize accordingly. You should also examine the adaptive capacity of your organization — the best contingency plans are useless if the organization cannot promptly pivot and act on them.

In healthcare, perhaps more than in other industries, uncertainty is a fact of life. Government regulation and policy, while a significant factor, isn’t the only cause of change. We believe that organizations with a clear strategy embedded inside a robust operating model will be able to ride the current wave of change — and perhaps even benefit from it. Indeed, we recently highlighted how some organizations are able to turn uncertainty into a competitive advantage. But those stuck in the middle and unwilling to make choices will use the uncertainty to further postpone the difficult decisions that have to be made. We take comfort in knowing that we are all in this together and that the spirit of innovation, passion, and commitment is uncommonly high. Let’s get to work!

Author Profiles:

  • Igor Belokrinitsky is an advisor to executives in the healthcare industry for Strategy&, PwC’s strategy consulting business. Based in San Francisco, he is a principal with PwC US.
  • Patrick Maher is an advisor to executives in the healthcare industry for Strategy&. Based in San Francisco, he is a principal with PwC US.
  • Peter Claude is a leader of PwC’s health industries, risk, and regulatory consulting practice. Based in San Francisco, he is a partner with PwC US.
  • Also contributing to this article were Strategy& principal Minoo Javanmardian and Strategy& managers Charlotte Reardon and Tushad Driver.

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Navigating the Choppy Waters of Healthcare Reform