ACHE: Healthcare Leaders Foresee a Constrained Future

Hospital and health system leaders gathered at the American College of Healthcare Executives annual congress are cutting costs and focusing on efficiency as they prepare their organizations for capitation.

Whether health plans force the issue or not—and in many areas, they're not—hospital and health system leaders believe en masse that they are facing a future of capitation in some form or another. And the time grows short to get ready.

That's the message from top executives attending and presenting educational sessions at the 2015 American College of Healthcare Executives Congress in Chicago this week.

A true capitated environment is still not the reality for many organizations, however. How they bridge the chasm between being reimbursed for volume instead of value is the key challenge for most. In a time of uncertainty, many are challenging their managers and staffs to maximize core business efficiency.

What does that mean in healthcare? The same thing it means for most businesses under stress: efficiency is the core to success, so organizations must focus on efficient deployment of labor resources, benchmarking, and productivity work.

External benchmarks used to attack labor costs understandably raise defenses among employees, says Kevin Cook, president and CEO of the University of Mississippi Medical Center in Jackson, MS. And layoffs are often counterproductive and ineffective.

In helping to cut costs and lower the cost per procedure at the state's only academic medical center, which has three campuses and 24,000 yearly admissions, Cook says he first had to get past those barriers.

"Internal benchmarking gets past the defenses," he says. "If you look at your six most productive pay periods, it allows you to benchmark against yourself in terms of productivity."

In doing so, says Cook, he asked employees and managers to replicate their best pay period in terms of productivity.

"We've established you can provide quality care at that level. Just replicate what you've done the six times prior."

Lynn Torossian, who took over as president and CEO of 191-bed Henry Ford West Bloomfield (Mich.) Hospital in late 2013, faced a big projected budget loss in 2014, so she engaged her senior leadership team and managers in a series of 100-day "workout" plans aimed at cutting that projected loss of $7 million.

"We faced tremendous market forces and consolidation in our market," she says. "Payers are looking for reductions, and there are utilization declines."

She wanted her leadership team to understand and commit to the concept that "change is your job from this day forward."

The first workout period focused on reducing waste. Torossian launched it in October 2014 after building support during a full-day executive session with the senior leadership team, key physician leaders, and select board members. She challenged each manager to make two changes per month. By the 90-day mark, 253 such plans had been implemented. Not all were successful or even highly significant in terms of dollars saved, but it all added up.

Torossian pressed the staff to make changes even though many might not work out as planned. The important thing was to get to work. By the time 90 days had passed, estimated savings from their ideas added up to more than $1.5 million.

"Everyone was scared to death at first," she says, "But they came to realize this is career development as much as organizational improvement."

Measuring cost per unit of service can also be a helpful tool toward preparing for a future of reimbursement for value, whether that means bundled payments or capitation. Such work helps focus organizations on so-called top of license work from staff members. For instance, organizations can benchmark costs per patient day or per procedure, such as a PET or CT scan, and then try to match tasks to talents and salaries.

This approach "builds confidence [managers] can own and change the system," UMMC's Cook says. "They're no longer passive victims. They become the agents of change. We need middle managers to own change if we're going to survive."