It's strategic planning season for hospitals and health systems.

Most will convene troops of trustees and physician leaders over the course of the next three months to plot plans for 2016 and beyond. Most will review impressive data about utilization, costs, competition, the expanding scope of ambulatory services and their physician enterprise. Most will revisit their capital priorities and discuss plans for payer shared savings programs, accountable care organizations, bundled payments and more. Most will hear about their quality scores and recognition in one or more "Top 100" lists. And all will be reminded about the status of the Affordable Care Act.

But some might not hear about the simple rules that should guide health system leaders going forward. They're premised on hard, inconvenient facts sometimes missed or purposely dismissed.

  1. Cost is the issue. Everything else is secondary (with due respect to mission, values, quality, community and more). The costs of health care are not sustainable. The Congressional Budget Office's estimate late last month is for aggregate spending to increase at 6.2 percent annually for the next decade against economic growth of less than 3 percent annually and wage growth at the same rate. Medicare and Medicaid will pay less than their costs, so employers and individuals will bear a disproportionate share. Employers will shift their costs to employees or drop coverage altogether; and consumers will shop for cheaper health care. Hospitals and health systems are ground zero for this issue. It's the most regulated, labor intense, capital intense and transparent sector in health care. Mandates require investments in technologies, drug companies command wholesale prices that are not predictable and often unreasonable, and regulators demand quality and safety. Lenders are watching the strength of the balance sheet as operating margins shrink and bad debt creeps upward. Maintaining quality and safety at acceptable levels is table stakes, but keeping costs competitive is the key to sustainability. It's that simple.
  2. Engage physicians as partners. Physicians want security and an active role in leadership. The recent "fix" to the sustainable growth rate formula calls for Medicare to pay doctors 0.5 percent more annually for four years, then flat for six years and thereafter— hardly an exciting forecast for experienced clinicians inclined to think that the best days of the profession can be seen through the rearview mirror. The reality is that hospitals need physicians. They control purchases for drugs, technologies and patient services. They are patients' trusted advisers. And their referrals keep hospital doors open. Hospitals must think of physicians as their business partners in every major decision. Though physicians often lack business expertise and understanding of the complexities of a hospital's operation, they want to learn, participate and sit at the table as these decisions are made. Pandering to the egos and fears of physicians might make life easier for some hospitals for a short period, but engaging and equipping them to sit at the table as business partners in codependent relationships is the imperative. Physicians are not the hospital's customers; they're its business partners.
  3. Build value-based relationships with employers. Employers in most communities are marginally involved in the community's health care system. That's changing. They are worried about escalating health costs, pushing their employees into high-deductible insurance programs, employing reference pricing, developing targeted interventions for their at-risk employees and cutting retiree benefits. Employers are hiring benefits consultants to report on the hospital's quality, safety, utilization, costs and unnecessary care. And they're carving out narrow networks of high-quality providers, including direct contracts with hospitals and physicians outside the community, to save money and get better outcomes. Hospitals tend to cater to insurers. That's understandable, but it's the employer who holds the cards.
  4. Think beyond Medicare. The Medicare population is important: 54 million enrollees, $572 billion in federal spending (3.0 percent of the U.S. GDP) and $12,243 in 2014 per capita spending. But building programs and services around the Medicare population alone is shortsighted. Most consumers younger than 65 years spend 14 percent of their household discretionary spending on health care — premiums, co-pays, deductibles, over-the-counter medications, alternative health and more. Were it not for low energy costs in the past two years, the average household's discretionary income would have vaporized as a result of escalating health costs. Hospitals and health systems think about "patients." CVS, Walgreens, Wal-Mart think about consumers, not just seniors, and what they need and buy in health care. And the Big Three — UnitedHealth Group, Anthem-Cigna, Aetna-Humana — trade in consumer (enrollee) services for varied populations with customized programs for each. It's time for hospitals and health systems and their physician partners to do a crash course in "health care consumerism." They're not patients nor are they patient. They are consumers.
  5. Build a system of health, not a hospital. Systems can be formal affiliations or tightly connected through acquisitions and centralized governance and controls. They're not casual, nor loose affiliations, and the goals and aspirations in each unit of the system are subordinate to the enterprisewide mission and strategy. For hospitals and health systems, physicians, post-acute care, retail health, ancillaries, clinical research and, in some cases, an insurance plan must be on the table. Equally important, systems of health that offer wellness and healthy living programs are requisite if the hospital expects to build relationships with millennials and Gen X adults. Outsourcing business and clinical functions — like revenue cycle, procurement, information system management, workforce recruitment and training, real estate management and others plays a role in freeing up capital to higher priorities. But, broadening the base of programs and services to serve new populations — the sick and the well — is the mission of a system of health. It's about much more than bricks and sticks.

Too often, the hospital's strategy is jaded by loud voices and a short-term vision. The simple rules deserve discussion.

Paul H. Keckley, Ph.D., a health economist and expert on U.S. health reform, is managing director at the Navigant Center for Healthcare Research and Policy Analysis. His H&HN Daily column appears the first Monday of every month. He is a member of Health Forum's Speakers Express. For speaking opportunities, contact Laura Woodburn.