Why a focus on margin management is critical in a consumer-centric healthcare market

Providers that remain focused on service-by-service approach to care delivery will find themselves out of step with today’s consumer-focused healthcare system.

To be able to grow their revenue in today’s environment, providers must focus on the margin per episode and find ways of controlling the costs of producing each episode, according to François de Brantes, senior vice president of commercial business development at Signify Health. “That focus is still, in many cases, the opposite of today’s healthcare operations, which are seldom concerned with the underlying costs of delivering care, since most of those costs are simply converted into top-line revenue.”

In short, de Brantes said, providers must follow the example of organizations in almost every other industry by moving from a singular focus on top-line revenue growth to managing margin. “Alternative payment models and consumer steerage translate into a tight focus on delivering a high-value service,” he said.

The need for truly patient-centered care

“If you think about the way health systems have shaped themselves, people talk about patient-centered health, but it really isn’t: It’s provider-centric health,” de Brantes said. What providers are doing, he said, is creating their own hubs (e.g., hospitals or other types of facilities) where they want people to come. “But in an environment in which the payer, the employer and the consumer are absolutely shifting with their feet to the higher-value providers, the focus needs to be on caring for the patient where the patient wants to be, and then delivering the highest possible value to that patient.”

Organizations need to shift from a mindset that says, “I’m the organization and I decide where I deliver care in the manner that’s the most convenient to me,” to one that says, “I need to figure how to deliver services in the manner that’s most convenient to the consumer.”

“And by the way, that’s what every other industry has figured out how to do,” de Brantes said.

He suggested that providers should define services in this context as episodes of care. “And the value for the purchaser, including the consumer, is the all-in price.” he said. “For those who provide that service, top-line revenue will only come if the value of the episode is greater than that delivered by others.”

A case example

What constitutes a service in this sense? Look at it from the perspective of a patient, de Brantes suggested.

“As consumers and patients, we think of the world in similar ways, whether it’s the purchase of a normal good or a service,” de Brantes said.  “And if I have a health event, I think of it as a single health event. I don’t think of it as a discrete set of services that are produced and provided to manage that health event. I may be sick or having a baby, or my knee may hurt like the dickens and I need to have an operation. But in every case, it’s a health event. That’s the way people think and that’s how they will look for care.”

Consider a maternity case, de Brantes suggested. “The top thing on the mind of a woman who is having a baby is, ‘Who’s going to help me get to the best possible outcome for that delivery?’”

But he pointed out that in healthcare today, a maternity case is broken up into many different pieces. “You’ve got the pregnancy and, as part of that, you’ve got a whole bunch of services. Then you have the delivery, and if it’s a C-section, it’s paid differently than if it’s a vaginal delivery. And then you’ve got the baby, which in most health plans has a different ID and different billing than the mother. And then there’s postpartum.”

All these pieces are disjointed, he said.

“Meanwhile, all the patient knows is she has gotten a test that says she’s pregnant and in nine months, she is going to have a baby and will be coming home after delivering that baby —hopefully with the baby being safe, sound, normal birth weight and everything fine.

“So if I’m that patient, I’m not looking for who’s going to manage my pregnancy step-by-step, but for someone who will get me to what I think of as the normal natural endpoint for that particular health event.”

What the patient needs now is access to information that helps her understand what to expect, de Brantes said. “For example, if I am the patient, my employer may provide me with information where Provider A might tell me that this entire health event will be $25,000, including care for the newborn. And Provider B says it will be $22,000. But then I start looking at C-section rates, and I see Provider B has a very high C-section rate, and I’m not a big fan of C-sections. But the other one doesn’t seem to have really good results in managing depression. And I’m worried about it because a lot of my friends had depression after having a baby.

“So you put these things in context, and now the patient has a choice,” he explained. “In addition, the patient’s employer may tell the patient, ‘If you go to the higher-value provider — the one who’s going to help you manage your depression postpartum, and whose C-section rate is really low because they’re managing the babies to end at mostly normal birth weight – you’ll not only have no deductibles or co-insurance, but also may get $1,000 put in your health savings account.’

“If I’m the patient, I’m going there.”

According to de Brantes, that is why the provider needs to think about that entire health event, not as discrete services to make money on, with a perverse thought process around adding services. (e.g., “An ultrasound, an office visit a C-section, which costs more money than a vaginal delivery, and with the baby in the NICU for a few days for an extra little line of cash).

Instead, the provider’s focus should be on figuring out how to make the most margin by delivering the best outcome: “Do I really need to provide that second ultrasound? Maybe not, but maybe I should focus a lot more on that prenatal care and making sure that the baby has the steroidal injections to get to normal baby birth weight, and on working with the mom on her own health so that she has a vaginal delivery with a good outcome as opposed to ending up being rushed and having to have a C-section.”

“So it forces me to completely rethink how I’m delivering care,” de Brantes said. “It’s not about generating revenue from an extra ultrasound; it’s about figuring out how to generate margin from that $25,000 total all-in price that I’ve been contracted for.”

It’s a complete, fundamental game changer, de Brantes said. “And by the way, there are a lot of providers out there who get this,” he said. “Most of them are specialists, and not necessarily big hospitals and health systems, but there are a lot of hospitals and health systems starting to understand that this is the type of healthcare you mean when you talk about patient-centered health care. And when you take that approach, you’ll get good clinical outcomes, and good financial outcomes will almost always follow.”

Margin management is a key concern for healthcare in the 2020s

In the January issue of hfm, François de Brantes shared his perspective on what lies ahead for healthcare in the 2020s, noting that system must focus on finding a way to deliver far greater value than today. Read the article in the January issue of hfm to see what de Brantes and other healthcare finance experts had to say about the future of healthcare.