We look forward to co-sponsoring our 15th Annual Non-Profit Health Care Investor Conference in New York City May 21–22. The conference continues to be an important platform to permit leading health care providers to connect with investors and other capital market participants. This year's theme is "Building Systems of Care for Greater Value." Looking over the past 15 years, there is no question that health systems are better prepared today to face the future with considerably more infrastructure, depth of management talent and resources to address and effect change. This is important because a long, tough and uncertain road remains as the industry transitions to a value-based care delivery model.
The shift from fee-for-service to value-based care is a critical focus for health care systems and, accordingly, those that invest in these systems. Value-based care is commonly viewed as touching upon three areas: cost, quality and outcomes, the goal being to provide better quality and outcomes (for the patient) at a lower cost. From a financial perspective, which is of high importance to those who invest in the health care industry, there is an important business model transition underway from being successful in delivering volume-based care to minimizing the overall cost of care while realizing good outcomes. A major challenge facing most providers is the delicate balance of preparing for value-based models while maintaining profitability in a system that has a significant portion of reimbursement based on volume. In addition, organizations have to monitor closely how quickly this shift will occur in their markets and adjust their strategies accordingly. This presents an equally daunting challenge for investors as they attempt to evaluate current financial performance, while simultaneously assessing health systems' levels of preparation for the future.
To ensure that this article adequately reflects their views, I spent several hours gathering perspectives from many large institutional investors. One noted irony is that one of their biggest challenges is no different from that of patients: What metrics are we supposed to look at and where can we find consistent data to compare systems based on those metrics? Investors find the lack of consistent data around cost, quality and outcomes to be one of their toughest challenges. As one large investor stated, "With very few exceptions, providers say they are low-cost providers in their respective market(s) and almost everyone has some quality ranking where they have scored well." Although some investors do utilize Medicare data, most felt that it was difficult to use and hard to determine its potential impact on overall financial performance.
Volatility in financial performance and/or rating is also a major investor concern, specifically as it relates to building the infrastructure for population management or event risk. This trepidation does not simply relate to ability to make payments, but also to interim event-driven, mark-to-market volatility that impacts fund performance.
Given this concern, how can providers make themselves more attractive to investors as they transition to a value-based system? The most obvious way is to demonstrate measured improvement with regard to cost, quality and outcomes and the ability to compete in a value-based market. Third-party data showing a direct comparison to competitors are more valuable than data that are internal or hard to apply to others. Absent good data, investors are assessing progress in developing the infrastructure and systems most commonly cited as critical to a value-based system. They look for sophistication and infrastructure with regard to physician integration, information systems, and experience managing risk. Management's track record, depth and expertise help to allay concern over perceived weaknesses. Perhaps the most important organizational component to the transition to a value-based system is among the hardest to measure — culture. Ability to succeed in a changing environment is heavily dependent upon culture, which cannot be easily changed overnight.
Eventually, health systems will fail or succeed based upon their ability to manage the health and wellness of a population rather than provide episodic care. Consequently, characteristics of successful health systems will continue to transform from what we know today. Scale, standardization and the ability to coordinate care along the entire continuum will determine success. Prevention of illness, early detection and even the integration of mental health and economic and social components of wellness will become increasingly important.
In the interim, those fortunate enough to be in this dynamic and increasingly complex industry should appreciate the ride, while remembering to take the time to effectively communicate accomplishments and challenges along the way with those who invest in their organizations — for they are essential partners on this important journey.
James M. Molloy is managing director, Citigroup Global Markets Inc.