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Red-Tape Mandates Spark Innovation

Philip Betbeze, for HealthLeaders Media, March 20, 2012
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Revenue on the wane

While that is a laudable goal, and sorely needed in healthcare, leaders are challenged by the fact that all of this re-engineering must take place not only under a backdrop of declining reimbursements, but essentially simultaneously, making the tasks more difficult and expensive. However, without mechanisms to punish healthcare organizations for noncompliance, the goal would likely be unachievable.

Like many healthcare organizations, CHI loses money on Medicare patients. So senior leadership is implementing a variety of solutions to become more cost effective, Rowan says.

"In the past we've done some significant cost cutting and we, like most others, have done that by going after the administrative, back-office stuff," he says.

In 2009, through those efforts, CHI cut $250 million in costs from the system, which has $9.6 billion in total annual operating revenues.

"That improved our financial performance in the trough of the recession and got us to a place where we were able to absorb decreases in reimbursement," Rowan says. "But now we're back there again, and there's a limit to how cheap you're going to buy Band-Aids."

Since the relatively easy work in the back office has already been significantly accomplished, CHI's work on information systems and, more important, changes in the ways its clinical personnel interact with the patient and the patient's information, is what's most critical now.

"The real opportunities are not in those back-office areas anymore," he says. "The primary cost drivers are actual clinical processes because that generates 85% of the cost of care." 

Necessary investments, uncertain return

Spectrum Health, a Grand Rapids, MI–based integrated delivery system with nine hospitals, a health plan, a medical group, and various ancillary services, seems well-positioned structurally to deal with many of the regulations, which are meant to encourage more specific diagnoses (ICD-10) and coordinated care (VBP and, to an extent, the HITECH Act). However, even with the advantages of an IDS, the organization is far less integrated than it needs to be, says Joe Fifer, vice president of finance with Spectrum Health's Hospital Group.

He says the system is spending investment capital to redesign how care is delivered throughout the organization and is especially investing in acquiring primary care capabilities.

"We're not only employing physicians but we are redesigning how care is delivered in a primary care setting," he says. "It's simple in concept but really challenging. It's directionally correct, but it sucks up resources—time, energy, and money—to break down some of these fragments that have been there for multiple generations."

Still, there is an element of faith in some of the investments they're making because of regulations. 

"We know financial pressures will continue," says Fifer. "We like to think that investing in what is truly an integrated health system from insurance to care delivery is the right direction, and outcomes will be better. As time passes, more care will be delivered entirely within our health system."

At CHI, Rowan says the leadership team's response to the new regulations will not only allow it to further streamline its operations, but also will position CHI to compete with other healthcare organizations on a risk basis, something hospitals and health systems have previously only done in unusual circumstances. He predicts that the data and coordination the organization will be able to achieve will allow widespread risk-based contracting directly with employers and third-party payers.

"Going at risk is important. For example, if we have a group of patients where it currently costs $15,000 for an episode of care, if we do it right, could we bring it down to $12,000 and commit to it and keep a piece of that savings?"

He thinks the answer is yes, and with expanded hiring of people in leadership areas with risk-based contracting experience, coupled with the data mining capabilities that will come from reaching meaningful use targets, CHI will eventually get into managing population health. That will allow it to approach large employers and make a contract offer based on their employees' epidemiology and cost of care.

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1 comments on "Red-Tape Mandates Spark Innovation"


S Daniels (3/20/2012 at 11:17 AM)
For whatever reason, hospital execs still ignor the 800 lb gorilla in the room.....physician practice behaviors. If the hospital wants to bring cost per case down from $15000 to $12000 they don't have to look furthr than individual physician practice profiles. The opportunities are there for all to see.