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Health Systems' Road Map to Financial Opportunity

Analysis  |  By Jack O'Brien  
   August 27, 2020

Provider executives must look for unconventional paths to reliable revenue generation as well as potential cost savings and reinvestment.

This article appears in the July/August 2020 edition of HealthLeaders magazine.

Leaders at hospitals and health systems are always looking to expand financial opportunities to drive revenue, increase margins, and cut costs at their organizations. It's just good business as reimbursement rates dwindle and costs rise.

But finding financial opportunities for health systems has never been so crucial as when the coronavirus disease 2019 (COVID-19) pandemic disrupted healthcare and spread across the United States starting in mid-March.

Related: 4 Financial Opportunities for Health Systems Amid COVID-19

Following the outbreak and the subsequent widespread cancellation of major revenue-generating elective surgeries for provider organizations, leaders had to fast-track their pursuit of ways to sustain the bottom line and position their hospitals for survival and future growth.

HealthLeaders spoke with healthcare executives from four health systems about different approaches to driving revenue, slashing costs, and pursuing dynamic opportunities for financial growth.

Growth opportunity 1: Focus on telehealth

Given how the delivery of care has changed in America in response to the effects of the coronavirus, it should come as no surprise that many health systems are placing bets on the potential of telehealth to not only grow their businesses but to be reimbursed accordingly.

One organization that has experienced a flush of demand and has responded in kind is the University of Kansas Health System (UKHS), a nonprofit provider organization based in Kansas City, Kansas, with more than $2.7 billion in total operating revenue, according to its 2019 annual report.

In an interview with HealthLeaders last year, Doug Gaston, CFO of UKHS, said that telemedicine is "the future as we move ahead."

"Our CEO Bob Page talks about how our mission is to improve the health of Kansans," Gaston said. "Telemedicine is a key part of that, and we have no desire or capacity to acquire every hospital that might need help. Through telemedicine, I think we can provide some of this care to patients."

Fast forward to the ongoing COVID-19 pandemic, when much of healthcare innovation has centered around virtual care services and offering convenient care options to patients.

Jason Grundstrom serves as executive director of continuum of care at UKHS, overseeing the system's telehealth services.

Grundstrom tells HealthLeaders that the nonprofit system had to accelerate its existing telehealth offerings to meet the demand that coincided with the challenges surrounding the coronavirus.

Related: Find the Hidden Dollars in Your Hospital (Without Reducing Labor)

While the University of Kansas had first established a telehealth program in 1998, the health system had not created a service line until Grundstrom joined in 2018. He says his role was to give the telehealth program long-term life at UKHS, beyond the grants and research dollars that had funded the effort at the university.

Grundstrom says that when he was hired by UKHS, he and his team developed a four-year plan to ramp up the organization's telehealth strategy. Ultimately, this plan was accelerated within two weeks of the outbreak, as UKHS integrated its Epic electronic medical record system into a video platform that allowed for a "seamless integration."

According to Grundstrom, the telehealth service was used sparingly pre-COVID-19, with the health system seeing between 30 to 50 patients per day. About a month into the pandemic, he says UKHS' telehealth service was handling around 1,900 patients per day. By the start of July, UKHS provided more than 80,000 telehealth visits.

"It's been a whirlwind; about three weeks before COVID, we had our digital strategy team meeting where we set out some benchmarks and goals for the next two years to ramp up to 100,000 visits," Grundstrom says.

"We benchmark ourselves against other data that was reported by major academic medical centers, so having 100,000 visits within the next few years was realistic. That [metric] was a combination of interacting with patients both in a video platform as well as in remote patient monitoring and through e-chats. We have now hit 60,000 patient visits within the last 13 weeks, and we will hit that 100,000 [visit mark] soon. Our goal to do that within the next two years has been realized in a little longer than a quarter-and-a-half, so we are excited about that."

Grundstrom says that UKHS benchmarks itself against states like Georgia and Kentucky, which have parity laws requiring state Medicaid programs and commercial insurers to reimburse telehealth visits dollar-for-dollar as if the patient were in the office.

Since the Centers for Medicare & Medicaid Services (CMS) relaxed a number of its telehealth restrictions in the wake of the pandemic, including pay parity, Grundstrom says that UKHS has been receiving an improved reimbursement rate and is in active discussions with lawmakers to make sure that the policy remains in place going forward.

UKHS is still analyzing its revenues generated by the expanded telehealth services but remains optimistic that the existing infrastructure can be sustained for the future.

"Now that our specialists have done telehealth over the last 13 weeks, they're used to it and are comfortable with it, so we can actually start scheduling these visits for things such as cardiovascular medicine, oncology, and neurology of all kinds, such as stroke and neurosurgery," Grundstrom says. "The gamut of things that we're able to do, or were hoping to do prior to COVID, has allowed us to break down a lot of those barriers."

'Do it yesterday'

While there has been a slight drop off in the telehealth volume since UKHS faced its coronavirus peak—about 1,300–1,400 patients per day—Grundstrom estimates that 25% of overall patient volume has been serviced by telehealth post-COVID.

Grundstrom says that it's not just young healthcare consumers who expect to have easy and convenient access to digital health tools. He recommends that provider organizations that have not already set up a virtual care program should "do it yesterday."

"The thing with telehealth is you still need to make a connection with your patients, and if you do not do it, your competition will," Grundstrom says.

He urges health systems to respond to changing consumer expectations about online healthcare and provide services that are reliable and easier to navigate.

"I would highly recommend putting together a department, no matter how large or small you are, to explore getting telehealth in and getting it done right," Grundstrom says. "Start with primary care and some of your high-volume specialty clinics that you know you don't need to lay hands on patients and work from there. It's important, and our patients are demanding it. And if they weren't demanding it pre-COVID, they're certainly demanding it now."

Growth opportunity 2: License your intellectual property

Another revenue diversification opportunity for health systems comes from the academic segment: licensing intellectual property.

Given the breadth of research taking place at academic institutions, universities often license their intellectual property for products across all sectors. Spurred by the passage of the Bayh-Dole Act in 1980, universities became enabled "to retain title to inventions and take the lead in patenting and licensing groundbreaking discoveries," according to AUTM, a nonprofit organization that helps support the development of academic research based in Oakbrook Terrace, Illinois.

Ultimately, licensing intellectual property is a mission-driven way to potentially diversify revenues, as hundreds of thousands of patents and licenses are issued by universities across the country each year. 

Lyrica, which was developed at Northwestern University in 1990, has been highlighted as the gold standard for intellectual property licensing in recent years. The organization exclusively licensed the drug to Pfizer Inc., which brought it to market in 2005 and reported sales of $433 million last year. Northwestern still holds the patent and, according to a 2017 article, Pfizer royalties are responsible for nearly one-fifth of the university's endowment.

Much in the same way that academic institutions are licensing their intellectual property, health systems have an opportunity to support research initiatives, improve their reputation, and generate money as well.

Related: Donna Shalala's Return to Washington and the Fight for the Cost of Healthcare

James Linder, MD, is CEO of Nebraska Medicine, a $1.8 billion nonprofit academic health system based in Omaha, that runs two major hospitals: the Nebraska Medical Center and Bellevue Medical Center. Linder is also a member of the National Academy of Inventors and former CEO of UNeMed, a for-profit company that "works with faculty, students, and staff of the University of Nebraska Medical Center (UNMC) to commercialize innovative ideas that have the potential to improve public health for Nebraska residents and beyond."

Linder tells HealthLeaders that provider organizations should "keep their eyes wide open" to the opportunities in licensing intellectual property.

"I would encourage [health systems] to do it if they have the cultural orientation in their organization because it can be financially positive," Linder says. "I think that almost all healthcare institutions are looking to diversify their revenue streams away from patient care, and if you're fortunate enough to have an invention that thrives over the course of many years, it allows you to invest in programs that will make the institution stronger."

Linder says that Nebraska Medicine has seen hundreds of patents go through UNeMed, its technology transfer arm, with about half breaking even while there have been one or two "home runs." He says that his organization currently has several technological developments in the works, along with potential treatments for HIV and Parkinson's disease.

Although it can be wearying to invest in and pursue projects that do not always guarantee massive revenue growth, Linder says organizations that don't try have no way of striking it big.

"If you're not participating in the game, you can't have the opportunity to hit that home run," Linder says.

Even if a nonprofit health system does not have an intellectual property licensing program up and running, Linder says it could partner with a university or an academic medical center, which has students, faculty, and ample research resources available.

Licensing intellectual property can even appeal to for-profit health systems, Linder says, because they also need to put money into research and development while also pursuing profits for shareholders.

"If you look at American industry, [with] the amount of money that's put into R&D at highly innovative and successful companies, they do it as a given," Linder says. "They're going to have a number on their annual budget, whether it's 5% to 10%, that they put into R&D to generate new products that strengthen their position in the market. If the shareholders in a for-profit health system view this as a way to diversify what their revenue sources are and to improve their reputation by having a success, then I think that's a very valid discussion. We view it as inherent in our mission, so it's never questioned."

Linder notes that the integration between Nebraska Medicine and UNMC is "very tight," and that the organization recognizes and supports its faculty as "largely inventors." He says that Nebraska Medicine is not looking to profit from the inventions conceived and developed by its employees but adds that any financial gains are reinvested into UNMC's academic mission to help build out new programs.

Looking ahead, Linder says the COVID-19 outbreak has presented opportunities for healthcare organizations to create inventions that combat the spread of the virus, whether through designing new physical distancing barriers for patients or masks to protect care providers. He says the harder issue for inventors will be the development of a vaccine or effective antiviral therapy, which is both time-consuming and expensive.

Supporting innovative and financial successes

UNeMed's product pipeline of innovations ranges from therapeutics to diagnostics to software and encompasses all stages of progress from development to market debut.

Michael Dixon, PhD, the current CEO of UNeMed, tells HealthLeaders that two notable financial hits came from the medical devices space. The first are the LeVeen™ Needle Electrodes, which use radiofrequency ablation for solid tumors. This product was developed by Robert F. LeVeen, MD, a faculty member at UNMC, and is now licensed to Boston Scientific.

The technology treats solid tumors noninvasively, employing a mesh network that a frequency runs through to charge the tumor. Dixon says that this invention made money, but the lasting contribution was that it opened the door to a new field of research.

The second invention is a startup company supported by UNeMed called Virtual Incision Corporation, which has developed in vivo mini-robot surgery that is small and portable. The company is based in Lincoln, Nebraska, and has raised about $50 million, according to Dixon.

"It's a great example of not just innovation moving to a market, but also a startup company now that has created up to 100 jobs here in Nebraska to start employing people. Our graduates are going there and developing a business presence that complements what the university and hospital are doing," Dixon says.

Growth opportunity 3: Save money on capital building projects

Though many capital expenditures and building projects have been delayed or put on hold due to the ongoing outbreak, provider organizations will resume construction at some point and will want to follow the most cost-effective approach possible.

As with telehealth, provider organizations were reexamining the future of brick-and-mortar facilities prior to the pandemic. While organizations sought to continue the shift from inpatient care to outpatient care, most notably through a concerted expansion into urgent care sites, some hospitals sought to reimagine the way care was delivered inside the facility.

One way hospitals have altered the typical brick-and-mortar building process is by utilizing "DIRTT walls," an infrastructure similar to Lego® with moveable walls that can redesign a space easily with no need for demolition.

The basic business case for DIRTT, the Calgary, Alberta, Canada–based manufacturer, is that healthcare organizations can use the product to make renovations or expansions and still keep clinical operations up and running. Additionally, hospital leaders say that the product helps lower the labor expenses and ancillary costs for construction projects.

Tony LaCroix-Dalluhn, MSN, BSN, RN, is vice president of operations at Abbott Northwestern Hospital, a 686-staffed bed teaching and specialty hospital based in Minneapolis with more than $3.2 billion in total patient revenue.

In an interview with HealthLeaders, LaCroix-Dalluhn details how the Allina Health–affiliated organization utilized DIRTT walls as part of its construction of the Richard M. Schulze Family Foundation's Center for Excellence in Neurological Care.

Ignore the sticker shock, understand the value

The project, which cost $29.2 million, is a 42,000-square-foot space that includes a 43-bed general neurology unit and a 12-bed neurological ICU. In addition to the two units, the project also includes a CT suite and a stabilization room. Construction took place over the course of 12 months on the shelled sixth floor of an existing patient care tower and opened in December 2019. 

LaCroix-Dalluhn says that Abbott Northwestern incorporated elements like "artwork, televisions, [physical therapy] care boards, and writing surfaces" into the DIRTT walls used for the project, which resulted in additional costs of $25 per square foot compared to traditional stud wall construction. He also acknowledges that there are "a lot of differing views" around premium costs associated with DIRTT walls.

However, while LaCroix-Dalluhn says the project is still too new to point to concrete savings, he argues that the relatively high sticker price should be considered within the context of the additional services offered by the DIRTT walls. LaCroix-Dalluhn says that the product minimized jobsite costs due to the small amount of waste produced and that once the organization has a year or two in the space, they will "better understand total costs of ownership."

He also notes that the ability to order a replacement panel or entire room of panels makes future remodeling plans "entirely different" from traditional construction projects.

"It's important to have a long-term view; you have to factor in not just the initial cost of the walls to be able to [examine] how does the artwork and everything figure out, but then also look at your cost of ownership," LaCroix-Dalluhn says. "Will you be able to save maintenance costs later by not needing to cut into the walls? Will you be able to keep your rooms occupied more often because you don't have to shut them down for big construction? Usually when you have to do construction in a hospital, you have to do a lot of partitioning off and dust containment and things like that, but because you don't have to create a big dust cloud by going into these walls, you can save yourself a lot of downtime in the hospital; so that's important."

Since DIRTT walls are typically not utilized for inpatient settings, LaCroix-Dalluhn recommends that provider organizations considering the product for that purpose work closely with local regulatory agencies to ensure the product fits into local building and safety codes.

He says that health systems should also give careful consideration to how the prefabricated modular systems will interact with more traditional construction elements in a project, adding that if systems plan to use the product, they should make the decision early on in construction.

"One thing I'll say about the cost of projects: to actually maximize the advantage of using a modular wall system like DIRTT, it's pretty important that you decide to use that product early," LaCroix-Dalluhn says. "If you start the design process knowing that you're using those systems, you definitely design different than if you start with a traditional stud wall system and then convert it later. You can actually save the project a lot of time, energy, and probably some funding by making the decision early and embracing the tools on the front end as opposed to retroactively thinking, 'Well, what if we did this with DIRTT walls later?' "

Not alone in the DIRTT

Abbott Northwestern isn't the only hospital to utilize prefabricated modular systems as a flexible solution for its construction needs.

Harvey Weber is vice president of facilities management at Englewood Health, an acute care 289-bed teaching hospital with nearly $770 million in total revenues based in Englewood, New Jersey.

Weber tells HealthLeaders that the organization has used DIRTT walls on several projects since 2016, describing the concept as "plug-and-play."

While working on a new infusion center, Weber says, the clinical team at Englewood decided that they wanted to create 20 private rooms as part of the project. At that point, the hospital already had the infrastructure in place, including most walls up to the ceiling, along with plumbing, medical air, and gas.

The hospital contacted DIRTT, and after examining the existing infrastructure, the company built the 20 private rooms, according to Weber. Subsequently, DIRTT was selected to take the lead on another Englewood project to create another 20 private rooms at an inpatient center.

Weber acknowledged that some finance leaders at the hospital were "shocked" at the sticker price for the building project, but ultimately decided to lease the product as a piece of moveable equipment and capitalize the expense.

"The benefit that we had is that [DIRTT walls] are not a construction [project]; it's capital equipment because it's moveable. I can take that wall down and install it at another part of the hospital," Weber says. "It is a kind of equipment; we can capitalize it, lease it over five years, and tie those trades in, so then there's also savings there, too."

The organization also benefited from the fact that prefabricated modular systems do not go into the ceiling, which Weber says saves time and costs with bringing in local enforcement agencies to conduct inspections.

The hospital realized reduced labor expenses compared to those typically associated with a "stick-build" construction project, which can be expensive in highly unionized northern New Jersey, says Weber. He estimates that the ICU project alone saved the organization "a couple hundred thousand dollars" compared to a typical stick-build construction approach.

"When you look at the sticker price, people say, 'Wow, it's expensive,' but if I were to break down what it costs for plumbing, electric, medical, gas, and everything else, it really balances out," Weber says.

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

Photo credit: Eric Francis/Getty Images

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