The chief operating officer of a small Minnesota health system says that small organizations can—and must—be among the leaders of the transformation from volume- to value-based healthcare businesses.
Michael Phelps—no, not that Michael Phelps—is convinced his small health system in Minnesota won't be left behind as its healthcare customers seek greater quality and value in the services they consume.
As I've mentioned many times before in this space, transforming from a volume-based business to a value-based one is monumentally complex. Most small systems are following the trend, rather than leading it, often out of necessity.
Phelps, who's the chief operating officer at Ridgeview Medical Center and Ridgeview Clinics in Waconia, MN, a small organization by most standards, has a different take. He says that small systems can—and must—be among the leaders of the transformation.
In a small system with a commensurately small war chest, however, it must be done selectively, choosing which modifications to the business model will work well in a future of value-based purchasing of healthcare services, as well as which will improve quality or efficiency regardless of the payer reimbursement protocol.
By changing rapidly, he risks being early, he risks that his system's initiatives will miss their targets, and he risks that Ridgeview won't be able to compete with bigger health systems despite the investments. In other words, he characterizes the health system's business strategy bets as "life-and-death." But he contends that these choices must be made—leadership won't stand by as the health system becomes an anachronism.
In case you missed my story in this month's HealthLeaders magazine, Phelps was my lead source. He represents an organization that, while simultaneously resisting the siren call of acquisition, is taking advantage of the way healthcare is consumed in a system where value is the currency of growth.
Ridgeview's early results are an example of what can be accomplished, he says. The health system stands out because it is doing something about the worry that small community hospitals and health systems soon won't be able to compete with regional or even national giants.
The light at the end of the tunnel that Phelps sees involves envisioning a future where small organizations can thrive—and then creating it. That's the only way to compete with systems that are growing through acquisition. Additionally, with an accountable and transparent healthcare organization, you can partner with bigger systems.
Ridgeview's ACO strategy revolves around a wholly owned subsidiary of the health system. In the worst case, that arrangement allows the system to enter limited value-based agreements with payers and independent physicians. However, Phelps is shooting for a bigger goal.
"The upside would be that we could enter total cost of care contracts and change the way we deliver care," he says. "Also, it allows us to create relationships with independent physicians that are just short of ownership and joint venturing."
He's careful about spending big. Not only does a project have to meet return-on-investment targets, but it also has to have a downstream impact to other areas of the organization. For example, it has to do something to improve coordination, help the previously uninsured obtain coverage through the healthcare marketplace, or help them choose a personal or family physician.
Phelps is convinced that such downstream benefits have come through Ridgeview's construction of a freestanding emergency room and urgent care center.
As for growth, the system sees rural opportunities in its region west of Minneapolis and is defending its market share through acquisition of its own. It is in the process of acquiring a critical access hospital that's 15 miles away from the Mayo Clinic "because we own that market share," he says.
"Can we leverage the critical access market? We're actually putting together the final pieces of a partnership with a post-acute organization that involves some memory care, elder housing, and transitional care," he says. "Again, that's back to point on taking risk. We've looked at things like this as an investment diversification strategy."
Because of its size relative to its competitors, Ridgeview had been at a strategic disadvantage in contract negotiations with private payers. But what was in the past a disadvantage, is now a strategic advantage, says Phelps, as the lower relative reimbursement forced Ridgeview to be "lean," while many competitors are only now beginning that journey.
"We haven't had the luxury of what the large market gets," he says. "There are models now that will hopefully let us leverage that through the public exchanges or even private exchanges such as the one we have with Medica (a Minnesota health plan). We're the low-cost option. That will help our community based ACO model to have a larger economic footprint."
Its geography and independence are stepping stones toward more accountable care and a reimbursement regime that will help Ridgeview thrive, Phelps says.
"We're in a desirable mix of urban and rural markets that are part of the referral sources for the big guys," he says. "Everyone wants a piece of you and it puts you in a good negotiating position."
An example of a project that wouldn't have been possible without independence and that good negotiating position is a neonatal ICU started at Ridgeview in a partnership with two children's hospitals.
"We ended up with great relationships with children's hospitals and clinics in Minneapolis," he says. "Our independence is the critical thing that got that here."
All this to say that if you lead a small health system like Phelps, you do have options besides being acquired by a bigger partner. You just have to actively seek them out and execute on them, because time is not on your side.
Philip Betbeze is the senior leadership editor at HealthLeaders.