06/06/2013 10:50 am ET Updated Aug 06, 2013

Physicians Need Knowledge of Business Skills to Drive Critical Health Care Industry Change

It's been more than three months since sequestration triggered automatic, across-the-board federal spending cuts. The cuts, a result of the inability of the so-called "super committee" to reach consensus in November 2011, will total $85 billion through September and $1.2 trillion over the next 10 years.

The ramifications are wide ranging, yet the general public didn't seem to take real interest until furloughs for air-traffic controllers grounded or delayed thousands of flights in April. Congress eventually stepped in with new legislation to end the furloughs, and the sequester effects have received little national media attention since.

If Americans thought the flight delays were a burden, the sequester's full brunt on our health care system will be more painful. It's going to require health systems that are more nimble and can deliver better care at lower costs, and at the same time build a learning organization that reduces waste and inefficiencies.

One of the first signs of the impact on health care came in media coverage about cuts to Medicare providers, illustrated by cancer clinics that were turning away patients and instead sending them to hospitals for care. While Medicaid is exempt from sequester cuts, the 2 percent reduction in Medicare reimbursements is cutting a broad swath across the nation's health care environment -- and not just on doctors treating cancer patients.

Last year the American Hospital Association and the American Medical Association issued a joint report stating that up to 776,000 industry jobs could be lost by 2021 if the sequester took effect. The first big layoff announcement came in mid-April when the Detroit Medical Center said it would cut up to 300 jobs. Even the venerable Mayo Clinic stands to lose $47 million annually because of the rate decrease, though its president and CEO, John Noseworthy, has indicated that laying off employees would be a last resort in bridging any budget gap.

All of this comes amid a record number of acquisitions of independent practices by large health systems and ahead of the deadlines for implementing the complex policies of the Affordable Care Act -- particularly those related to reimbursement.

The unexpected disruption in funding for hospitals and physicians, and its consequences, taken with unprecedented healthcare reform, highlights the critical need to create an intersection where business and medicine come together -- and quickly.

Outside of the health care field, businesses deal with similar challenges caused by the sequester. Competitive businesses do not always implement mass layoffs when navigating unexpected short-term price reductions, especially when maintaining high-value employees is part of a competitive strategy that is critical to retaining market share. Businesses, too, have to respond to changing federal, state and local policies and laws that affect their strategies for sustainability and growth.

So how do successful businesses prepare for such uncertainties?

They develop agile internal capabilities and align their suppliers to share the risks and rewards of changing market dynamics. To become agile, they use different approaches to achieve the same end, including implementing IT systems to facilitate better-consolidated planning and forecasting, developing a continuous improvement culture, and building accountability into an empowered decision-making structure. These approaches frequently lead to superior financial performance in the most competitive and complex global markets.

Integrating these practices into health care requires physicians, nurses, pharmacists and other clinicians to be trained in the business of medicine. It can't start and stop with streamlining administrative paperwork to reduce costs. It must begin with the way in which healthcare is delivered, and how suppliers support clinical care.

With health care reform looming, sudden changes in the marketplace are likely to be more common. Adopting proven business practices and educating transformational physician and clinician leaders may be the only strategy that drives critically important long-term systematic change.

Vicki Smith-Daniels is faculty chair of Graduate Business Programs in Medicine and professor of operations and supply chain management at Indiana University's Kelley School of Business.