CEO Interview Series: Regionalization and Market Positioning
July 24, 2011
Posted by chcablogadmin in : ACO Update, Healthcare Reform, Innovation, Leadership
The following interview with Steve Altschuler, President and CEO, Children’s Hospital of Philadelphia, is another in the series of CEO interviews with Jacqueline Kueser, CHCA Vice President, and Toomas Truumees, Partner, DSI, regarding children’s hospitals’ responses to the current and envisioned health care environment. Once again, Steve openly shares CHOP’s strategy and market position strengths and pursuits. (See “Steve Altschuler Talks CHOP Strategy” from April 2011.) – JR
Steven Altschuler
CHOP’s Vision for the Future
The vision of the Children’s Hospital of Philadelphia is to remain a leader in pediatric health care. While this seems basic and elementary, it is actually complex and perhaps even visionary. We expect to remain a leader in changing the way we deliver care, a leader in identifying new therapies, and in developing new ways to deliver them to the market. To remain a leader, we will focus much of our effort on margin generation.
Our growth plans also reflect how we define our vision of leadership. For example, CHOP has a large regional footprint, the largest in the country. Our vision is to double the size of our footprint over the next five years. We have 200 primary care physicians and have plans to employ twice that number. Our leadership vision is a complete transformation of the enterprise from a children’s hospital located in a major U.S. city into a large regional network of pediatric care anchored by a children’s hospital delivering the most specialized pediatric care available anywhere in the world. Our institution will remain exclusively focused on the needs of children.
CHOP’s $2 Billion – Ten-Year Strategy
Our primary strategy calls for a $2 billion investment in developing our facilities, our services and our infrastructure by the year 2020. It calls for expansion of our CHOP Care Network, expansion of our Ambulatory Care Center, and for significant investment in our Information Technology capabilities.
To achieve the objectives of this strategy we first must ensure adequate cash flow to be able to finance this expansion. Cash flow demands that all of CHOP management, including administration and clinical components, consider the cost-of-care in designing and delivering care to our patient population. We must be able to employ actuarial-based accounting and rigid cost-controls as well as we establish and benefit from a “cost sensitive” culture.
Another significant challenge to accomplishing this growth strategy is further developing relationships with our “payor community.” We must develop and implement new and innovative concepts as we negotiate new contracts to ensure we have the resources we need to achieve our goals.
The Impact of Payment Reform
Payment reform, which will be driven first by the market and economic climate, and then by health reform, must be effectively managed if we are to reach our financial requirements. The challenge for CHOP will be how to plan for a five-to-10 percent decrease in revenues over a three-to-five year period, and at the same time maintain our ambitious plans for expansion.
One solution we’ve identified is to work with some of our payors to decrease administrative burden on a contractual basis. We are also focused more in the bundled payment approach, not global capitation. Another aspect of our value based health care plan is our aggressive alteration of the care model with IT enhancements to shift care from specialists to primary care physicians. We want to decrease the rate of referrals to decrease cost, enhance profession satisfaction of the PCP, and increase specialist efficiency.
I anticipate some children’s hospitals will be challenged in this new economic environment. Currently, children’s hospitals receive 30 percent of their margins from cardiac and neonatal care. In five years, services like cardiology will be a commodity. Children’s hospitals must then compete on cost and quality with no margin. Therefore, we must radically change the organization to sustain our mission.
Alternative Paths for Children’s Hospitals
CHOP’s vision, in light of the challenges I have discussed, will work for CHOP. The strategy used by others must be developed to answer their goals and challenges, and the solutions will be different for each.
However, I believe there are essentially three effective strategies that can be employed by almost any children’s hospital that will enable them to operate, and to even prosper, in light of today’s economic climate. I offer them for consideration.
1. Luminary Programs: The luminary programs only a children’s hospital can provide will offer significant margin. Those children’s hospitals that can develop four or five cutting-edge services and attract international patients will be positioned to withstand future economic hurdles.
2. Pediatric Networks: For those children’s hospitals not equipped to offer luminary programs, they must have access to capital to build networks, and perform commodity services at a lower cost.
3. Super-Regional Pediatric Health Care Network: Children’s hospitals in adjoining regions can merge to offer pediatric care in a specific area of the country. It would require excellent management expertise to administer a large network of complex institutional relationships.
Independent children’s hospitals that are not successful in rationalizing care for complex services or developing integrated systems must find alternatives for long-term sustainability.
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