One of the main appeals of the accountable care organization model is the potential cost savings. So why did Palmetto Health System wait a year after launching its ACO to develop a shared savings program? For Palmetto, the ACO driver was physician alignment first and cost savings second. More than half of Palmetto's physicians joined its ACO in the first year—an enviable adoption rate that most healthcare leaders aspire to attain.
The board of directors at Palmetto Health, based in Columbia, SC, overwhelmingly approved an ACO in July 2010, named the Palmetto Health Quality Collaborative. But with nearly 1,000 employed physicians at the 1,138-bed, six-hospital system, getting physician buy-in had the potential to be a huge challenge. Which is why, from the onset, the Palmetto Health Quality Collaborative was designed to be physician-led. The primary goal was to develop best practices for clinical outcomes using evidence-based care. Over 500 physicians agreed to participate in the program.
The ultimate goal of the Quality Collaborative, says its executive medical director, Ellis "Mac" Knight, MD, MBA, senior vice president of physician and clinical integration, is to align independent, employed, and faculty physicians toward the reduction of unnecessary hospital admissions and preventable readmissions. That can be accomplished through clinical integration activities and by encouraging higher quality care through standardization, Knight says. The mission is not to reduce costs, though cost reductions invariably result from this pursuit, he notes.
"We've had very good engagement [by physicians]. That's not to say the discussions aren't sometimes difficult or that we've standardized everything yet," he says.
Knight credits much of the physician integration into the ACO to the program's governance. The Quality Collaborative created a 13-member board of managers consisting of physician leaders from Palmetto Health Baptist, Palmetto Health Richland, and the University of South Carolina School of Medicine as well as representatives from Carolina Care and Three Rivers Medical Associates, PA.
The board uses information gathered by the finance and analytics departments, as well as their clinical knowledge, to look for ways to improve outcomes using best-practice approaches. Financial leaders will be pleased to know that while cost reduction isn't the primary objective of the Quality Collaborative, it remains a strong undercurrent. The board sets targets for costs and utilization measurements. Then, to encourage physician performance and accountability, clinical data is captured on each participating member's individual physician practice and compared to the established targets. To corral outliers, evidence-based guidelines are used so doctors can see the variance and home on areas to improve.
Palmetto Health spent the first year configuring the program and assessing the organization's target areas. It wasn't until just three months ago that a shared savings program—an essential ingredient for an ACO—was added.
"There are so many sub-components that need to be looked at; there's supply chain and scheduling efficiency and others. We brought in an outside consultant to help us identify savings opportunities and to validate when those savings are achieved. And then we also worked with our finance and analytics teams to review our numbers and validate that these are true savings," Knight explains.
The delayed attention to shared savings allowed physicians and the organization time to create a formula for calculating and validating shared savings. The next step is testing it; a contract between Palmetto Health System and the Palmetto Health Quality Collaborative was signed in February, giving participating physicians 10% of any realized saving for the $10 million in targeted OR cost reduction. To further the success of this new objective, Palmetto Health advanced the Quality Collaborative approximately $100,000 (a tenth of the 10% of the potential savings) to use toward training and vendor consolidation efforts.
Physicians on the Quality Collaborative board have already identified one area of potential savings: the use of reprocessed equipment for the OR. In the past, all OR equipment and tools was disposed of. After Quality Collaborative physicians examined data on the risk of infection from reprocessed equipment, they decided to hire a vendor to sterilize and return equipment in "like new" condition.
"If this idea had been presented as a cost-reduction effort, I think it might have been met with resistance [by physicians]. But because physicians drove the process and were concerned with safety and quality outcomes, the other doctors quickly accepted it and everyone has been very cooperative," Knight says. (Cost savings data from this recent initiative is not yet available.)
Reviewing this type of cost-saving opportunities is time-consuming, which can be off-putting to busy physicians. To encourage participation, Quality Collaborative board members are paid an hourly rate to participate in the review process.
"We've taken the tack where we involve our physician in every manner of the decision-making process. We standardize the packs for the OR and we present it to the other physicians. Physicians are putting in the time, are involved in the process, and are giving their input to the hospital so we don't sacrifice quality for savings. And that takes up some time so you need to pay them to help make those decisions," Knight says.
ACOs, whether the Medicare model or a commercial approach, can improve care for patients at a lower cost while aligning and integrating physicians and hospitals. Palmetto Health's Quality Collaborative demonstrates that greater physician involvement can lead to greater cost savings.
This article appears in the June 2012 issue of HealthLeaders magazine.
It is among a healthcare leader's greatest challenges: how to make truly sustainable, long-term cost reductions instead of annual, tactical cuts. The frustration to move from the immediate and into the long-term cost-reduction phase is perhaps best summed up by these comments from a physician organization CFO who participated in the November 2011 HealthLeaders Intelligence Report Cost Containment: Overcoming Challenges: "We can't get beyond the idea stage. We run around like Chicken Little—the sky is falling—we must reduce costs now. Then, we get absorbed into the next crisis and forget all about cost reduction. We need to appoint a leader, create a plan with measureable goals, get buy-in, implement, and then monitor and reassess. We're just too busy some days to reduce costs."
The need to control costs is vital to the long-term success of organizations in an era of healthcare reform. In fact, in the same Intelligence Report, 55% of leaders said that even with annual costs savings from initiatives over the past three years, they need to pull an additional 4%–10% out of their operating budgets, and 23% said they need to pull an additional 11% or more. To achieve this magnitude of savings—and maintain it—requires organizations to shed reactive, tactical approaches in favor of deliberate, well-planned approaches. Several healthcare systems have achieved financial and clinical rewards through different approaches—using a value management methodology, sharing costs with partners, redesigning inpatient care, and leaning on Lean process techniques.
Putting value back into value management
Beaumont Health System is a three-hospital regional healthcare system in southeast Michigan. With 1,726 licensed beds and 3,700 physicians, BHS had 2011 net revenue of $2.1 billion. It has a diverse payer mix and a sizable geographic area to cover, yet the system cut average patient care costs by 11% over four years from 2007 to 2010, according to Hospital Compare data.
"[We're] focusing on why patients seek care and the way practices give care as the right way to move the business," says Gene Michalski, president and CEO for Beaumont Health System.
Focusing on the patient pathway is an idea that led the organization to pursue a diverse set of care outlets. Beaumont also operates a network of medical centers, family and internal medicine practices, nursing centers, home care services, and a hospice. It is a clinical partner of the Oakland University William Beaumont School of Medicine and the Beaumont Research Institute, plus the organization has an affiliation with Premier Health Care Management, a Broomfield, Mich.–based provider of geriatric and long-term care services.
But having access to so many inpatient and outpatient avenues, Michalski says, didn't mean that care was more accessible or less costly. The journey to make these changes began with Lean and Six Sigma process efficiency initiatives. The organization conducted thousands of kaizens, or rapid improvement events, over the past few years to find ways to boost efficiency. And while the efforts bore some financial fruits, simply practicing Lean techniques isn't enough for long-term, sustainable cost reductions, Michalski says.
"My philosophy is you can't focus on cost all alone. It's about value management as a strategy. We have to find better ways to deliver quality, safety, and service at a much lower cost," says Michalski.
He defines value management as high-quality care at low cost, with value meaning providing the highest documented and demonstrated quality, through the best patient experience, resulting in the best clinical outcomes at reasonable cost. He says value management is process-of-care management. It's not project management, and it includes value-stream mapping that looks at expediting care and eliminating wasted steps in the process to enhance value.
"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. For us that [pruning process] evolved into share-of-saving and value management," he explains.
In 2007 Beaumont conducted a remapping exercise for patient experience, with an eye on efficiency. For instance, project teams looked at the Beaumont Breast Care Center from the patient's perspective. The team learned that a patient may come in three to four times over several weeks or months based on a single mammogram test. The old process entailed a patient coming in for a routine mammogram, then going home without results. Then the patient would be called back in for a separate ultrasound visit if there was a question regarding the results. After that test, the patient would go home and wait for those results. If there were questions on that test, the patient would be asked back for a third visit for a biopsy, and again go home and wait for results.
The number of steps in the cycle and the time used for caregivers and patients was unnecessary, says Michalski. The process was revamped so the patient waits and gets the mammogram results during the first visit and proceeds as needed for other care that same day. "We eliminated the wasted time waiting for the patient and the clinicians. We can provide faster service and better quality, and that drives out cost and waste," he says. In this instance, Michalski says, patient satisfaction scores were already very high, averaging 4.8 out of 5.0, prior to the steps taken to expedite the breast care program. Though they changed the process for patients, these high scores were maintained.
"For patients receiving expedited care, the team was able to produce an 18% reduction in screening to diagnostic mammogram cycle time and a 40% reduction in duration from diagnostic mammogram to biopsy. In addition, we were able to expand capacity and capture additional volume in the form of downstream business related to additional imaging biopsies, surgeries, and oncology referrals," Michalski says.
Beaumont used this patient-focused process improvement approach on numerous departments, including heart and vascular, orthopedics, women and children, neurosciences, and digestive diseases. Smoothing out these processes to eliminate unnecessary steps was only the first phase, however; Beaumont wanted to make sure the changes stuck, which requires accountability, Michalski says.
Teams targeting individual areas report data to an enterprisewide data management tool that uses dashboards for easy tracking by the executive team. The dashboards show comparative quality metrics offered by the Centers for Medicare & Medicaid Services, the Agency for Healthcare Research and Quality, and when applicable, by commercial payer. It tracks cost and provides benchmark data to compare that information. Also, so everyone rows in the same direction, the top leadership team's incentive is tied directly to the key performance measures. Michalski explains that while the management incentive plan is developed around team goals (quality, safety, service, financial success, growth), incentives are individually based. Unfortunately, he notes, the incentives have not been paid on this plan in the past several years while the organization recovers financially from the 2008 economic downturn.
"We have team metrics, too, so we rise and fall as a team. And as the organization does well in three or four key measures, those are the ones we use across the health system and at each individual hospital," Michalski explains.
The organization is also using data and comparative benchmarks to analyze its clinical resource management in an effort to spot practice patterns for successful disease management. "We are looking for overuse or misuse of imaging and how it affects the patient's length of stay. For instance, did the patient get an MRI on the last day in the hospital prior to discharge, when they could've gotten it as an outpatient?" explains Michalski.
Beaumont also uses the clinical data to show physicians their individual cost per case based on disease state and by resources. Michalski says the metrics are tracked quarterly including cases, average charges, average net revenue, average direct cost, average total cost, and average net income; data is sorted by physician, by department, and by specialty or subspecialty.
It's the combination of all of these efforts, Michalski says, that led to a 9.4% decrease in the organization's inpatient patient care costs from 2009 to 2011, and the numbers continue to decline; average total inpatient cost is now $9,415, and inpatient length of stay has gone from a high of 5.03 days in 2008 to 4.81 in December 2011. Additionally, the overall direct patient care costs also declined on a case mix–adjusted admissions basis (which factors in both inpatient and outpatient activity and patient acuity).
Targeting the top
Neighboring St. John Hospital and Medical Center in Detroit also has been making strides in cutting its average patient care expense—reducing it by 8.6% from 2007 to 2009, according to CMS Hospital Compare data. The 772-licensed-bed teaching hospital is a member of St. John Providence Health System, one of the largest providers of inpatient care in southeast Michigan with more than 125 medical centers and five hospitals spanning five counties. St. John Providence Health System is also part of Ascension Health.
To bring patient care costs down through sustainable change, the system took a Lean process improvement approach, and it started at the top. St. John Providence's journey began by taking the scissors to nonclinical corporate and administrative expenses. Patricia Maryland, DrPH, president and CEO of St. John Providence Health System and the Michigan ministry market leader for Ascension Health, says doing so was a test to demonstrate how the organization could be more efficient from the top down.
To reduce the financial burden the hospitals faced from escalating costs, St. John Providence began using best practice benchmarks at the corporate level. The organization created 20 transformation teams to identify opportunities to take nonclinical costs out of the system with minimal impact on patient care. More than an effort to find low-hanging fruit, Maryland says they analyzed data and consolidated facilities.
Savings came through workforce reduction (primarily in nonpatient care areas), management restructuring and flattening, benefit changes, and an examination of operations and the way work was being done. Every aspect of support services was analyzed, including opportunities to consolidate service contracts, consolidate programs, streamline vendor relationships, improve supply chain, and cut waste.
The teams set a goal of permanently reducing costs by $85 million in one year, and while it didn't hit that target due to capital requirements necessary for implementation, it did net $67 million in sustainable cost reductions out of a $2 billion operating budget.
"Plus we earned the admiration of our medical staff by starting this initiative with corporate," says Maryland. Once the initial corporate-level reductions were made, however, the organization did turn its attention to the clinical areas with a goal of implementing a new approach to patient care.
"When you create a new model of care in a system of hospitals, you have to first believe that the way care is delivered today isn't the most efficient way. And that's where the hard work around utilization comes in. It's more than length of stay; it's about resource consumption and upsetting pathways and protocols that aren't evidence-based," Maryland says.
To break patterns of utilization and reduce patient care costs, St. John Providence created new comanagement agreements with physicians in three service lines (SJPHS East Region Cardiovascular LLC, SJPHS West Region Surgery LLC, and SJPHS Medical Neurology LLC) and hospital management agreements with other physician partners.
"We agree to what we're going to monitor and target and then partner together to manage the patient base. Essentially the physician takes the lead with their peers. The most important part is the data and education; the provider directs utilization and resource consumption," explains Maryland.
St. John Providence's comanagement agreement model created a joint venture management services company, formed as an LLC with the physicians; 50% physician owned, 50% hospital or health system owned. The management company's sole asset is a management contract for a given service line with the hospital or health system. The goal of the management company in managing the service line is to improve quality of services and outcomes, improve operational efficiency, and develop new clinical programs.
Physicians are compensated for their direct participation on the board and committees, as medical directors, and for projects. If performance incentives are achieved on quality, operational efficiency, and program development, the management company will earn a bonus from the hospital. All investors (both physician and hospital) will receive an equal share of the bonus.
For example, in May 2011 the existing performance for first-case on-time starts was performing a combined rate of 40% for Providence Hospital surgical locations. When measured in April 2012, performance stood at a combined rate of 82%. This improvement, Maryland says, can be attributed at least in part to 43 surgeons from 10 areas of surgical specialties working together with the hospital leadership team to develop new criteria and co-implement new expectations that promote increased awareness and accountability.
Although CMS' Medicare Shared Savings Program put a spotlight on this concept, the idea of shared savings between the hospital and physicians is a concept that's been slow to take flight. In the Cost Containment: Overcoming Challenges report, only 10% of respondents said their organization had implemented a bonus structure to share cost-containment savings among stakeholders, while 48% of healthcare leaders said savings were not shared.
"Changing behavior has got to be done peer-to-peer, with reports providing the information on a frequent basis so improvements can be made, can be tracked, and the physicians can hold each other accountable," Maryland says.
Since it began reworking comanagement partnerships in 2007, the success St. John Providence has had getting physicians aligned with the organization's goals has given birth to something larger. In October 2011, Partners in Care was formed to help manage the ongoing care of over one million patients in Wayne, Macomb, Oakland, Livingston, and St. Clair counties. The 50-50 partnership between St. John Providence Health System and the Physician Alliance, a 2,200-physician network in southeast Michigan, is the next step toward larger, sustainable cost reductions, Maryland says.
"We are moving toward population health management to get at overall cost; we have to track and manage the patient base," Maryland says. "It will be critical to have this alignment if we are to get control over the cost of care."
She says the organization expects to start reaping the benefit of population health as early as 2013.
Blue Cross Blue Shield of Michigan is providing a significant contribution to building the infrastructure for population health management for all of St. John Providence patients. Under the agreement, BCBSM will support the funding of infrastructure improvements necessary to better integrate care services between the Physician Alliance and the five hospitals under Partners in Care. Milestones have been established jointly between St. John Providence and BCBSM to ensure infrastructure work continues along with funding until 2013, when St. John Providence will include a performance-based reimbursement model into its next contract with BCBSM, explains Maryland.
In addition to changing its provider agreements, St. John Providence also examined how the community was using and benefiting from its assets—and how those assets supported the larger vision of the future. Michigan has excess capacity issues, Maryland says, so the organization needed to assess how many inpatient beds the community actually needed. The analysis of hospital use data led to the closing of one hospital—St. John North Shores Hospital, which was replaced with a new outpatient facility.
"The data trend demonstrated that the facility was dying on the vine and the alternative choice of an outpatient facility was better. At St. John North Shores, the only thing surviving was physical therapy and rehab; the medical and surgical beds weren't being used. It didn't make sense to continue on. But it was having the courage to say that this facility no longer meets the needs of this community," she says.
The system used a discernment process that included input from the legislators, physicians, administrators, and the community, along with occupancy statistics, to arrive at the decision to close the nearly 100-year-old facility. Inpatient service moved to another hospital and the replacement of the inpatient facility with an outpatient one caused a drop in cost for the system.
Maryland notes the most significant benefit of reconfiguring St. John North Shores came from relocating the inpatient rehabilitation unit to St. John Hospital and Medical Center, which allowed St. John Providence to open the new, state-of-the-art Cracchiolo Inpatient Physical Rehabilitation Center. A new outpatient facility in Harrison Township (the community that housed St. John North Shores Hospital) opened shortly after, which includes the outpatient physical rehabilitation services program relocated from North Shores, plus lab services, physician offices, and urgent care services.
"Asset reconfiguration is so important for sustainable cost reduction. Part of our transformational journey is a shift from inpatient care to population health management and to reduce the need for hospital beds except where appropriate," she says. That goal also led the organization to sell two nursing care facilities and then partner with those same facilities now under new ownership.
Maryland explains that while the nursing homes were not losing significant amounts from operations, they were capital intensive and the system felt the capital could be better deployed elsewhere within the system.
"The work is never done; transformation is ongoing and continuous. I think organizations that get stuck and never want to move forward and evolve are the ones that will face many challenges going forward," says Maryland.
Creating collaborative care teams
While St. John Providence was able to reduce patient care costs through comanagement agreements and asset reconfiguration, Dean Gruner, MD, president and CEO at Wisconsin-based ThedaCare found a way to reduce total inpatient costs by 25% over three years through the redesign of inpatient care.
"When we did this work we didn't start off with the primary purpose of reducing costs. We set out to improve safety, quality, customer satisfaction, employee satisfaction, and cost," says Gruner. "So we took metrics from all five of those categories. Then we tried to balance the focus across all areas, because if we just look at financial improvements, we have unanticipated consequences in other areas."
The five-hospital system spans nine rural counties serving about 250,000 patients and has more than 6,200 employees. Considered to be a leader in the application of Lean management in healthcare, ThedaCare adopted the methodology in 2003, but it wasn't until 2006 that the organization began value-mapping inpatient care.
Part of the reason ThedaCare opted to change its patient care approach was the decision to participate in the Institute for Healthcare Improvement's Transforming Care at the Bedside initiative. ThedaCare teams looked at value streams of patient care and discussed the attributes that an ideal hospital room and patient care model would contain. The discussion resulted in what the organization calls collaborative care, or a customer-driven, interdisciplinary collaborative care model.
The ThedaCare approach consists of three caregivers—a physician, a registered nurse, and a pharmacist, all of whom meet with each patient within 90 minutes of admission. Then the trio develops a care plan that's shared with the patient. Gruner explains that bringing together the three providers creates a more balanced care plan and ensures that all staff members know and understand that plan.
"We found that many of our admitted patients were on multiple medications and … a number of medication errors could be made within the first 24 hours, such as wrong dose or frequency or not adjusting for current weight or kidney or liver function. By adding the pharmacist to the team and using collaborative care we have now gone over four years without a single medication error," says Gruner.
Creating this type of care team brought about the need to reconfigure the patient rooms, too. There are computers at the bedside for immediate access to patient medical records and tests, and all patient medications are kept locked and in the patient's room for ready access. In addition to reducing medication errors, the approach allows nurses to spend more time with the patients and reduces the amount of time they spend searching for supplies by 30%. In total, ThedaCare says the process has resulted in an approximately 25% reduction in the average length of stay, zero medication reconciliation errors for four years in a row, a $1,200-per-case cost reduction for inpatient care, and readmission rate reductions to less than 9%.
"By doing this we eliminated a lot of complications for the patient and prevented them from having to stay longer because we did the job right the first time," Gruner notes. "This process has reduced the length of stay, reduced our costs, and improved the satisfaction of our patients and our nurses," he says.
Although ThedaCare found a way to make a strategic cut to its bottom-line costs, the organization continues to look for more ways to improve patient care without increasing cost. "This is a marathon not a wind-sprint, and there's still more work to do."
Leaning on Lean
Though many in healthcare use Lean initiatives as a mechanism for uncovering waste and making swift slices to the budget, at Denver Health in Colorado, the Lean approach is the only way to operate. Patricia Gabow, MD, CEO at the 525-licensed-bed safety-net facility, says when the organization began using Lean in 2005 it set out to transform the quality of patient care and the satisfaction levels of "stressed-out, unhappy employees." Although the effort produced very little fruit in its first year, it has led to $144 million in financial benefit over the past seven years
Gabow, who has worked in healthcare for 40 years and spent the past 20 as a hospital CEO, says it was clear to her the organization "needed to step back and ask how to get this strategy right. At the end of the first year of Lean we decided there were multiple pieces of the puzzle we needed to fix if we were going to get the perfect patient experience."
One of the first areas Denver Health tackled was the supply chain, as the organization was seeing a steady increase in year-over-year cost of $1.7 million to $2.1 million. Gabow says after doing some Lean process analysis a simple fix saved millions. Everything in the engineering department supply closet was put in color-coded bins, with the things most often used placed in front for easy access; this prevented the unnecessary ordering of products already in stock—the kind of change that saved the system $3 million. However, it's that kind of sustainable change that has served Denver Health well over the years, Gabow says, considering the organization has added 35% more square feet yet maintained steady supply costs.
"So this is a simple thing that adds up to savings," she says. But, Gabow says, the organization knew there were greater savings that could come from digging more deeply into patient care. So, it turned to engineers, a consultant, and its 1,500 employees to do just that—starting with the operating room, access to care, billing, and outpatient and inpatient flow.
The organization held numerous rapid improvement events during the year, and changes from those events saved Denver Health nearly $144 million—about one-third from increased revenue, another third from cost savings, and the remainder from increased productivity, Gabow says.
The triple-digit savings came from eliminating waste through an operations restructuring to create a system of patient care joined by its information systems and processes. Patients have one ID number to use with any Denver Health provider, which gives access to all of the patient's data. The effort also standardized best practices for everything from blood anticoagulant use to rapid response.
For instance, rather than keep a 24/7 dedicated team on call for rapid response, the medical center staff generated a regular assessment schedule for nurses to monitor their patients, and criteria were written so nurses could determine whether a patient was at risk. If a nurse made that determination, then the staff had written protocols to follow for escalating up the chain of command if an attending physician was unavailable or the patient's condition failed to improve. Denver Health staff found that the number of non-ICU cardiac arrest incidents decreased with the new procedures, improved the patient's continuity of care, and lowered costs.
In total, all the changes Denver Health made to its processes allowed providers to see 30,000 more people in the community without increasing the number of staff.
"When you talk about sustainability, if you get rid of waste permanently, not only do employees like it, but you end up improving quality because wasteful processes don't improve quality," says Gabow. "We know this is sustainable [cost reductions] because the employee engagement is so high and we see results all the time, but it takes ongoing work."
And the work is continuing at Denver Health. Although Gabow is slated to retire this year, the organization has uncovered another $55 million in financial benefit in 2011 due to process improvements, a fitting departure gift for the woman who helped make Lean a way of life for the system.
Healthcare cannot cut costs at the expense of quality, and these four health systems are a testament that by using the patient as the guiding force in finding a solution, healthcare leaders can realize long-sought and enduring cost savings.
Reprint HLR0612-2
This article appears in the June 2012 issue of HealthLeaders magazine.
Though the Patient Protection and Affordable Care Act may stay or go this month, proven cost reduction strategies never die. Two examples are gainsharing and shared savings, which predate the latest attempt at healthcare reform and in fact have had new life breathed into them.
Gainsharing allows hospitals and physicians to collaborate and share cost savings as a reward for quality and efficiency improvements. The definition of shared savings is essentially the same. The difference is that gainsharing targets device and supply usage within a specific service line (e.g., orthopedics or cardiology) whereas shared savings targets specific patient populations (e.g., diabetics or asthmatics).
Gainsharing has gotten a bad rap, however. "Gainsharing is difficult and technically it is not legal, though the OIG [Office of Inspector General at the U.S. Department of Health and Human Services] has granted waivers. … I think people are still uncomfortable with the waivers, which is why gainsharing has struggled," says Robert Glenning, executive vice president and CFO at the 775-bed Hackensack (NJ) University Medical Center.
The problem for gainsharing is that OIG ruled that such arrangements violate the Stark Law and the Anti-Kickback Statute. Nevertheless, gainsharing programs have demonstrated cost savings and quality results, so in 2005 OIG began granting waivers to allow these arrangements.
The parameters for a gainsharing waiver are clearly defined. OIG reasoned that the potential for fraud could be reduced if safeguards were put in place, and it agreed not to prosecute organizations that apply three criteria: (1) measures that promote accountability and transparency, (2) adequate quality controls, and (3) controls on payment related to referrals, explains healthcare attorney Cynthia Marcotte Stamer.
The Centers for Medicare & Medicaid Services is also interested in how gainsharing can bend the cost curve, which is why it extended a demonstration authorization on a gainsharing program for Medicare fee-for-service populations for two years (that extension ended in 2011 and data on the program is due in 2013). In 2010, the Journal of Hospital Medicine reported that one of the gainsharing demonstration pioneers, Beth Israel Medical Center in New York City, was seeing quality improvements and saving $1,835 per admission.
Healthcare CFOs shouldn't assume that shared savings programs have any less potential for similar legal challenges, says Marcotte Stamer. The only legal difference between these two arrangements is that when PPACA was enacted, the government addressed shared savings preemptively as part of the Medicare Shared Savings Program.
Congress included a provision in PPACA authorizing the Secretary of Health and Human Services to waive shared savings laws "as may be necessary" to implement the program. Otherwise, accountable care organizations could be considered to violate federal anti-kickback laws.
When PPACA passed—and accountable care organizations, shared savings, and bundled payment models with it—financial leaders definitely were interested. Hackensack University Medical Center, for instance, launched a shared savings program in its oncology service line three months ago.
Even so, the legal ground for shared savings is tricky, says Marcotte Stamer. "There is still tremendous cost involved and liability risk [with shared savings models]. You're building a very complex organization and asking providers to sign on and consent to rules that could change."
However, hospitals and health systems that have taken the risk to launch a shared savings programs are finding cost reduction results. For instance, in April 2012, Advocate Health Care System, based in the Chicago area, released its Value Report. containing data from its first full year of running an accountable care organization and a shared savings program. The results show major savings: Advocate set a generic prescribing target rate of 73% or better for its physicians and reached 74%, resulting in savings of $12.4 million. Its asthma outcomes initiative resulted in a control rate of 17% above the national average for its patients, saving $8.9 million annually in both direct and indirect medical costs. The report also shows other savings.
For Advocate, pursuing shared savings was a more logical next step than gainsharing, says Mark Shields, MD, MBA, senior medical director for Advocate Physician Partners and vice president of medical management for Advocate Health Care.
"We decided organizationally that we were committed to being a population health company, and shared savings was going to be a part of that approach," he says. "Down the road, though, there may come a time when the shared savings model isn't generating the returns it is now, and then we'll need to look at our next steps."
Regardless of whether an organization opts for a gainsharing or shared savings approach, it still needs to demonstrate to the government not only cost savings but also improved (or at least steady) patient outcomes. So when deciding which path to take, Shields says one question is how much data an organization is interested and capable of tracking. In this light, gainsharing can be a transition step to shared savings, he says.
Lani Berman, vice president of performance services at Goodroe Healthcare Solutions, a consulting firm devoted to gainsharing, says that in the last two years she's seen a rise in interest in shared savings and gainsharing. "There are people that are setting up pay-for-performance models and shared saving models and blending in a gainsharing model," she notes. Goodroe is a subsidiary of VHA, a national network of nonprofit hospitals seeking supply chain savings.
Berman says gainsharing is a good place for healthcare organizations to begin. "Gainsharing is shared savings, but there are certain regions where the legal community is very nervous about gainsharing. But gainsharing can be simpler to get off the ground with a group [of physicians] and help spark collaboration. It can be a good starting point to move physicians toward the organization's big picture," she says.
When it comes to cost reduction efforts, gainsharing and shared savings models both can work well. For hospitals or health systems still striving to develop better physician collaboration, gainsharing can be a way to dip the organization's metaphoric toe into the waters to see how much work might be required before establishing an accountable care organization and shared savings model. Regardless of what the Supreme Court rules on PPACA, financial leaders will continue to need cost reduction approaches.
Physician preference items are a known cost driver in the supply chain, yet eliminating them can cause consternation and conflict between a hospital and physicians. It doesn't have to be that way. UC Health in Cincinnati found a way to save more than $35 million over two years, while actually strengthening the physician-hospital bond.
In 2009, the University of Cincinnati, University of Cincinnati Physicians, and University Hospital came together to form UC Health. Shortly after the partnership was launched, Rick Hinds, executive vice president and CFO, and Dennis Robb, senior vice president of business operations and chief supply chain officer for the 1,700-bed organization, launched a targeted cost-cutting effort to reduce physician preference items (PPI).
When entities join together, as financial leaders know well, a signed agreement doesn't necessarily lead to seamless alignment. What's more, a PPI reduction effort isn't likely to be met with enthusiasm. But both goals are attainable, Hinds says, through a transparent and collaborative approach with physicians.
"We have really good alignment and transparency between the hospital and the physicians. And you have to have that if you're going to succeed, because the physicians are going to drive the ongoing sustainability of preference items," he says.
While one goal of the PPI effort was to reduce supply costs, an equal priority, Robb says, was to preserve physician choice from a list of multiple vendors.
UC Health created nine clinical advisory groups that included physicians, nurses, pharmacy staff, and contracting personnel to review products and determine which vendor's items and contracts were acceptable. The teams helped categorize the preference items, evaluate vendor pricing, and benchmark the prices against aggregate data to determine fair market value within each product category.
Hinds says it was the organization's collaboration with its physicians that made it possible for the organization to select just one key vendor for each item. By selecting just one vendor, the system is able to leverage its size and buying power to secure better terms, conditions, and prices.
"Physicians and nurses led the discussion and determined which were acceptable items. Then [supply management] concentrated on negotiating to get the best terms, conditions, and prices. Once we executed a contract, we could lock out the other vendors and move 100% of our business solely to that new contract within two weeks [without clinician resistance]. We couldn't have done that without having the engagement and support of our clinical end users from the onset," he says.
For instance, one team was able to reduce the acquisition cost of implants and implantable devices for total joint, spine, and trauma procedures. In this area alone, UC Health realized over $5 million in savings in 2011, or approximately 25% of its orthopedic spend that year.
UC Health's financial structure plays a role in the PPI success. "To some degree UC Health has a built-in advantage for collaboration … our physicians feel a lot of ownership of our system," says Hinds. "[The hospital and the physicians] share a common bottom line, which drives alignment and we do clinical care, research, and education. So the physicians understand why it's necessary to do [cost reductions], and they feel it's important to generate the right savings to fund the academic mission."
The shared bottom line coupled with the work by the clinical committees are what enabled UC Health to narrow the vendor pool to 23 suppliers, Hinds says. While it generally takes health systems, especially those the size of UC Health, six or more months to implement these types of supply chain changes (which delays savings to a system), UC Health completed most of these transitions in an unheard-of two-week period.
"Having that speed to contract and [staff] contract compliance was an important part of our success—we're able to get the full benefit of a three-year contract. By consolidating our spend with one vendor and doing it with clinical support, we can lock out other vendors and see double-digit savings quickly," Robb explains.
The project has extended into performance improvement projects, with similarly structured committees looking at opportunities to improve overall operations. One key outcome from the early discussions was the decision to sell the organization's rehabilitation center. At the end of 2011, UC Health sold its inpatient rehabilitation facility, Drake Center, to HealthSouth, a national rehabilitation provider, and subleased space for the operation of two patient care units that specialize in treating rehabilitation patients who don't require extensive long-term acute medical care.
The transition to rehab facility under HealthSouth allows Drake to accept more patients than under the previous long-term acute care hospital license, notes Hinds. "It was a good chance for us to sustain and grow our rehabilitation services at our site and serve the needs of our community better," he says. The decision was supported by the clinicians.
The performance improvement initiative—a system-wide examination of all hospitals, departments, clinical practices, inpatient and outpatient services—identified $15 million in savings opportunities. Additionally, revenue opportunities totaling nearly $15 million were identified by improving access, management of specific diseases such as chest pain, reduction in days in AR, LOS/discharge planning, bed utilization, and improvements in throughput. Physician preference item initiatives, spine, orthopedics, and cardiology, in fiscal year 2012, realized audited savings of greater than $6 million.
When it comes to reducing physician preference without alienating doctors, Hinds believes that what's often missing in the typical not-for-profit setting is the willingness by the hospital administration to collaborate and allow physicians to develop strong leadership and governance roles. "The physician tends to end up feeling like an employee, and that breaks down the alignment structure," he explains.
Though UC Health welcomed physicians into the governance and leadership of the organization, Hinds recognizes that "It's a difficult change for a lot of hospitals. But in the long term, physician collaboration is going to be a key to success. Yes, hospitals can get reimbursed without good physician alignment, but in the long run those organizations [without good alignment] will struggle to get the sustainable cost reductions they're after," he concludes.
This article appears in the May 2012 issue of HealthLeaders magazine.
The payer and provider communities are still dealing with HIPAA 5010, and trying to shift attention to ICD-10 is tough," says Craig Collins, division chair for revenue cycle and administrative lead of the ICD-10 transition at the Rochester, Minn.–based Mayo Clinic. "We put together a strategic plan and process map because we're trying to be first to the plate to do the ICD-10 testing with the payers. Our hope is that in early 2013 we can begin testing with larger payers."
The Mayo Clinic, like many other healthcare organizations, is making strides to prepare for the largest overhaul of healthcare codes in the past 30 years. The process—regardless of Health and Human Services' decision to extend the ICD-10 transition deadline to October 2014—includes a process map of the revenue cycle in the hopes of keeping this project revenue neutral.
Although the code set change is intended to be revenue neutral, ICD-10 includes more than 155,000 codes, a significant expansion from the current 17,000 codes in ICD-9. The transition touches nearly every member of a hospital or health system: physicians, clinicians, coders, IT, HIM, and finance. The mandated coding expansion influences documentation, productivity, contracts and business processes, HIM, practice management, budgets, payment conversions, claims edits, and disease and utilization management.
ICD-10 is expected to have significant impact on the revenue cycle. Nearly half of healthcare leaders (46%) expect to lose money while shifting to the new system, according to the July 2011 HealthLeaders Media Intelligence Report, ICD-10 Puts Revenue at Risk. An important step to avoid revenue hits is completing a process map that digs into the effect the transition will have on the revenue cycle.
The process map is work flow plan driven by multiple repositionable notes created to give an accurate picture of all the activities connected to the current and future processes at an organization. It is a full structural analysis of how all processes flow and connect to each other. The map can show gaps in specific areas that are preventing optimal performance or, in the case of ICD-10, areas that will require special attention to prevent an impact on the organization's revenue.
With some 212 IT systems and 80 geographical sites across Minnesota, Arizona, and Florida that include physician practices and several hospitals, the Mayo Clinic finds the process map to be essential for a successful ICD-10 conversion—and that starts with the right team and clear accountability.
Mayo's core team consists of Collins; Jan Graner, administrator of operations for the ICD-10 conversion; and Jeff Thompson, MD, physician lead for the entire Mayo Clinic system.
"When we started to develop the ICD-10 project, we didn't look at it as a revenue-cycle project," Collins explains. "We looked at how it would affect providers and the way they document things and how it would change the work flow, then we looked at how it would impact the revenue cycle. That's the reason why Jan and Dr. Thompson joined the team—they own the practice side."
Getting early physician engagement in the process is essential, the Mayo team says, not only to guide the documentation process, but also to ensure all systems are included.
"If you operate in a black box, you don't know what work is being done and who is doing it and you'll miss something. Physician leadership needs to be a part of this from the beginning. Our team developed an intricate spreadsheet that lists the readiness of systems, what needs to happen next, who's in charge, which systems are vendor areas, and which are homegrown. The physician leadership can look at this sheet and see that the systems are cataloged correctly and where these systems are in the transition process," says Thompson.
Though the trio makes up the core of the ICD-10 transition team, membership fluctuates as colleagues from various departments are called on for guidance. For instance, Graner explains during work flow process mapping that the team called on front office personnel to review the patient access process and explain the daily work flow. And, Collins notes, with such an expansive system to track, having that input is essential to get at the core of what is being done and what equipment and systems are being used. Moreover by process mapping departments with technologies that will be affected by ICD-10, such as the front office, the transition team can assess the potential impact on the revenue cycle if updated technology and training aren't completed in a timely fashion.
Similar to the transition at Mayo Clinic, at the 435-licensed bed South Nassau Communities Hospital, Mark Bogen, senior vice president and CFO for the Oceanside, N.Y.–based organization, says process mapping the revenue cycle for ICD-10 took input from across the organization. Like Mayo, SNCH began its process map journey not by looking at the revenue cycle but by looking at how ICD-10 would affect staff and the need for training. Bogen, along with Richard Rosenhagen, the assistant vice president of EMR, HIM, and the clinical documentation improvement program, and Colleen Garvey, the director of HIM and chair of the ICD-10 steering committee, assembled an organizationwide team to look at the impact of the transition.
"Training was our big concern," says Rosenhagen. "We wanted to know how many people would need training, how to roll that training out, and whether we should do it ourselves or bring in a vendor whose primary purpose was training."
With that goal in mind, the steering committee included financial and patient service groups, members of the revenue cycle, billing, HIM, clinical documentation improvement program and information services, human resources, and the medical staff. Ultimately, the team's mapping process took the committee into the revenue cycle.
"You have to identify all systems that use coding for statistical purposes and any data analysis behind the scenes. We need to know if anyone is using coding in the background because that needs to be ready, too," explains Garvey. For instance, the operating room booking may be collecting ICD-9 codes when booking surgical procedures. Organizations should recognize all potential diagnoses collection areas, she says.
As SNCH created its map by analyzing work flow, Garvey says committee members would look at the developing list of systems and continually add to it. "Once we had all the systems listed, then we identified all the South Nassau staff that touches coding and billing and created a master file of who does what, so now we can determine how to train everyone."
Rich Rogers, senior vice president of support services and CIO at Health First in Brevard County, Fla., agrees that it takes an organizationwide team approach to tackle such a transition. Like SNCH and Mayo, Health First, a four-hospital system, first looked at this transition not in terms of the larger revenue-cycle impact but in terms of documentation gaps.
Rogers, who was given ownership of the project, created a 15-member executive steering team of revenue cycle, HIM, clinical documentation, and patient business services to scrutinize the work-flow processes influencing documentation. As the organization had done a general revenue-cycle map recently, it was a matter of refining that process map to look at ICD-10. It took just three months to complete, and the analysis concentrated on how the 70 systems across the four hospitals that feed in to the revenue cycle would be affected.
"We did a vendor readiness analysis to decide which systems to upgrade, at which time, and how many resources to allocate," Rogers explains. "So once we pulled together our team we had IT send formal letters to our vendors so we could understand and document the vendor's strategies. We created a list so we'd know internally what system was tracking to which area."
Process mapping led SNCH down a similar path, says Bogen. The potential financial impact of this transition meant not only documenting the potential productivity losses on the hospital side, but also understanding the problems that could result from the payers not being ready.
"We have to know what this means in terms of the potential for productivity losses. How much longer will it take to get through the same caseload and get claims out the door? We looked at whether we'd need to add staff, how we could retrain existing staff, the potential for staff to retire due to ICD-10, and all the costs associated with these," says Bogen.
SNCH assessed that the organization would need to increase staffing in the coding and validation areas by at least 25% in the first year of ICD-10 activation due to the longer time it is expected to take reviewing the charts (even in an EMR environment). However it's the payers, Bogen notes, that are a bit of a wildcard in the financial assessment of the ICD-10 transition. He believes that on the payer side the transition will add at least five to seven days to the average days in A/R, which at $1 million a day in 2012 means a hit to cash flow of at least $5 million to $7 million.
"This may be an optimistic estimate based on the payer community performance on the recent switchover under 5010," Bogen says. "Anytime managed care can demonstrate that something is out of their control you are going to have delays. They may not pay claims, or [may] pay them incorrectly and then have to adjust a payment at a future point; so the financial cost isn't easy to estimate."
Health First may have an idea on how to change that, however. Rogers says process mapping his organization, which took more than six months to complete, revealed a possible gap and opportunity with his payers in terms of readiness.
"We found it's important to have the dialogue with the payers because they will require much more information, too. By knowing what they need now, we are able to get our team better prepared. You have to get this information and start the reeducation of the clinical folks, the coders, and documenters," says Rogers.
Although the government bills the ICD-10 transition as a "revenue neutral" undertaking, the addition of so many new codes can offer hospitals a revenue-making opportunity. Hospitals and health systems that have been coding incorrectly on ICD-9 can potentially reclaim missed revenue.
"The devil is in the details and you have to map it to ensure you have the right processes in place and to be sure you'll be documenting and capturing all the information that's needed. I have difficulty suggesting that there will be a minimal impact to millions of dollars because there's so much risk in the process. … The underlying need from this documentation is to enhance the processes in place to be sure that money doesn't dribble out," says Bogen.
The subtle revenue leak from an underdocumented record in ICD-9 could swiftly turn into a revenue gush after ICD-10, and that's exactly what concerns organizations such as the Mayo Clinic. Its process map focused on clinical documentation gaps and found it could be improved for the ICD-10 transition.
Mayo adjusted its ongoing training to target how the physicians document. The organization uses the physician's existing documentation under ICD-9 and provides comparative feedback on how to adjust the documentation to meet the ICD-10 guidelines.
"It's important to get the training going well in advance," Thompson explains. "Giving them the feedback for the future so they can start adding the documentation now helps make it so ICD-10 doesn't affect billing and it gets the physicians up to speed before it starts affecting revenue."
To know how extensive the training will need to be however, hospitals and health systems have to first know how deeply the documentation challenges run. Health First's process map showed that charge capture was inconsistent in the organization, affecting the case mix being reported. In preparation for the upcoming transition, Rogers says the organization made an investment in computer-assisted coding software. "We think it will offset some of the losses we anticipate will occur from increased denials and documentation deficiencies," he says.
As with Health First and the Mayo Clinic, SNCH found that its map put a spotlight on existing documentation challenges that needed correcting. "From my vantage point … ICD-10 continues to heighten our concerns about areas we've been having issues with for ICD-9, particularly documentation. Our biggest concern now is that this transition will exacerbate it," says Bogen.
Although some organizations may choose begin the ICD-10 impact analysis by only doing a documentation gap analysis, Collins says, the revenue-cycle process map has been an integral part of the Mayo Clinic's approach. "The visual provided by the process map gives us the help we need to really see the steps to take, and with the ICD-10 project you can't miss a step or two because it's just too critical to the organization to get it right."
This article appears in the May 2012 issue of HealthLeaders magazine.
When it comes to healthcare, what happens in Maryland (unlike in Las Vegas) doesn't always stay there. The state is home to the Centers for Medicare & Medicaid Services, which is based in Baltimore, and its geographic location has made Maryland a testing ground for many of the agency's payment programs. So it was noteworthy when the Maryland Health Services Cost Review Commission (HSCRC), which sets payment rates for hospitals in the state, adopted reimbursement payments at a near-freeze level on May 2.
"I've always looked what happens in Maryland with CMS as an incubator for what could happen next in the rest of the country," says Michelle Mahan, senior vice president and CFO at Frederick Regional Health System in Frederick, MD.
Maryland's rate statement reflects the shifting dynamics of the healthcare business. According to the HSCRC final rate recommendation document, "Healthcare reform has altered the concept of efficiency in healthcare. There has been an increasing recognition that true efficiency is not at the level of the hospital discharge but at the level of providing population health. When the existing waiver was developed, the concern was the length of stay within a hospital discharge and the utilization of resources within that stay. Medicare and rate-setting states adopted prospective method payment methods for a hospital stay."
Although the rate change, which takes effect July 1, is technically an increase, the uptick was so paltry it is considered more of a freeze, explains Mahan. The HSCRC accomplished this by raising rates for patients receiving outpatient services by 2.59%, while lowering rates for inpatients by 1.25%.
"It's basically flat. But I could certainly imagine that Medicare could say they will have a [national] rate drop. That's what they already said on the physician side, and they might say it's the best way to constrain expense growth," says Mahan. "In this case, it is another waiver strategy—they're trying to keep our waiver cushion."
The Maryland healthcare system holds overall costs down by spreading the expense of patient care throughout the entire system of providers. All insurers, including private companies, state Medicaid, and federal Medicare, pay hospitals the same reimbursement rates. Therefore, regardless of the hospital's payer mix, a rate change affects all hospitals equally. For the last few years, Maryland hospitals have had overall rate increases that have been lower than their cost increases. Additionally, hospitals have started to see a decrease in patient volumes, causing leaders to take an even harder look at cost reductions.
The Maryland healthcare model's linchpin is its Medicare waiver, exempting the state from national Medicare payment methodologies and permitting the HSCRC to set rates for all payers—governmental, commercial, and self-pay. However, the Medicare waiver comes with the requirement that the state's charge per case cannot grow faster than the rate at which national Medicare payments grow. In recent years, Maryland's charges have been catching up with the nation's, causing the HSCRC to try to find ways to keep the Maryland rates and costs in check.
Maryland hospitals are piloting a payment bundling program in which a subset of Medicare providers receives a single payment for an episode of acute care in a hospital followed by post-acute care in a skilled nursing or rehabilitation facility, the patient's home, or other appropriate setting. "Right now we're doing per charge, per episode [care] and charging a flat rate for readmissions. And we already have some quality indicators in effect," Mahan says.
The state's need to keep the payment lower has consequences on hospital budgets, as it would for financial leaders at any organization.
"Costs must come down to accommodate the rate changes, and we'll have to look at our labor [budget]," says Mahan. "We've made a point of not laying off staff and we plan to continue that." She says Frederick Regional will likely restrict new hires and leave vacant positions open. Other healthcare organizations in Maryland may not be able to take a similar approach, however.
Adventist Healthcare in Rockville is a prime example. The five-hospital integrated delivery network, which serves the Washington, D.C., metropolitan area (as well as northwestern New Jersey), is eliminating nearly 100 jobs. The layoff was announced to employees a week before the Maryland rate changes were made official, but the organization cited the potential changes to hospital rates as among the reasons for the staff cuts .
At Frederick Regional, "We are asking our managers to figure how to stay with their current staffing levels and still create more efficiency, and we'll see how that works," says Mahan. "The thing is, we are balancing our reimbursements against programs that depend on providing good customer service. And if an employee feels they are overworked and stressed out, how happy are they going to be with the patients?"
Financial leaders, take note: What's happening in Maryland may come your way soon. As Medicare reimbursement rates decline and you look for various cost reduction solutions to offset revenue losses, don't forget that the human element could have a whiplash affect on your revenue. Trimming the labor line for immediate savingscan create an overworked staffthat translates into poor patient satisfaction scores, ultimately causing more financial loss through the value-based purchasing program.
CFOs already juggle a lot. In one hand they have their organization's financial plan. In the other are ever-changing government regulations that affect the bottom line. It can be hard to keep up with the constant flow of healthcare news and separate significant developments from the noise. To ease your burden, I've called out three recent reports that may impact your financial strategy, and what you can do about it.
1. Push for fee-for-value. Moody's Investors Service recently released a report instructing not-for-profit hospitals to get on the stick with fee-for-value. The Moody's report notes that credit ratings will rise and fall depending on how well hospital management teams adjust to being paid more for quality of service than for quantity.
"Different reimbursement models will develop in different stages over time, requiring hospitals to manage multiple and diverging payment models simultaneously, such as traditional payments that reimburse based on volumes and new methodologies based on cost and quality," says Moody's associate managing director Lisa Goldstein, author of the report.
The hard part is that balancing fee-for-value and fee-for-service payment models simultaneously will likely temporarily decrease a hospital or health system's bottom line. It's a risk worth taking, though—just ask the folks at Iowa Health System, who I interviewed on the necessary financial loss that comes with population health management and how healthcare organizations can try to offset it.
For those hospitals that have delayed transitioning to the quality-based care model, the time is now to make a move. Patient volumes are already beginning to decline nationwide, and quality outcomes are starting to be rewarded. Even those hospitals that have started to make the transition should anticipate a financially bumpy few years, however, until the transition is complete.
"Even as future payment methodologies change at an uncertain pace, it is already clear that payment-per-procedure will decline, creating more pressure on hospital top-line growth," says Goldstein's report. "This weaker outlook for revenue growth and the corresponding need for cost reductions are key drivers of our negative outlook on the not-for-profit hospital sector."
Strategic recommendation: Moody's suggests healthcare leaders create a strong team consisting of the board, administrators, and physicians to "flawlessly execute" financial plans that concentrate on clinical care and the reduction of patient procedure variation. I would add that they should batten down the hatches and start making sustainable cost reductions that can see their organization through this rough transition.
2. Regulatory respite. A lot of state and federal paperwork and regulatory requirements are involved with running a healthcare organization. But some good news came last week from the Centers for Medicare & Medicaid Services, which announced it intends to relax regulatory red tape involved with two final Medicare rules. The effort will yield payers and providers savings of approximately $6.1 billion over the next six years.
Health and Human Services Secretary Kathleen Sebelius says the changes eliminate "unnecessary, obsolete, or burdensome regulations" imposed on hospitals and other healthcare providers. One change in particular is worth noting: Medicare's Conditions of Participation (CoPs) will no longer require each hospital to maintain a separate governing body.
"We're … pleased the new Medicare CoPs allow multi-hospital systems to have one governing board that can provide comprehensive oversight across all participating hospitals," says Rich Umbdenstock, president and CEO of the American Hospital Association, in a statement.
Umbdenstock noted that CMS did not go far enough in allowing organizations to become more efficient, and I agree. "CMS did not allow hospitals in such systems to have single integrated medical staff structures if that's how those providers choose to be organized. Hospitals and medical staff members across the country are working together to streamline all areas of operation and CMS should not let antiquated organizational structures stand in the way," he says.
Strategic recommendation: If you deal with several single-hospital boards, take swift advantage of the new ruling to centralize your board.
3. Trends in payment. Last week, InstaMed released its 2011 Trends in Healthcare Payments Annual Report. Among the findings are that, with more employers switching to lower-cost, high-deductible plans, "an overall increase in patient responsibility and, consequently, an overall decrease in payer-to-provider payments" has occurred. The report notes that in 2011, payers paid providers only 18% of the billed charges, on average, down from 21% in 2009. Moreover, patient payment now represents 26% of the total provider revenue. Taken to a logical conclusion, that means healthcare organizations stand an even greater risk in the future of not getting paid after a procedure, which will increase bad debt.
Strategic recommendation (or really, two conflicting recommendations): First, collect as much as possible from patients upfront and online. The report notes that in 2011, online patient payments accounted for 12% of the gross dollar volume of all patient payments, up 8% from 2009. Second, tread lightly with collection practices. In light of the recent Minnesota Attorney General's suit against Accretive Health, Inc. for its allegedly aggressive collection practices, CFOs need to impress on everyone involved in collections (internal and external) that mission takes precedence over margin in patient payment collections. Your collections pit bulls may be put to better use on the payer side of the house.
These three reports may not have appeared momentous at first blush, but each can influence your organization's long-term strategy and finances.
Upon merging or signing a co-management or joint venture agreement, healthcare leaders will often wax that the pairing fills gaps in care, will grow their hospital's market share, and offers the opportunity for increased physician referrals. However, partnerships don't guarantee that referrals will follow—and that lost opportunity equals lost revenue. Aligning hospitals and physicians to create a successful physician referral program requires a concerted, coordinated approach if it's to bear financial fruit.
Creating a successful referral program starts with trust between the hospital or health system and the doctors, says Jeff Brickman, president and CEO of St. Anthony Hospital in Lakewood, CO, and president of Centura Health's Mountains North Denver Operating Group. He notes that organizations need to build trust not only with the physicians being brought on, but also with their existing medical staff.
Cultivating physician relationships and responding to each doctor's needs translates to business success, he says. Brickman is the previous system senior vice president of Provena Health and president and CEO of Provena Saint Joseph Medical Center in Joliet, IL. He worked at Provena Health from 2004 to 2011 and documented a period of 44 consecutive months of growing volume and market share. The foundation was collaboration with the physicians, built through a very aggressive physician referral approach.
Brickman and Provena's physician liaisons cultivated relationships with physicians and responded quickly to their requests. The physician liaisons received formal training to work with physicians, as well an incentive or compensation program to encourage them to go after the business, he says.
Building trust with physicians can be a tall order, however, for hospitals and health systems that are rapidly acquiring or partnering with hospitals or group practices. The zeal to deal sometimes brings out the worst of an organization during the negotiation process. Even if all goes smoothly in the negotiations, healthcare organizations that grow too rapidly many run into another problem.
"Our biggest challenge is developing internal awareness, acceptance, and support. We're a very large organization that was, and still is, undergoing a lot of changes as we grow from a collection of independent-minded hospitals and medical groups to a large, integrated health system," says Kimberly Marzullo, RN, MBA, system director of the physician marketing and liaison program at Sutter Health, headquartered in Sacramento.
The current Sutter Health was formed in 1996 through a fusion of 26 hospitals owned by Sutter Health and California Healthcare System. Each hospital had its own board of directors and local strategy. Eventually the health system restructured into five regions. Marzullo joined the system in 2007 to create a new physician liaison program to combat a migration of services to competing healthcare facilities. Her team of seven promotes key service lines, identifies and addresses the barriers to care, and solves other issues that impact the relationship the system has with physicians and hospitals.
"In most of our service lines that we are supporting, we are seeing growth," says Marzullo. "To accomplish this, I spent a very large amount of time introducing myself, my team, and our program to leaders of all levels throughout the organization. Despite the travel time, I did this and continue to do this in person. We also developed a sophisticated activity report that we share each month with a large audience, demonstrating that we work in a very transparent, accountable way. I think that has helped us develop trust."
With the blossoming of medical homes and accountable care organizations, the need to create a strong referral network has never been more essential, but that doesn't preclude it from legal scrutiny. In seeking to boost referrals, financial leaders need to be sure the organization treads lightly so as not to violate any self-referral laws.
Each year the Office of Inspector General at the U.S. Department of Health & Human Services looks into numerous violations of the self-referral laws, most of which are self-reported by healthcare organizations. The financial consequences for missteps with referrals can be costly; settlement amounts grow with each count and the degree of severity.
Hospital–physician practice dealings that violate Stark I, Stark II, the Anti-Kickback Laws, or the False Claims Act can wind up costing the bottom line rather than boosting it. If a hospital or practice is found in violation of these laws, it must return all proceeds of Medicare and Medicaid claims arising from all referrals of patients for designated health services at the hospital made by physicians at the practice in question.
For instance, in September 2011, Whidbey Island Public Hospital District in Coupeville, WA, agreed to pay $858,571 for allegedly violating the Civil Monetary Penalties Law provisions related to physician self-referrals and kickbacks. The OIG alleged that WIPHD had over 100 violations surrounding various physician contracts and arrangements, including: (1) several expired hospitalist contracts and new, unsigned contracts; (2) no written agreements in place for many medical staff leadership and call coverage arrangements; and (3) a variety of improper lease arrangements, personal service arrangements, and malpractice subsidies for physicians, and a housing allowance and an equipment loan for one physician.
Another fine was the $1,216,511 that St. Elizabeth Medical Center in Covington, KY, agreed to pay in November 2010 after self-disclosing improper conduct to OIG that it discovered had occurred at another hospital with which it merged. OIG alleged that "St. Elizabeth entered into an improper billing arrangement for 'provider-based services' involving a rural outreach program that had occurred at another hospital prior to its acquisition by St. Elizabeth. In addition, the OIG alleged that the acquired hospital entered into several improper financial relationships with a referring physician that violated the Stark Law and the Anti-Kickback Statute."
A common mistake hospital or health systems make when it comes to referral programs is not fitting a physician compensation arrangement within an HHS Safe Harbor category, explains Thomas Barker, a partner at Foley Hoag, LLP in Washington, D.C., and former acting general counsel for HHS.
"Many of the violations [cited above] could've potentially fit into a safe harbor if the arrangement was drafted correctly," he adds.
Barker's advice to avoid mistakes is:
Ensure that referral programs are structured so that physician compensation is not tied in any way to the volume or value of referrals.
Put all arrangements in writing to ensure the agreement is clear and the purpose is legitimate and is not "a cover to just pay for referrals," he says.
Seek competent legal advice.
There are allowances for referral incentives, however. Barker explains that OIG recognizes that some arrangements are protected under safe harbor rules if they are structured properly. For example, a physician recruitment program can be permissible and subsidies to recruit physicians or to encourage adoption of health IT may be allowable, Barker says, but "they cannot take into account the volume or value of referrals."
Self-referrals offer organizations huge potential for financial growth if the business can be captured. To learn more about how Brickman and Marzullo created their organizations' respective referral programs, listen to the HealthLeaders Media webcast on May 15, "Boost Physician Referrals, Build Your Bottom Line."
Note: HealthLeaders Media Senior Editor Carrie Vaughan contributed to this column.
"We fully expect that our revenue is going to go down." That's a statement healthcare CFOs are loath to make, but one that Kevin Vermeer, executive vice president and CFO at Iowa Health System isn't shy about saying when referring to his organization's population health management pursuits.
Population health management—achieving health outcomes for an entire group by addressing a broad range of factors that impact that group's health, such as environment, social structure, and resource distribution—will be important when the value-driven reimbursement model takes hold, but it's financially risky business for healthcare organizations operating under the current fee-for-service reimbursement environment.
Fact is, if patient populations are to be managed by hospitals or health systems, then these organizations must establish a medical home or accountable care organization, create risk-based contracts with providers and payers, and be financially stable enough today to withstand diminishing profits for several years until the reimbursement environment shifts to value-driven.
Iowa Health System, an integrated 26-hospital system headquartered in Des Moines, has taken the population health leap through the expansion of its existing ACO and is using a variety of methods to sustain its decision financially.
"Our [financial] approach is to say we are going to incorporate the ACO into our three-year planning process and set very realistic expectations around what we think will happen with revenue and volume," says Vermeer, noting that those expectations are based on the system's current expense run rate and current volume and the potential gap in revenue over the next two to three years.
"We're establishing specific initiatives to address what the [anticipated] shortfall is," he adds. "We're also now focusing on entering into [commercial payer] contracts that will reward us for these types of activities."
In Iowa Health's ACO, patients are identified by providers for participation in the program and then are put into a system-wide, centralized case management program, which includes a home health organization. Last week, Iowa Health System and Wellmark Blue Cross and Blue Shield of Iowa announced the first commercial ACO for that state, agreeing to create ACO organizations in four markets across the state. (Two Iowa Health affiliates already operate a Pioneer ACO, using the Centers for Medicare and Medicaid Services model.) The commercial ACOs are:
St. Luke's Hospital in Cedar Rapids
Iowa Health–Des Moines (including Iowa Methodist Medical Center, Iowa Lutheran Hospital, and Blank Children's Hospital) in Des Moines
Methodist West Hospital in West Des Moines
Trinity Regional Medical Center in Fort Dodge
Allen Memorial Hospital in Waterloo
"In our system we can pilot things in eight different regions—to see what works and what doesn't work—and not put the entire system in financial jeopardy until such time as we're ready to deploy things across the system," Vermeer says.
Launching multiple value-based care ACOs when the reimbursement environment is still supporting fee-for-service is a financial risk, he acknowledges, but the system is counting on a few tactics to buoy it during the next few years.
"We fully expect that our revenue is going to go down, so we've got other programs in place," he says. "[Our strategy] is not only cost-cutting; we're also active with our growth strategy. We need to get bigger in order to spread our costs across the enterprise."
In 2011, in anticipation of more expansion into ACOs, Iowa Health aligned with Methodist Medical Center of (Peoria) Illinois. It was the first "senior affiliate," as Iowa Health refers to its major affiliations, added to the system since 1999.
"We know if we can align with other entities that are similar to our size that it has a significant impact around the overhead costs allocated to all our affiliates," Vermeer says. "We know most of the cost on the system-side is fixed, with minor variable costs, so there's not a lot of additional cost associated with additional affiliates. So we're actively looking to align with other organizations."
Other areas of focus include managing referrals within Iowa Health's owned and aligned organizations, medication therapy management, and palliative care.
"We are looking at the long-term, so when we talk about moving the organization toward value-based contracts that's just one part of our strategy," he notes.
The new push will be led by Michael Murphy, who last week was named president and CEO of Iowa Health's ACOs. Murphy is set to begin his job mid-May; he's currentlyexecutive vice president of health networks for Trinity Health System based in Novi, Mich."The key to that innovation is the physician," Murphy says in a statement. Murphy led the development of the ACO program across the 35-hospital Trinity Health System and spoke recently at a HealthLeaders Media webcast on physician-hospital alignment and compliance. "By putting the physician at the center of the patient care model, physician leaders can foster a collaborative environment," he notes.
While structuring a collaborative care model to improve the health of the chronically ill has many clinical challenges, establishing a solid financial foundation to support the population health model is equally complex.
"The biggest challenge everyone has now, and it continues to be one of ours, is how do we live in these two worlds until we move enough of the business to a place where we can get rewarded for creating value?," Vermeer says. "There are certainly a lot of pieces that have to be in place to help mitigate the fact that we expect revenues are going to decline once we're doing [care] the way it needs to be done [under value-driven healthcare]."
This article appears in the April 2012 issue of HealthLeaders magazine.
With the looming threat of reimbursement losses for preventable 30-day readmissions, healthcare organizations nationwide are analyzing care transitions in an effort to achieve better outcomes and keep patients from returning to their facilities unnecessarily. While transition programs show promise in helping hospitals reduce their readmission rates, predictive models are also being used successfully in tandem with these programs. Three early adopters of these models are achieving positive results thanks to tactics and technology that identify at-risk patients from the outset of care and influence treatment approaches and the level of transitional care needed.
Parkland Health & Hospital System, Dallas: Data algorithm and readmission rates
Since December 2009, Parkland Health & Hospital System in Dallas has been using what it calls the e-Model, one of the first electronic readmission predictive models of its kind. The organization's center for clinical innovation began development on the electronic predictive model in 2007 with an eye toward making real-time identifications of heart failure patients at high risk for hospital readmission or death. Since then, it has expanded the program for all-cause readmissions.
"We are automating the patient care transaction. It's akin to what finance institutions did in the 1960s and '70s. The challenge is: How can we turn this into data that can help clinicians make real-time decisions that affect outcomes? We're taking information from various sources, and based on it we can say with high probability that [the clinicians] may want to suggest a different course of treatment," says John Dragovits, executive vice president and CFO at the $1.1 billion-net-revenue Parkland Health & Hospital System.
"I think people mistakenly believe that getting an EMR is the end of the process, but it's just the beginning. [Predictive modeling] is showing us how to use this information as a stepping stone … to provide better information to caregivers," he says.
The Center for Clinical Innovations at Parkland received grants from several sources, including the National Cancer Institute and the National Institutes of Health to support its work on the model, which combines 29 data points extracted from its EMR. The data includes physiologic, laboratory, demographic, and utilization variables that can be pulled from a patient's EMR within 24 hours of hospital admission. The comprehensive algorithm has proven to be accurate at predicting readmission or death, says Ruben Amarasingham, MD, director of Parkland's center for clinical innovation and assistant professor of medicine at UT Southwestern. Preliminary results show 33% reductions in readmission of Medicare heart failure patients and 20% reduction in readmissions for all HF patients.
Parkland's predictive model compiles a daily report of all admitted patients and essentially profiles patients and places them into risk categories. Clinicians and case managers are then notified which patients are at highest risk for complications, so those patients can be treated accordingly from the early stages of care, explains Amarasingham.
"There's a lot of value in doing this [modeling] because we have an enormous amount of clinical need and a fixed amount of resources, and that's true for all hospitals," Amarasingham says. "Clinical resources are finite, and that's a real problem."
Based on Parkland's preliminary success with this algorithmic approach to preventable readmissions, it received a grant from the Commonwealth Fund to expand the model to all conditions and across several hospitals including its 968-licensed-bed Dallas hospital, two UT Southwestern hospitals, and five Texas Health Resources facilities. The goal is to build the first electronic readmission model that can be applied to any patient in any hospital where EMRs are available and reduce readmission rates. However, Parkland is also interested in ensuring clinical resources are being focused in the right areas.
Amarasingham, who started the predictive modeling project with a team of four and now has 15 people working on the project, says the use of predictive modeling has been well-received by many of the clinicians. However, while many see the value in having this data in the system, not everyone was on board at first or keen to follow the advice of the algorithm.
"It's a culture change, and the clinicians see the value in it. As computers play a larger role in medical decision-making and the delivery of care, I think attitudes change," Amarasingham says. "We need to see how this model changes care and what the human-to-computer interface in clinical decision-making will be, because it's becoming increasingly impossible for clinicians to keep track of the level of detail—both clinical and social—that's needed in order to arrive at a risk-level assessment. Eventually, I believe physicians will demand this type of predictive modeling technology. Ultimately, clinicians and all healthcare professionals will want to adopt practices to get to that level, including the predictive model."
Mount Sinai Medical Center, New York City: Admissions data and readmission rates
For nearly two years, Maria Basso Lipani, LCSW, coordinator of the preventable admissions care team at Mount Sinai Medical Center in New York City, and Jill Kalman, MD, director of the cardiomyopathy program, associate professor of medicine at Mount Sinai's Cardiovascular Institute, and the PACT medical director, have been using admission history data to identify and target for intervention patients at high risk for readmission. With funding from the United Hospital Fund and assistance from the Department of Health Evidence and Policy at Mount Sinai, the team was able to validate that hospitalization history alone is a reasonable proxy for more formal multivariable regression models in predicting 30-day readmission risk.
PACT, which consists of both a social work–led transitional program and an NP-led medical clinic, enrolled patients based upon data culled from Mount Sinai's existing EMR. A physician from the IT department creates a daily list that identifies hospitalized patients who had a least one admission within the past 30 days or two admissions within the past six months, says Basso Lipani.
Kalman explains that 1,171-licensed-bed Mount Sinai launched the PACT program to reduce exposure to federal readmission penalties and to improve health outcomes through better transition of care. "As part of our evaluation of PACT, we wanted to ensure that the program is truly reaching those who are most likely to benefit from the intervention," Kalman says.
To do that, Mount Sinai's health evidence and policy team developed a risk prediction model for readmission within 30 days using logistic regression. "The higher the score, the higher the risk of readmission," Kalman adds.
Last summer, the predictive model was applied to patients enrolled in the PACT program to determine how many of them were at high risk for 30-day readmission. "Ninety-five percent of PACT enrollees had a risk score greater than 3, meaning that their readmission rate was between 19% and 29%," Kalman says. "If these results can be substantiated through further study, we believe this could have national implications for identifying high-risk patients in real-time."
Mount Sinai is showing early success with its model, too. The PACT program has decreased its 30-day readmission rate from 30% to 12% and its emergency department visits by 63% (over three-plus months), and it has a 90% primary care show rate at seven to 10 days postdischarge for patients enrolled in the program.
Basso Lipani says the core of the transitional program's success is the engagement of patients and families in a discussion of what is uniquely driving readmissions for them. "We've learned that patients with the highest medical utilization, at highest risk for readmission, and with the most fragmented care can be reached and their readmission risk can be reduced through our intervention," she says. "The predictive model has validated not just our method of identifying patients, but our outcomes, too."
In addition to the core PACT team, the organization also is successfully piloting the use of volunteers to serve as extenders for the social workers and NPs. Program volunteers assist patients in making follow-up appointments and retrieve medicine from the pharmacy, helping patients overcome small hurdles that otherwise can have readmission consequences.
Mount Sinai hopes to integrate the risk score into the EMR and use it in conjunction with the transitional social worker's assessment to develop a tiered approach to intervention. "Patients at low risk for readmission may do best with a single follow-up call postdischarge, while a moderate-risk patient may need several calls. This is one way in which the predictive model could have a direct impact on the allocation of resources," Basso Lipani says.
"We wondered if modeling readmissions was going to require us to use more data and create a complex score, but we're validating that a simple [admission history] approach works, and we believe it can be set up easily, regardless of where [an organization] is located, its size, or the level of IT support," says Kalman.
The predictive model and transitional care program is showing promise, so much so that Mount Sinai has four federal proposals and PACT is a part of each of them. "The institution really sees this [approach] as a positive, and it has a desire to see it incorporated into future designs, be it ACO or a medical home," she adds.
Cincinnati Children's Hospital Medical Center: Proactive care and readmission rates
Given the young, average age of the patients at Cincinnati Children's Hospital Medical Center, the decision to create a predictive model program wasn't primarily directed at reducing readmissions, explains Frederick C. Ryckman, MD, senior vice president for medical operations and professor of surgery at CCHMC. Rather it was directed at changing the hospital's approach to care from reactive to proactive. However, the preventable admission rates were positively influenced, he says.
"[Predictive modeling] leads to better communication, better coordination of care, and better outcomes—it's the key to preventable admissions," he says. "Our hypothesis is that a lot of healthcare is very predictable, and if you're able to predict at-risk situations, you can preempt them by building robust mitigation strategies. You can deliver better care, improve [patient] safety, use your capacity and space more efficiently, and create a better patient experience overall by preventing problems."
Several years ago, the organization decided to make the shift from reactive care to proactive care, and Ryckman explains that data was essential. His colleague, Stephen Muething, MD, the organization's vice president of safety, started analyzing and modeling data in specific areas of the hospitals to see patterns that would identify patients at risk for complications.
"We wanted to understand when an event might occur, so we could plan for how to react when an adverse event actually happened. We could come up with a solution to prevent the situation or be better prepared to handle it," Ryckman says.
After gathering three years' worth of data, a team created a model that looked at inpatient units for general pediatrics based on pediatric early warning assessments and created scores using behavior, cardiovascular, and respiratory results. Scores of 3 or above linked to clear action and bedside exam by nurses or physicians, and scores of 7 or above linked to an automatic medical response team call.
The 523-licensed-bed CCHMC uses pediatric early warning scores in its predictive metric within its EPIC system to look at comorbidity, previous history, and risk, and then couples that information with the clinician's knowledge to assess the patient's risk level and put contingency plans in place should the worst-case scenarios develop.
"After doing this for a few years, we have achieved a systemwide approach to using at-risk predictions, and plans are in place to prevent potential risks from occurring," says Ryckman, who notes that the organization also uses the predictive model to determine the level of care coordination needed at discharge.
What the model showed was that while patients could be admitted with a wide variety of problems, there were common potential problems associated with each scenario; for instance, respiratory disease and pneumonia could be complicated by asthma. It would take the clinical staff's input to assess the likelihood of that taking place, and that information would be put into the data to help steer the computer toward deciding the at-risk level of the patient. To help assess the patients, the clinical team on each floor of the hospital meets three times a day (during shift changes) to assess the severity of patients' illnesses.
Also, the morning assessment looks at capacity and the potential for any patient to need intensive care. The staff also does a safety call that includes all the units and alerts the team to potential problems—for instance, if the pharmacy is low on a particular drug. This information is then paired with the technology, which supports the teams. For instance, during flu season the predictive model assesses the potential for added ER personnel and services, and creates targets for monitoring patient progress and when a patient escalation plan should take effect.
"We decided to use technology in a supportive role for the clinical staff, rather than as the solution. I believe other organizations could even run this exact approach in a hospital that has no EMR and the only thing they had was a legal pad and pencil," says Ryckman.
No additional staff was needed to run the predictive model program or coordinate the floor meetings that take place each day, he says. "Having these huddles isn't a hugely time-consuming process, and what comes out of it produces a good ROI," he adds."
The main goal of the program was to predict when children may be showing signs of progressive deterioration in their clinical condition and flag early on which patients may need escalated care. "By using this approach, we've seen the length of stay decrease in ICU, as has the number of critical care codes outside ICU," Ryckman says. The number of overall codes outside critical care averaged 20 events per 1,000 hospital days, with a single-quarter high reached in 2007 of over 40 events per 1,000 hospitals days. It now hovers near 10. "I'd say sending kids home sooner, with a shorter length of stay and not having complications, has an impact on our revenue stream, but the goal is to deliver better outcomes for better overall value of care. This eliminates preventable problems and takes waste out of our system," Ryckman explains.
Ryckman's peers at Parkland and Mount Sinai would agree. While for the most part predictive models require an organization putting some financial investment toward technology, it's not new technology—rather it's an investment in the EMRs they are required to have anyway. Organizations can take advantage of their data now and create predictive models that decrease their preventable admissions and improve outcomes and maximize capacity.
"The ROI with predictive modeling is difficult to characterize and analyze, but if you're preventing multiple admissions, then you're making beds available for other patients," Kalman says.
This article appears in the April 2012 issue of HealthLeaders magazine.