The economics of healthcare are changing as a new value-based business model, accelerated (but not caused) by healthcare reform, is emerging to replace the volume-based model that has been in place for many decades.

Hospitals and health systems are responding rapidly to gain the new competencies required for success in a changing environment. Hospital-physician integration, care management, information systems, service distribution, payer relationships, and scale/market essentiality are key focus areas.

To develop, enhance, and finance these competencies, hospitals and health systems must engage in the highest-possible level of strategic and financial planning and analysis, covering a five to 10-year period. Development of mult-iyear strategies and related decision making should be guided by robust, modeling, budgeting, and reporting. Such an effort ensures the alignment of strategic initiatives with the new-era requirements and an organization-wide understanding of the financial and capital capacity implications.

Access to the external capital required to fund strategic plans is contingent on an organization’s financial performance. The quantification of impacts and risks is critical. Risk and sensitivity analyses can help to validate the affordability of plans and indicate their effect on financial performance. An organization’s leadership can then implement specific responses to industry and market changes as a means to improve financial performance, thereby defending the organization’s credit position and capital access.

Market and capital strategies, day-to-day operational planning, and financial planning must be integrated organization-wide. It is no longer possible to address one issue at a time, incrementally. All parameters and forecasts related to payment, volume, capital costs, and other variables will likely change in the next decade, so their simultaneous modeling will be critical to leaders’ understanding of the organization’s current position, where it needs to go, and whether it has the resources to get there.

As Senior Vice President of Kaufman, Hall & Associates, Dan Majka consults on a national basis with regional healthcare systems, academic medical centers, and community hospitals. His areas of expertise include the preparation of integrated strategic and financial plans, development of capital allocation processes, financial advisory services for bond issues, and merger and acquisition-related analyses. Dan has an M.B.A. and a Masters of Health Administration from The Pennsylvania State University.