Olmsted Medical Center's new 80,000-square-foot Women's Health Pavilion assembles all women's health services under one roof. Offering a high-quality, cost-effective patient experience, the pavilion provides a successful niche for the 65-year-old Minnesota health system.

Across the street from the pavilion in Rochester, Minn., is the Mayo Clinic, the 1,132-bed general medical and surgical facility that is one of the best-recognized hospitals in the country, if not the world. For several years now, Mayo, along with other established brands like Cleveland Clinic and Johns Hopkins, have partnered with employers to extend their geographic reach and challenge existing players.

Last year, Johns Hopkins joined three other renowned hospitals in announcing they would serve as initial participants in a national Employers Centers of Excellence Network offering knee- and hip-replacement surgeries for several major self-insured employers. Most recently, Mayo Clinic expanded its COE program with Walmart to include three types of cancer.

The goal behind these programs is simple: to deliver high-value outcomes at the lowest possible cost. The participating institutions provide all the appropriate care patients need, at the right time, in the right place, by the right people and in the right way. With these programs, hospitals and health systems are translating superior outcomes into revenue. In other words, they're monetizing care model value.

Regional, Community Hospitals Also Differentiating

These well-known health care systems are no longer the only ones implementing strategies to improve market positioning and overall margins. Increasingly, regional health systems are exploring new ways to differentiate themselves and generate sustainable competitive advantage. As illustrated by Olmsted's Women's Health Pavilion, even community hospitals are getting in the game by "owning" a niche that sets them apart from the competition.

Providers large and small are also looking to create significant market differentiation through strategic partnerships with payers and other providers. In Northern New Jersey, for example, Aetna recently engaged Atlantic Health System, Hackensack University Health Network and Hunterdon Healthcare in a multi-health system collaboration. This effort will extend the reach of the participating institutions' coordinated care experience to a greater geographic area.

Providers across the country are even partnering with insurers to launch innovative networks. In September, Anthem Blue Cross and seven Los Angeles-area hospital systems announced a joint venture HMO to compete better with other HMO plans. More recently, Aspirus, a nonprofit health system in Wisconsin, and health insurer Arise Health Plan unveiled a co-branded health plan for individuals and small businesses in areas where the health system is trying to expand.

These examples demonstrate that more hospitals across the country, regardless of size and region, are beginning to understand the importance of monetizing the value of their care model. But what does it mean to monetize the value of a care model? It means finding ways to influence consumers in their choice of provider, and to negotiate with payers to secure reimbursement and volume that reflect the superior value an organization provides.

Understanding the Need to Monetize Value

Why should providers give greater consideration to strategies designed to monetize the value of their care model? Because the rules of the marketplace are changing dramatically for delivery organizations. Squeezed by the reimbursement reductions and quality penalties of the Centers for Medicare & Medicaid Services, hospitals and health systems are watching their margins vanish. Opportunities to cost-shift to the private market are limited. Private insurers, increasingly sensitive to blowback from premium increases, are following the example of CMS, at least in competitive markets.

Simultaneously, there is a convergence of trends, including a drive toward transparency that is encouraging more patients to shop for health care as they seek treatment options that can provide better outcomes at lower costs. It is not surprising, then, that the dramatic increase in high-deductible health plans and the slowly recovering job market have contributed to declining privately insured health care utilization. With all of these stakeholders feeling the economic crunch, most hospitals are at real risk of commoditization.

Historical marketing strategies involving perks, like valet parking or private rooms, all have been matched by others; there are enough "top hospital" lists that referencing one is no longer much of a distinction. As the industry evolves toward payment based on value rather than volume, both the function and the form of hospitals and health systems must change.

Five Steps to Monetizing Your Care Model

This instability leaves administrators at many systems wondering how they will grow margins and volumes sufficient to ensure future sustainability. Those organizations that have built care processes that deliver consistent, high-quality results, in particular are wondering why, if they're going to be paid a commodity price, they bothered to go to the trouble to become exceptional. The answer is that the time has come for organizations with superior outcomes to learn how to translate that critical asset into revenue. In short, it's time to learn how to monetize the value of your care model.
1. Define your care model.Value is defined by the customer so, before you make decisions about which aspects of your care to spotlight, make sure you understand what each of your stakeholder groups really cares about. Your communication to each group will be determined by the intersection of what matters to them and what your organization can deliver.

A good place to start is to identify those components of your care delivery process that work exceptionally well; areas that compare well on cost, quality and patient satisfaction measures both nationally and locally are optimal. Often this involves treatment in a particular therapeutic field, like cardiology, oncology or orthopedics. It should be a field in which market needs are growing, and in which you already have significant volume but can handle more.

Then identify what matters most to patients, payers and employers in this treatment field, and what the competition offers. Expect that what matters will differ depending on the stakeholder group, and that you may need to do some in-depth research if you want true insight.

For example, one specialty oncology system refined its diagnostic process to the point that it could provide a complete workup and care plan within five days. The process in most community settings could take as long as five weeks. It's not hard to see that, to consumers looking for validation from a second opinion, time matters, so this rapid diagnostic became a competitive asset. The system used it to build volume, enhance revenues and broaden its utilization, and offered it to payers as a differentiator and incentive for volume.

Patients care about things like how quickly they are able to resume their lives, employers care about lost work time, and payers care about minimizing the costs of long-term follow-on treatment. This approach works only when a patient, payer or employer is willing to offer incremental payment, reimbursement, volume or something else of value in exchange for the premium care you provide.

2. Standardize clinical and administrative processes.The value of your care model will be limited unless it consistently can deliver predictable clinical and cost outcomes. Clinical pathways embedded in the care model should reflect the latest evidence-based medical practice. Once you've developed consensus on pathways, look to minimize variability in clinical implementation. Your computerized provider order entry system should guide care delivery consistent with the pathway and provide data on deviations. Make sure you have routine reporting on variance by provider and type. Beyond that, use these reports as the basis for collaborative conversations with clinicians to determine if observed variation is justified and if the pathway needs elaboration, or if the issue is individual physician compliance.

Effectively managing cost and quality requires significant effort. Begin by developing a resource utilization model via a deep-dive analysis of patient-level costs. Identify factors linked with outlier cost and quality outcomes through appropriate analytics, and test the validity of statistical relationships with input from clinical experts. Such relationships are not always obvious.

For example, leaders at one regional general community hospital were interested in understanding the cost drivers behind their outlier coronary artery bypass graft cases. Analysis of a year's worth of CABG patients revealed that the likelihood of a case being a cost outlier was related to the use of blood transfusions, and surgeons were not all using the same decision criteria for transfusions. The result was higher costs for transfused patients, who were concentrated within the practices of specific clinicians.

In an environment that increasingly considers the whole of the care continuum, care pathways and protocols don't end at the hospital's front door. Develop consensus with nonowned downstream providers on standards and pathways to optimize outcomes and control readmissions. Ensure that arrangements like service-level agreements used to establish such standards include the right balance of incentives and accountability.

Communication, culture and leadership are key factors in building the necessary coordination, whether affiliated or nonaffiliated.

3. Demonstrate value.A better outcome for the price translates as value at the point of purchase. Data that support the claim of superior clinical and economic outcomes — those outcomes that really matter — are the only path to credibility and trust with stakeholders. The challenge for providers is capturing meaningful data and deciding how to communicate them effectively to each stakeholder group.

For example, presenting evidence of helping patients to manage key metrics related to chronic conditions more effectively, like blood pressure or blood glucose levels, can demonstrate the value of population health programs. But patients will want to know more, such as quality-of-life measures like mobility. You will be able to respond well if you have high-quality data across the care continuum — from hospitalization through post-acute discharge. Your evidence must support durable outcomes at 30, 60, 90 days and beyond, and include things that really matter to stakeholders, such as return to work and activities of daily living.

Assume that you will need to collaborate with post-acute care providers to capture data that are meaningful to consumers, employers and payers. Consider use of broadly accepted metrics for comparability, but don't be limited to them. Experiment — capture a wide range of data — with quality-of-life, readmissions, or other improved clinical measures and patient outcomes.

Regularly report clinical performance indicators in a format easily understood by payers and consumers. Assess the data you're currently collecting, especially collection methods, their format, the collection purpose and how you should configure them for effective use.

Pricing transparency is evolving quickly across the industry; payers and consumers will value knowing total procedure cost in advance. Increasingly, consumers will need price information up front as more are exposed to high deductibles and co-pays, thus spurring comparison shopping. So, if you use a fee-for-service model, be prepared to provide experience-based averages and ranges. We're seeing bundled pricing used most commonly in orthopedics, but it is also emerging in fields like cancer care. Some providers also are offering warranties, promising to pay for the added cost of addressing certain complications that might arise.

4. Commercialize your care model. Commercialization is the final step in matching market needs with the hospital's capabilities. At its core, commercialization is establishing the "promise" being made to buyers (what they can expect), then supporting that promise with evidence. The goal is to secure a more favorable rate from payers, with some measure of exclusivity to drive volume, thus avoiding commoditization. With consumers, the goal is to have them choose plans that include your institution and, when not included, pressure those plans for inclusion.

To start, your organization likely will focus on a handful of claims. Choose them based on the definition of your care model, as well as on what you learn about what your stakeholders want (Step 1) and on the data you collect (Step 3). Your claims will be limited by your ability to manage cost and quality variability (Step 2) and the salience of the data you're able to capture. Finally, your ability to formulate an effective message to stakeholders about what you offer, in terms that matter to them, will be the final constraint on commercialization effectiveness.

Because this message will represent a very public commitment by your organization — one that must be sustained over time — your organization's leaders will need to actively participate in the development of advertising and other communications. Done well, commercialization provides payers, employers and consumers with the information they need to evaluate your offer against their needs and their options.

Your commercialization plan should include separate elements for each stakeholder group, with multiple channels and communication methods tailored to those who influence or make decisions, including payers, employers, consumers and referring physicians. To consumers, address the proliferation of health plans, many of which have narrow networks, offered through public and private exchanges. Partner with plans that include you; collaborate in promotion, education, communications and advertising efforts to ensure that consumers know where to find you amid all the plans. Also, consider your ability to provide "carve-out" services to self-insured employers on a regional or even national basis.

You'll also need to prepare the organization's response to questions about price. Currently, our market research has shown that most delivery organizations generally are unprepared for this conversation. The best way to answer such questions is to provide data before they're requested. Providing the public with real prices — or even real-price averages or ranges — along with clinical value metrics can be a powerful differentiator for a hospital or health system. Ultimately, public posting on the system's website will be the standard.

Until then, there are alternatives, including on-site kiosks, comparator websites offered by state governments or state hospital associations, and shopping tools operated by payers or groups such as the Leapfrog Group, Castlight Health and NerdWallet. Already, 14 states mandate submission of claims cost data to central databases; the federal government requires making price information available. For those organizations providing price and quality information via phone or in-person consultation, be sure to train your staff extremely well.

5. Refine your commercialization infrastructure. Many of the elements in this process are new territory for delivery organizations. Your organization will have to develop internal capabilities needed to execute on the steps outlined above and to refine associated processes and guidelines. You will need to redefine roles and responsibilities for key staff, and in some instances, bring in new staff.

Physicians and hospital staff members operating the clinical services that support one or more care models must be capable of adapting to new approaches and procedures, especially accountability for consistent results. If not, they may need targeted training, e.g., financial acumen, new organizational roles and structures, or new team members or leaders. In particular, success will require effective cross-functional collaboration among clinicians, managed care teams and key business executives — both within the organization and in the ambulatory setting.

Michael N. Abrams, M.A., is managing partner, and Michael J. Kuchenreuther, Ph.D., is a research analyst at Numerof & Associates, St. Louis.