Healthcare leaders put an enormous amount of time and money into physician recruitment, yet retention is often still an afterthought. If CFOs analyze the cost of turnover, they will likely find that millions of dollars are being lost due to poor physician retention.
Fortunately, correcting the problem isn't necessarily costly, though it does require building an accountable team and an action plan. Here's how Baystate Health in western Massachusetts tackled turnover and reduced it by a third in one year.
Baystate Health, a not-for-profit, three-hospital integrated delivery system serving much of western New England, identified physician recruitment as a key strategic need a while ago. On average, the system fills 60 physician slots annually, at a relatively low cost of $15,000 per recruit.
The organization's six-person in-house recruiting department has paid off when it comes to quickly finding and filling positions. But the team's success meant others in the organization didn't recognize another growing problem: physician turnover.
"We have a well-oiled physician recruiting team, so when we'd lose a doctor, we get a call saying basically, 'I want to order another physician,' says John Larson, Baystate's director of physician and advance practitioner recruitment.
In 2009, he says, "We're hearing about the physician shortage, though not yet experiencing it, and I'm thinking this situation has got to change. It's going to get harder to find physicians."
That year, Baystate's turnover hit 9.2%—far above the national average at the time, which was 5.9%, according to the American Medical Group Association. Even worse, says Larson, 39% of the physicians leaving the organization had been there for less than three years; the AMGA national average was 46% at that time.
"That was unacceptable. We did a cost of turnover analysis and we were losing a lot of money," he says. The Association of American Medical Colleges estimates organizations lose $115,000 when a general practitioner leaves and $200,000 for a specialist. However, Larson adds, "If you calculate the patients that leave when a physician does and other hard and soft costs, it can be as much as a $1.2 million loss to the organization for one provider."
For Baystate, "the future success of the organization meant we needed to make a paradigm shift in how we approached retention," he says.
First, Baystate pulled together physician leaders and practice managers at a retreat. The 20 attendees became the organization's retention task force. The group created six processes and guidelines for recruiting and retaining physicians. A major emphasis of these strategies was to make providers feel valued and recognized.
Hire for cultural fit—Behavioral-event questions, which ask interviewees how they dealt with difficult situations, were added to the interview process to gauge how a candidate's personality and attitudes would fit within the department and organization.
Optimize on-boarding practices—The task force developed a pre-hire to post-hire checklist to ensure that new employees were guided through the first few months at the organization. Check-in and introduction meetings were made mandatory for managers.
Establish a buddy program—Rather than use a senior member of the team as a mentor, the task force decided that a buddy fit the culture of the organization better. This could be any member of the physician staff.
Build social and community connections for the family—Baystate began hosting family events, such as trips to outdoor music concerts, to encourage a stronger connection between the new physician, his/her family, and the other physicians and community. "This is where we spent a little money," Larson says. "The whole retention program cost maybe $25,000. And some events we funded, others we didn't. We helped schedule them but made it clear that these were events that the employees had to pay for to participate in."
Build leadership—Not every boss is a natural leader, Larson says, so the task force developed a list of expectations for the physician leaders, including:
Get to know the physician personally
Set clear expectations
Give feedback
Provide recognition
Listen
Provide opportunities for the physician to influence and be involved in the work environment
Hold the entire team accountable for effective on-boarding of new physicians
Help the physician and their families adjust to new environments
Create a "workplace of choice"—This entails ensuring that fundamental needs for work, such as autonomy and a sense of belonging, are being met, Larson says.
Just a month after the retreat, Baystate Health enacted the retention plan. "These aren't rocket science and everyone was in agreement we needed to do this," Larson says. "But then we hit the next hurdle: accountability."
Larson and his team decided to do check-ins with new hires to see how the plan was working. "We'd ask the candidates if they received a welcome letter from their supervisor before they started; did they get the 30-day follow-up with administration; or even how was the CIS training. Then we'd go back to the manager, department head, or practice and point out the areas that needed tweaking. We wanted to make everyone accountable for this plan," he says.
The new retention strategy and accountability worked. Within a year, Baystate reduced turnover by over a third, from 9.2% to 5.7%.
But the struggle to keep physician retention down never ends. Larson says the next step is to bring the issue to Baystate's board and involve them in future activities to reduce turnover.
"[Retention strategies] require a cultural shift by all involved—some embrace it more quickly than others. We don't want this to be a compliance activity; rather it should be something people do because it's what should be done. We are looking to our board for more ideas on how we can move this program forward," he says.
By assessing organizational turnover and creating a retention strategy, financial leaders can potentially save millions and build a solid foundation for future growth. For more on recruitment and retention strategies, check out HealthLeaders Media's webcast next week.
It may be hard for healthcare CFOs to envision sitting around a table with nearby competitors, having a detailed discussion about what doesn't work at your organization. Yet collaboration can result in shared ideas and even shared costs for programs that save money and improve services.
It's happening in North Carolina, where a Lean initiative shared among several community hospitals is boosting their quality of care, slashing millions in costs, and laying the foundation to unify that state's healthcare community. The result for one hospital was an ROI of nearly 5-to-1 in the first year alone.
Three years ago, Jeff Spade, FACHE, senior vice president of the North Carolina Hospital Association and executive director for the North Carolina Center for Rural Health Innovation and Performance, set out to get as many healthcare providers as possible to adopt Lean management methods, as part of his goal to create high-performing hospitals and health systems in the state.
Lean techniques for cutting costs and boosting productivity by eliminating waste and improving processes are widespread in hospitals. In a recently released HealthLeaders Media survey on cost containment, 50% of healthcare organizations say they use lean as an efficiency technique.
Yet many Lean programs are limited to departments within hospitals and health systems rather than being implemented on an organization-wide level. Major cultural and leadership shifts are required to implement Lean, along with a significant upfront cost for training staff.
Lean methods make great sense for rural hospitals, Spade says. "Rural hospitals are disadvantaged financially. They tend to serve a large number of uninsured, Medicare and Medicaid, and that can make it more difficult for these organizations to survive over time. So I was looking for an idea that could bring the group improvement in their finances as well as improve their capacity for the population they serve," he says. "Plus, we wanted a model that could be shared collaboratively, so it didn't have to be customized by each hospital. Lean gave us that."
But getting the first five pilot hospitals in place would require equal parts inspiration, perspiration, and non-hospital funding. To build interest, Spade invited experienced Lean representatives from other hospitals to share their lessons and success stories. Then he held informal workshops and learning sessions with hospital executives from his association.
Next he tackled the main objection most financial leaders have against Lean programs: the upfront cost for training. Usually, the six month training involves a Lean consultant who educates key managers and executives. It's a step that is crucial to driving the cultural change needed to establish a Lean environment. Instead of hiring individual Lean consultants,however, Spade and the first group of five hospitals—called the Western North Carolina Lean Collaborative—agreed to pool resources and train together. The five pilot hospitals were Caldwell Memorial in Lenoir, Ashe Memorial in Jefferson, Cannon Memorial in Linville, Blue Ridge Regional Hospital in Spruce Pine, and McDowell Hospital in Marion.
"Our state and many others have figured out that strong collaboration is necessary in order to transform healthcare. So rather than look at each other as competitors, we need to work together and we have to share what works well," he says.
Along with the pooled resources from the hospitals, a third of the training cost was funded by state and federal money and the Duke Endowment. Each hospital was required to hire a designated Lean coordinator to manage the project, and each CEO had to commit to driving an organization-wide cultural change toward Lean process improvement.
As it turned out, by combining on training the hospitals not only saved money, but they were also able to short-cut the Lean implementation process, Spade says.
"Dealing with a culture shift is intimidating. You're messing with the basic DNA. … But all of these hospitals were dealing with the same problems. So if one hospital was having a problem in a specific department, then more than likely one of the other hospital had already addressed it. They could help each other get past the implementation problems more quickly," he says.
Proving ROI was an important part of the pilot programs. "One of the goals of our model was to prove that making the investment in Lean would bring the return," Spade says. "We wanted to give other hospitals' good evidence that investing in Lean now means in a year's time you will get at least a 2-to-1 return on your investment."
But getting past the startup period meant the hospitals could reach the results sooner. Initially Spade estimated two years before the collaborative would earn the return from Lean. Instead, the combined efforts of the five hospitals brought about significant financial and process improvement returns in one year. For instance, at 72-bed Caldwell Memorial, the initial investment was nearly $500,000, but the hospital's cost savings from Lean was nearly $2.3 million in year one.
Beyond the savings, Caldwell measured several performance improvements:
70% increase in the proportion of pre-registered imaging patients
50% improvement for inpatient bed preparation time
40% reduction in time for operating room preparation
35% reduction in laboratory turnaround time in the emergency department
40% improvement in radiology process time in the ED
50% improvement in time to initial treatment in the ED
One year after the Western North Carolina Lean Collaborative program launched, six more hospitals came together to launch the Eastern North Carolina Lean Collaborative program, comprising Samson Regional Hospital in Clinton, Columbus Regional Healthcare System in Whiteville, Bladen County Hospital in Elizabethtown, Duplin General Hospital in Kenansville, Dosher Memorial Hospital in Southport, and Johnston County Health in Smithfield.
As Lean gains ground at these hospitals, the next wave is to push Lean deeper into the healthcare community. "My next vision is to take this out into the whole supply chain for healthcare. So, if you're a patient, your primary care or home health is operating Lean," he says.
To that end, Spade who also serves on the board of the North Carolina Department of Public Health, has guided the implementation of the Lean methodology at all 85 of the state's departments of public health. Others in the program have also begun spreading Lean concepts, too. For instance, Caldwell Memorial has started working with area safety net organizations, such as free clinics and primary care practices, to teach them how to apply Lean principles.
"We want this to spread into the whole healthcare value stream," Spade says. "The ultimate goal is to use Lean throughout the community to improve care. You have to get the Lean principles out to the physicians, to the organization managers, to the community health centers to really make the change complete. You have to get all the stakeholders to come together so we can design a better overall health system, not just a leaner hospital."
Spade's Lean gospel is expanding beyond North Carolina, too; hospitals from Nebraska and Oregon are now using his model to help their hospitals become more efficient. For healthcare financial leaders looking to take their organization Lean but uncertain how to fund the effort, learn from Spade's collaboration: Work with other healthcare organization—even your competitors—to create a Lean learning collaborative. You have nothing to lose but process inefficiency and waste.
This article appears in the November 2011 issue of HealthLeaders magazine.
With a struggling economy and imminent Medicare and Medicaid reimbursement cuts, physician practices nationwide are embracing employment at the hospitals and health systems they once eschewed. Doctors are being warmly welcomed by healthcare organizations eager to augment market share and leverage large numbers of employed physicians for payer rate negotiations. With growing numbers of physicians joining hospitals and health systems, how does the shift from independence affect the physician, the hospital, and the patient?
In the September 2011 HealthLeaders Media Intelligence Report Physician Alignment: The Collaborative Care Disconnect, 67% of survey respondents said they had received an increase in requests for employment from physicians. In the same report, 70% of healthcare leaders responded that they were planning to employ a greater percentage of physicians in the next 12 to 36 months, and they have been doing so.
Though employing physicians is often heralded as a smart path for hospital and healthcare system growth, does it mean the end of the independent physician? Moreover, what can having a large number of employed physicians mean for patient care and reimbursement rates?
“I don’t know if it will be the complete demise of the independent physician, but I think the economic environment and regulatory one is driving physicians to look for something else other than independent practice,” says Mark Nantz, CEO at Bon Secours St. Francis Health System in Greenville, SC, which is part of the Marriottsville, MD–based Bon Secours Health System, a $2.9 billion Catholic nonprofit that owns, manages, or joint ventures with 18 acute care hospitals in seven states, and owns many other types of healthcare facilities. Bon Secours St. Francis currently employs 225 of the 650 physicians who work on site.
“The reimbursement cuts hurt these [independent] physicians. Plus, there’s strength in numbers and these physicians are looking for some strength when it comes to their [payer] contracting—getting a negotiation position of influence when you’re a one- to two-doctor practice is hard to do,” explains Nantz. The physician trend of seeking employment at hospitals or systems over the past few years, he says, is not entirely unexpected, however. He believes it is an intended result of healthcare reform and reimbursement efforts.
“The opinion is widely held that the actions by the federal and state governments to cut payments are not just about budget deficits and controlling utilization; they were intentionally designed to drive a lot of physicians into an employed mode,” Nantz says. “If you make the number of players in the market smaller, it’s easier for the government to effect change. So it will be put on the large healthcare systems then to work in partnership with doctors to determine what the new standards of care will become.”
Max Reiboldt, CPA, is president and CEO of Coker Group in Atlanta; he agrees that more than economics are driving this shift in physician employment.
“From the physician’s perspective it is generally of greater financial benefit in the nearer term to be employed ... Hospitals aren’t experiencing as great reimbursement reductions yet, and may not,” he says. Though in the past the reason a hospital sought to employ specialists was to build service lines, such as cardiac or cancer care, Reiboldt says that now more frequently primary care physicians are being added to help capture referrals and to build an accountable care organization.
“Generally, when a hospital has the opportunity to acquire [a practice] they take it because they can increase market share of an ancillary, and essentially in doing so they are taking out a competitor,” says Reiboldt. “But there’s a macro issue at play with the healthcare reform legislation; it’s the introduction of the ACO and the changing reimbursement paradigm.
ACOs are only able to be formed as a result of a large ‘mega-group’ or significant number of physicians clinically integrated with a health system. Through the clinical integration, they need financial integration, and for that to happen it needs to be done through employment or a close-to-employment agreement. So, [the healthcare reform legislation] is driving the consolidation of hospitals and practices.”
Employing a large number of physicians is generally viewed by healthcare leaders as a mark of a hospital’s financial strength, not only for the referrals and income generated but also for the negotiating leverage a large network can use with payers.
“As you look to the future for most standalone entities and look at the level of [financial] support needed to continue to be a standalone, it will be tough [for these entities to survive],” says Jerry Youkey, MD, vice president for medical and academic services at Greenville (SC) Hospital System University Medical Center and dean of University of South Carolina School of Medicine–Greenville.
Nonprofit GHS employs 566 of its 1,200 physicians and is one of the largest hospitals in a market that has been employing physicians for at least two decades.
“Employing physicians is the most significant strategy for any organization these days. You must build an effective primary care and specialty care network,” Nantz says. “You’ve got to have the patients, and therefore you’ve got to have the physicians. And the physician-hospital employed model is the most likely relationship to encourage doctors to lead the charge toward [care] transformation—so we can all survive and thrive in a post-reform environment.”
Unquestionably, employing physicians is good for a hospital’s market share and the physician’s financial stability, and it also can have an impact on patient care. “Employment has the likelihood of eliminating duplicate and often not needed service offerings within a healthcare community,” says Nantz.
Moreover, he explains the physicians now have access to a common computer system that can help to defragment a patient’s care and prevent redundant tests. “If we keep the patient within the system, everyone has access to the same information and [patients] can pass easily through the system. We reduce duplicate tests and make sure they receive more efficient and thorough care,” Nantz says.
Essentially, the employed physician refers within network, thus improving the continuity of care and the hospital’s efficiency by preventing the unnecessary duplication of services. Fewer unnecessary tests also results in a decrease in cost for the payers and patients.
“We believe that by having a large hospital system and medical group that you not only have market leverage, but that gives us the ability to work with the payers to identify where we can partner to reduce costs and the number of initiatives,” says Greg Rusnak, COO at GHS. “We are aligning our group to focus on outcomes, cost of care, and patient satisfaction. You can’t do that without physicians being integrated and to the degree you do that it can have an effect on market share.”
Payer leverage is what most hospitals are striving for, says Nantz, and payers are looking for a strong comprehensive physician network to give beneficiaries access to the doctors they want.
Heated negotiations between a payer and a provider can leave patients caught in the middle. Such was the case with Select Health of South Carolina, which lost access to GHS’ network and physicians when the pair had a payment rate dispute in 2010. GHS dropped the contract, resulting in patients needing to be referred to a hospital 90 miles away for certain services, such as pediatric inpatient and subspecialty care.
Reiboldt says the natural forces at work within the market will keep this situation in check. Indeed, earlier this year, the American Medical Association released a statement to the Subcommittee on Health of the U.S. House Ways and Means Committee stating that the consolidation of the insurance industry could “exacerbate the harm caused by the exercise of market power.” As Nantz suggested earlier, employing physicians helps strengthen the negotiation power of the provider to equal that of a payer in the market.
How much, or if, individual consumer cost of care could be influenced by the rise in physician employment is hard to discern and being carefully watched by lawmakers. However, Reiboldt says ultimately the individual markets will dictate. “I don’t think the employed physician is presenting any harm to quality of care or driving up prices. Competition between hospitals should keep prices at bay.”
This article appears in the November 2011 issue of HealthLeaders magazine.
What does the Congressional Super Committee's failure to come to consensus on a deficit reduction plan mean for healthcare financial leaders? For starters, CFOs will be taking a hard look at large capital spend projects in 2012 and beyond.
"You may not want to add that new wing because the cost of capital is about to go up," says Ken Perez, senior vice president of marketing and director of healthcare policy for MedeAnalytics, a performance management software vendor.
One week ago, leaders of the Joint Select Committee on Deficit Reduction, charged with finding at least $1.2 trillion in deficit reductions, failed to reach agreement on budgetary cuts. The stall triggers automatic cuts to a broad range of domestic programs, such as Medicare, starting in 2013.The committee's impasse is expected to reverberate through the economy. Economists and politicians agree that the lack of agreement on a debt reduction plan could slow economic growth significantly.
What's more, no swift solution is in sight. "There will be no easy off-ramps on this one," President Obama says. He has pledged to veto any legislation that would stop the automatic cuts.
The uncertainty at the federal level cascades down to individual hospitals. "I wasn't all that shocked nothing came out of the Super Committee. This [lack of consensus] just continues to make [CFOs] uncertain," says Robin LaBonte, CFO at the 79-bed York (ME) Hospital. "Not knowing what's going to happen [with the budget cuts] means we also don't know how to prepare our budgets for the coming year."
Although the full extent of the debt ceiling debacle will not be felt nationally until 2013, when the proportional cuts take effect, healthcare leaders could feel it sooner if capital lending rates increase.
Last week Standard & Poor's and Moody's affirmed their ratings of the United States' credit, but that can change at any time. Even without a credit downgrade, the committee's indecision could still result in interest rate increases, making it costlier for organizations to borrow money. Moreover, the heated and continual partisan rhetoric over the deficit creates a general economic anxiety which tends to cause financial leaders to pull back on capital spending projects.
For at least the last five years, healthcare CFOs have deferred large capital spend projects in an effort to reduce organizational debt. At many hospitals and health systems, the bare minimum of capital projects has been undertaken, with much of the capital going to technology, according to a 2011 HealthLeaders survey. Perez and LaBonte agree that the trend in capital spending for IT projects is likely to continue, but little other investment will likely be made over the next two years.
"We've been much more conservative with our capital project plans, and we try to fund them through donations, operations, or our own investments. Having debt makes you less flexible for the future, and right now with all the uncertainty, we need the flexibility to change when something comes our way," LaBonte says.
However, as equipment and facilities continue to age, could more delays jeopardize the overarching healthcare goal of improving features that impact patient quality of care?
"Hopefully organizations are prioritizing where they need to invest in order to achieve quality care," says LaBonte. "[But] organizations may have to be willing to put up with some risk in order to be very careful with capital planning."
Perez says secondary capital projects, such as adding another server or upgrading a boiler, are most likely to be put on hold. The need to optimize existing assets may spark a renewed focus on efficiency, he says.
"This becomes a re-engineering mission at the organization. You have to improve the efficiency of your existing assets—your people and your equipment. There are smart ways to improve operations and a lot of strategies available for organizations to use without having a massive infusion of capital," he says.
As the economic upheaval continues, it doesn't look like the coming year will bring opportunities for CFOs to loosen purse strings to upgrade aging facilities and equipment. Hope for the best, but anticipate the worst—that's what LaBonte is doing.
"We've been much more conservative with our capital project planning… and I think that's going to continue," she says. "I don't foresee any changes in the economy next year. CFOs are cautious with our plans." Caution is a good watchword for healthcare financial leaders heading into 2012.
When physician practices merge or integrate with hospitals or health systems, healthcare leaders say integration of practice teams and compensation are the biggest challenges. Trust ranks well down the list, according to a recently released HealthLeaders Media Intelligence Report. In reality, though, trust is at the heart of successful mergers of physician practices—and lack of trust contributes greatly to failure.
In "Physician Compensation: Shifting Incentives," 28% of healthcare leaders ranked integration with existing physician teams as the most challenging area for an acquisition. Compensation was the next concern; 23% of financial leaders cited integrating the acquired and acquiring practices compensation model, while 14% said the compensation expectation of the acquired physicians was the biggest issue. Trust was the number three hurdle (cited by 19%) of respondents), with governance issues (11%) rounding out the survey.
But integration, compensation, and governance issues in an acquisition all boil down to trust. Not only can an untrustworthy reputation (whether true or false) sour practice acquisition negotiations, it can ultimately slow the strategic growth of an organization.
"Physicians generally go into practice to be their own bosses; to be able to control their own destiny. As the world has changed around them, they realize that their original view of destiny is different from the reality and they're looking for ways to enhance their long-term future," explains Tom Gallagher, president and CEO of Seton Ventures and Alliances for the Austin, TX–based Seton Healthcare. Having completed numerous acquisitions over the years, not-for-profit Seton Healthcare is now the largest provider in Central Texas, consisting of five medical centers, two community hospitals, and two rural hospitals.
"There are lots of partnerships in terms of workshops at the hospital for physicians, but the physicians don't generally have a financial tie to the hospital. Trust is a more difficult commodity with that kind of a relationship," adds Gallagher.
Integration of physician practices depends a lot on trust. It's easy to get off on the wrong foot.
"There needs to be some sort of consistency in the deals. Though each deal is a little bit different, if you're bringing in a group of cardiologists and their deal is totally different than the last cardiology group's deal, you're going to end off with a big problem," says Robert Garrett, president and CEO of Hackensack University Medical Center in Hackensack, NJ. A not-for-profit teaching and research hospital, HUMC is the largest provider of inpatient and outpatient services in the state.
"At least in terms of overall structure there needs to be some consistency; however, within that structure, the hospital has to be somewhat flexible because one size does not fit all," Garrett adds.
Differences in compensation levels and structure between the acquiring and acquired entities are common. Negotiating these pitfalls requires trust, transparency, and a record of kept promises.
Gallagher says his organization typically brings physicians on board at their existing pay level, but sets the expectation that over time they will need to blend into the existing pay structure. "We're not going to ask people to take a reduction in pay to become part of our organization," he says. "But eventually there has to be some uniformity in the [hospital's] compensation structure, too."
For instance, a cardiology practice that's being acquired may be using a productivity-based compensation model based on volume metrics. However, the acquiring hospital may have a cardiology group that is using a productivity-based compensation model that includes volume, quality, and patient satisfaction metrics.
In this scenario, two problems could arise. First, if the newly acquired group's compensation structure causes the new doctors to earn more or less than the hospital's cardiology group, resentment and outright conflicts between the two teams can erupt. The hospital may need to adjust pay levels for new or existing physicians to arrive at parity. Second, in order to align the new practice with the hospital's strategic goal of achieving high quality care and an excellent patient experience, the acquired practice's compensation structure needs to be redesigned.
Transparency is the key, says Jeffrey D. Limbocker, CFO for the 700-bed Our Lady of the Lake Regional Medical Center in Baton Rouge, LA. "You have to set the [physicians'] expectations before the merger happens and make sure everyone understands all the complexities of the compensation model," he says.
Though governance ranks low on the list of CFOs' concerns in the Intelligence Report, it's the ultimate trust issue. "Then there's the governance issue, and I'd be nervous about this if I was in [physicians'] shoes too," Limbocker says. "Governance is the decision making; they need to understand who will decide what happens in the practice every day once the agreement is signed. Certain decisions the physicians used to make may now rest with the [hospital] CEO and the board."
Unfortunately, even if a hospital is trustworthy and transparent in its dealings, misunderstandings can still occur. It's a pitfall to watch for, says Garrett.
"From the physician's perspective, the biggest frustration would be that the hospital potentially could oversell the deal, in terms of how it's going to work. For the hospital, the biggest frustration is finding out the physician's expectations are different than the ones the hospital presented to them. Once the partnership goes into effect, if there's a difference of opinion in the terms, then each party will say the other didn't deliver on what was promised," he explains.
To stave off miscommunication and the resulting mistrust, it helps to be able to trade on a good reputation.
"The only way you can convince physicians to trust your organization is to have them talk to others who have gone before them," Gallagher says. "And you must deliver what you say you're going to deliver; it's something an organization has to do every time, so the physician doesn't have a reason to doubt what you're saying."
Got bad debt? Your payment system may be to blame. Out-of-pocket consumer spending on healthcare is increasing every year, which means healthcare systems and physician offices have many individual small payers to keep track of, as opposed to a few governmental contacts paying large amounts.
Some of these small payers will inevitably turn into bad debts. As more businesses shift employees onto high-deductible, consumer-directed health plans, healthcare organizations may see even more bad debt. Some portion of the bad debt is preventable, however, by investing in eligibility verification technology and utilizing electronic fund transfers.
"Healthcare collection rates are abysmal. This is easy money just left on the table," says John Reynolds, president of FIS Healthcare, a banking and payment technology firm. "When we look at hospitals, healthcare systems, and physician practices, they are all falling way behind in their ability to collect on the consumer side."
Although some healthcare systems employ payment technology for patient collections, the majority of healthcare organizations still use a largely manual process, Reynolds says.
"Manual processes and error play a big role in the inefficiency of the collections processes. If healthcare started using the electronic exchange of information, many organizations could increase collections, and they might be able to reduce staff. This is an area of enormous opportunity for improvement in healthcare," he says.
The first step is verification. It's estimated that three-quarters of hospitals and health systems collect less than 30% of their payments at the time of service, according to a poll by TransUnion Healthcare. Collecting what you can up front is essential, but to do so you need to accurately verify a patient's insurance eligibility.
For most organizations, the verification process is done manually by the front office. A staff member either calls the insurance company or checks eligibility through the payer's website. The process can take several minutes, which is why it's usually done only once. However, eligibility verification software and web-based programs can swiftly handle this step and determine the patient's financial responsibility.
Additionally, some programs can create payment plans, find alternative sources of payment for the patient, or point a patient to a financial assistance program.
Ensuring that the patient's insurance coverage hasn't changed is important, Reynolds says, and it requires multiple verifications from preregistration through discharge. Organizations using a manual process are highly unlikely to have the time and personnel to do the verification more than once for all patients.
"We knew verifying eligibility on the front end was extremely important, but the reality is we have very busy secretaries trying to capture this information and very little time to do it," says Michael Gonzales, billing and operations manager for Radiological Associates of Sacramento Medical Group. For this group practice, with 23 locations and 2,000 patient visits per day, the manual process was a challenge.
"Asking the secretaries to search each insurance company website or make a phone call to the insurance company [to verify eligibility] while checking in patients and taking them to the exam rooms was a lot. So quite often the patient's information didn't get verified until it got to the back end, and that would cause delays or denials in payments," he explains.
Gonzalez estimates that 4.3% of the group's monthly payments were lost to incorrect eligibility information. The group added a real-time eligibility software program and within three months reduced eligibility-related claims errors by 56%. (Note that these programs don't eliminate the need for staff to compare a driver's license against the insurance ID card to prevent insurance fraud.)
Upgrading the eligibility verification process is just one area to look at in your payment process. Financial leaders should also examine how they are paid. Just 10% of payments to health providers are made electronically, according to the National Process Report on Healthcare Efficiency. If all healthcare providers and payers processed claims electronically and took payments via electronic funds transfer or e-checks (provided by ACH Direct), healthcare as a whole could save $11 billion, according to the report.
"Insurance companies are very good at promoting electronic claims submission but often while data goes out electronically from the provider, it comes back as paper. The provider gets a paper explanation of payment along with a check," Reynolds says. "However, from a technology perspective there's no reason why all of this can't be handled electronically through EFT or ACH, or that the insurance company can't produce an ERA [electronic remittance advice]. There doesn't need to be any manual intervention with payments."
Although EFT has been available for years through financial institutions, Reynolds says it hasn't been used by many healthcare providers because people are accustomed to the interest float. During the several days that paper checks are in transit, the payer collects interest on the funds. Essentially, because the healthcare collections system is inefficient, payers found a way to profit from it, at the expense of healthcare providers.
"Using EFT eliminates [float]. It not only increases the speed of the payment but it also improves the accuracy of data," says Reynolds. The latter is accomplished, he explains, because the EFT transaction sends data into the practice management system.
This creates a record in the EHR that includes: the treatment given; what was billed to insurance; what payment was expected from insurance; how much was actually paid by the payer, and how much was collected from the patient—all information which healthcare organizations will need to provide in the future to improve consumer transparency.
"With the growth of consumer-directed healthcare, we expect the use of EFT to take off. Having all this information and putting it into a consumer-facing application that integrates healthcare information and financial information is the key to transparency … and the patient's overall care experience," Reynolds says.
Many healthcare organizations may already use EFT and e-checks for some transactions, such as financial dealings with vendors. However, getting individual payers to complete your payments electronically may require financial leaders to renegotiate contracts and include an electronic payment clause.
With millions of dollars being designated for large technology initiatives, such as meaningful use and ICD-10, upgrading the organization's payment system may seem like a project that can wait. However, upgrading this technology can keep your bad debt to a minimum. And that's money that can be used for other essential projects.
Healthcare financial leaders and clinicians have traditionally worked in their own silos, running into each other occasionally but rarely seeing eye-to-eye. Yet they now must work together to achieve the goals set forth in the federal value-based purchasing rule.
Currently, VBP rules hold healthcare organizations accountable for 12 process of care measures and HCAHPS. Next year, however, mortality rates and hospital-acquired-conditions will be added to the mix. To meet both the medical and financial imperatives of VBP, financial leaders will need to go beyond their usual scope. Look through the eyes of the clinicians to improve patient care and prevent reimbursement losses.
"Most CFOs are concerned with the negative consequences of VBP, because if you don't comply you get a reduction in reimbursements," says Bruce L. Van Cleave, MD, senior vice president and chief medical officer at Aurora Health Care in Milwaukee. "But, on the medical side we need to concentrate on patient safety and high quality care. If we aren't careful, when we [each] talk about value-based purchasing we could be having two very different conversations," says Van Cleave, who is also the former president and CEO for Carondelet Health in Kansas City and a board-certified family practice physician.
Van Cleave's clinical and administrative background helps him see VBP from both vantages. Taking a broader perspective can help financial leaders prevent VBP reimbursement losses.
"I wish the ongoing conversation we were having [with financial leaders] was, 'How do we use this to re-look at our strategies around care delivery?'" he says. "And that we'd broaden the discussion away from, 'How can we maximize our reimbursements?'"
Van Cleave believes that if healthcare leaders concentrate on understanding the intent of the VBP law, they will find the answers to their reimbursement concerns.
"Think about why the government wants us to do this. What outcomes are they really trying to get at? Certainly one outcome is to control cost, but it's not all of it. … What impact will this have on how healthcare will be practiced in the U.S.? And, how can we link our outcomes and our finances so they are strategically aligned?" he asks.
Van Cleave points to length of stay as an example of how different goals for the financial and clinical staff can influence one another.
"Clinicians need to have enough time to complete the [patient] education cycle, to monitor the illness, and to get the patient tuned up to a higher level before discharge. If it's rushed, there's risk. What we need [from CFOs] are the right tools for an efficient process so patients get the right education and care. We need to set standards so when the patient reaches certain milestones we can help them make the transition to home," he says.
Financial leaders have focused on LOS since 1983. That's when Medicare introduced the prospective payment system and announced it was going to pay hospitals a flat fee to cover costs based on an expected LOS. CFOs reasoned that if their hospitals could shorten patients' LOS, the result would be greater margins. They encouraged doctors to discharge patients as soon as they no longer required an acute level of care.
What has been the outcome of this effort? Providers have managed to shorten LOS, but at the cost of 30-day readmission rates. In 2010, Medicare released a study of heart-failure patients showing that between 1993 and 2006, mean LOS decreased from 8.81 days to 6.33 days. In-hospital mortality decreased from 8.5% to 4.3% during the same period, and 30-day mortality decreased from 12.8% to 10.7%. But 30-day readmission rates (which are not part of the VBP measures) increased from 17.2% to 20.1%.
Just as your clinicians' actions influence patient outcomes and reimbursements, so too do the actions of financial leaders. You may know how VBP will influence your organization's bottom line, but have you asked clinical leaders how to improve your metrics? By understanding the clinician's perspective, CFOs may get a clearer picture on how to hit VBP measures and improve HCAHPS scores.
Complying with VBP is going to challenge organizations for the next few years. It puts 1% of Medicare payments for hospitals and health systems at risk in the first year, and that percentage will grow as the measures grow. Nevertheless, it really is possible to win with VBP.
But doing so, Van Cleave observes, requires that "everyone has to pull in the same direction and be very clear about the goal and the numbers to succeed."
Does the final (and greatly revised) rule for establishing an accountable care organization have your organization’s healthcare leaders champing at the bit to participate? If so, proceed with caution and consider the antitrust and tax-exempt status implications.
“I still have some concerns around the antitrust issue. … The rules are still very technical and obviously an organization like I run is very cautious. We don’t want to get in trouble with the government,” says Chris Van Gorder, president and CEO of Scripps Health, a $2 billion-plus not-for-profit health system in San Diego.
Accompanying the release of the new rules governing ACOs on Thursday came a joint statement of enforcement policy from the Department of Justice and the Federal Trade Commission on the antitrust law implications of the ACO regulations, as well as Internal Revenue Service guidance for tax-exempt organizations. Though the guidelines from all three agencies are written to encourage the establishment of ACOs, these documents also give firm parameters on where not to tread.
Michael Regier, senior vice president of legal and corporate affairs, general counsel, and compliance officer for VHA Inc., a healthcare network of 1,400 not-for-profit hospitals, says that while the changes to the guidelines make ACOs more attractive, there remain antitrust and exempt status considerations which must be addressed by any ACO participant.
“There’s no question, even with the new changes to the ACO rules, the antitrust implications remain high on the [DOJ and FTC] agencies’ radar,” says Regier.
Healthcare providers, he says, should pay particular attention to two areas:
The competitive effect of ACO contractual agreements.
2) The impact of these contractual agreements on the cost of healthcare.
To assess the competitive effect of ACO agreements, the Centers for Medicaid & Medicare Services will provide the FTC and DOJ with aggregate claims data on allowed charges and fee-for-service payments. In their joint statement, the agencies wrote that they would use the data “together with their traditional enforcement tools, to evaluate competitive concerns about an ACO’s formation or conduct and will take whatever enforcement action may be appropriate.”
Moreover, the FTC and DOJ will pay particular attention to the dominant participant in a healthcare market, defined as an organization with over 50% market share. If this participant offers a primary service to an area in which very few or no other providers do, then that organization must remain a non-exclusive service provider within the ACO. That primary service provider must be permitted to contract with other care delivery organizations.
Dr. David Spahlinger, internist and senior associate dean at the University of Michigan Medical School, says the revised ACO regulation provides more flexibility for partnering, “but it’s still a lot stiffer than what we’ve had for years. We’ve had hospitals with 80% of the market share merge and no one paid attention, and there has been a minimal amount of review in the past. This is a new day.”
The impact of ACO agreements on the cost of healthcare is another concern for the FTC and DOJ. Regier says they will be watching to see if ACOs “tie up, in an anticompetitive way, contracts with private insurance carriers that affect market access, and if these exclusive dealings impact the cost of care for consumers.”
The agencies wrote, “Under certain conditions, ACOs could reduce competition and harm consumers through higher prices or lower quality care. … For ACOs that may have market power, the policy statement identifies additional conduct that, depending on the circumstances, may prevent private insurers from obtaining lower prices and better quality services for their enrollees.”
In addition to this guidance, the proposed guidelines include two other significant changes:
Coverage was expanded to “all provider collaborations that are eligible and intend, or have been approved, to participate in the Medicare shared savings program. The policy statement no longer applies only to collaborations formed after March 23, 2010.”
The antitrust review was changed from mandatory to an expedited, 90-day voluntary review.
The shift to a voluntary antitrust review, in particular, is a time- and money-saver for healthcare organizations, says Regier. “I’ve been through these reviews and it can cost hundreds of thousands in administrative costs to complete even if there aren’t any anticompetitive implications, and it’s a long process. So this is great news,” he says.
In addition to the agencies’ joint policy statement, the IRS also revised the ACO participant tax-exempt guidelines.
The IRS wrote that a charitable organization’s participation in the shared savings program through an ACO will not “result in inurement or impermissible private benefit to the private party ACO participants” if the ACO is structured to give consideration to five factors:
The tax-exempt organization’s portions of shared savings, losses, and expenses are stated in a written agreement “negotiated at arm’s length.”
CMS has accepted the ACO into its program.
The share of economic benefits is proportional to the benefits or contributions the tax-exempt organization provides.
The exempt organization’s share of the ACO’s losses doesn’t exceed the share of economic benefits.
All contracts and transactions entered into by the tax-exempt organization are at fair market value.
Regier says the IRS “clearly said that none of these factors have to be satisfied in every circumstance … and it still won’t jeopardize the exempt status.”
The 18-page DOJ and FTC policy statement and the 7-page IRS fact sheet offer healthcare leaders comprehensive guidance on how to avoid antitrust violations and exempt status missteps. If your organization decides to pursue an ACO, keep these guidelines in mind, and expect a watchful eye from the government.
Editor’s Note: With contributions from John Commins.
HealthLeaders Media’s 2012 Industry Survey is now under way. This annual survey is the top source of healthcare industry insight, and I encourage you to take it. In looking forward, however, it helps to reflect on this year’s survey data. Here are my predictions for the top concerns facing healthcare financial leaders, based on our 2011 Industry Survey and conversations over the past year with many CFOs.
Prediction 1:Cost-cutting will intensify. In our 2011 Industry Survey, financial leaders ranked cost reductions as their number-one priority (it ranked second in 2010). And at our recent HealthLeaders Media CFO Exchange, financial leaders made it clear that with reimbursement cuts pending, cost reductions will remain the top priority.
I anticipate that cost-cutting will become even more challenging in 2012. Although finance is not traditionally thought of as a “creative field,” CFOs will need to come up with ingenious ways to save money.
Clinical spend is one area that financial leaders are going to have to dissect under a microscope. I spoke last week with a CFO who was about pitch to his clinical staff the idea of reducing the number of surgical packs being opened per procedure. The protocol calls for two packs to be opened, though the second is rarely used. With the cost of individual surgical packs running into thousands of dollars, the simple act of opening only one pack (unless the second is needed) could result in millions in savings for this facility. Of course, there is a caveat: the financial leader first needs support of the clinical staff. Prepare yourself for some tough conversations and a lot of pushback.
Prediction 2:Medicare payments will be mixed. Medicare has been ruffling feathers for decades, and 2012 won’t be any different. Overall, healthcare organizations are dealing with either flat or reduced reimbursements from Medicare and Medicaid, and financial leaders aren’t anticipating changes in the coming year.
It remains to be seen whether the Medicare sustainable growth rate formula, which calls for 30% cuts in physician payments, will be repealed, as the American Medical Association (AMA) and many other healthcare associations are lobbying. But things might go from bad to worse, as far as physicians are concerned: This month the Medicare Payment Advisory Commission recommended that Congress eliminate the existing SGR formula and replace it with a plan that includes reimbursement cuts to specialists and a pay freeze for primary care physicians. Either way, your physicians are likely to be unhappy.
Poise yourself, too, for some difficult commercial payer negotiations. However, in an interesting twist this year, these negotiations could morph and become a dialog about population management. Moreover, the use of bundled payments will gain a stronger foothold.
Prediction 3: Growth becomes an imperative. The survival of some hospitals and health systems is at stake. Cutting costs is not enough; organizations must grow to survive. Two areas CFOs should look at are service line growth and market consolidation.
Service lines have long been where financial leaders turn to enhance the bottom line. The way service lines are selected is changing, however. Gone are the days you could base a service line choice on the rate of reimbursement, because reimbursements are declining. However, you can still look at patient volume. Baby boomers virtually guarantee increasing volumes.
The CFOs I’ve recently spoken with are planning to invest in orthopedics and cardiovascular service lines. The key to making both of these profitable is, naturally, greater volume in conjunction with cost-conscious implant selection. HealthLeaders hosted a webcast just last week on strategies to make your joint service lines more profitable.
Two other service lines I feel are ripe for growth are sleep centers and behavioral/ mental health. Sleep centers can impact many chronic conditions, such as high blood pressure, that healthcare organizations are eager to see decline. Behavioral health deals with behaviors such as addiction that often play a role in chronic care problems. Mental health treats disorders of mood. The recession and slow economic recovery have created a pervasive and deep level of stress for both the employed and unemployed.
Market consolidation is the quickest way to grow. The last two years have been marked by an increasing number of mergers and acquisition, and the mantra for 2012 will continue to be, If I can’t beat ’em, I’ll join ’em. Physician practices in particular are struggling to remain financially solvent against the tide of reimbursement reductions. It’s a situation that’s causing many practices to seek a “mega-group” or join with the area hospital or health system. The consolidation trend also holds true for hospitals of all sizes. I suspect that in the next five years, if the prevailing healthcare climate holds, we will see the near-demise of the independent hospital, with the possible exception of the boutique hospital.
Prediction 4: Not-for-profits must be wary. The always vigilant Internal Revenue Service will keep tabs on 501(c)(3) qualifications. If you fail to comply with the new requirements, your not-for-profit status could come under scrutiny. I foresee the IRS not wasting much time before flexing its muscles and threatening to revoke at least one organization’s not-for-profit status.
I also wonder if next year will see an increase in the number of for-profit hospitals and health systems purchasing not-for-profit hospitals. As reimbursement cuts weaken balance sheets, the for-profit healthcare sector is better positioned financially to make acquisitions. Also keep your eye out for another investor, the private equity firm. Interest in hospitals from these firms has grown at a swift pace in the last two years.
I realize that many of these predictions are not positive for healthcare financial leaders. There is much to be wary of as you move into 2012. For CFOs doing financial forecasts, worst-case scenario planning might prepare your organization to better handle some of these topics. That alone may make you feel better.
Robert Shapiro, senior vice president and CFO at North Shore–Long Island Jewish Health System in Great Neck, NY, is vexed by some recent data. In his more than three decades in healthcare finance, it’s the first time that patient volume has been flat. Moreover, it’s also the first time Shapiro has had to do a financial forecast for the $6 billion–plus organization in which he is predicting zero Medicare and Medicaid increases. The double whammy is “very unusual, and it will greatly affect us,” he says.
It’s nearly the same story in Frederick, MD, where Michelle Mahan, senior vice president and CFO at the 295-bed Frederick Memorial Regional Health System, is tracking flat patient volume and declines in Medicare and Medicaid reimbursements. She’s scouring the hospital’s operating data for clues about why patient volume has dropped off, where patient increases might be found, and how it all affects her upcoming financial forecast.
Flat or declining patient volumes are to be expected – five years from now. The reduction of inpatient hospital care is a goal of healthcare reform; better quality outpatient care should result in less inpatient volume. However, it’s far too early for any readmission reduction projects or medical home pilot to be bearing fruit. So, where have all the patients gone? My guess is that they may be at home searching job listings and holding off on spending, medical and otherwise.
The monthly Bureau of Labor Statistics data released last Friday may offer some clues about why patient volume is flat for some healthcare organizations. In September, the number of jobs in the U.S. grew by a paltry 103,000. It was enough of an uptick to keep pace with population growth, but alas not enough to reduce the national unemployment rate of 9.1%.
Additionally, the duration of unemployment has grown since the beginning of the recession. Back in 2007, it took job seekers an average of 15 weeks to find a job, whereas it now takes nearly 40 weeks, according to the BLS report. To compound matters, COBRA and unemployment benefits—which were extended for some for up to two years—are starting to peter out.
“When you look at the job loss, the numbers are so high. That relates to the ability to fuel the economy with purchases or to get healthcare,” says James Dregney, CPA, CFO at Lakewood Health System in rural Staples, MN. Minnesota’s employment rate is 2% lower than the national average, but the state’s average duration of unemployment is still 40 weeks.
The jobs picture varies regionally based on industries and the local demographics. “We’re losing population in our area, and our market is shrinking,” says Mary Ann Freas, senior vice president and CFO at the 354-bed Southwest General Health Center in Middleburg Heights, OH, a suburb of Cleveland. “We’re not counting on growth to take [our hospital] anywhere. Our balance sheets are very strong, but at some point that’s at the sacrifice of some really big investments that we need to make.”
As unemployment benefits run out and money gets tighter, it makes sense that people are deferring healthcare treatment for as long as possible. So for CFOs in the throes of financial forecasting, you may want to heed the actions of several of your peers I spoke with at HealthLeaders Media’s CFO Exchange three weeks ago. Create a five- and 10-year financial forecast, and then overlay worst-case scenario projections.
Here are a few negatives to consider including in your projections:
Even deeper cuts to Medicare and Medicaid
Shifts in your payer mix, including payer consolidations
Mergers and acquisitions affecting market share
Large business closures or bankruptcies
“Black Swan” events
With so much uncertainty on the economy and on Capitol Hill, creating a viable financial forecast to guide your organization is more complex than ever.
“The one thing that persists for CFOs today is the inability to plan,” laments Mahan. “It’s a never-ending, changing environment, and it makes our ability to forecast very challenging.”