Forget Predictive Modeling, Try Leadership Forecasting

Instead of attempting to predict outcomes based on aging data, healthcare leaders should rely more heavily on forecasting, which is a less precise but more accurate gauge of how a strategy is likely to pay off, says a medical economist.

Health futurist and medical economist Jeffrey Bauer, PhD., was once a weather man. For the first six years of his career, he focused much of his research on when and where hail was likely to occur as part of a research grant from the National Science Foundation. Eventually, he left that interest in weather behind.

But even as he moved his career away from weather and into the "dismal science," of economics, he retained his meteorological roots by keeping his focus on forecasting, rather than predicting, the future. Now a well-known author and speaker for healthcare executive audiences, Bauer has a forecast for healthcare over the next decade, as radical transformation of the business model takes hold.

But a forecast is only one set of probabilities that can be assumed with varying degrees of accuracy based on current and future conditions. It's what you do with the forecast to adapt to future patterns that's the key to whether your organization survives the purge that Bauer sees coming.

Forecasting vs. Predicting
His new book, Upgrading Leadership's Crystal Ball, focuses on ways healthcare top leadership can effectively work to reduce the probability that their scenarios will fail by employing forecasting techniques, rather than predicting techniques.

First, it's helpful to see the difference between forecasting and predicting, says Bauer.

"Predicting is trend analysis," he says. "You have databases, you look at past data, find a mathematical equation that fits it, and use that to extrapolate into the future. You look at how the relationships have worked in the past and you come up with your prediction."

But data from the past quickly becomes obsolete in the rapidly changing healthcare business environment. From changes in reimbursement protocols to the advent of the Obamacare exchanges to a multitude of other drastic changes in how healthcare services are paid for and evaluated, predicting has lost its efficacy, Bauer argues.

"If the underlying circumstances that created that data have changed, then extrapolating from that data gives you stupid answers," he says.

Instead of attempting to predict outcomes based on old data, healthcare leaders should rely more heavily on forecasting, which is less precise but a more accurate gauge of how a particular innovation in care protocols or basic business strategy is likely to pay off.

Using forecasting is more helpful in both healthcare transformation as well as with the weather because there are too many variables involved to accurately predict an outcome.

"Weather is literally unpredictable, so you need a different way to look at it, which is by estimating probabilities and possibilities and weighing them," he says.

A Realm of Possibilities
The forecaster approaches the future as a realm of possibilities that can go any number of different ways. That results in a less specific glance at a possible future, but a much more accurate one, that will prevent unwise decision-making.

For instance, says Bauer, "we can look not more than a decade ahead and see a far more cost effective way to provide healthcare one-third less expensively. That leads us to consider alternative ways to provide it."

Ambiguity exists, so effective executives need ways to assign probabilities. That way, executives can seek out strategies to increase the probabilities they desire and decrease the ones they don't.

Fine, so leaders should think differently about how they gauge strategic initiatives in order to better predict how they will affect the organization, or indeed, whether to do them at all. But how does this philosophy translate into the real world of deciding where to invest your precious capital and labor?

Bauer says that in conversations with health system CEOs following his speeches, they do recognize the need to evaluate the future better. They want to target initiatives that will likely be successful under a new payment and quality dynamic in healthcare, but they aren't sure how to begin to evaluate things differently because their lieutenants are used to predictive modeling.

Courage to Change
Few CEOs have the courage to change for a variety of reasons, he says. There are rigidities in practices that are tough to break, there's an unwillingness to take on the medical staff, there's a familiarity to doing battle with insurance companies rather seeing those negotiations as an opportunity to do business, and a substantial percentage of top leaders are "just cruising toward retirement," he says.

But breaking down those walls is exactly where the opportunity exists, Bauer argues.

"I make the majority of my living giving speeches to hospital execs," Bauer says. "The most common comment I get after my speech is hospital C-suite people saying what they hated about it is that 'deep down inside, I know you're right,'" he says. "But courage to make the changes doesn't match the awareness."

For example, Bauer's main "pitch," strategically, is that CEOs need to quit thinking that horizontal integration will achieve anything that will move the system forward or alter its business model.

"Moving from two hospitals in a large community under the same ownership to 7 or 10, I think, is generally a waste of time," Bauer says. "I think we need vertical integration."

Vertical integration is much more difficult to organize and achieve, he says, but breaking down silos and remaking the organization into one that handles many more healthcare interactions than inpatient is the key to survival. That means adding talent and pieces of the businesses that make up the healthcare continuum.

But how many people are really doing that? It's a difficult idea to implement because to make such a leap, healthcare organizations probably have to run the risk of failing to increase the probability of doing something good, says Bauer. Horizontal integration may fail as well, but it's easier and results won't be known for quite some time. There's no going back if you horizontally integrate.

'Don't Give Me Numbers'
Boiled down to its basics, Bauer's focus on forecasting over prediction means that CEOs should "quit assuming numbers will tell you anything," Bauer says.

Operationally, they should ask their other chiefs for the probabilities of success given several directions the organization could go to better achieve vertical integration. They should assign a likelihood of success to each of those options, and try to think of solutions to reduce the undesirable probabilities and increase the desirable ones.

Leaders need to develop scenarios to get the organization where it wants to be broadly. Defining that is the CEOs job. It's also the CEO's job to order his or her lieutenants to quit spending so much time analyzing numbers that are misleading.

"Don't give me numbers and spreadsheets," Bauer says, describing what he would like CEOs to tell their deputies. "I want thought, focus on the realm of possibilities, and how we can work with partners to come up with different and better outcomes. You won't get that through extrapolation of old data."

While adhering strictly to his reliance on forecasting versus predicting as a better tool for hospital and health system leaders, pressed for a prediction of his own should they not embrace the principles of forecasting, Bauer relents, a little.

"My current prediction for the future of healthcare is pretty dismal," he says. "I predict 35% of the organizations in healthcare today will not be in business two to five years from now because they want to hold on to a totally irrelevant 20th century health system."