Leaders who stay focused, manage using facts, shun “yes” thinking, listen to contrasting points of view, and study the industry will likely succeed in the new normal.
The health care industry has enjoyed a reasonably stable cadre of leaders in recent years, largely as a result of a predictable industry environment in which each sector understands its basic challenges and opportunities for growth. Cutthroat competition in health care has usually been muted, perhaps because the overall growth of the industry has made it possible for many to survive and some to thrive, with casualties relatively few and far between.
But those days of predictable growth may be coming to an end. The economic constraints facing the industry are formidable: Health care costs cannot continue to rise at historic rates if the US economy is to recover. And the Affordable Care Act (ACA), passed March 23, 2010, forces the industry to navigate to a “new normal” characterized by …
- Increased transparency. Every secret in the system will likely be known, and every performance measure related to safety, efficiency, waste, and customer experience will likely be public. Social media discussions about the industry’s executive compensation, incentives, conflicts of interest, and business dealings may escalate visibility, while the traditional business media look to the health care industry as a dependable source of fresh content. It’s an industry that may not be able to shy away from the spotlight or deflect criticism—whether justified or not.
- Incentive change: from volume to value. Venerable organizations have suggested that as much as 30 percent of what we do in health care is waste because there is scant evidence to justify doing it.1 Why do we do what’s not evidence-based? Because we can, and because we’re paid to do more. But that may change completely by the end of the decade as performance-based payments replace fee-for-service reimbursement. The days of unnecessary tests, procedures, and medications are ending, and each sector may be forced to share risk with others to optimize value.
- Increased regulatory risk. Each sector in health care is heavily regulated at both the state and federal levels. The ACA adds new regulations and penalties for non-compliance—for instance, requiring hospitals to pay penalties for avoidable readmissions and requiring health plans to rebate premium overpayments if less than 80 percent for insurance companies in the individual and small group market and 85 percent for a large group insurer was spent on actual medical care and quality improvement activities.2 And the ACA’s regulatory requirements are additive to pre-existing rules pervasive across the system.
- Reduced operating margins. The bottom line is this: Growth in health care spending is likely to slow down. National health care spending grew by 3.9% for the past two years, the lowest rate of growth since 1960.3 That’s a good news-bad news scenario: The industry may continue to grow as demand soars, but margins will likely shrink at the same time. That means winners and losers in every sector, and new rules of competitive engagement in markets and between sectors vying for a share of the pie.
As a result, there’s enormous pressure on leaders in each sector of health care, prompting some to consider early retirement—or in some cases, driving boards to consider C-suite changes to ready the organization for new challenges.
I have spent a lot of time with health care CEOs. The best equipped to manage in the new normal, in my view, exhibit these traits …
- Industry knowledge. They understand each sector of the industry: how each operates, accesses capital, manages customers, creates value, and handles competition. They invest in business relationships and are disciplined in self-study. And they have a voracious appetite for data about each sector, broader macroeconomic indicators, and consumers.
- Communication skills. The health care system is complicated and its complexity promotes misinformation, stoking tension between sectors, externally among leaders, and internally between posturing departments or executives. Tomorrow’s C-suite leader should consider effectively and consistently communicating about complex problems in an understandable way.
- Scenario-focused vision. No one knows for sure how the “new normal” will play out long-term, so a CEO might benefit from intuitively guiding strategy for his or her organization using scenario plans that are constantly refreshed and challenged. In the process, the CEO could listen to feedback, especially from skeptics inside and outside the C-suite. The “yes” board or C-suite is likely a vestige of a bygone era, and is being replaced by those who invest in recruiting leaders with broader experiences and with business savvy.
Leaders with these competencies may attract attention, including criticism. They are change agents, so their paths are prone to second-guessing and scrutiny by armchair quarterbacks.
Those leaders who stay focused, manage using facts, shun “yes” thinking, listen to contrasting points of view, and study the industry will likely succeed in the new normal. But many may fail.
Wayne Lukas once said, “The speed of the leader determines the rate of the pack.” The new normal requires leaders who sprint.
EndnotesView all endnotes
- The Dartmouth Atlas of Health Care, “Reflections on Variations,” May 12, 2010
- Patient Protection and Affordable Care Act (P.L. 111-148)
- Centers for Medicare and Medicaid Services, “National Health Expenditure Projections 2011-2012,” 2012