With the holiday season upon us, most hospitals have held their annual strategic planning retreats, and 2015 budgets are being finalized. For sure, challenges with reimbursement, contracting strategies with insurers, collaboration with physicians and affiliation with a larger multihospital system were discussed. Those are all essentials in every hospital's strategy. Regrettably, some important issues might not have gotten equal time:

Prices: Consumers increasingly are shouldering the burden of health costs as a result of high-deductible health plans. Employers are using pricing to negotiate directly with hospitals. And, there's a growing array of sophisticated online tools to help consumers understand pricing better. Prices matter. Hospitals must "man-up" on transparency. Key questions:

  • How does a hospital compare to its competitors based on head-to-head for price-sensitive services?
  • Are lower prices for comparable services accessible in the market? Out of the market?
  • How are employers and plans assessing pricing differentials in the market and nationally? And what data are used in their assessments?
  • Where are online purveyors of your hospital's pricing getting their information, and are the data accurate?

Medical necessity: Most hospital boards assume that tests, procedures and treatments ordered by the medical staff follow standards for evidence-based care and, therefore, variation is minimal. In most retreats, after all, the "quality of our medical staff" is "our strength." But boards must take a closer look. Overutilization of drugs, testing and surgery is a pervasive and growing problem in the health system, and penalties for unnecessary care are substantial under provisions of the False Claims Act. Boards must understand that the hospital is culpable for the medical decisions made by its physicians and address practice patterns that deviate from evidence-based care. Key questions:

  • In your plan, was a profile of medical necessity and unnecessary care a prominent discussion, and mitigation of that risk discussed?
  • Is the "quality of medical staff" verifiable based on data about outcomes, patient experiences, safety and adherence to evidence-based practice of physicians?  
  • What is the institution's strategy to mitigate risks associated with unnecessary overutilization? How are offending physicians and care teams identified and remedies achieved?

Long-term care integration: Between 25 and 40 percent of costs associated with avoidable readmissions, complications and adverse outcomes involve care coordination involving a post-acute setting. As hospitals and physicians expand their risk-based contracts with payers and employers, managing populations in post-acute settings will be critical to financial and clinical success. Most boards, though, understand little about the long-term care environment ranging from short-term rehab to nursing facilities, home care and hospice services, and others. Key questions:

  • How is care coordinated with long-term care providers for discharged patients?
  • Should the hospital formalize a narrow network of post-acute providers for the purpose of sharing risk for clinical outcomes and cost-management?
  • What is the board's comprehension of the distinctions between settings, business models and risks associated with post-acute care?

Diversified income sources: The Congressional Budget Office estimates that 170 million Americans will be covered under a government-sponsored insurance plan by 2023. At the same time, the 159 million covered by employer or individual plans will be dominated by high-deductible features with narrow networks. This change means thinner margins for the core ambulatory, outpatient and inpatient businesses operated by hospitals. To maintain credit-worthiness, and to fulfill the institution's mission, additional revenue streams will be necessary. Key questions:

  • What businesses should we pursue? What capital, operational commitments and leadership competencies are necessary to optimize the risk?
  • Is the core inpatient-outpatient business adequate to sustain the organization for the long term, or is diversification necessary?
  • What businesses should we pursue? What capital, operational commitments and leadership competencies are necessary to optimize the risk?

Leadership competency: In most investor-owned board settings, leadership competency and succession planning is a critical board function, but in most hospital boards, it is rarely addressed until a problem forces the discussion. Health care is changing: Nontraditional competitors, nonconventional therapies and complicated regulatory constraints require visionary, informed, capable leadership. Key questions:

  • Does the board independently discuss its succession plan for key C-suite roles? Is a formal plan in place?
  • Is a clear set of functional competencies for each C-suite position consistent with the institution's needs and strategy?
  • Is the C-suite team knowledgeable about the clinical, technological, economic, and regulatory dynamics of the health care market?
  • Have under-performing leaders been weeded out of the organization?

Board retreats and the strategic planning process are imperatives for high-performing hospitals, but they can be a waste of time and money unless thoughtfully planned with the full range of issues and challenges on the table including the five noted above.

Boards bear the fiduciary responsibility for the future of their institutions. Nothing is more important than getting the strategy right.

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 David Parlin.