I spend the majority of my time talking to the nation's top healthcare financial leaders, reading the latest healthcare research and pulling it all together in articles and webcasts.
Doing so has given me a great education on this industry, and at the end of the year I like to reflect on what I've learned and which organizations' approaches made lasting impressions on me. So, here are my top three takeaways from 2012: I hope you find them useful as you move into the new year.
1.Healthcare is entering a renaissance. From a financial standpoint, 2012 and 2013 may feel more like Armageddon, but healthcare is really preparing for its rebirth. This offers many positives for patient care, such as better quality and a more patient-centered approach.
Nevertheless as with most reinventions, challenges are to be expected. I've noticed that the hospitals that are best positioned to thrive in the value-based care future haven't gotten through this limbo-like period quickly.
Most of what the "new" healthcare is about is actually old healthcare in need of retooling in order to serve greater numbers of people. Accountable Care Organizations and population health management aren't new, but if implemented now, an organization can tweak its approach to help reduce costs before the payment model shifts away from fee-for-service.
Unfortunately, until the payment model completes its transition in 2014, CFOs should anticipate financial losses. But there is money to be earned in the future by establishing a model now—that's a take-away from Kevin Vermeer, executive vice president and CFO at Iowa Health System.
"We fully expect that our revenue is going to go down," he explained at the 2012 American Medical Group Association annual conference in San Diego last March. Iowa Health System, an integrated 26-hospital system headquartered in Des Moines, has taken the population health leap already by expanding its existing ACO.
It is using a variety of methods to sustain that decision financially, including developing Iowa's first commercial ACO with Wellmark Blue Cross and Blue Shield of Iowa. It has also agreed to create ACO organizations in four other markets across the state and two Iowa Health affiliates operate a Centers for Medicare and Medicaid Services Pioneer ACO.
Any effort to move forward, however, begins by getting data. Organizations will need quality and patient satisfaction metrics to help construct bundled payment agreements with payers. Moreover, healthcare organization must also figure out how to calculate physician pay for spending more time with patients on preventative care. Well, I said this transition would be challenging.
2.Don't make quick cuts; make strategic, sustainable cuts. Beaumont Health System president and CEO Gene Michalski understands sustainable cost reduction, that point was clear to me when I interviewed him this year.
"We've had a long history of pruning the tree, but about every three years or so cost creep occurs, so getting perpetual cost-saving involved pruning the tree frequently," he said. Michalski wasn't interested in making the same cuts repeatedly. He decided it was time to change BHS's approach.
"For us that [pruning process] evolved into share-of-saving and value management," said Michalski. To solve the problem, BHS undertook a patient-focused process improvement effort across its three, south Michigan hospitals.
Doing so led BHS to reduce and maintain an average patient care cost reduction of 11% over four years from 2007 to 2010, according to Hospital Compare data.
Achieving this magnitude of savings wasn't the hard part. The hard part was structuring changes in a sustainable way, according to Michalski. Sustainable cost reduction requires organizations to shed the reactive, tactical approach that has been the norm for years, and instead make deliberate, strategic changes that permanently reduce costs.
3. Consolidation isn't the only answer. In healthcare today, growth isn't just about market share and margin; it's about developing an integrated network that can provide coordinated care to ultimately reduce healthcare costs.
To arrive at that end, financial leaders must calculate the path to growth: physician employment, joint venture, or merger/acquisition. A blend of all of these is what many organizations are using, but structuring contracts that foster alignment between parties is often the neglected ingredient. That can turn a service line gap solution into a big problem.
I've written extensively about hospital-physician alignment and one organization's approach stands out: Health Quest, a three-hospital system in Lagrangeville, NY. It designed compensation and incentive structures that focus on quality to drive alignment.
Other organizations are also doing this, but what makes Health Quest's approach unique is that it has worked with its physicians to determine the metrics used to measure quality.
Moreover, Health Quest created a management team consisting of a physician and administrator to run its service lines. Physician bonuses are based 70% on quality and 30% on patient satisfaction for five agreed-upon metrics. The percentage of bonus paid to each physician is based on whether the participant reaches a baseline goal, a target goal, or a stretch goal.
"We see the benefit as really getting the doctors involved now in the development of [quality] metrics [to track]. Ultimately that's really going to be better for the patient and better for our quality," explained David Ping, Health Quest's senior vice president of strategic planning and business development.
In early 2012, HealthLeaders released a mergers and acquisitions report which noted that nearly 80% of healthcare leaders intended to have M&A deals under way or would be exploring deals within 12-18 months.
It isn't enough to know that a service line gap must be filled. Organizations need to fill the gap while strengthening the organization's position overall. Take a page from the Health Quest notebook and prepare your agreements with organizational goals and alignment in mind and get your physicians in on the process.
Next year is going to be a challenging one for everyone in healthcare, with more than a few new tasks to tackle. Unfortunately, no healthcare or governmental organization has figured out the formula that will work at all hospitals to help deliver patients better care at lower costs.
Nevertheless, by following the lead of some of healthcare's frontrunners, other providers may be better prepared for what lay ahead.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
