Service-line Delivery Transformation: Some Pain but Big Gains

“Breaking news alert! Hospital X and hospital Y announce they are merging.”

At this point, you have heard the same breaking news story over and over again—the number of hospital mergers continues to rise. And the benefit? Likely none, and there is significant research to support the claim that hospital mergers are often anticompetitive. Nor do they benefit the communities they serve.

But people, particularly people in Congress, are starting to take notice. Hearings on anticompetitive behavior in health care markets were held in early March.

Nathan H. Comstock

Transformative health systems have taken notice as well. Leaders from Providence St. Joseph Health spoke at the American College of Healthcare Executives (ACHE) conference in Chicago in March. They discussed the value of service-line rationalization and centralization, and the importance of thinking proactively about how they can influence cost and utilization curves.

The Providence St. Joseph leadership realized that achieving its goals requires a fundamental shift in service-line strategy for a system that had $24 billion in operating revenues last year. The system, headquartered in Renton, Wash., moved from a hospital-centric service-line structure to a coordinated and standardized service-line delivery model. Moreover, the transformation happened across multiple facilities that span across inpatient and outpatient care settings.

To put it mildly, this type of service-line approach is hard to execute. It involves:

  • Understanding local and regional market dynamics
  • Recognizing consumer preferences for different services
  • Having a solid infrastructure of clinical, administrative, and support capacity

Perhaps the biggest hurdles are physician buy-in and a strong service-line governance model with an aligned management framework. All of this should be tailored to the organization’s cultural maturity and readiness for change.

For organizations that can pull this off, as Provi­dence St. Joseph did, the benefits are significant. Health systems can more effectively compete with smaller, more focused competitors that organize themselves around a few clinical service lines. (Think about your narrowly focused cardiac, orthopedic, and cancer competitors). Successful organizations can achieve tremendous fiscal benefits through efficiency and economies of scale, enhancing their ability to serve their communities. Moreover, a solid service-line strategy aligns clinical services while many organizations are expanding through acquisition of acute and ambulatory operations. The result is an arbitrage strategy to take advantage of an inefficiency in the market and capitalize on an opportunity to deliver more efficient and convenient care.

Maybe your organization isn’t thinking proactively about how to maximize its service-line offerings. But I can guarantee you that your competitors are.

Nathan H. Comstock is a provider advisory services manager at Optum.