IU Health's new top boss says the ability to withstand constant change will be a mark of success for top health systems.
He's a different kind of leader; ideal, he hopes, for executing a different type of strategy than the man who came before him.
Dennis Murphy, 51, recently took over for longtime Indiana University Health CEO Dan Evans, who retired in April after a 13-year run as the top administrator.
By most measures, Evans' strategy was right for the time. Focused on growth, he built the former Clarian Health from three hospitals in downtown Indianapolis into a 20-hospital, statewide system with annual revenue of just less than $6 billion.
But Murphy, as he sees it, faces a much different challenge.
Instead of growth, IU Health now has to focus on costs and improving efficiency. Under a program begun in 2013 when Murphy arrived as chief operating officer, IU Health continues to reach toward a goal of cutting expenses by a billion dollars over four years.
The kind of leadership needed going forward focuses on costs, efficiency, and adapting to—in fact even forcing—constant change, he says.
As CEO, Murphy almost sees himself as a sort of coach (my words, not his) in that his major challenge remains building a strong team to manage the organization collectively across operations that now extend far beyond the acute care space, where he and many of his colleagues grew up.
I spoke with Murphy recently about the challenges he faces. Following is the transcript of our conversation, lightly edited.
HLM:How are you settling in to the job?
Murphy: It's helpful that I've been here for three years. Not coming into the organization and immediately becoming the CEO has given me a chance to get to know it well.
As COO, I visited all our clinical sites around the state and developed a relationship with the management teams, the boards, and the physicians in those locations.
HLM:How did being COO prepare you for a job where the buck stops with you?
Murphy: As much as the buck stops with you, it's a failure if you're required to do that.
As COO, I saw myself as a chief talent officer more than anything, building a strong team to manage collectively across operations, whether a chief nurse, a CMO, or operating VPs. It's more talent management than core operations.
Those skills are easily transferable to the CEO role. What's new and challenging is being the external face of the organization to the board, to the community, or to folks like you, telling our story.
HLM: The goal to cut expenses by about a billion dollars over four years has gotten a lot of attention. Why is it so important?
Murphy: Even more broadly than cost cutting, it's about our ability to adapt and change. It's not just the cost metric, but the outcomes metric. We talk about resiliency and how to create the organizational capacity to repetitively change.
The key with cost, is understanding how quickly the external market is asking us to adjust.
Like a lot of academic health systems, we're not seen as a low-cost provider. We simply have to manage those costs to be included in key networks, and patients with high deductible health plans are already choosing us not only on value but also on cost. Our rate of cost growth is less than medical inflation, but it is a tough thing to manage.
HealthLeaders: What areas offer the greatest opportunities for improvement?
Murphy: The board does not just want us to be financially successful.
Success is about outcomes, engagement, and quality. We need to be good both in the population health domain and also in the destination medicine domain.
In population health we feel like we've done incredibly well. We have our own health plan that's managing over 200,000 lives.
On the destination medicine front, that's in the sweet spot of academic medical centers and core to their delivery and strategy structures. We're a national leader on Alzheimer's, [and] our cancer program… discovered a cure for testicular cancer. Those programs are hallmarks of distinction in a great academic medical center.
Getting credit for cooperation in federal fraud investigations could drive a wedge between organizations and their top executives.
The government, in the form of the Department of Justice, wants healthcare organizations to investigate themselves.
At least, that's the substance of the Department's so-called Yates memo, released last fall. But hospital and health system executives are on their own as to how to interpret it.
The reason can be found in the government's expectation and definition of "corporate cooperation" in any fraud investigation in which an organization may find itself, says Bill Jordan, a former senior official at the Department of Justice and now partner and co-leader in Alston & Bird's Health Care Litigation Group in Atlanta.
If organization leaders consider "cooperation" to entail providing the documents the government has requested in a subpoena for a fraud investigation, they're still falling way short of the expected standard, says Jordan.
"To the government, that's part of it, but not at all that would give you cooperation credit," he says.
"That means you go in and do an investigation. You essentially do the government's work for them, and identify the culpable individuals and the problems. For lawyers who represent healthcare companies, that's really a change."
If activity by the organization's employees bring federal fraud charges, it's up to the organization to get credit for cooperation. That may lessen corporate penalties resulting from misconduct, says Jordan.
Antagonistic Relationships
That guidance, he says, wreaks havoc on the relationship between healthcare companies and their senior executives, and with counsel assigned to represent the organization.
The memo, nicknamed for its author, U.S. Deputy Attorney General Sally Quillian Yates, further puts firms such as Alston & Bird in a potentially antagonistic relationship with its clients, the executives who hire them, and the companies they represent.
In the case of investigations into misconduct, the Department of Justice itself will determine whether the level of cooperation is sufficient, he says.
"There's no black robe who will determine that," he says. "It's the Department of Justice badges."
That puts law firms and healthcare executives in a position that is awkward at best and diabolical at worst, Jordan explains.
Number of Fraud Investigations Rising
"The government's perception of who a bad apple is may be completely different from that of others, so that's why there is so much consternation," he says.
"The government can say, 'you can defend yourself, but don't do it and think you're at the same time cooperating with our review.'"
That guidance surrounding the Yates memo has created heightened tension on how to respond to government healthcare fraud investigations, which are growing quickly.
In 2016, Jordan says, there will be more than 800 false claims actions brought by the Justice Department. Just last week, more than 300 suspects were charged with defrauding Medicare in one of the largest nationwide fraud raids in history.
Five years ago, there were only 200 such actions in the entire calendar year.
The implications of the Yates memo can be dealt with prophylactically to a degree, he says.
But the true test of the organization's level of cooperation with the government will come only when the compliance program is put to the test in an actual fraud investigation, he says.
"Even for healthcare companies and hospitals who have really robust compliance programs, [the Yates memo has] created this need for an upfront assessment on how the company is going to be perceived in terms of cooperation with the government," he says.
He says the memo is a reaction to the perception that during the financial crisis, companies had to pay exorbitant fines for their actions.
Meanwhile, executives and other employees responsible for the fraud that precipitated the crisis largely escaped prosecution, with much of their ill-gotten wealth intact.
3 Ways to Prepare
If prosecutors are looking at a False Claims Act case, "they have to evaluate whether there's been criminal conduct and whether there's been individual culpability," Jordan says.
"By putting that procedure in place, [DOJ has] forced healthcare companies to evaluate individual liability too."
Jordan says organizations should prepare differently in light of the memo for an investigation that hopefully never comes. Here are three actions to take prophylactically:
Evaluate compliance programs to determine they aren't just "paper programs," and that they are reflective of the values the company wants to have.
At the same time, it has to have real procedures the company follows. The worst thing that can happen is if OIG looks at your compliance program and says you have 15 policies. Did you follow them? So that's the daily blocking and tackling that's very important.
When an allegation comes to the attention of legal counsel or the compliance office, all allegations should be treated seriously and investigated.
Those investigations are documented so that when the OIG comes in, there's documentation that proves allegations were investigated, and details of the mitigation that was put in place as a result. Documentation is where hospitals have time and again fallen down on the job.
Communication about these issues should be frank, but should not agitate fear. For most hospitals, Medicare, Medicaid, and Tricare are easily the largest payers. If your biggest customer says you should follow certain rules, you need to do it.
You have to treat the government as a customer. That's a different mindset than treating it as an antagonist or opponent. That mindset helps executives get in the position to deal with these things.
"The government doesn't want to put you out of business," says Jordan. "Many hospitals have 5,000-10,000 employees. Even if you assume, 99.9% of people are good, you'll have maybe 10 bad apples. Even Mayberry had a jail. You hope for the best and plan for the worst and in the meantime, track everything."
The 20-hospital system's commitment to use its resources responsibly isn't new. What's new is the more systematic approach being taken.
SSM Health has not been living its mission as effectively as it could be—at least when it comes to its mission outside the clinical environment.
That external mission, which can encompass energy consumption, advocating on environmental issues, and investment choices, has usually been seen as outside a provider's core mission by many, if not most, hospitals and health systems.
Indeed, it is, but that doesn't mean environmental concerns aren't important, or that they don't serve the organization's broader mission of improving the health of communities—even if that community is the earth itself.
So the 20-hospital, St. Louis-based health system is changing its policy in order to commit to specific targets for improvements in those areas, says Michael Panicola, the system's senior vice president of mission, legal, and government affairs.
"It's one of our core commitments to use our resources—natural, human, and financial— responsibly and to care for the environment," he says.
"Our efforts, by and large, aren't new. We've been doing all of this in pockets; but it's right to frame it as a more systematic approach to environmental sustainability."
In other words, where SSM Health has fallen short, it has not been from lack of effort, but, perhaps, from lack of organized effort.
After all, the system has grown significantly in recent years, at least partly through acquisition, and is now in four states. But ever-determined to improve, SSM Health is putting some muscle behind the drive to become better attuned and committed to improving health more broadly.
The new multifaceted approach to stewardship involves becoming a member of the Healthier Hospitals Initiative, a consortium of health systems that offers guidelines for reducing energy consumption and waste.
As part of its commitment to Healthier Hospitals, SSM Health has committed to reducing energy use by 3%, achieving a 25% recycling rate, and reducing regulated medical waste to less than 10% of total waste.
SSM Health has also adopted an investment strategy that eliminates investments in the "Filthy 15" and directs managers to divest the health system's investments in coal production companies and expand investments in entities that generate a measurable beneficial social or environmental impact.
Over the years, SSM has already diverted more than 20% of its waste to recycling processes, has increased compliance with keeping potentially hazardous items, such as batteries and light bulbs, out of landfills, and has reduced its overall energy consumption by installing more energy-efficient lighting and electrical systems.
Panicola says the initiative comes from the highest levels in the health system, because the members of the organization's leadership council not only recognize that such actions complement the mission of improving health, but that they also make good business sense.
"Historically one of the obstacles to health systems engaging in these efforts is the thought of the upfront costs…in a time of narrowing margins and shrinking budgets," he says.
"There are many things competing for limited dollars and the initial response was that this was going to be an expense, but systems that have engaged systematically, while upfront costs can be significant, actually save money through better recycling, safely reusing materials, and lowering energy costs."
Adherence to a strict interpretation of the goal of independence can be a critical barrier to positioning the organization for a value-based environment.
This article first appeared in the June 2016 issue of HealthLeaders magazine.
In a vacuum, the idea of independence carries positive connotations. It has a ring of both possibility and responsibility, of being in control of your own destiny. This is true especially in rural and small communities that are sensitive to being dictated to by larger entities. The argument for organizational independence for community hospitals is just that: All healthcare is local, so leadership of the healthcare organization should also be local, allowing the community to maintain control of one of its greatest assets and to deliver what's best for the community based on community members themselves.
The problem is that making such judgments is anything but easy—or final—given the challenging operating environment for such organizations.
In a time of upheaval, a prudent leadership group considers all options, and under careful consideration, more and more organizations are determining that it doesn't make sense to continue as an independent, given the financial distress that's afflicting some community hospitals as they struggle to deal with a changing business model, lower reimbursements, and the need to invest in both labor and infrastructure.
The reasons independent organizations are experiencing financial issues are myriad, but they add up to an "elevated" level of M&A activity for nonprofit hospitals with less than $500 million in annual revenues, according to a June 2015 report by Moody's Investors Service. Moody's cites increasing consolidation pressure due to declining reimbursement, shifting patient volumes, and necessary IT upgrades, and says it expects many smaller organizations to continue to heed to that pressure through agreements to merge.
In the aggregate, that might be true, but other less draconian partnerships may also be a workable option for many organizations.
For now, a merger is not an option for Winona (Minnesota) Health, where Rachelle Schultz is president and CEO. She says she expects to manage through the issues that are buffeting her health system, which has a 35-staffed-bed hospital, a nursing home, three clinics, and two assisted living communities. She and her board are coping by remaking what was once a hospital-centric entity into a holistic organization focused on the healthcare needs in its community. Its leaders want to offer those services whether they are hospital-based or not. To handle the tertiary functions that need to be referred out of the community, Schultz and her leadership team have created business and clinical partnerships with larger referral centers.
"Things are changing in smaller communities if all you are is a hospital, with things moving to outpatient," Schultz says. "That's a hard thing for a lot of small communities. We've expanded how we think and how we're interacting with patients outside our walls."
Conversely, under different circumstances, Bristol (Connecticut) Hospital would already have been acquired by a larger partner by now, and would be part of a for-profit operator's (Tenet Healthcare) statewide network in partnership with Yale-New Haven Health System. Because that transaction was quashed by the state government early in 2015, Bristol Hospital is still navigating independently.
Although president and CEO Kurt Barwis never says never, it looks like the organization will need to figure out how to survive and thrive that way for the foreseeable future. Not that he necessarily favors either option in a vacuum—he makes no bones about enjoying the freedom that comes with organizational independence—but moreover, Barwis is once bitten, twice shy. He says he doesn't want to spend that kind of time and scarce resources on another possible tie-up only to have all the hard work wasted at the eleventh hour.
"We spent an enormous amount of focus, time, and resources trying to bring that transaction to closure, to be a part of that system," he says. "If you start to think about how much of our system resources we expended in that, you can't help but be extremely cautious going forward."
Independence a matter of perspective
Both CEOs agree there are options to get to an equilibrium that doesn't involve selling assets even though there are huge variables that may ultimately thwart those plans. Until then, they have some much appreciated flexibility. That's hopeful. And flexibility of options will likely be increasingly valuable as the healthcare reform equation matures and those with poor alignment or processes are shaken out.
If a board is categorically against selling assets, there are options to bridge the chasm—for now at least. One irony is that only through closer cooperation—being bound together with others clinically on the continuum of care—can organizations maintain financial independence, if that is a key goal.
"The board comes from the community. They're businesspeople, their families are here, and to them, an independent health system means a strong community," Schultz says. "A lot of our conversations are around knowing what our community needs and not handing that over to allow someone else to make those decisions."
That doesn't mean they need to be isolated, however. It's clear that financial independence is becoming more difficult, especially for smaller organizations, without clinical dependence. Critically, developing clinical partnerships with larger organizations provides options as well as opportunities to create shared care pathways that are not necessarily predicated on financial benefit to either organization, but instead on seamless care delivered to the patient. Opportunities that are patient-centered, in other words.
"A lot of our conversations are around knowing what our community needs and not handing that over to allow someone else to make those decisions."
"We try to have multiple relationships with referral centers to provide patients with choices," says Schultz. "As long as the referral center is willing to return patients, it's worked really well. When we've concentrated on the financial engineering and money part, we've lost sight of what we're about."
Winona Health is in position to develop such relationships through the Centers for Medicare & Medicaid Services' work to expand the ACO model into rural communities. Winona was accepted into the program by CMS with two other rural communities in Minnesota, and received some funding to build the infrastructure for the ACO, which is limited to between 5,000 and 10,000 lives.
"We're all independent, and we're similar in how we approach our communities," she says of her partners, Lake Region Healthcare and Madison Healthcare Services. "If funding streams are going to change, we need support to get through these transitions. Through this model we can stay in sync, but none of us own each other."
While Schultz says she is not sure the ACO model will stick long term, she says that breaking free of the old FFS paradigm is extremely important. With avenues to reinvent, she says, there are possibilities. One thing she is pretty sure of is that Winona doesn't want to go down the merger path.
"Things get stripped out. We see it all the time," she says. "Services get stripped out and jobs are lost and you're dictated to. I've not seen a system that sees the rural or small community connection, and the board feels it's contrary to what's in the best interest of the community."
At the same time, she doesn't close off any avenues in strategic planning, she says.
"As we go through our strategic planning, it's not about what we can do to maintain our independence. It's not protectionist—it's a multipronged approach, but thinking about our role in health and well-being, and getting that into the community. This isn't the first time there's been huge shifts in healthcare so you reinvent yourself. It's all that we're doing."
Planning for contingencies
Similarly, despite his recent experience, Barwis remains open to partnership possibilities of all stripes.
"It would be really hard for any independent hospital to not continually reevaluate the merits of independence," he says.
Bristol retains what Barwis calls "an active partnership committee," which is constantly evaluating how the health system is going to meet its mission. His point is that independent organizations have to sustain the organization as it is now, but if that seems in jeopardy long term, you have to be prudent.
"You can't wait until the last minute and jump out there and say, 'I can't do it anymore,' " he maintains. "It's a very planful, healthy discussion, and we have it frequently."
In many ways, the exercises that went along with the unsuccessful Tenet acquisition were not completely futile, says Barwis, because they forced the organization to go through detailed planning and answer tough questions it otherwise probably wouldn't have.
"We did learn a lot on the way by asking really pointed questions, explaining the strategies and how we were going to run the organization going forward as part of our due diligence," he says. "So we grew stronger through that process."
Following the failed acquisition, Bristol started executing on some of those plans, such as retooling its ambulatory strategy. In the initial period right after the transaction ended, Barwis says his leadership team and employees felt pretty good about independence. Through the process, the health system ended up with access to capital on its own through banking partners. Leadership had thought that was a lost cause with their inability to get the organization rated from the major agencies, thus curtailing a major financing option for most nonprofit organizations.
"We actually ended up with access to capital on our own and didn't need to be part of a system, especially since we had a clear idea of what our capital needs were," Barwis says. "We couldn't get rated, but plenty of banks were interested in lending because of our performance track record the previous four to five years, so that positioned us pretty well."
But real fiscal challenges continue. With Connecticut still suffering from the nation's financial downturn, corporate headquarters relocation announcements, and the impact of Medicaid expansion, says Barwis, the state plans to retain in its general fund the 6% revenue tax hospitals paid in a complicated past scheme to harvest federal matching funds.
"No matter the amount of cash on hand, the harsh reality is that we're sitting with a 6% net revenue tax, or about $8 million, when our margin has been about $2 million, so sustainability is always a fragile thing," says Barwis. "Competition is intense. I have three teaching institutions in the same county, so there's a sense of reality, and that is, in the current environment, we have to constantly reevaluate not just where we are today but all these factors that can hit you at a moment's notice. You can't stop thinking about whether you need to partner or not."
The payer is leveraging grant money from CMS to create bundled payment programs with physician partners in Ohio and Tennessee.
Humana is rolling out bundled payment programs to providers in Ohio and Tennessee, and soon in other regions.
The insurer's programs closely mimic both states' existing CMS State Innovation Models Initiative programs on hip and knee replacements.
The state models are funded partly by CMS to help set up infrastructure to test models that are intended broadly to improve care, health and decrease costs.
Chip Howard, vice president with the insurer and its payment innovation leader, believes Humana and its physician partners can piggyback onto a hip and knee replacement innovation model that many physician practices and other healthcare organizations already are tasked with executing.
Humana, he says, can help physicians with data that will help meet targets under either program.
The insurer brought five leading Ohio orthopedic groups into the program in April. Four orthopedic groups from Tennessee and two more in Ohio joined in late May.
The care model is designed to improve quality, outcomes, and cost across a hip or knee replacement's entire episode of care, and it financially rewards the practices for demonstrating better outcomes.
Howard says Humana will provide the practices with the data and analytics needed to better manage all aspects of patient care, from diagnosis to recovery.
Since he started in healthcare with actuarial work 16 years ago, Howard has worked for several major insurers—Kaiser Permanente, Blue Cross Blue Shield of Florida, and WellPoint—before coming to Humana in September 2014.
I recently discussed with him Humana's venture into bundled payment, and its plans for expansion and partnership with providers. The following is that conversation, lightly edited.
HealthLeaders: What's different about this initiative as opposed to other value-based efforts?
Howard: We have a baseline picture of their practice performance based on a 12-month look-back period regarding the Medicare patients they have managed for Humana.
There's also a standardized reporting package on the state innovation model work, and we are in the process of building a supplemental package for better drill-down capabilities.
We already can show them at the member level where the inpatient setting was, the costs associated with it, as well as the postacute outcomes and costs.
This is very detailed and being able to compare these statistics over time is crucial to success.
HealthLeaders: What metrics will matter the most for providers in achieving success in your bundled programs?
Howard: The beauty is that they are many of the same metrics these organizations would need to meet under CMS's program, which is mandatory in many markets. So we have duplicated [CMS's] bundling methodology.
Similarly, we're asking providers to partner with us to generate savings versus a predetermined cost threshold.
The three key levers for us to support for the practices will be quality, directing patients to the most efficient post-acute setting, and reducing readmissions and post-surgical complications.
We're producing a robust set of reporting packages to share with providers to show them where their opportunities are.
HealthLeaders: Why is Humana moving past its initial forays in value-based care that were focused mostly on primary care?
Howard: It's true that to date most of our programs have been primary care-focused.
We have a wide variety of programs where we can meet physicians at a variety of spots on the value-based journey, from our star reward and model practice designations to medical home programs to shared savings and full accountability programs.
The hope is that our first foray into bundled payment is a beginning to engage specialists, but ideally once we've developed these programs on the specialist side, we'd like to bring our primary care and specialist partners together to better move the needle on value-based care.
HealthLeaders: What are the performance periods and how will rewards be shared with your partners?
Howard: In Ohio, we have five practices with Jan. 1, 2016 effective starting dates [the two new practices in Ohio and the four in Tennessee have starting dates of April 1].
There's an annual performance period with interim reporting along the way. At the end of 2016 we'll generate a look at their performance for the year.
HealthLeaders: Relatively early success might be crucial to continuing the program. Do you think you'll be sharing significant savings with your partners?
Howard: We're confident we'll be making payments. The opportunity is for taking a well-defined episode of care and being able to show the managing physicians the opportunities for quality improvement. They're thirsty for information that will help them meet the targets.
Sharing third-party ratings and reviews helps consumers and prepares the organization to compete on customer satisfaction.
Sentara Health Care is opening the lab coat, so to speak.
In using third party surveys to measure customer satisfaction with its urgent care sites and posting the ratings and reviews those surveys generate, Sentara Medical Group, the health system's physician organization, is giving the millennial generation what it wants, or so Sentara hopes.
Howard Kern, Sentara Health System's president and CEO, says the move is part of a wider focus within the organization on customer service and transparency based on the increasing influence and power of the consumer.
"Five years from now, consumers will be much bigger drivers of healthcare consumption and choice than they are today," he says.
"What's value as they define it? As much as we're trying to give them transparency, consumers take that for granted. That's not to say we won't continue to focus on it but we need to win on the customer experience. We're used to dealing in contracts with payers, employers and government, but it's another thing to talk about winning on the individual customer."
That consumers are gaining influence in healthcare is an opportunity for hospitals and health systems to gain ground on the competition. Customer-centricity is a given in other industries, but that's not always been the case in healthcare.
Healthcare has been insulated from accountability historically because of the gulf between the consumer of care and the payer. That gap is rapidly narrowing, and will continue to do so, Kern is convinced.
Kern says what's necessary to win in such an environment is almost an "Amazon-like agenda," which is why Sentara is so interested in how the partnership with National Research Corporation—the third-party surveyor—will inform them where they might be falling short as well as where they exceed expectations.
To date, more than 85,000 Sentara Urgent Care patients have been surveyed within three days of their visit, and almost 22,000 patients have participated, representing a 25.5% response rate. NRC collects and populates the reviews, which are published on Sentara urgent care sites as an aggregate score using a five-star scale.
Sentara's urgent care centers consistently rate an average of 4.75 out of five stars. However, both positive and negative reviews are published.
The only exceptions are for posts judged offensive, slanderous, libelous, or which use profane language, names or detailed descriptions that jeopardize patient privacy/confidentiality, or comments about other providers, departments or instances of care.
Seven of eight Sentara Urgent Care Centers have implemented the ratings, and the eighth is currently onboarding.
"Transparency is important to health care consumers," says Mark Weisman, MD, medical director for strategy and innovation for Sentara Medical Group. "By posting reviews and ratings from our own patients, we're holding ourselves accountable for quality care and customer service."
To keep up with big changes in how healthcare is administered, financed, and organized, top leaders are finding a need for new talents and organizational structures.
This article first appeared in the June 2016 issue of HealthLeaders magazine.
Healthcare reform as a term has become so ubiquitous that it is almost indefinable. At first, and broadly, it meant removing the waste in an excessively expensive healthcare system that too often added to the problems of the people whose health it aimed to improve. Then it became legislative and regulatory, in the form of the Patient Protection and Affordable Care Act and its incentives aimed at improving the continuum of care and expanding the pool of those covered by health insurance.
Now, for many in the industry, healthcare reform has matured into a business imperative: the process of ingraining tactics, strategies, and reimbursement changes so that health systems improve quality and efficiency with the parallel goal of weaning us all off a system in which incentives have been so misaligned that neither quality nor efficiency was rewarded.
That leaders finally are able to translate healthcare reform into action is welcome, but to many health systems trying to survive and thrive in a rapidly changing business environment, the old maxim that all healthcare is local is being proved true. Making sense of healthcare reform is up to individual organizations and their unique local circumstances. Fortunately, there are some broad themes and organizational principles that are helpful for all that are trying to make this transition. What works in one place won't necessarily work in another, but the innovation level is off the charts as healthcare organization leaders reshape what being a leading healthcare organization means as well as what it requires.
No blueprint to follow
In some ways, Methodist Le Bonheur Healthcare in Memphis is fortunate. As a health system with 2013 total revenue of $1.66 billion, it holds a dominant position in its market. But because that market remains "99% fee-for-service," says Michael Ugwueke, MPH, DHA, FACHE, its president and chief operating officer, Methodist's long-term position dominating its market may be in doubt.
Without value-based contracts, the benefit of the work Methodist does to reorganize care and improve outcomes currently accrues to the payer; yet without the work to reorient to risk-based contracts that are likely in the future, Methodist will be woefully underprepared, he says.
In addition to his system president and COO role, Ugwueke also is CEO of the five Methodist Le Bonheur acute care hospitals and will take over the system CEO role when current CEO Gary Shorb retires at the end of 2016. So thinking long term comes naturally.
"We're trying to gear up and create a burning platform," he says. "We're communicating it through components of HCAHPS or readmissions, but even with that, what we try to watch against is [that] you can spend a whole lot of money and time working on readmission issues compared to the return you're going to get."
He adds that organizations can easily spend millions reorganizing roles and care protocols only to be on the hook for tens of thousands in penalties. But at some point, that math will change, and Ugwueke thinks it will change rapidly. Medicare has made it clear that by 2018, most payment will come from alternative payment mechanisms, not traditional fee-for-service Medicare.
"So even if it's at a loss, we try to do this," he says. "The job of a leader is not to rely on just what's happening now. He has to look two to three years ahead and help determine the infrastructure that we have to build."
Similarly, Steve Long feels no real burning platform—yet. But he certainly has no illusions that volume will always drive success at Hancock Regional Hospital in Greenfield, Indiana.
But it does now.
"We're finishing up our best financial year ever, and it's entirely based on volume," says Long, who is president and CEO of the 92-licensed-bed nonprofit just outside of Indianapolis. Hancock Regional's business model is fundamentally not very different than it was five years ago. But while the bills continue to be paid through volume, Long is investing in value because he knows it's coming.
"Frankly, the government is broke, so we know we'll have to be engaged in these alternate payment mechanisms, so it's important," he says.
However, that doesn't change the fact that what Hancock Regional has to devote to reorganization and talent acquisition pales in comparison to that of peers at larger organizations.
"We're a relatively small suburban and semirural hospital, and we don't have bench strength to engage in contracts that would allow us to take on risk as a group. So we're engaging with nine other predominantly county-owned hospitals in a joint effort around population health analytics and payer contracting—focused on employers—that would allow them to begin to pay for both value and population health."
Long says the hospitals that are part of the group, known internally as the Suburban Health Organization, see how other markets are deep into value-based contracting, and have a desire to lead the effort in their home markets rather than having such structures imposed on them, but they want to maintain independence on many levels.
He's open about his concerns as a leader of a small healthcare organization, even in the relative safety of joint contracting with several other organizations.
"The one thing that worries me the most is that our payer contracts will not keep up with where the government wants us to go so that our investments in population health will not be reimbursed," he says. "Frankly, the payers are as addicted to fee-for-service as we have been. If we save a bunch of money, they'll pocket it. The incentive is to get us to do care management and not change the contract really and pocket the difference."
One possible inoculation against such fears, says Gerry Meklaus, a managing director with Accenture in the Philadelphia office, is to avoid jumping into accountable care without having built the physician organization to lead care protocols and management, as well as educating those leading that organization. He recommends that healthcare organizations learn and make changes to care protocols based on their own beneficiaries and dependents. Any positive momentum with that population immediately accrues to the health system itself, as a self-insured entity.
"We like to think of more advanced systems having a plethora of providers who come together as a team—advanced practice providers, pharmacists, nurses, and others—but even with that type of more advanced model, physicians ultimately guide what happens to patients," says Meklaus. "Without physicians coalescing around population health, you'll have to step back and create that collaborative, which can be expensive and time-consuming. You will have missed opportunities."
He says health systems that do not have a commercial contract or who do not want to participate in CMS' Medicare Shared Savings program should use their own populations for a learning laboratory. Further, and more esoterically, physicians have to feel that their leadership is foundational to the ultimate success of the organization, and that means they have to come to agreement on treatment protocols and standardize such activity formally, based on evidence.
"I see a lot of organizations beginning to recognize that, but not to the extent they need to," he says.
New titles, responsibilities
Despite the uncertainty surrounding the investments that need to be made to change the business model toward value, Ugwueke is forging ahead by giving prominence to care coordination on his leadership team. He recently appointed Sandra Bailey as vice president of care coordination; she will for at least some time serve in a dual role, as she is also vice president and CEO of Methodist Extended Care Hospital.
"Their job becomes to look at the continuum from the hospital to outpatient to the long-term care side to all the other ancillary services the patient may need," he says. "That way we have a seamless way to move patients at the appropriate time. That's a skill set we need to have."
Ugwueke says he feels a sense of urgency that belies the slow rate of change in his home market. He starts with the idea that, eventually, much if not most of the health system's reimbursement will have some basis in capitation.
"If you are capitated, you have accountability, and incentives are well-aligned," he says. "Our question is, how quickly can we get to that level?"
Time is of the essence, he says, because the Centers for Medicare & Medicaid Services can make rapid changes in reimbursement protocols that don't require Congressional action.
"And once Medicare is fully into this, the private payers will follow."
Ugwueke says he takes lessons from those who are further ahead but is not beholden to fill his executive team with a host of new titles: chief innovation officer, chief patient experience officer, chief population health officer.
"Personally, I'm not so much enamored of titles," he says. "I'm more interested in what the people will do. I look for what skill sets we need and where gaps exist."
Some of those gaps include care management capability, as Ugwueke has already addressed, says Accenture's Meklaus, and the financial acumen to negotiate a new breed of managed care contracts.
"The ability to structure contracts and generate a cohort of physician leaders who can work side by side to create an energized and engaged network of people is critical."
"Folks who have run independent physician associations (IPAs) or similar risk-bearing organizations have negotiated for some degree of risk," Meklaus offers as an example of where to find individuals with the needed skills. "The ability to structure contracts and generate a cohort of physician leaders who can work side by side to create an energized and engaged network of people is critical."
Many organizations are doing this through the patient-centered medical home construct, Meklaus says, even though many stop short of actual certification from the National Committee for Quality Assurance.
Mark Stauder, president and chief operating officer at Inova Health System, a five-hospital system based in Falls Church, Virginia, says his health system, which boasts many value-based contracts, is looking for best practices regardless of their source.
"At this point, we're used to working with others, collaborating and taking best practices from across the country that are evidence-based and embedding them in the system," he says, referencing a relatively recent unified electronic medical record migration.
More critically, he says, the health system, even though it has embraced value-based contracting, has been challenged with recruiting and building new talent and skill sets. Stauder says one way they've tried to bridge that gap and both develop and acquire population health expertise is through Signature Partners, the health system's 2,100-physician clinically integrated network, which is led by Russ Mohawk, president and CEO of health plans and population health services at Inova. His role and that of the executive team at Signature Partners involves improving the ambulatory environment and strategically positioning Inova for success under risk-based reimbursement at least partially through further new talent acquisition.
"The future is clearly population health," Stauder says.
With that in mind, Inova has welcomed a senior leader in charge of its Medicaid health plan, INTotal Health, which has 60,000 covered lives, and a leader in charge of its joint venture commercial health plan with Aetna, Innovation Health.
"We've moved down the risk continuum fairly far with these additions over the past three years," Stauder says. "We're fully at risk for the Medicaid program. On the Innovation Health side, which is a 50-50 joint venture, we have 200,000 lives, and half of those are full-risk, premium-based lives. The other 100,000 are from large self-insured employers where Innovation Health is the third-party administrator."
Stauder says Inova both built and recruited the talent it needed to make these substantial forays into value-based care. Although Inova recruited Mohawk, its Medicaid health plan CEO John Muraca (who has 25 years of Medicaid managed care experience), and its Innovation Health CEO David Notari (35 years in commercial health plans), Inova is placing a heavy emphasis on developing leaders internally, with physicians of particular interest. A former Inova internist, for example, Signature Partners' Chief Medical Officer Matthew Poffenroth, MD, has been involved in the population health space for more than 10 years, with two years at Inova.
"We're embracing the change that's required," says Stauder.
SSM Health President and CEO Bill Thompson says his organization is "rebooting" its approach to value-based care after a previous attempt fell short of what was needed.
"We really took a pause to reassess what we needed and where we needed it," he says.
A value-based task force was created to assess how best to approach the roughly $40 million SSM has at risk currently and the much higher amounts the 20-hospital system expects to have at risk in the future. The 35 representatives on the task force, who came from leaders and clinicians within SSM, decided the organization needed a systemwide leader who had strong expertise in value-based purchasing, so the organization recently started the search for a senior vice president of value-based care and payments, which Thompson compares to chief transformation officer or chief population health officer at other health systems.
"We consciously chose that title because we want the individual to prepare us for future relationships, expanded bundles, full capitation, and other operational risks we take from various payment methodologies," Thompson says.
He says the health system is looking for a physician who has some experience in care improvement, but is open on whether this person would come from a hospital system, a medical group, or insurance company.
"This is one of those skills that is high demand, but all of us realize this will be critical expertise we'll need," Thompson says.
Through its Dean Health subsidiary in Wisconsin, SSM already has 250,000 lives for which it is fully capitated, so urgency to bring the expertise that resides in that state to the rest of the organization is very important, Thompson says.
"We rolled out the Medicare Advantage plan there on January 1, and we've learned we have a lot of improvement opportunities in care management," he says. "So we've hired a dozen new people in Wisconsin in anticipation of that."
"We need to know more than we ever have about our patients, particularly those who we are at risk for. We need to gather it, risk-stratify the patients, do the appropriate interventions, and learn how those interventions are improving the health of an individual in a population."
A further innovation that should lead to better competitiveness and performance on value-based care principles is being led by Shane Peng, MD, SSM's president of physician and ambulatory services. He chairs the internal Value-Based Care and Payment Task Force, which was created from a summit with representatives from SSM's four states, six markets, and its acute care, medical group, and postacute care businesses, along with support structure representatives from finance, strategy, and human resources.
A hunger for analytics
The task force led by Peng focuses on five areas, but one critical area is around analytics, Thompson says.
"We need to know more than we ever have about our patients, particularly those who we are at risk for," he says. "We need to gather it, risk-stratify the patients, do the appropriate interventions, and learn how those interventions are improving the health of an individual in a population."
He says that information resides in the electronic medical record, claims filings, and in demographic information and health risk assessments. That means the organization is actively looking for and hiring people who have experience with data management and clinical analysis.
"We have to find a good way to translate that information into a usable format for the clinician," Thompson says. "An intermediate step toward personalized care is taking the information that comes out of analytics and redesigning the care process."
Accenture's Meklaus, though not speaking about SSM specifically, agrees that an analytic structure is essential, and that means health systems have to procure those solutions because, in most cases, they don't have the necessary solutions in their IT portfolio, he says.
"This is along the lines of what you see in payers, but the difference is they're on a different level at health plans in that they're actively deployed across millions of lives," he says.
Those are not the right pure population health suite solutions for a health system that might have less than 100,000 lives in its business plan, he says. Part of what's needed is experience. For example, people familiar enough with a smaller-scale environment—such as those who have run IPAs or a medical group that has taken risk and has somewhere in the neighborhood of 50,000-250,000 lives, says Meklaus.
"If you've been managing that level of covered lives, you're in the same ballpark of most ACOs," Meklaus says.
Ugwueke puts a finer point on the issue of data and how it can be used to help performance under risk.
"I'm not sure the issue is data—the issue is what format you get it in," he says, referencing a hodgepodge of where important data lives within the component organizations that make up Methodist Le Bonheur.
"All the physician offices that we're aligned with have different EMRs, so there's no way to tie the hospital to what happens in the outpatient area," says Ugwueke. "We have to find a way to bridge all of that, a way to distill it to get knowledge as to what is happening with our patient population. Very few places have it."
Those that do largely are organizations that did not dismantle their health plan operations back in the 1990s.
"I'm sure they lost a lot of money along the way, but they're now in a much better position than those trying to rebuild out that infrastructure," Ugwueke says.
But data is not the panacea either, cautions Hancock Regional's Long.
"I've been in healthcare a long time, but we really need the clinical people to help us understand how processes drive outcomes," he says. "I can look at data and provide feedback, but it's that clinical expertise that has been so important for value-based purchasing as we think about it with our contracts."
SSM Health is beginning to try to make sense of the wealth of data it controls through its task force on value-based care. One recent breakthrough came in creating a grid under which all the organization's value contracts are listed by region and broken down into opportunities to improve and monetize.
"The indicators show us our current performance and the improvement necessary to make the value-based contracts successful," says Peng.
The grid helps break down the key performance indicators SSM has to improve upon to be more successful under such contracts. The opportunities, Thompson says, could total as much as $40 million over three years.
The analytics and metrics work group uses the grid to understand how these contracts actually work and how SSM can best reverse engineer its care delivery to improve performance. What helps is that improved care leads to financial improvement—the two were seldom so closely linked in the past.
"We are being very deliberate, but we ramped this up quickly because we want to be successful in 2016, not two years later," says Peng.
The opportunity, SSM leaders say, is in industrializing care processes.
"For example, we have Medicare Shared Savings ACOs in three markets," says Peng. "They're the same contract, but in the past each region did their own thing and tried to reinvent the wheel. By looking at it from more of a system perspective and discerning what kind of value a centralized support function brings versus regional activity, there's great opportunity to bring in efficiency standardization and ultimately higher performance."
Nontraditional partnerships
One fact that does not escape most senior leaders is that better performance under value-based contracts comes through extensive partnerships with nontraditional organizations. Those might include everything from home health agencies to behavioral health to local health departments.
"If the hospital or health system is the founder of the ACO, the CEO will have a significant role to play in navigating it, funding some of the initial costs, and bringing the right folks to the table," says Methodist Le Bonheur's Ugwueke.
Beyond that though, he says he is counting on the cooperation of the health system's physicians. He considers Methodist "very lucky in a sense" because it has an IPA that has been around for more than 30 years with more than 2,000 physicians as members, "We partnered with them to create a PHO called HealthChoice," says Ugwueke. "We've flipped that PHO to become our clinically integrated network, so neither the CEO nor myself had to do a whole lot to create it from scratch."
Ugwueke says despite the lack of progress on accountable care contracting in his market, he believes it can flip relatively quickly.
"I tell our folks we are not in a bubble; we are part of the global community. What's the catalyst for the market turning overnight? It can happen. I believe it's likely we'll get to capitation, but I can't tell you when," he says.
Inova is much further along the value curve than Methodist Le Bonheur, but the Virginia organization's strategies are quite similar. About one-third of Inova's 2,100-physician ACO consists of employed physicians, and two-thirds are community-based.
"That setting is where most patients will spend the majority of their time," Stauder says. "We have to have an outstanding hospital setting to make sure we are maximizing safety and quality and improving standardization."
Inova owns some postacute services but partners with many more. It has its own children's hospital, inpatient rehab, and its own home health, but for services such as skilled nursing, it partners with a select group of providers to help coordinate on postacute care.
"We'll never be able to do everything, but we can be very effective by creating the framework for partnerships and collaboration," Stauder says.
Long says such relationships are important for a basic reason: Is the hospital assisting in improving the health of the population we serve or is it being detrimental?
He's hired a person to help develop those partnerships— a former teacher who can be a liaison between the hospital and social service agencies, the schools, and public health agencies.
"She has connections with all those agencies we find important," he says.
The role of education
Beyond reorganizing organizational structure, making sense out of the vast amounts of data hospitals and health systems control, and creating innovative relationships with nontraditional partners, most leaders say they have to be careful not to neglect the need to educate clinicians and the rest of the work force on the reasoning behind so many changes they're having to make in how those people do their jobs.
"Physician-led and professionally managed is our organizational goal," says Ugwueke.
To achieve that goal, he says the health system's three-year-old Physician Leadership Academy helps tremendously. Some 75 physicians have taken courses on topics such as conflict resolution, negotiation skills, strategic thinking, making projections, financials, what quality means, and doing pro formas. He says graduates are expected to be champions in bringing their colleagues along the value journey.
"These are things they're not formally taught in medical school," Ugwueke says. "We have strategically placed these physicians. They are leading most service lines in a dyad approach, and seven physicians are on the organization's strategic committee."
Stauder says that although Inova has hired experience from the insurance field for some of its top value-based talent, it's relying on building most of the talent it needs through internal education.
"Most of them have come up through medicine or management," he says.
"It's important that everyone understands their role in the larger integrated delivery system, the interdependencies and teamwork that need to be displayed in improving safety, quality, reducing costs, and, frankly, keeping people healthy."
Its 1,800-physician ACO, Signature Partners, is led by a physician internist who's been in managed care and the evolving population health space for more than a decade. Also, a physician is its chief technology officer and the leaders of divisions focused on informatics and big data and analytics have been developed internally through its Inova Leadership Institute, says Stauder.
The Leadership Institute is an ongoing commitment in that there isn't a graduation date after which those who are involved move on. All 800 leaders in the institute come together once a quarter to review today's strategy, operational performance, and changes for tomorrow's; where the organization is performing well and where it's not; and what that 800-member team should focus on most over the next quarter, says Stauder. They spend a full day together each quarter for skill building and breakout sessions.
"It's important that everyone understands their role in the larger integrated delivery system, the interdependencies and teamwork that need to be displayed in improving safety, quality, reducing costs, and, frankly, keeping people healthy," he says. "The more they're involved with the priority setting, you create organizational goals and expectations and everyone understands their role in helping drive those goals."
Some education comes straight from the real world, in terms of understanding how nontraditional partnerships can both succeed and break down, says Long. Hancock Regional, ironically, has to give up some independence to remain independent, he says, referencing the 10-hospital Suburban Health Organization.
"We're not a system; we're an affiliation," he says.
A subset of six hospitals in the group work together in two separate ACOs, which are managed together. Eventually, Long would like to see all hospitals in the network work together to negotiate as a group with health insurers for value-based contracts.
"The big thing is you give up some autonomy, and that's a very hard row to hoe where we've been independent for so long," he says. "We don't want a system. We believe an independent community-owned asset could tailor care better than a system could do. But we realize certain things require scale."
Competitors should be able to cooperate to help transition to a value-focused business model, and the need is urgent, says the COO of Novant Health.
Healthcare is undergoing massive changes. Especially in the acute care space.
More healthcare is being moved outside this expensive site of care and many hospitals have closed or are on the brink, in large part, because of this shift.
For several years, hospitals and health systems whose leaders have foreseen this change have been trying to diversify their revenue stream by starting partnerships or acquiring primary care or post-acute care sites.
They've bought, sold, and partnered with a variety of organizations, not only to better manage care transitions, but also to move into higher growth areas.
They've also tried to cut costs, most successfully with group purchasing organizations and supply chain initiatives that reward volume purchases and standardization.
But all that may not be enough to ensure that health systems can fund the investments needed to make a 180-degree turn from pushing volume to pushing value.
Instead of just taking care of patients when they get sick, hospitals have to focus on prevention, wellness, and slowing the progression of chronic diseases, says Jeff Lindsay, executive vice president and chief operating officer at Novant Health, a 15-hospital system based in Winston-Salem, NC.
They can do that more easily and quickly if they're allowed to partner with competitors for back office functions. That cooperation would free up more financial capacity to invest in those new clinical focus areas.
"There will be winners and losers in this industry," he says. "Sixty [rural] hospitals closed over the past year. It will happen at an increasing pace."
You'd expect to hear this refrain from small hospitals that don't have the wherewithal to make the transition, for one reason or another, but not necessarily from Novant Health, a AA-rated credit according to Fitch Ratings, which averaged a 5.2% margin over a recent three-year time frame and posted operating revenues of $3.8 billion in fiscal 2014.
And while Lindsay certainly expects Novant to be among the winners, it won't just happen on its own.
Which is why he and the leadership team at Novant are seeking further partners, if the public and legal authorities will accept it.
"We're looking at how we can work together with direct competitors in ways that may not feel natural, but that will create value and benefit and free up capital to invest in the new model," he says.
He argues that while competition in clinical areas is good for consumers and innovation, it also has a flipside, especially in healthcare: because of expensive duplication of services and tools.
"We're so heavily regulated, it has led us to create an extraordinary amount of duplication and redundancy. So we really think there's an opportunity to address some of that," he says.
Think of collaborations around back office infrastructure, for example. Or IT infrastructure, or even—and Lindsay acknowledges this is the most controversial—collaborating on clinical programs to some degree.
Non-clinical Functions Ripe for Consolidation
Novant has plenty of partnerships with organizations outside its market, notably a supply chain cooperative deal with MedStar Health, a three-hospital system in the Washington, D.C. area, and Sentara Healthcare, a 12-hospital system based in Norfolk, Va.
Clinical cooperation among competitors may be the most controversial of Novant's ideas on cooperation among close competitors, but he argues that billing, paying, human resources, and other functions not unique to healthcare are ripe for such consolidation, which would free up capital for use in clinical and continuum innovation.
What's striking about what Lindsay espouses is, except for the clinical possibilities, is that everything else is already being discussed with certain competitors, although he says discussions are in too delicate a phase to name them.
He calls the first idea, of collaborating around back-office infrastructure, "pretty doable now."
"We've invested millions in that infrastructure and so have other health systems, and they essentially look the same from one facility to the next," he says. "We think the opportunity to back up and share infrastructure works across multiple health systems."
Just within Novant Health in recent years, consolidation of collections activity that had been fragmented based on sites of care—ambulatory, acute care, imaging, for example—yielded huge results. Consolidating collections into one entity saved $52 million just in that one sub-function, Lindsay claims.
Potentially Huge HIT Savings
"If we could do that across multiple health systems, it becomes two or three times that amount," he says. "The reality is it's all unique but not so much that we can't share a common platform if the payback is new resources we can devote to the community."
He also thinks huge savings could be realized in the IT arena.
"We spent $600 million deploying our EMR across all our facilities," he says. "Every health system has spent along that magnitude, depending on their size. There's an opportunity to work together consolidating IT and clinical record spend, even among closely competing systems."
Novant and other healthcare providers need to be able to communicate with competitors through the EMR anyway, for clinical reasons, he adds.
A final area of potential cooperation, though controversial, is in clinical programs.
He envisions partnerships that might share or develop programs together in cardiology, oncology, and neuro service lines, for example.
"We don't see collaboration on clinical programs very often in the healthcare space. Those things, we think, differentiate us, so that makes it hard. That's what we put on the billboards."
But taking out redundancy in those areas is a huge opportunity for savings, he says.
Outdated Regulations
"That's where the revenue is today. It may not be tomorrow, but is today. Are we building out the health system of the future by investing in duplicative services in a single market?"
Close cooperation among competitors in a region could mean investments can be made to help solve the mental health crisis or in preventive health—investments that may be lower on the priority list for healthcare organizations, but still hugely important for managing the health of populations.
"The one big challenge is the FTC and regulations. We need a marketplace that's regulated enough so it functions appropriately, but some of these rules are over 20 years old," he says.
"There's got to be a way to start a conversation about revising some of those rules and regulations to create a path not toward health systems dominating a market but serving it better. We ought to come together as an industry to rethink that regulation in way that would help us do a better job."
How quickly can any of this happen?
More quickly than you might think. Novant has started some conversations with competitors, although the clinical services area has not been broached.
"We can't have that discussion right now, although I think we need to. But at least from an infrastructure perspective, we've started some dialog with a couple of organizations and what that could look like."
On those discussions, Lindsay believes the end of the year may not be too soon to announce a deal, if the guidance it receives on current regulations is promising.
"As soon as we can get regulatory clarity we'll move something forward preferably this year," he says. "There are a lot of details to work out to make that happen but it's a priority for us."
He contends that while most health systems are focused on driving down unit cost and increasing productivity and improving quality within their four walls, the limit on what can be done in those areas is on the horizon.
"This is why we feel [it is] pretty urgent, and this is a quantum step, not an incremental step," he says. "The truth is we're going to hit the wall on wringing out more efficiency. So the timeline is pretty urgent for us."
A desire to drive institutional change opened new doors—and new challenges—for a former emergency medicine physician.
Ginger Williams, MD, once dreamed of a career as a job-hopping ER physician, moving around the country to interesting destinations. Something happened along the way: She got hooked on driving administrative change.
"I thought I had a great business model when I got out of my residency. I had no overhead as an ER physician. My plan was to stay four to five years every place I went, and move on when I got bored," she says.
"That worked really well for the first place I went, and the second place I went was here, and that was in 1994."
"Here" is Oaklawn Hospital, a 94-bed independent nonprofit hospital in Marshall, MI. Williams is no longer an ER physician. She's been the president and chief executive officer since 2013, when the longtime CEO retired at the end of six-year transition process. No, that is not a typo.
The long transition to a new CEO was fortunate for Williams, who never intended a career in administration. It was her big mouth, she says, that got her in trouble.
"I came here as an attending in the ER and there were some things in the way it operated that I thought should be changed, so I sort of tactlessly brought those up to the CEO," she says. "He said: 'Change it then.' He walked me through it."
That happened a couple more times before Williams realized she was "kind of getting hooked on it even though I didn't want to be in administration."
The progression continued. She was named emergency medical director. She was chief medical officer in 2007 when mentor Rob Covert announced he would retire in 2013 after 36 years at the hospital.
She insists she did not pursue the CEO position with the intention of landing the job. She simply agreed to learn the skill set necessary and agreed to see what happened
What awaited her was an unusually long apprenticeship. The CEO nominated her and two other internal candidates to the board as the three finalists, though one dropped out fairly early on, she says. The board agreed and there followed a lot of time "growing up in a fish bowl" with the other candidate, Williams says.
"He very much wanted an internal candidate and identified more than one to the board. I'm not quite sure why he wanted so much lead time. I'm not planning to provide that much lead time," she jokes. "It made for interesting way to grow up administratively."
Most of Williams' education in administration to that point had been through some physician administration classes through the American College of Healthcare Executives. After becoming CMO, she earned a masters degree in medical management from Carnegie Mellon University.
The board chose Williams to succeed Covert as president about nine months before he retired, and she took over the CEO title in January 2013 when he left for good.
Rumblings of Trouble
Here's where the story gets interesting, says Williams.
The 2014 fiscal year for Oaklawn ended March 31, three months after Williams took over. Though leadership thought it was on budget at that time, with a 3% operating margin, the fiscal year-end and its aftermath brought some nasty surprises.
"At the time, I thought there were a few things we needed to change in order to get even better, but overall we were comfortable," Williams says. "We appeared to be doing well, and it seemed disaster struck everyone but us. I think we had a sense of complete immunity from bad stuff."
There was no burning platform for change, but there were warning signs.
In February 2014, the bottom dropped out with volumes—not just at Oaklawn, but regionally. "We're small so we didn't have other buffers," she says. "We lost a million dollars in February and another million in March."
That led to some buy-in for radical change, but there was a sense that the volume drop was temporary and things would recover without much effort.
By late May, Williams started to hear rumblings from the hospital's auditors.
"Ultimately, that turned into an earthquake," she says.
The auditors had not discovered improprieties or criminal activity, but the mistakes they found were devastating for a small hospital system.
Errors that led to inaccurate estimates on payments made to the hospital had been substituted for actual receipts. As a result, the hospital's FY14 results were inaccurate, piling another $2 million loss on that year's results.
In addition, those problems had lingered deep into the start of the 2015 fiscal year before they were discovered. There had been a small profit prior to the adjustments.
"These were truly mistakes that had to do with not tying the cash accounts to reconciliations. There was estimating going on rather than checking," she says.
Additionally, carrying those errors forward into the first few months of the 2015 fiscal year meant the hospital was already in a more significant hole than it thought for that year.
Williams got her wish to make substantive changes, though not necessarily in the way she wanted. With those losses, the fire on the platform was raging out of control.
Time to Take Action
"At that point, our troubles were apparent to everyone," Williams says.
She went on the offensive on radical change.
"I was completely transparent without throwing anyone under the bus," she says. "I was transparent with staff and community leaders and, without going into detail about how we were going to get there, I told them to expect to see some changes. Community leaders with whom we had contentious relationships said 'do what you have to do' so the hospital could still be here."
She hired Newpoint Healthcare Advisors to conduct a leadership exercise early in Oaklawn's turnaround process.
Stroudwater Associates was brought in for six-months to mentor leadership in identifying targets for cost saving and revenue improvements.
By the end of 2014, the hospital had an action plan and began the turnaround in early 2015. Williams says the effort identified $9 million of improvement. The challenge was executing the plan.
During the analysis they discovered they were staffed at 90th percentile compared to other hospitals of their size. Cuts and attrition brought that staffing level to the 75th percentile on the clinical side. Support and administration were cut to the 50th percentile.
Leadership renegotiated commercial contracts. Oaklawn's biggest payer agreed right away.
"They were good partners for us because they knew we were high quality," Williams says.
After adjusting for the bad estimates, Oaklawn was left with a $5 million loss for the 2014 fiscal year. One year later, FY15 ended with a $1 million margin. The hospital is tracking toward a $2.2 million margin in FY16.
Williams says the turnaround is sustainable. Other executives should take heart, she says, that even a small hospital with its back against the wall can turn things around.
"When you read about this it all sounds dry, but when you live it it's a different thing," she says. "We figured out what we should be measuring and why we should be measuring it."
Decreasing the capital spending plan didn't help on the profit and loss side but it did on the cash side, she says.
"We also looked to expand our provider mix and expand in services where we knew we had more market need, like in pediatric physical therapy, where there wasn't anyone in the market," she says.
"The Toyota stuff was very important, and getting the line people thinking about their environment is healthy and productive. They're no longer victims of circumstance. They're empowered to diagnose what isn't working and figure out the trigger points on what to change and how to measure to see if it made a difference."
She recognizes the importance of empowerment through the initial experience that led her to administration. Her former CEO empowered her to change processes for the better, and she's learned to let her people do the same things.
"It's easy to make good plans, but the challenge is to execute," she says. "Harder than that is sustaining them—that's the completely unsexy part."
A recent Moody's report contends that hiring physicians comes with a financial penalty. That may be true, but simple accounting misses the point entirely, some CEOs say.
Hiring doctors isn't a winning financial strategy.
So says a recent study by Moody's Investors Service, which contends that hospitals with high physician employment generate stronger revenue growth, but are less profitable than peer institutions with fewer employed physicians.
The agency's findings and the reasoning behind the contention that employing doctors doesn't pay, gave me pause, especially given the near universal belief among hospital and health system leaders that employing a significant portion of physicians is the only way to compete in a value-based world.
But it's a losing strategy, suggests the study.
Analyst opinions have a big impact on borrowing costs for healthcare organizations, and the ones who conducted this study are convinced based on the numbers that employing physicians isn't a lucrative proposition for health systems.
Moody's found that the median operating cash flow margin is 10.7% for hospitals with low physician employment, compared to 8.5% for hospitals with very high physician employment.
So who's right? Is it simply a case of long-term thinking versus short-term?
Maybe. The market (including the debt market, which Moody's serves) hates uncertainty, and the majority of institutions, are not really in the value-based world yet, with a few notable exceptions.
This study is a challenge to the widely held contention that employing a significant number of physicians is a necessity. And more than two full percentage points of margin is definitely significant.
But most leaders say they're looking at their long-term ability to compete.
Health systems don't always have a choice—or don't feel they have a choice—in employing physicians. This goes for the primary care side, but increasingly includes important specialists who are no longer able or willing to deal with some of the regulations and costs of running their own groups.
If I don't employ them, the reasoning goes, my competitor will, and we will lose referrals, and we won't have a viable heart, oncology, or ortho—choose your service line—program.
I asked several CEOs I know who have employed physicians strategically what important factors this kind of economic analysis is leaving out.
In an industry in such heavy transition, after all, it's possible that statistics could lead to conclusions about employing physicians that might be true for now, but false later, as reimbursement schemes become more accountable.
Problems with the Study
Ron Paulus, MD, the president and CEO of Asheville, NC-based Mission Health, sees a few problems with the study
First, he says clinicians are attracted to employment for only two reasons: Either they are intellectually and emotionally aligned to a group practice/integration model such as Mayo, Geisinger, Cleveland Clinic and many others, or they can't generate the income they want on their own, typically because of demographic and payer mix challenges.
He also says the more rural or demographically unfavorable a facility, the higher the ratio of employment because in the absence of employment, there wouldn't be physicians there (my emphasis).
"These facilities perform worse [financially] for the same reasons and therefore create a biased sample," he says.
"By contrast, I would be willing to bet that the 'low employment' facilities are overwhelmingly in more demographically attractive, suburban areas where the physicians can flourish on their own, and therefore the employment pressure is lower."
Paulus also contends that generally, organizations that are aggressively pursuing employment are also aggressively pursuing transformation from volume-based reimbursement to a value-based system.
That transition is difficult, especially in a short-term economic analysis, because the actions that push value today also harm the fee-for-service business model. "We are certainly experiencing that, and many others are also," he says.
The transformation isn't possible without a very high degree of physician engagement and alignment. And while he says it's not impossible, this could be accomplished without employment, what needs to be done for transformation harms physician incomes in a fee-for-service independent model.
"That means you are going to need to pay them to do the things that need to be done," he says. "Because of both thoughtful and less than thoughtful regulatory restrictions, that is far easier to accomplish in an employed model."
Finally, he says that the industry is still early in physician employment integration operations, and that much of what's gone on to this point has been building and investing.
There's also a significant learning curve for organizations bent on integrating if they've not previously managed physician practices.
He also believes there is a "price war" going on as various organizations try to employ physicians to support the transition to value. He says that over time, all healthcare participants' income, including physicians, should grow more slowly or even decline. But it's too early for that.
It's clear that although they don't dispute the numbers, many CEOs view the obsession with tracking profit against physician employment as myopic.
That's because the numbers obscure the benefits of clinical integration and cooperation, which show up in places other than line items on a financial report.
But while the study's conclusions may reflect a short-term window into an industry in transition, in fairness, investors view trends like this exclusively through a financial lens.
That's No Accident
That's how they evaluate the investment attractiveness of hospital or health system bonds, or in the for-profit world, bonds, stocks and other financial instruments.
Jerry Fedele, president and CEO of Boca Raton (Fla.) Regional Hospital has no problems with the facts about physician employment, and in those, the study seems accurate, he says. But he says in many cases, the increased overhead will pay off over time.
Even if it doesn't, it's just the cost of doing business going forward for many organizations.
"There is no question that health system employment of physicians carries increased overhead compared to physician private practice models, however, this is an apples-to-oranges comparison," he says.
"Many times physicians in private practice operate their practices as small businesses that economize on every expense possible because of the direct impact of expense minimization on bottom line physician compensation."
That model is no longer sustainable because the complexity of running a physician practice has risen dramatically, creating increased cost and management challenges.
So while physician costs rise in an integrated health system employment model, focus on this factor alone without consideration of the unsustainability of private practice in an increasingly complex business and coordinated care environment, perhaps distorts what's really going on.
Chuck Stark, CEO of Brookwood Baptist Medical Center in Birmingham, AL, part of a joint venture between Tenet Healthcare Corp. and Alabama's Baptist Health System, says the headline focusing on profitability overshadows statistics that make the case for employment.
"The higher three-year revenue annual compound growth rate for entities with higher physician employment rates likely reflects better alignment afforded through the employment model between management and physicians, with a resultant reduction in barriers to strategic deployments."
Fewer barriers and impediments give rise to sustained achievements in growth, comparatively speaking, he adds.
"While the margins may be lower for higher physician employment rate entities, the advantages of better alignment combined with higher revenue growth rates will lead to market share shifts in favor of… entities with better alignment."