The ruling by the U.S. Supreme Court doesn't relieve funding obligations, but does help hospitals avoid large near-term payments to bring pension plans up to ERISA standards.
A note from Moody’s Investors Service says faith-based healthcare organizations will benefit from a recent Supreme Court ruling that deems “church plans” are exempt from the Employee Retirement Income Security Act’s (ERISA) minimum funding requirements.
The ruling benefits hospitals with “church plans,” which include the three hospital systems that appealed to the Court—Advocate Health Care Network, Dignity Health and Saint Peter’s University Hospital—and dozens of other hospitals whose church plan status had been questioned in the lawsuit the court considered.
While the ruling does not change the hospitals’ overall pension liability or the legal obligation to fund it, it does mean these organizations can maintain the generally lower funding ratios they have used in the past than plans operated by hospitals that are subject to the ERISA funding guidelines, says Moody’s.
The ruling basically improves flexibility for the affected pension plans, as hospitals with church plans have generally maintained funding ratios that are less than the 80% funding level threshold required by the federal Pension Benefit Guaranty Corporation, an independent government agency that was created by the 1974 ERISA law to provide insurance to private defined benefit pension plans. The agency charges insurance premiums to organizations deemed to be subject to the ERISA law to guarantee that benefits will still be paid to pension beneficiaries in the event of the company’s bankruptcy.
Not only does the ruling relieve funding ratio requirements, but it also relieves the plans of PGBC oversight and exempts them from paying the insurance premiums. Those premiums are set to rise to at least 4.1% by 2019, Moody’s says, up from 3.4% in 2107 and as low as 0.9% in 2013.
Moody’s will still treat funding shortfalls as a credit negative, adding unfunded pension liability to individual rated hospitals and health systems as a debt equivalent when evaluating that organization’s debt burden.
An Ohio health system bought 70 acres of blighted downtown real estate near its safety net hospital and has a deal with a developer to build housing and retail space in addition to expanding to local parks system.
As a health system CEO, Randy Oostra knows that "job one," as he calls it, is clinical excellence.
But as the leadership and board at Toledo, Ohio-based ProMedica have educated themselves in on the impact of the social determinants of health, the health system's focus has evolved to be more deeply involved in areas some would consider far afield of the mission of treating and preventing illness.
These include affordable housing, inner-city groceries, community outreach, and increasingly, real estate investment.
The most recent evidence of that strategic priority is embodied in a deal between ProMedica and Columbus, Ohio's Continental Real Estate Companies, that aims to redevelop approximately part of a 70-acre plot of downtown property in the city's Marina District into housing and retail space. The rest of the property will serve as an addition to the city's park system.
ProMedica purchased the 70-acre property in 2016 with the city's cooperation in a bid to redevelop a portion of the property and sell approximately 50 acres of it under favorable terms to Metroparks, Oostra says.
The deal is ambitious and unusual, but it's grown out of previous projects that have proved the concept, he says. "The idea is to use our resources to drive economic development and attack tenacious community problems."
Originally from Iowa, Oostra has led ProMedica for 20 years. It is the area's largest employer with 15,000 employees.
Over time, he's convinced the board of the viability of using the capital resources of the health system to "drive economic development and attack tenacious community problems."
In Toledo's case, many of those problems stem from its loss over time of large manufacturing-based employers, including a number of Fortune 500 companies. That and other factors have left areas of downtown Toledo blighted, pockmarked with vacant buildings, and suffering from high unemployment and all the challenges associated with urban decay.
Using Health System Capital as Leverage
During Oostra's tenure, the 12-hospital health system has embarked on a number of smaller redevelopment projects, such as the purchase of an old hotel out of bankruptcy and facilitating its rehabilitation under a new owner.
In August, that hotel will reopen as a Marriott Renaissance. The health system has also moved its headquarters to the area, and facilitated the rehabilitation of numerous other downtown buildings including an old steam plant, to help move as many as 2,000 employees to the area near where it operates the safety net ProMedica Toledo Hospital and Toledo Children's Hospital.
In all cases, ProMedica served as the source of capital, but Oostra says "our capital got in and got out."
His "lightbulb moment" was ProMedica's involvement with the obesity issue around the time of the passage of the Affordable Care Act.
"Our attempt was to educate children and their parents about healthy eating. But these kids were hungry," he says. That led to the establishment of the health system's full-service grocery in an area of the city that had been labeled a "food desert."
He says that at first, the board hoped this was something that leadership would "try [once] and get out of our system," but as the projects have gotten larger and have succeeded without encumbering the health system with management of organizations outside the direct delivery of care, the board has gotten more enthusiastic about using the strategy to address social determinants of health.
"We realized we can be a catalyst not only to treat people who are sick, but to create well-being in our communities," Oostra says.
"As we've rolled along, there was convincing needed, but the more we've done, we've been blessed with success, so they've gotten more comfortable doing it. We have to continue to describe why we're doing it. So that's our biggest challenge because it's nontraditional."
The rating agencies are another story, and they have been skeptical of these activities to some degree, he says.
Pushback from Ratings Agencies
In fact, Moody's downgraded the system's $775 million in debt in March from Aa3 to A1, which is still high investment grade, with a stable outlook. But much of that downgrade was attributed to a large operating loss and an unexpected liquidity decline in FY 2016—largely from ProMedica's traditional operations. Many others in the hospital sector experienced similar issues in 2016.
"We have gotten pushback from the rating agencies," Oostra says. "They might think we're trying to do too much. We just installed Epic [software] and they think we're trying to take on too much at once."
But Oostra and his leadership team are undeterred.
As for future nontraditional activities, such as its upcoming deal to redevelop the property not being sold to Metroparks with a mix of retail, apartments, restaurants and a hotel, ProMedica is still interested in serving as a catalyst and short-term investor in property going forward.
There will always be skeptics, Oostra says, but he is happy to be a leader in extending the definition of addressing social determinants that affect the health of the communities ProMedica serves. Such an extension of the health system's reach is essential to bending healthcare's cost curve, he asserts.
"I understand [the skepticism], but 95% of our resources are still in the clinical bucket," he says. "On the other hand, we feel passionately about this and we can't just sit around and witness the effect of poverty on people's health and lives."
By cultivating creative leadership and real-time collaboration, physician executives develop trust and the ability to make the decisions that lead to improved patient outcomes.
In basketball, arguably the key position on the court is the point guard. He or she makes the decisions on how to attack the defense, how to position teammates on the floor, and how best to distribute the ball so that more often than not, the team puts the ball in the basket.
In a similar way, physician executives are key to the transformation from fee-for-service reimbursement to value-based care, in which success or failure is defined by improved patient outcomes.
While the hospital or health system CEO's role may be as the coach, the physician executive makes the key decisions that matter on the floor. For that to work successfully, other physicians have to trust him.
"Culture is one of the most important factors in determining both the pace and the degree of success in making that transition," says Russell Holman, MD, chief medical officer at LifePoint Health in Brentwood, Tennessee, with 72 hospitals in 22 states.
"Internally we talk about going slow in order to go fast, meaning that we need to spend a lot of time reinforcing and tying culture to strategy."
For many physician executives, a focus on culture is refreshing, because no matter how well physician executives do the job on the business side, ultimately, they got into healthcare to help patients. Many see their business training and their role as leaders of other physicians as an extension of that goal, only they're able to do it on a much more massive scale.
In some geographies the transition to value-based care is happening more slowly than others, due largely to factors outside physicians' control: payer mix, commercial adoption of value-based reimbursement methodologies, and, to a lesser extent, consumer pressure.
But many physician executives are convinced it's the right way to practice medicine, and that focusing on value and holistic care of the patient will continue to gain traction over time.
Therefore, it's possible to make strategic decisions on care protocols that will help the hospital or health system succeed regardless of whether the environment is value- or risk-based or remains predominantly fee-for-service, Holman says.
Translating that shift in strategy to physicians takes nuance, says John Phipps, MD, executive vice president at Winston-Salem, North Carolina-based Novant Health, which has 15 hospitals. But the message of providing value strikes home more often than not.
"The concept of delivering value isn't new to us, but the conversation around value resonates more with physicians than any other way we've talked about care delivery in the past," says Phipps, who is also president of the more than 2,400-provider Novant Health Medical Group. "The idea that you have to do more, see more—a fee-for-service treadmill churn—nobody ever liked that. So our physicians are embracing the idea of value."
Critical to making the transition to value work is that physicians feel as though they have a voice in the changes that are made not only in care protocols, but in linking different sites and acuities of care so they are more patient-centered.
"If you can give physicians a voice while obtaining a consensus on what value is, then everyone is more engaged; everyone is more willing to collaborate and then drive change in the same way," says Theresa Herman, MD, chief quality officer at Saint Thomas Health, a seven-hospital unit of Ascension in Nashville.
What's attractive to physicians about the evolution of the value-based care model is that it's consistent with the ideal long-term clinical model of managing patient situations over time that physicians went into healthcare seeking, but often have failed to find until relatively recently, says John Hensing, MD, executive vice president and chief medical officer at Phoenix-based Banner Health, a 28-hospital health system.
"There's a reemphasis on the delivery of services to improve clinical care in chronic disease management as opposed to heavy emphasis on episodic or surgical intervention," he says. "That serves as an excellent framework to move toward health management, population health assessment, and management in a risk-based environment."
The success of the state's unique Coordinated Care Organizations will be key to his legacy, says Andrew McCulloch, who is retiring next month.
When Andrew McCulloch came to Kaiser Permanente Northwest, it was after working in healthcare administration for the bulk of his career under a traditional medical staff model.
McCulloch, president of the Kaiser Foundation Health Plan/Hospitals, Northwest Region, has run Kaiser Permanente Northwest for the past 10 years and is set to retire next month.
He says the success of the state's unique Coordinated Care Organizations, which promise guaranteed Medicaid reimbursement growth in return for risk transfer from the state to providers, will be key to his legacy.
The Kaiser model, under which insurance is integrated into the provider side of healthcare, was a revelation.
It allowed the health plan, the physicians and the hospitals to work together to improve care without the friction points that often arise when those parts are owned by separate entities.
But while McCulloch was not involved in the creation of Kaiser's unique business model, he was a founding board member of something possibly as innovative: Oregon's unique Medicaid shared risk model.
Operating under a section 1115 Medicaid waiver from the federal government granted in 2012, sixteen so-called coordinated care geographically-based organizations were formed as constructs under which unrelated healthcare organizations work together to managed a capitated group of Medicaid beneficiaries.
For Oregon's state government, the deal to create the CCOs was a bold gamble, an attempt to reduce the rate of increase in Medicaid spending by a full two percentage points.
It was also a gamble for the CCOs, which take on full risk for their entire covered population.
McCulloch says the challenge is that while expanding benefits to a larger population is desirable, the rate of growth in those expenditures was unsustainable even in the short run.
"Basically, the compound annual growth rate in healthcare expenditures could put [state] general fund revenues at risk," he says. "The solution was the CCOs, which would allow [Medicaid] expansion to occur simultaneously with a reduction in the compound annual growth rate of expenditures."
Many states are in the same predicament in that they have to reduce the underlying elements of growth in the state portion of Medicaid budgets, he adds.
Interestingly, Republicans seem to want to make Medicaid for the rest of the states more like Oregon's model, in that they would receive block grants to manage their Medicaid population. In Oregon, the state passed the job of responsibly managing that money directly to the CCOs.
"That was the state partnering with providers to say we can give you assurances on future revenue growth, if you in return will take on the risks associated with keeping those cost caps in place. Kind of a value-based risk transfer model for this population."
As a founding member of HealthShare, Oregon's largest CCO with more than 240,000 members, McCulloch was instrumental in developing how the CCOs would contract with healthcare organizations, whether they be his own or others involved in the program.
HealthShare is one of 16 separate CCOs which require the coming together of hospitals, doctors, practices, insurers, and local counties in a coordinated fashion. Members can choose from four health plans: Kaiser Permanente, Providence, CareOregon or Tuality Healthcare, and 11 healthcare organizations that deliver care.
CCOs are oriented not toward a particularly delivery system, but toward a geographic area. Three quarters of the state's Medicaid population is located in the far northwest corner, where Portland is.
In HealthShare, says McCulloch, nearly all providers participate: Kaiser, Providence Health & Services, CareOregon, a Medicaid health plan, Oregon Health & Sciences University, and a number of other agencies, physician organizations and emergency care providers.
In other areas, "we all compete against each other," he says.
"For instance, Kaiser and Providence both have health plans, and both go after same commercial accounts. "But when it comes to Medicaid… if we couldn't coordinate our resources to take care of these individuals we would accelerate a cost shift already taking place, increasing inflationary pressures in the commercial market."
So while they compete commercially, they must collaborate in Medicaid, McCulloch says, for instance, on community needs assessments and addressing social determinants of health. No one organization can address these issues by itself.
Other areas of collaboration include better coordination of care by tracking people who are frequent ED users, for example, to steer them toward nonemergency services that could better serve them, he says.
The CCOs in general have been a huge success by any measure, with surpluses of around $900 million over their first three years of operations, although there have been controversies.
But as chair of the finance committee for HealthShare, McCulloch says with a per member, per month reimbursement model, risk adjustment is key.
"We learned about risk adjustment," he says.
"The assignment to a risk accepting entity was based upon whether or not you had capacity. If you did, you got the next person, so there's a randomness. As an entity, you had to get a risk score on these folks, an adjuster that went up or down based on severity and we didn't have good mechanisms to get risk scores and could see revenue fluctuate significantly."
After the first year, HealthShare installed "corridors" on risk assessment to provide stability inside the system so providers were not getting financially whipsawed by drastic changes in reimbursement.
"You have to be able to have some consistency in my reimbursement level," he says.
The other thing they learned with a Medicaid population is that exposure in terms of financials is not equally expressed over every person. Eight to 10% were high utilizers, and were appearing in different parts of the system.
To help solve that problem operationally, the CCO implemented what McCulloch calls an ED ID system, so if someone comes into Adventist and is a Kaiser patient, for example, that person will be repatriated financially.
To fix it operationally, however, requires a comprehensive EMR that transcends the outpatient and inpatient, he says.
With the success of Oregon's iteration of Medicaid using CCOs, McCulloch says healthcare organizations in other states should be prepared for some similar version of risk transfer, and that they can't be successful at handling that risk without such a comprehensive EMR.
"The ability to harness clinical info in real time to manage risk cannot be overstated," he says.
As for McCulloch, HealthShare is only one accomplishment he'll be proud of when he retires.
"Last year, we reduced the cost of our Medicaid population at Kaiser by 10%, and we did that by focusing on high utilizers--not by using claims data, but our own clinical information system."
The CEO of Grady Health System says the bill's passage by the Senate would cut $50 to 60 million from the health system's annual revenues and many who gained insurance through Obamacare will lose it.
The recent passage by the U.S. House of Representatives of the American Health Care Act, will affect all hospitals to some degree, but none more than safety net hospitals, which treat a large percentage of poor patients.
Why? Because a much larger percentage of their revenue depends on reimbursement from Medicaid, which expanded under the ACA, but is targeted for the majority of cuts under the AHCA.
John Haupert is not just CEO of Grady Health System, the $917 million (operating revenue) Atlanta safety-net health system. He's also the board chair of America's Essential Hospitals, the 275-member safety net hospital association.
In the wake of the House's passage of the AHCA, and in anticipation of the Senate's upcoming consideration of the Republican bid for repeal and replacement of the Affordable Care Act, HealthLeaders spoke with Haupert about his thoughts on the bill (or its Senate version) and the effects it could have on hospitals and health systems like Grady.
Following is a lightly edited transcript of that conversation.
HealthLeaders: What would be the biggest negative impact from this bill if it's enacted in its current (House) form?
Haupert: For patients and hospitals the biggest hit is that they'll pull $880 billion out of Medicaid. To me that looks like a 25% reduction in what a hospital would receive for providing for Medicaid patients.
For Grady, that would mean that about $45 to $60 million a year would be cut from our share of Medicaid funding. Many patients would lose coverage and patients who maintained Medicaid coverage would experience limited or fewer services.
To be fair, this bill does away with a couple of other things that had been contentious in the ACA that many governments would like to implement, such as work requirements and/or participation costs.
This legislation does give states more latitude on requirements around seeking work or entering workforce training programs or to have patients participate in the cost. I'm not sure all of those are bad things.
Also, the legislation that brought us the ACA ramped down disproportionate share funding, and of course, safety net hospitals opposed that. This bill does away with those cuts, but follows that with cuts in the base Medicaid program that will be more than DSH cuts would have been.
HealthLeaders: On a scale of 1 to 10, given that the House bill passed by such a narrow margin, how worried are you that what's in the bill will stick?
Haupert: I'm around a 5, because history has shown the Senate to be more willing to be pragmatic and review the facts. Already several Republican senators have made statements they won't put this through the way it is.
The margin they have there for votes is much narrower than the House and it was narrow there. Given how bizarre these days are, I still think the Senate will be there to help straighten things out.
HealthLeaders: Given that the ACA does need fixing in some areas, what specifics would you like to see in the Senate bill?
Haupert: One place to start [would be] for the Senate to look at the limitations Obamacare placed on plan design, mandating what would be covered and not giving states leeway to design the plans.
That's a bit restrictive. The issue around mandating that the participant participate in the cost was a real limiting factor too, because there needs to be some buy-in from the Medicaid participant.
It can't be much, but that does create accountability. Even with our own charity care policy here at Grady, there are copays depending on income level. All of this makes Medicaid look less like an entitlement.
I do worry in this bill about the high-risk population and pre-existing conditions. We have no children, but I have a nephew whose wife has very rare blood disorder and all that is between her and death is a drug transfusion every two weeks. Without that drug, it would be fatal.
But the cost of that infusion is around a million dollars a year. That's a pre-existing condition and even if everyone in our family pooled their money, we could not pay for it. So if she were not insured already, she would have to go into a high-risk pool that may, or may not decide to cover that, and she's a fully contributing member of society.
That's scary and they were very cavalier in their approach.
HealthLeaders: Given that Georgia has never expanded Medicaid, would this bill affect hospitals and health systems like Grady less than in states that have?
Haupert: Certainly hospitals and physicians in states that have expanded will be impacted more.
Two caveats: That's assuming incremental dollars for Medicaid expansion go away and those states take the same hit in the base payment rate. They would lose both.
We would only lose one component, but there's some confusion around how per capita or block grants would be calculated by state. Our state had a concern we would be penalized because we had not expanded in going into the base calculation.
It is possible, based on how that ends up, that a state that expanded gets expansion dollars calculated in its base so states like Georgia would be penalized for not having expanded.
HealthLeaders: If enacted as written or close to as written, will this bill affect hospitals and health systems' efforts to further integrate care, which many claim is the way to cut costs?
Haupert: When I think about coordinating care, it's more cost effective to get to a care managed population health model.
Depending on their financial state, hospitals and health systems may not have the funding to create those models. I still think our fee-for-service model over the decades has promoted overutilization because there's not been fear of not being paid for overutilization.
If the bill stayed as is, you'd see most physician groups and hospital groups moving quick to understand utilization patterns and what they can do to reduce those.
That in itself is a good thing, but it's not good that it's in response to cutting bottom out of Medicaid. I met with a representative who will remain nameless. Out of his mouth came two "ahas" for me. He said they wanted to bend the Medicaid cost curve because it's grown too fast. So that was part of the goal with this bill.
I asked why they weren't looking at numerous actions they could take to clean up Medicare. His answer was that if you touch Medicare, you won't get reelected. If you touch Medicaid, nobody really cares. The healthcare industry does have to be pushed to adopt new models of care, but to do it on the backs of the poorest and sickest is tough to understand.
With an eye toward developing a customer-centric ethos, many hospitals and health systems are looking outside the industry for established senior leaders. IU Health's HR chief is one of those breaking the mold.
Liz Dunlap never thought she would work in healthcare. Why would she? She's held top human resources jobs with some of the most recognizable consumer brand names in the country: Panera Bread, Christie's, and Godiva (then part of the Campbell Soup Company).
Which is why she thought the recruiter who called her about an opportunity at IU Health in Indianapolis about 18 months ago had the wrong person. She was in St. Louis at the time, working as chief people officer at Panera, one of the more successful quick service food companies in the nation, which has built its brand on healthy eating.
He assured her that "they were interested in talking to people from outside the industry about their open [executive vice president and human resources officer] position," she says.
Still doubtful, Southern California native Dunlap and her husband took their first-ever trip to Indianapolis to discuss the opportunity with the leaders at the 15-hospital academic health system led by then new CEO Dennis Murphy.
The executive recruiter told Dunlap that she would know within an hour of meeting the leadership at IU Health whether it was something she'd want to consider.
The recruiter was right. She was ready to take the job after the one-and-a-half-hour meeting.
"What got me excited about coming in was the quality and caliber of leaders I would be working with on the leadership team and the ability to have an impact on their mission," she says.
'A Little More Creative'
Michelle Lee, a consultant in the southern California office of healthcare executive search firm Witt/Kieffer, who was not involved in placing Dunlap, says hiring from outside the industry is happening more as healthcare organizations seek to adapt to a rapidly changing environment that is placing a greater emphasis on the consumer.
"Healthcare as an industry is looking outside for ways to be a little more creative," she says. "That's doesn't necessarily come from folks who are entrenched in healthcare."
Lee sees three areas healthcare organizations are searching for outside talent: hospitality, life sciences, and other consumer-facing industries.
That said, the learning curve for those who have no history in healthcare can be steep, and hiring someone who has consumer experience is certainly no panacea.
"It's not an easy industry to learn," Lee says. "One quality they need is curiosity. The execs who have been successful are curious. They keep asking questions and they really listen."
Dunlap's early experience was no exception.
Steep Learning Curve
Learning healthcare's many acronyms and its different vernacular was challenging. "My first couple of months were a deep learning curve coming up to speed," she says.
But overall, the job is similar in focus to what she was used to. Ultimately, it's about getting the best talent into the organization, then engaging, and most importantly, retaining them.
One unique challenge for Dunlap has been recruiting nurses. There's a widely acknowledged shortage, and it's getting worse. Experienced nurses are retiring at greater rate than new nurses are entering, and demand for their services is spiking in nontraditional areas, such drugstores and other retail outlets, urgent care centers, and freestanding EDs.
"That forces us to be creative," says Dunlap. "We need to create a place where elite nurses want to work. It's not only about creating that environment, but [also] effectively communicating that to candidates."
Dunlap says she's working hard on taking the "friction" out of the hiring process, so IU Health can move more quickly than competing sources of nursing jobs. That means making it easier to find the jobs, apply for them, and getting candidates through the interview process quickly.
"Then we make them an offer," she says. "My goal is that the competition can't move as quickly. Of course, we have to live up to our value proposition once they're here."
Applying Lessons from Consumer Businesses
Toward that end, she's working on instituting tools that provide more frequent, consistent, and regular feedback from employees, and the health system is currently evaluating such tools.
"The whole point is a very shortened set of two to six questions, that will be measures of engagement but also topical issues important to our team members," she says. "Why did they come? Why do they stay? We need to communicate that message to recruits."
She's also focusing on making exit interview data more useful in training and retraining managers, because, as she says, people join organizations, but leave bad managers.
"We are starting to measure leader quality, because we understand individuals need support to be a better leader," she says.
She's also borrowing from her past.
When she was at Panera, guest satisfaction was a key measure. There, the most important metric was not "messing up" orders, where 60% were customized. Along with a warm and friendly greeting and food quality, she says, "we knew there were four to five things we needed to deliver on to drive frequency of business and the number of times customers would come in a quarter."
Patient satisfaction provides similar important measures for healthcare, she says.
"IU Health needs to focus on the development of our leaders, she says. "Consumer-facing businesses, whether retail or other, have better processes in place for developing leaders. That's an opportunity area for us."
The New Jersey-based, six-hospital integrated delivery system has developed new metrics to gauge its success in value-based care, says its chief executive officer.
In 22 months as president and CEO of Atlantic Health System, Brian Gragnolati, FACHE, has tried to turbocharge transformation toward value at the $2.6 billion health system.
With 1,000 employed physicians, rehab, home care, hospice, and one of the largest ACOs in the nation (390,000 attributed lives) Morristown, NJ-based Atlantic Health is ideally suited for value-based care.
Gragnolati has embraced the idea that hospitals and health systems must lead the way toward demonstrating value to consumers, payers, and the government. He helped develop Johns Hopkins Medicine's Integrated Delivery and Financing System prior to coming to Atlantic Health.
HealthLeaders spoke with him recently about the measurement discipline such a broad transformation requires. Following is a lightly edited transcript.
HealthLeaders: What metrics are most important to an organization that is shifting its focus toward value?
Gragnolati: First, we want to measure things that can truly harm a patient. Second, we want to measure things that affect our ability to get paid. They dovetail because as we experience this shift to value, our payment structures are set up to hit certain quality measures like readmissions, mortality and HAIs [healthcare associated infections]—things like that.
So they're practical measures. This is about a quarter of the measurements.
Secondly we look at community benefit, which represents about 10%. Another 10% measures patient experience based on inpatient, ED and outpatient. We also measure people.
For the past eight years, we've been among Fortune's top 100 places to work, so employee engagement is really important. As we continue to become more integrated, we're measuring the degree to which direct care providers feel engaged. That's about 15%.
Growth is another piece, representing the balance. As we see more movement from inpatient to outpatient, we need to keep up with the criticality of our patients, the case mix index, and total operating revenue.
HealthLeaders: How is your revenue base shifting?
Gragnolati: 54% of it is now ambulatory. Two years ago it was less than 50%. We're pushing more care to the outpatient side so we stay attendant to operating revenue, which implies market share growth.
As inpatient become less relevant, you have to grow aggregate operating revenue, which comes from your patient touches. We need to make sure our balance sheet is completely connected to our P&L. When you look at EBIDA, you get a better view of where you're generating cash flow.
Also, in uncertain times, it's important to stay focused on building credit strength. It's a complicated dance with analysts, but we need sufficient reserves and a balance between debt and profitability.
HealthLeaders: Beyond metrics, what's most important to you in pushing the organization toward a value-focus?
Gragnolati: I go out to clinical sites a lot and I time my visits so I can go to patient care huddles. Those whole-house huddles take place at 11AM for 15-minutes. They're populated by the clinical staff and the leadership team, focusing on what's happened in the past 24 hours.
We start with activity levels by area, looking at quality metrics, focusing on things we can prevent and that need early intervention, like falls, fall precautions, pressure ulcers, and line management.
We discuss any patient who has a line or catheter, and make a deliberate effort to know when it's coming out. We also celebrate the days and months and in some cases, a year-plus that we haven't had a line infection.
HealthLeaders: You started your career as an emergency room technician. That department is a high-cost area. How does your experience help in transforming the ED?
Gragnolati: We do a lot of measurement on that. We measure door-to-physician time, and door time to disposition. In real time, we look at patients being held in the ED and focus on what we need to do to get them elsewhere. No longer do EDs feel like they're living in isolation.
We also look in real time at patient experience, whatever the most recent scores are, and end with an open forum where anyone can express concerns or potential issues that need to be brought forward to leadership.
I encourage corporate folks to get into the huddle. I showed up at one a few weeks ago and my CFO was there. This has been transformative in our organization.
We also get reports on more traditional things, such as volumes and readmissions and we use a capacity planner to look at patients and predict future staffing levels.
Our physician enterprise also in realtime looks at not just our total patient activity, but at patients who are in our network, and how many of those patients are staying in our system for care. We also look at post-acute care report cards.
HealthLeaders: What helps you to understand what real people are experiencing as a result of the lack of affordability of healthcare?
Gragnolati: Value-based care and risk-based contracts represent a small percentage of total revenue, but we're learning a lot through our ACO work.
I'm looking forward to a day when everyone is connected on either our EHR or one that interfaces with us so we don't have to guess what's happened to the patient before they hit our door.
That inherently will create more safe and effective care. Affordability is a top concern to consumers and the reasons are apparent. They're experiencing more out-of-pocket costs, and healthcare takes a higher percentage of their income.
My daughter is on an exchange product, and her premium is $100 per month because she's subsidized. But she's got $5,000 of potential exposure via deductibles and coinsurance for someone who makes less than $20,000.
HealthLeaders: What do you think is important for political leaders to remember as the administration and Congress attempt to repeal and replace the ACA?
Gragnolati: For the past couple of decades, we've been working hard on the delivery side to make sure our country has the access to the right levels of care. We've had ups and downs on that, and the ACA brought that issue front and center.
While nowhere near perfect, it did a couple of important things: It created a series of insurance reforms that have helped people with pre-existing conditions, and eliminated lifetime limits. That was important.
I hope in the next iteration of change; we don't lose sight of that. The reality is that 22 million people are covered who hadn't been. In trying to drive down per-capita hospital spending, we've really bent that curve.
But there are pockets of costs we haven't been able to get at, like pharma. So as I look forward, it's important to continue to experiment with ACOs and medical homes.
If Congress can't pass a bill, with or without Democrat support, they'll face similar pressure in two years, perhaps in the midst of a "horrendous fiscal situation."
Despite a high-profile effort and public failure, Republicans aren't finished with healthcare. Or, it might be said, healthcare isn't quite finished with Republicans.
Despite earlier signals that they would move on from healthcare legislation, the Trump administration seems like it wants to try again.
The odds that its next attempt will also fail have to be at least even, so whether that's smart politics are not is arguable.
But Obamacare does need some changes to avoid longer-term ills that include exploding federal deficits, in an economic recession that is sure to come at some point, says Jeff Goldsmith, a national adviser to Navigant's healthcare practice.
Goldsmith, a self-described healthcare futurist and associate professor of Health Sciences at the University of Virginia, says the hundred billion-dollar-plus annual outlays for the as yet unrepealed and unreplaced Affordable Care Act pales by comparison to the trillion dollars a year currently spent on Medicare and Medicaid, which represent an existential threat to the U.S. economy.
"If this process fails, we're right back at it in two years in midst of a horrendous fiscal situation," he says.
'A Morass'
That situation would get notably worse should interest rates and recession risks rise, as is expected.
"This is such a morass. Unless that is contained we've got a terrible fiscal problem," he says, noting that he is a fan neither of the ACA or the recently failed Republican alternative.
Goldsmith says the core purpose of the failed bill was not to fix the problem of runaway healthcare costs, but simply to "undo the redistribution of income at the heart of the ACA, which itself was taking money from wealthy and giving to the working poor in clumsy way."
A Quagmire
Goldsmith says legislation surrounding healthcare in recent years proves the wry saying attributed to Lewis Carrol's Alice in Wonderland: "If you don't know where you're going, any road will take you there."
"The ACA was a good deed done badly, is the way I've put it to my students," he says. "But the difference in getting it passed was that there was strong and consistent political guidance from the White House."
That guidance included rough agreements reached at various White House summits with interest groups. Each group agreed to broad ideas of what they would give up in return for gaining insurance coverage for millions more Americans through their support, or at least their indifference, to the ACA.
And still, the ACA passed with no Republican support.
"They did it with full connivance and support of the industry," Goldsmith says. "That's a very large group of actors who have played almost no role in this process—something else that ought to give the Republicans pause."
That kind of prior agreement among factions wasn't present in the recent failed bill.
But Goldsmith says the ACA needs tough changes, if not the long promised repeal-and-replacement, because of its contribution to future deficits, especially in (forecast) times of economic malaise.
"That 72 million who are on Medicaid goes to 80 million in a recession and the federal deficit already grew 40% from 2015 to 2016," he says.
"We're nearing the end of an expansion. What happens when state and federal revenues fall and people lose their jobs and the rolls grow?"
Head Down, Manage Prudently
In some ways, managing a healthcare organization remains relatively simple amid the uncertainty. At least the road map is pretty well laid out.
Providers will see diminished cash flow, which means they must continue to focus on efficiency and try to move payers toward putting them in charge of managing healthcare for a regularly paid flat fee per member—that is, taking on risk.
"If I'm a health system CEO, I'm looking at my community care strategy. I'm looking at the strength and comprehensiveness of my network and how I can contract meaningfully with health plans," Goldsmith says.
"You don't need a bill to pass to do these things, it's just prudent management."
Regardless, he says, hospitals will get hurt no matter what happens in the form of reduced payment, increased bad debt, or both.
Hospitals had been exerting a lot of energy in learning how to practice population health in self-defense.
Apparently, given the lack of vision and cooperation that should exist if people of good will really want to try to fix healthcare in a fair and fiscally sustainable way, they should continue to do so.
Terms of the agreement weren't disclosed, but the deal, expected to be completed this summer, will bring all 10 agencies under one umbrella.
Dallas-based Baylor Scott & White Health is consolidating its home health services through a joint venture with AccentCare, an 11-state post-acute care provider also based in Dallas. The venture will combine four existing agencies from Baylor Scott & White and six from AccentCare, which will manage all operations.
"AccentCare shares our commitment to innovative and compassionate patient care and brings significant home care experience to our collaboration," said James H. Hinton, President and CEO of Baylor Scott & White Health, in a media release.
"As health care delivery continues to evolve, this joint venture helps to ensure that high quality integrated care is available to our patients and their families in their homes."
Hospitals and health systems are in the process of determining strategically how they want to interact with and manage post-acute services as they become more responsible and accountable financially for patient outcomes.
As so-called fee-for-value reimbursement model is expected to slowly supplant fee-for-service payment, how post-acute care is managed is increasingly tied to both clinical and financial outcomes for hospitals and health systems.
Terms of the agreement weren't disclosed, but the deal, expected to be completed this summer, will bring all 10 agencies under one umbrella.
It is expected to help Baylor execute on its goal of managing the health of populations through an integrated strategy that includes its 48 hospitals, 44,000 employees and its health plan.
AccentCare has more than 19,000 employees offering services ranging from personal, non-medical care to skilled nursing, rehabilitation, hospice and care management. It has several regional brand names, including AccentCare, AccentCare of New York, Alliance For Health, Texas Home Health, Guardian Home Health & Hospice, and Sta-Home.
"We are excited to begin our joint venture with the nationally recognized and highly regarded Baylor Scott & White Health," said Steve Rodgers, CEO of AccentCare.
"Our home health care expertise combined with the breadth of Baylor Scott & White's award-winning health system allows us to better serve our communities' needs, especially as post-acute home health care services play an increasingly vital role in healthcare."
Outraged? Don't be. The CEO's acknowledgment that private pay patients take precedence over other patients is a rational response to an irrational healthcare payment system.
You may have heard that John Noseworthy, MD, the president and CEO of the Mayo Clinic, recently told employees that the Rochester, MN-based health system will give preference to patients with private insurance over those who rely on Medicaid or Medicare.
At this point it's safe to say he wishes he hadn't said that.
Predictably, that statement opened up a nasty public relations crisis for which the health system has still not fully recovered, even two weeks later. I asked to speak with Noseworthy, but through a spokesperson, he declined to further address the issue beyond the written statement proffered after the Internet exploded in reaction to his comments.
Worst-kept Secrets
I don't necessarily blame him. Noseworthy disclosed publicly one of the worst-kept secrets in healthcare, and he's paying for it dearly in the news cycle.
He articulated what many, many hospitals and health systems struggle with—how to manage their payer mix. Many actively try to manage that mix, albeit in more subtle ways.
In fact, when meeting healthcare executives for the first time, a description of the health system's payer mix usually happens right after they introduce themselves.
Noseworthy and Mayo are suffering because Noseworthy had the temerity to admit that healthcare, at least as we practice it in this country, is a business. And businesses exist to maximize revenue under the law.
The mess all started when the Minneapolis Star-Tribune got a transcript of the videotaped speech, made late last year to employees, in which Noseworthy said the health system essentially would prioritize commercially insured over public-pay patients to bolster the bottom line.
His actual words were more nuanced, according to the Star-Tribune:
"We're asking... if the patient has commercial insurance, or they're Medicaid or Medicare patients and they're equal, that we prioritize the commercial insured patients enough so... we can be financially strong at the end of the year to continue to advance, advance our mission."
Noseworthy even said in the same speech that the Clinic would always take patients regardless of ability to pay, in circumstances where such patients could not find that medical expertise elsewhere.
Piling on Misses the Point
The predictable piling on of bloggers and bloviators in search of page views described Noseworthy's faux pas in biting, breathless headlines.
Such is the morass into which my request to speak with the CEO landed. While waiting for a response, I googled "priority to commercial patients" and got more than 85,000 news results. So please, let's not pretend Mayo is necessarily a bad actor here—and if it is, it's far from alone. Mayo is managing what every health system seeks to manage to the degree possible—its payer mix.
Why do physicians refuse to take new Medicare or Medicaid patients into their panels while remaining open for the commercially insured? Because Medicare pays less than commercial insurance, and Medicaid generally pays much less than that. Same for hospitals building new facilities in the well-to-do areas of town rather than the poor ones.
A widely accepted rule of thumb is that Medicare pays around 90 cents of every dollar commercial payers pay for the same services, while Medicaid is often much worse, paying between 55 and 80 cents on the dollar compared to private insurers.
With its reputation for quality and innovation, built over decades, Mayo has a much bigger pool of patients from which to choose than most organizations. Its capacity to deliver services is far outweighed by the number of patients who would like to receive care there.
Don't get me started on fee-for-service healthcare, but that's what we still mostly have in this country.
A Symptom of the System
The fact that healthcare providers discriminate based on how much they're paid should not be surprising, because it's a rational economic decision. Why do so many people buy supplemental health insurance in countries with single-payer healthcare?
Because it helps them jump the queue. In effect, higher reimbursement from commercial payers in the U.S. helps their patients do the same.
This sort of policy from Mayo, whether articulated publicly or not, isn't new.
Noseworthy's comments from the employee speech were not the first time a Mayo executive has opened his mouth about preferring commercial patients. This story dates back eight years, for Pete's sake.
The CEO's responsibility is to grow the business. The only way to do that is through margin, and preferring higher-paying patients over lower-paying ones is an efficient way to reach that goal.
That doesn't absolve any organization with a valuable tax exemption or two from criticism about how growing revenue to the detriment of everything else furthers a nonprofit's "mission."
I'll let others take on that question, but let's not feign naiveté here.
Many, if not most, hospitals and health systems can't do without Medicare and, to a lesser extent, Medicaid, revenue. With its worldwide reputation, Mayo may be an exception. But you can bet that in the case of managing its payer mix to its maximum benefit, it's certainly more the rule.