Who has the fortitude and capacity to lead us into the land of integration in healthcare?
Though expedited by the pandemic and its aftermath, the malaise in the Australian private hospital sector has been decades in the making, an inevitable consequence of an outdated strategy focused on building large acute general hospitals at a time when the confluence of technological and clinical innovation has enabled widespread adoption of outpatient surgery for surgical patients and clinical homecare for medical patients.
To put it simply, much of the sector has bet the farm on high-cost infrastructure that will be increasingly underutilised going forward despite an ageing population and the progressive rise in chronic disease.
The sector’s current solution is to pressure the Commonwealth government to mandate increased payments from private health insurers to private hospitals, predicated on the above trend cost inflation that private hospitals have experienced since 2020.
While such a move would clearly improve their immediate financial position, it does nothing to address the fundamental issues of flawed strategy, flawed business model, and flawed infrastructure (not to mention driving up the price of private health insurance, inevitably leading to policy downgrades and people exiting private healthcare).
If private hospital operators are seeking a long-term solution to their current woes, then they will need to do better than the faux outrage and selective statistics served up by their peak bodies on a daily basis.
Without a fundamental shift, consolidation is inevitable to address the economics of the sector and the current Healthscope “process” should be seen in this light.
But what does a different strategy look like?
One credible option is vertical integration to deliver end-to-end health systems encompassing, primary, secondary, tertiary, and community care. There are numerous examples of high-performing (commercially and clinically) integrated systems in the US, Europe, and New Zealand, but none has emerged in Australia despite the stated ambitions of some major operators such as Ramsay.
It’s curious why this hasn’t occurred given few structural or regulatory impediments.
My hypothesis is that in the decade or two leading up to the pandemic it was easy enough delivering 6-7% annual growth as a hospital operator through a combination of organic price and volume uplift, casemix shift, and brownfield development.
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Now that these tailwinds have become headwinds, the sector is challenged by capital constraints, data and digital underinvestment, and lack of management expertise to deliver the necessary change. It’s not surprising therefore that we are witnessing widespread replacement of senior executive teams across the private hospital sector. New thinking and capability for changed times.
When executed well, the integrated system model is superior to the fragmentation which is a feature of the Australian healthcare system today, with benefits to patients, payors, and to providers alike.
It also enables fundamental reform of the funding model towards true value-based approaches and away from the pay for activity model that permeates the Australian system currently.
No doubt, such integrated models are an anathema to healthcare “traditionalists”, who see greater corporatisation of the sector as universally harmful and who will, no doubt, rollout the habitual bogeyman of “US managed care”.
However, I’d argue that such reform is essential for the long-term viability of the sector.
From a patient perspective, being cared for by a single system should mean not only complete visibility of care needs across the care continuum, but a predictive, proactive, preventative, and coordinated approach to patient care with a focus on upstream primary care. This should lead to superior outcomes and experience for patients and better access to care.
For payors, enhanced outcomes and experience coupled with reduced service duplication leads to greater affordability and more people participating in the private system (and therefore less pressure on the stretched public system). The fundamental uplift in data assets held by integrated systems (versus the current smorgasbord of fragmented operators) also enables payors to fund new and innovative care models and services for their populations.
For individual providers working in integrated systems, the richer clinical information, greater transparency of outcomes and experience, and tighter relationships with other providers across care settings should lead to enhanced provider experience and outcomes.
There’s also the opportunity to work across various settings through one organisation. A surgeon, for example, may operate in both the system’s acute hospital (higher acuity casemix) and its ASCs (routine casemix) and conduct outpatient consulting from both the specialist outpatient consulting rooms and the system’s GP clinics (thereby fostering deeper relationships with GPs).
Some systems enable doctors to participate from an equity perspective (e.g. in the ASCs and primary care clinics) and provide their doctors with much greater input and transparency into both the care and commercial aspects of the business.
For integrated system operators, the commercial benefits are real. As patients largely stay “within network” the system is able to capture value and enhance outcomes and experience across the care pathway.
For example, patients visiting an urgent care centre operated by the system can be referred into the system’s orthopaedic services (inpatient or outpatient). A patient discharged from the acute hospital or ASC can be referred into the system’s clinical homecare services and to its allied health services in its primary care clinics (as well as back to the care of the GP).
It’s both good business and good medicine.
Such system reform should intuitively lead to funding model reform. When an integrated system is able to look after the spectrum of care needs of an individual patient, it should logically follow that the system is funded based on the quality of the outcomes and experience it delivers for the patient rather than the volume of activity it performs.
Such funding reform inevitably leads to greater upstream focus on primary care, whereas our system today remains increasingly weighted towards hospital care, notwithstanding all the rhetoric to the contrary.
Integration’s time has come. The only question is, who has the fortitude and capacity to lead?
Marc Miller was formerly chief strategy officer for Medibank for almost 13 years until September 2022. He is currently managing director of Healthcare Systems Advisory in the UK.
This article was first published on LinkedIn. Read the original article here.