By strategically investing in EHR, creating a financial plan around taking risk, and establishing both a physician leadership institute and a business unit for innovation, an independent Pennsylvania health system shores up its finances for whatever the future may hold.
The consolidation of healthcare organizations has been the trend for years and shows no signs of slowing down. As providers are squeezed by myriad financial pressures—from the need to invest heavily in electronic health records and other IT capabilities to the desire to redesign care delivery models in the face of value-based reimbursements—staying independent is becoming tougher to do.
Yet, some hospitals and health systems are resisting the mergers and acquisitions path and finding strategies to remain autonomous.
See Also: The Benefits (and Costs) of Consolidation
Looking Within the Organization for Opportunities
One key to being able to go it alone is to do predictive modeling in order to be nimble enough to handle a number of simultaneous financial challenges, says Thomas E. Beeman, PhD, president and CEO at Lancaster (PA) General Health, an independent institution with 690 beds and nearly $1 billion in total fiscal year 2013 revenues.
"About four or five years ago, we engaged in scenario planning with about 100 senior leaders, board members, and physician leaders with the help of an outside [consultant] to play out four possible scenarios of what the future might look like," Beeman told me. The variables that were considered, he said, included changes in Medicare payment rates and new reimbursement models.
From this planning process, LG Health made the decision to invest in an EHR that positions it for the next steps in population health management. LG Health also established its physician leadership institute through which 16 physicians are currently enrolled in a hospital-sponsored MBA program.
And the health system launched a separate company called Lancaster General Innovations, which is designed to "help create solutions to some of these problems we were facing," Beeman says.
"All of these initiatives put us in a financial situation that allows us to remain independent at this time," he said.
See Also: Small Doesn't Mean Doomed
In addition to strengthening its financial position, Beeman says the predictive modeling allows LG Health to be flexible in responding quickly to changing reimbursement conditions because many of the what-ifs have already been thought through. "We are able to change the tires while the car is moving," is how he describes it.
Some of the most important modeling LG Health has done is around risk-based reimbursement and what it will mean to the organization's bottom line in the near future.
"We know we are going to get into some of those risk relationships, and that we are going to have some wins and some losses," Beeman says.
To start preparing, LG Health hired an outside actuary to help it do the math—something Beeman sees as crucial for all healthcare organizations.
"The actuary helped us create a financial plan around taking risk and helped us to figure out what kinds of discounts we need in order to be successful and how much risk we can take on," he says. "Payers don't even have that information for you. Unless you have your own actuarial model, you could just collapse."
Beeman says LG Health is taking a "toe in the water" approach to risk-based contracting now so it can learn about the model gradually before the industry moves more fully to value-based purchasing.
"We wanted to get into it in a smaller way so we can tweak it so that when we really are in a different marketplace in the next three to five years, we have a better understanding of that model," he says. "We have an enormously talented group of physicians here … and they have given me tremendous confidence that the care providers that we have here will be well-positioned as an organization to respond to value-based reimbursements."
Looking Outside the Organization for Opportunities
LG Health is also looking outside its own walls for strategic partnership opportunities. The organization is a charter member of AllSpire Health Partners, a network of seven health systems in Pennsylvania and New Jersey that was formed last September.
"You don't have to be a rocket scientist…to know there is safety in numbers and that you have to figure out ways to take costs out of healthcare," Beeman says of AllSpire.
Beeman expects that forming this partnership with other regional providers will allow LG Health to share best practices, combine clinical resources, coordinate IT efforts, strengthen supply chain purchasing power, and reduce the overall cost of providing care to patients.
For example, one idea that is being considered by the AllSpires board is the possibility of consolidating reference laboratory services, Beeman says. "There may be an opportunity to start one mega regional lab where we can do something to take out costs and improve quality."
"In this kind of partnership, trust is paramount," he adds. "The good news may be that the seven CEOs have a combined 200 years of experience in healthcare. That helps because we are not trying to prove anything other than to leave a legacy of value for the organizations that we helped develop."
LG Health also has a strategic alliance with the University of Pennsylvania Health System to develop initiatives around improving patient care and lowering costs.
Beeman believes the relationship will allow LG Health to provide expedited care to patients who require special services. "We have a pretty large enterprise here, but Penn is much larger. We have a lot of clinical capabilities, and we do a lot of research, but it's nowhere near the level of the university. Our providers are used to referring to Penn, and in the new world of population health, it's a win-win to have a trusted colleague you can work with. Penn fits that bill."
M&A Still Possible in the Future
Despite all these efforts, it may not be possible for LG Health to remain independent forever given all the changes that are taking hold in the healthcare industry, Beeman acknowledges. But shoring up the organization's finances through these internal and external strategies will put it in a position of strength if the time does come to consider M&A.
"We've always felt we had to maintain a strong cash position on the balance sheet, and we have done that. We want to keep our AA bond rating so we have access to capital when and if we need it," he says. "We're not naïve enough to think our independence can last forever, but we want to be assured that if we ever do decide to integrate with another system that we do so in a strong position rather than a weak position."