Children’s hospitals and health systems have always faced unique challenges when compared to their adult counterparts. These advanced systems are often located in high-cost, major population centers and serve as destinations for complex, expensive care.
But today, pediatric organizations are facing a new set of challenges and strategic questions. For many systems, the very ability to fulfill their mission of providing specialized care to all children is in question amid mounting financial pressures stemming from rising costs, the availability of price transparency data, a growing Medicaid payer mix, and downward pressure on commercial reimbursement.
At the same time, operational challenges such as inadequate care access, provider and staffing shortages, lack of downstream providers, administratively burdensome payer policies, and capacity constraints are intensifying financial difficulties. Pediatric systems are also facing new clinical demands, including the unprecedented need for integrated behavioral health services and advanced care management capabilities.
The convergence of these pressures has led children’s hospitals and health systems to reevaluate their strategic planning imperatives while placing new emphasis on integrated operational, financial, and managed care strategies. There is no one-size-fits-all strategy, so each children’s system must tailor its approach based on local dynamics, current market positioning, operational challenges, and strategic goals.
To begin this process, ECG recommends children’s hospitals evaluate their current positioning and future strategy in three key areas:
- Market dynamics and pressures
- Reimbursement structure and rates
- Value and risk adoption
Market Dynamics and Pressures
Pediatric systems will need to consider local market dynamics when developing their strategy. This includes shifting consumer enrollment and demand, the availability of a downstream providers, and state Medicaid policies. The questions outlined in figure 1 below will help pediatric systems look beyond their immediate organization to consider the myriad external forces that are impacting their business.
For instance, ECG worked with a premier children’s hospital to build a pricing and market engagement strategy to offset the loss of routine, but mission-critical, service volume to competitor organizations. To ensure a data-driven approach, ECG conducted a national comparative analysis to understand relative pricing, clinical approaches, quality, utilization, and financial outcomes for other tertiary and quaternary care providers. This market intelligence, combined with an understanding of the organization’s existing strengths and capabilities, created a foundation for its revised strategic plan.
Figure 1
Reimbursement Structure and Rates
With an understanding of the external environment, organizations should then look inward to evaluate whether existing managed care and financial strategies are aligned with market opportunities and organizational goals. The questions outlined in figure 2 can serve as a basis for this analysis. However, it is important to keep in mind that the answers to these questions and the resulting strategies are highly individualized, and no two organizations will follow the same approach.
For instance, falling margins led a major children’s hospital in the North to engage ECG to analyze payer contracts and market engagement. The resulting recommendations centered on key strategies that included concentrating payer rate increases in less shoppable services, developing a targeted out-of-state Medicaid strategy, and optimizing current upside-only value-based care participation. However, a similar analysis for another children’s system in the South led to different recommendations—including a revised payer participation strategy, organizational and cultural changes to support contract terminations, and immediate renegotiation of behavioral health rates.
Figure 2
Value and Risk Adoption
Finally, many pediatric systems want to understand the pace of value-based care adoption and whether they should be engaging in these alternative payment models (and if so, to what degree). ECG recommends that all pediatric organizations evaluate potential value-based opportunities and develop an organizational position on the right type of arrangement and the timing of that adoption. To start, consider the questions outlined in figure 3 through the lens of your organization’s internal capabilities and local market/payer demands.
For instance, a children’s system in the Midwest developed joint ventures with local physician groups to:
- Increase access for Medicaid patients.
- Improve coordination.
- Create opportunity for financial upside through the establishment of risk-based agreements with local managed care plans.
In this example, the organization understood the market need, built the corresponding provider network, ensured reimbursement for supplemental services, and created a new revenue stream.
Moving to risk too quickly can be financially and operationally detrimental. But with appropriate preparation and careful development of a tailored program, these arrangements can improve a system’s financial positioning while enhancing quality and coordination of patient care. The timing and type of a value-based agreement will vary significantly by organization, but the vital component of any value-based strategy will be using data-driven insights to understand feasibility, margin impact, and market alignment.
Figure 3
Developing a comprehensive strategy will require pediatric systems to conduct current-state market analyses, assess value-based readiness, evaluate current reimbursement terms, address service gaps, and understand current operations. The challenges facing pediatric systems are unique and will require innovative solutions, organizational flexibility, and engagement from all departments and titles.
UP NEXT: We’ll be taking a closer look at how pediatric health systems have approached the world of value-based care. Check this space next week for the continuing discussion.
For more information on how your organization should develop its pediatric strategy in light of these and other considerations, contact the team at ECG.
Edited by: Matt Maslin
Published January 12, 2024
