Health systems continue their transformation journey focusing on patient-centered, cost-efficient, high-quality outcome, integrated care. And the health care industry continues to evolve as new payer programs are developed and tested and new partnerships emerge while we see the early signs of consumerism appearing on the horizon. In the midst of all this change, capital providers should be investing in those companies and organizations that create value. Companies that create and provide value don't just survive, they thrive. We see this in virtually every industry in our worldwide economy. Consumers buy products and services every day that provide value for the money. And as long as we have a fundamentally free market, competitive, capitalistic health care industry structure, health systems that provide value will thrive as well.
In health care, value is generally accepted to mean patient outcome divided by total cost per patient over time. In reality, many of the leading health systems have been on a mission of striving for value-based care for quite some time. Health systems have been cutting out expenses and lowering costs as financial pressures continue from current payment models. Systems are doing this by merging with and acquiring other providers to achieve economies through scale. They're also doing it through consolidating support processes and standardizing care processes from the patient floor to the operating room. Systems increasingly are integrating not just to achieve more cost-efficiencies, but to enhance the management and the coordination of care toward higher-quality outcomes. Standardization of processes and procedures and the utilization of supplies contribute significantly to this effort. And, of course, capital being invested in information technology capabilities enables health systems to accomplish many of these, all of which, hopefully, lead to consistently better outcomes at a competitive cost.
The problem is health systems that are creating value today aren't being recognized or rewarded for it. One of the most significant challenges that health system executives face is judging how payments by all payers will evolve toward some value-based model and over what time frame. System executives know how to operate in today's payment environment and are building competencies enabling them to operate in the payment model of the future as they define it. But the fear is that the transition from today's model to a future model has the potential to be financially devastating.
CMS has the Hospital Value-based Purchasing (HVBP) Program for hospitals, clinicians and other stakeholders. This is the first year in which value-based incentives are available under the program. It will run for the next several years. Anecdotally, there is evidence that some health systems are entering into programs with payers to share the "rewards" of agreed-upon outcomes and certain cost levels. Systems rightfully are making the necessary investments in systems and competencies with a goal of delivering high-quality outcome care at a reasonable cost. In the future, that reasonable cost will need to be a competitive cost.
Regardless of your view of the pace of evolution from a volume-based, fee-for-service, patient-centered model of care and payment to one of a consumer-oriented, value-based model, capital providers should be investing in those health systems that are investing for the future and building the requisite competencies to operate and thrive.
Frederick A. Hessler is managing director, Citigroup Global Markets Inc., New York City.