Industry consolidation requires new business evaluation skills, new discipline, and new expertise to find the strategic fit that will see healthcare organizations into the future.
M&A in the hospital and health system business used to be relatively simple: big hospital or system buys smaller hospital or system. But in 2015, as organizations nationwide try to navigate the vast geographic differences in the pace and nature of healthcare reform, their solutions are equally myriad. Some consolidation activity is in the traditional vein of direct acquisition or merger of equals, but many new partnerships involve the creation of new entities to tie systems together, whether geographically or otherwise.
Hospitals and health systems, recognizing the growing importance of care coordination and the value in unified patient management and tracking, are acquiring organizations once thought far outside their purview, such as imaging centers, surgery centers, primary care practices, and even LTAC, skilled nursing, or home health groups. Further, some hospitals are partnering in everything short of assets through ACOs or other patient- and cost-management structures.
This trend is remaking healthcare organizations and requires new business evaluation skills, new discipline, and new expertise to find the strategic fit that will see them into the future.
One of the chief goals of the Vanderbilt Health Affiliated Network is to encourage competitive state markets for commercial health plans. "We want to have providers and payers actively collaborate to provide patients with high-quality, efficiently coordinated, and cost-effective healthcare services," says its executive director.
"See Seven States!"
That's one of the slogans motorists in the Southeast see painted on countless barns and billboards advertising Rock City Gardens, a tourist destination just south of the Georgia border from Chattanooga, TN. The ad claims that on a clear day, visitors can see parts of up to seven states from the top of Lookout Mountain, where Rock City is located.
It's a highly dubious claim.
But from a strategic perspective, Nashville-based Vanderbilt Health Affiliated Network is drawing on a foundation of physician-driven population health management to establish a vision among the region’s top healthcare providers to improve the quality and cost of care across the region. The network is the largest provider-organized network of doctors, regional health systems, and other healthcare providers in Tennessee.
Mark Cianciolo
A key tenet of VHAN is to provide organizations with the chance to collaborate to improve the delivery of healthcare while maintaining their independence. VHAN’s executive director, Mark Cianciolo, says with healthcare going through a rapid period of change, VHAN is committed to supporting providers in developing innovative solutions to support the transformation close to home.
Why a regional network? In Tennessee alone, the network consists of 11 independent hospitals or health systems and more than 50 hospitals overall. As it stands, VHAN consists of a group of doctors, health systems, and others that actively collaborate to provide coordinated and high quality healthcare services to people who access care within the network.
Cianciolo says that in some ways, VHAN is working with other health systems to determine how to organize healthcare locally while participating in statewide or regional opportunities to collaborate with employers and payers to provide high quality care and reduce purchaser costs.
But at minimum, the network will scale some back-office functions to support using a common technology platform as well as other agreements that will realize economies of scale where possible.
Competition Encouraged
One top strategic goal is to create a more pro-competitive and collaborative environment for commercial health insurers. Cianciolo says that without true supportive leadership, healthcare providers will miss the opportunity to align the interests of physicians, hospitals, and payers to improve care for patients and the communities that they serve.
"The economic well-being of our region is dependent on communities that have strong education and healthcare to support a vibrant business community," Cianciolo says. "A large part of why we came together was really to keep the payers interested by aggregating enough of a population—enough lives—that the state and national insurers stay interested in collaborating with providers to improve the health status of our communities across the region. Together, we can tackle the health challenges of the mostly rural South. We have similar populations in terms of health issues—including a higher incidence of obesity and diabetes."
These chronic conditions contribute to the South’s ranking in the seven of the bottom 10 states for health as rated by the United Health Foundation. Not exactly a great foundation for health insurance companies, but possibly a great opportunity for collaboration with VHAN to improve health, thus demonstrating value.
The idea is that the VHAN allows local relationships and local decision-making, especially clinically, to be maintained while saving money on duplicative back office functions. It also creates a vehicle to manage the health of a population or many different populations through population health management capabilities and even, quietly, through benefit services for both fully insured and self-insured employers.
"It is about managing populations in the future," says Cianciolo. "For an insurer, the cost of acquiring a life is significant if you're in rural markets. You can't just go to a big city and get a small portion of market share."
Besides that, Cianciolo adds, in many of these markets, you start with a sicker population that already has high utilization rates. Often, without a mechanism to bundle patients (for lack of a better term) to create a larger population under the same care management protocols, you end up with suboptimal solutions.
"So if you're one of the state or national insurance companies, we want you to stay invested in the region," Cianciolo says.
Cianciolo says that if VHAN is able to aggregate lives, as is its plan, and if it can create opportunities to work together for certain purposes, VHAN can keep payers’ interest.
"We've been having discussions with the CEOs and CFOs of some large payers, and I think that it makes sense to them if you can bring half a million lives aggregated across these markets," he says. "Then, we will have a chance to have very different opportunities to collaborate and provide innovative, cost-effective solutions.
The ability of consumers to shop for healthcare services based on price and quality won't take hold until innovative providers take some risk and a dose of faith.
This article first appeared in the May 2015 issue of HealthLeaders magazine.
Why can't it be easy to shop for healthcare services? All too often, it is a Kafkaesque experience. There's no single place to go.
As a patient, you can't easily compare prices for services as you would when buying a TV. You can call your insurer—which really sets the prices—and you might make some headway, only to then run into brick walls. When you're pointed back to your physician's office for a code in order to continue discussions with the insurer regarding your obligation for, say, a colonoscopy, you'll circle back into discussions about codes and preventive and elective care. You might get it resolved before your scheduled procedure. You might not. For most patients, that is the world of healthcare billing as it is.
All this despite the fact that each of the three key players in the healthcare transaction—the payers, providers, and employers/patients—agrees that patients should be able to receive accurate price estimates for healthcare services prior to consuming them. But bringing that vision to reality is considerably more complicated than it may seem.
Katherine Gottlieb's obsession with efficiency was the fuel she used to vault herself from a minimum wage future with no high school diploma to running the largest native-owned nonprofit healthcare organization in Alaska.
An oddsmaker in Las Vegas would have given astronomical odds that Southcentral Foundation, an Alaskan healthcare and wellness services provider led by a female Alaska native who entered the work force without a high school diploma, would win a prestigious national quality award.
That same oddsmaker might have given similar odds to the prospects of that young woman winning a Macarthur Genius award.
Yet those things happened.
Southcentral Foundation won the Baldrige National Quality Award in 2011, putting the organization in a select company of fewer than 20 healthcare organizations that have won the award since 2002. In 2004, Gottlieb was named a Macarthur Fellow. But starting there means coming into the story in the middle of an almost unbelievable arc that mimics that of its president and CEO, Katherine Gottlieb.
She was born and raised in a rural area off Kodiak Island, where as a child her only local healthcare resources were a midwife and a visiting public health nurse. Gottlieb rarely saw a family care provider. The municipality that was closest had one doctor, "but it cost money, so we didn't see that doctor very often," she says.
I wanted to try to understand how other organizations could learn and improve by adopting parts of what Gottlieb and her leadership team pioneered as the Nuka System of Care. The Nuka system is tough to define, but without it, neither Gottlieb nor Southcentral would have flourished so exceptionally.
Katherine Gottlieb
The story of Nuka is not the story of the health system or Gottlieb, primarily. It's the story of a group of people experiencing broadly a healthcare crisis, and a group of visionary leaders' successful attempt to help solve it by learning what their patients wanted and needed.
Following is a recent conversation, edited for brevity, between Gottlieb and myself, about how she and her team not only improved the health of Southcentral's patients, but also how the cost of treating them was cut.
HLM: You dreamed of becoming a CEO, but your dreams weren't always so big. What was your first experience with work?
Gottlieb: While I was growing up I worked all kinds of odd jobs. I wasn't looking for a career, I just worked to support my family and my siblings and when I got married contributing to raising my children. I started working in the crab cannery. But I couldn't just the do the work the way someone directed me to do it. I would start organizing things and looking at efficiencies in ways we could improve on packing crab. I wasn't required to do it, just wanted it done quicker.
As a result, they would move me around because I would stack up and do it too fast, waiting for everyone to catch up. Finally the office caught eye of me, and they brought me in to learn bookkeeping skills. When I came to Anchorage, I worked in the office at the canneries. I worked in personnel and hopped around to other areas. I was just interested in different aspects of work. Then I started having children.
HLM: So did that put your aspirations on a back burner, so to speak?
Gottlieb: I really wanted to support the family with only part time jobs. But my spouse at the time wanted to go back to school, so I said I would do full time work. I came to Southcentral Foundation [and] they asked my skills, and I said I wanted to be a CEO. They kind of laughed me out of the agency.
I had been a city council member and on local boards, but I had never gone back to school. Eventually, I got my GED [and later a BA and MBA from Alaska Pacific University and an honorary doctorate]. At the time I told [Southcentral] I wanted to be a CEO, I was working toward an associate's degree. I had the skills [to be a] receptionist at Southcentral, so I did that. But I also started reading everything I could get my hands on having to do with budgeting and what the organization could be. At that time it had 24 staff with a budget of $3 million. [Today it employs 1,800 and has a budget close to $242million.]
Four years later, I became the CEO. I did go back to that person who had laughed when I told her about wanting to be CEO. We both kind of laughed together.
HLM: What was it about Southcentral's situation that put a focus on wellness and holistic care from the start?
Gottlieb: We grew the organization looking at it as a family atmosphere, focusing on the needs of the community at the time. In the late '90's, there were many issues happening with Native American population. We did a needs assessment and a survey to determine top priority needs.
We already knew through our governance and leadership that Alaska native people looked like we were the population with near the largest shares of homelessness, people in the prison system, alcoholism, and behavioral health issues just to name a few. So even prior to the survey, we saw social problems and stigma around being Alaska native. So the push toward wellness was a natural.
What jumped right off the page is the need to address wellness from community aspect. So our system needed to be big and needed to involve the population that we are going to serve, and make sure they got involved with the wellness movement, whatever that ended up looking like.
A federal law was passed that allowed us the right to take over the [Alaska Native] Medical Center in Anchorage (from federal ownership). We felt it was extremely important to give the community that ownership. When we got control of the funds, we addressed the needs of the community. Wellness happened with employees first.
HLM: It seems this wellness approach is something other health systems could and should emulate, especially those that are being moved toward a more capitated system of care, as you are.
Gottlieb: People ask us all the time, "Your population is different. How can we duplicate what you're doing?" We're not so different. If you base your services on who you're serving and find out what they want and what they need, they become your customer. Even better is if you involve them somehow in the governance and as more than an advisory group.
In fact we don't call them that. For instance, the elders council is empowered to advise the leadership team and we listen to them. You know that movie 'Big,' where the kid became the [toy company] vice president? That 13-year-old knew best what kids would like. I think that's how we did it. We listened to groups of people and asked them what to do. And we still do that today. The customer becomes the customer/owner.
Previous to the ownership transfer, when we entered into this system, we were all treated like cattle, primarily because we all entered through the ED. There was herding and complaining and people were miserable. Everyone was coming through this one gate. And there was not enough money to spread back around to other parts of the system. We'd bill for the care and return revenue into the [federal] treasury.
Now, we put all the money back into the system, and we've built a primary care-based infrastructure where people don't feel like cattle or numbers. How did we change that attitude? There was this thought that if we could just change that one word from patient to customer, it might help change attitudes.
As for the term customer-owner, as Alaska natives, we're all taking over and actually owning the operations and management, so the idea was, let's make all of the patients owners too. I didn't think it would fly actually, because if you're a doctor, that's not easy to do.
But it has. In the end, I'm trying to win you and you're trying to win me.
HLM: Tell me about the word 'Nuka' and what it means in this healthcare context?
Gottlieb: Alaskans use the word Nuka in many different ways. It's a word with strength and love in it together. So it has that kind of meaning. It's about us owning our own behaviors in health and our providers walking that journey with us.
The real key is our focus on primary care and behavioral health. Nuka is also about living and breathing what we do through our [1,800] employees. The employees live it out.
Nuka is also about calling each other out on the issues when necessary because we know we're living with shared responsibility. So employees will do that. If something doesn't feel good, people will say that to each other, and it's OK. It's the way we improve.
HLM: What's your payer mix like, and how does it serve the mission?
Gottlieb: Indian Health Services is about one third, Medicare and private payer is about one third, and the rest is funds from the foundation and grants. We're very aggressive on that. We have three grant writers working full time to support the work we're doing. The way we allocate those resources is our annual budget cycle.
HLM: Tell me why your pursuit of the Baldrige award was so important. And since you won it, how do you find new challenges?
Gottlieb: We came to a place where we needed systematic change. We had already gone through redesign, governance, had managers and data systems in place, and a financial and sustainability structure. But as a CEO, I knew we needed some way to shake things down and tighten things up.
My vision was for tightening policies and procedures. But then I thought no, there can't be a tool for that. While I was looking for one, one of our administrators at the time described the Baldrige process to us, and I found it was perfect because it didn't try to control, it doesn't tell you what to do, it asks questions that drive you to systematic change.
You have to write it all down, and it gives you this thing you can feel and touch. Actually, we used the application itself as a tool. At first, we weren't looking to apply for the award, we were just using the tool. But eventually, we figured, if we're going to do the application, we might as well apply for the award.
Here's a question that I find great: How does your staff know they are achieving their vision statement? If you ask people that, not many people can answer it, but Baldrige people can. We answered by tying our vision and mission statements into goals and corporate objectives, and then tied work initiatives into the objectives, and each initiative is tied to one of our employees. They can now respond directly [about] what they're doing to achieve the vision statement.
Another great part of the application: 'You're the CEO and you get to make the decisions under the governance for the corporation. We want you to delegate that authority to employees.' That sounds easy, but everyone likes to have control. That meant allowing employees to make decisions.
That started our four committees. Anyone can join with direct and supervisor permission, they work in operations, quality, customer ownership and how to drive change, you can be on one of those committees and can make decisions without coming up to me or the vice president level because they fall within the strategic plan and the budget. The innovation and creativity that happens within the organization keeps rolling out because we empower employees to be creative.
"If management and boards aren't proactive in this field, they'll get crushed," says the board chair of a top health system. Worrying about merging cultures is valid, but it can slow systems' ability to adapt in an industry that is being rapidly disrupted.
There's a lot of politics in the world of healthcare, and never are they more on raw display than in discussions between two leadership teams about either a merger or a strategic alliance. Those disagreements may never reach the public, but they're a real issue that has to be worked through for any relationship between two organizations—whether it's a merger or a handshake agreement to work together—to be considered successful.
One big hurdle: As healthcare organizations look to grow bigger in an attempt to remain essential to payers and employers, trying to merge cultures can slow the pace of change.
The good news is that mergers of culture aren't always necessary, says Mark Claster, a partner with Carl Marks Advisors, the consulting and investment banking arm of Carl Marks & Co. in New York City.
He should know. In addition to his many years of experience as a founding principal for an advisory firm that derives a large portion of its business from fixing failed mergers and rollups in healthcare and beyond, he's also the chairman of the board at North Shore-LIJ Health System.
Mark Claster
North Shore-LIJ, which now owns five tertiary hospitals, nine community hospitals, and three specialty hospitals in the New York City area, is unquestionably one of the more aggressive systems nationally in combining with not only other hospitals, but also elements of the full continuum of care outside the acute care space, including a captive commercial insurance company.
Claster has had some role on the board of the health system and its predecessors for the past 33 years, when North Shore University Hospital in the town of North Hempstead was a small community hospital on Long Island "with a couple hundred beds," he says. Today, the health system is the nation's 14th largest based on net patient revenue, and the largest in New York state.
The many North Shore-LIJ deals in which Claster has participated run the gamut from full asset mergers to strategic alliances with Cleveland Clinic, Montefiore Medical Center, Barnabas Health, and even Boca Raton Regional Hospital in Florida.
Getting past disagreements means there are no hard and fast rules about creating an organization that works together efficiently despite a myriad of institutional histories and legacies, he says. It also means there are many available structures for partnerships.
Marks acknowledges that even in strategic alliances, culture concerns can still be very important, because alliances often are a prelude to a possible full merger. And he says the difficulty of merging cultures is real. It's the necessity of merging cultures that can be overstated.
He says while cultural symmetry can be important in strategic alliances, senior leaders should keep in mind that it isn't always necessary, and focusing myopically on culture when it's not always the most important concern in a partnership can be a detriment to achieving synergies.
"A lot of times [cultural conflicts] have to do with the governance of an individual healthcare organization, where individual boards are not ready to cede control of their assets unless they're forced to," he told me.
Sometimes separate organizations want to keep their identities but work together to share best practices, for example. And that doesn't have to be a deal-breaker. Claster cites a recent deal between North Shore-LIJ and the Cold Spring Harbor (NY) Laboratory in which $120 million will be invested to accelerate cancer research diagnosis and treatment for the approximately 16,000 new cancer cases seen annually at North Shore-LIJ's facilities. The deal is innovative in that it provides close cooperation between the laboratory's pure cancer research and clinical care at North Shore-LIJ's cancer treatment facilities. Marrying the cultures won't be necessary, Claster says.
"There's no reason to try to marry the two cultures. One area where both had a significant need to work with one another was in cancer. We got married in cancer treatments and research and clinical trials, but it is a contractual relationship. Our intent is to be married when it comes to cancer."
That's remarkably different than the melding the cultures of two organizations that are involved in roughly the same work, such as the 1997 deal that merged North Shore Health System and Long Island Jewish Medical Center.
"To the credit of the boards and management teams, they did fully integrate. That could have been very messy with us," Claster says, adding that the two organizations had been "like the Hatfields and McCoys."
Egos had to take a back seat. Part of that resulted from compromise. For example, at first, the two board chairs of the legacy institutions took turns being chair of the combined organization's board. Similarly, there were what Claster calls co-CEOs, although one former CEO was president and one was CEO. After a start in which the two top leaders clashed, "I think everyone understood quickly that you can't share those responsibilities like that," says Claster.
Jointly, both boards anointed current North Shore-LIJ President and CEO Michael Dowling as the sole top leader by 2002, after David Dantzker, former president of LIJ, resigned, and after the late Jack Gallagher, president and CEO of North Shore, retired. "We did it because you can't have two masters at the same time," Claster says.
Claster's overall point, after years of fixing bad mergers in his day job, is that boards and management have to be prepared to take risks. They can't let worries about potential culture clashes cloud their judgment in evaluating the many types of deals and partnership opportunities that exist and that could strengthen the organization. If either of North Shore-LIJ's predecessor organizations had squelched the deal due to what were very real cultural concerns, their present state might be very different.
"If management and boards aren't proactive in this field, they'll get crushed," Claster says. "You have to constantly keep moving and going down paths where you're not sure, and if it's not leading in the right direction, you have to be nimble enough to change course."
Disruption in healthcare is uncomfortable but the chances of success can be greatly improved with a nimble management and board that "never bets the ranch on any single initiative," he says. "There's not a more complicated industry out there, and we've spent millions getting ourselves ready for this, including infrastructure to deal with what we look at as a new world order in which we will be taking care of people from cradle to grave. So take risk, but never take a risk that will take you down if it doesn't work out."
As healthcare organizations reorient their business toward an accountable future, strategic partnerships of many stripes form the backbone of their drive to survive.
This article first appeared in the May 2015 issue of HealthLeaders magazine.
As payers, patients, and the federal government raise standards of reimbursement beyond the provision of services and toward accountability for outcomes, many healthcare organizations are realizing they're too small. Or they're too focused on the hospital business. Or they don't have the proper geographic coverage.
The reasons your organization may need a strategic partner are myriad. In some cases, the partner provides scale. In others, it may provide expertise or share in the risk associated with participation in pilot programs for bundled payments or other risk-based reimbursement.
There are numerous paths to choose from where once the only viable option might have been a traditional merger or acquisition. Hospitals, health systems, physician practices, and a variety of pre- and postacute services are partnering through clinical affiliation, sometimes by way of contracts with niche partners or in some cases through direct ownership of these modalities.
Medicare, commercial payers, and providers have made commitments to pushing toward value-based reimbursement, but the timeframes they've established are short. One executive on the industry task force dedicated to the effort explains what it will take to get there.
But it's trying to ignite change. In January, when it announced a commitment to moving the bulk of its payments to so-called value-based arrangements by 2020, this coalition of the nation's largest insurers and health systems seemed to be having a "me too" moment.
The group's announcement mimicked a promise made just days earlier by Health and Human Services Secretary Sylvia Burwell, in which she committed to a goal that half of all Medicare payments be based on value and quality metrics by 2018.
Trinity Health CEO and former Medicare administrator Richard Gilfillan, who chairs the Task Force, says the efforts will culminate in a consensus on payment methodology so that physicians and other healthcare providers don't have to negotiate many different payment models with Medicare and private insurers that can make administration of them a nightmare.
David Lansky, the chief executive officer of the Pacific Business Group on Health, a longtime purchaser-only coalition representing large employer groups, is part of the Task Force. Lansky spoke with me recently about the push toward value-based reimbursement and the short time frame both HHS and the private sector have given themselves to get there. Following is an edited transcript of that conversation.
David Lansky
HealthLeaders: What needs to happen to meet the goal of moving the bulk of payments to a value-based model by 2020?
Lansky: There has to be parallel movement by both suppliers and buyers in the same direction. We're attempting to figure out how to align the marketplace so people have clarity about where we're headed and can make changes in how to get there. There are significant barriers on both the buy side and the sell side ranging from the mundane, like compatible electronic medical records, to cultural changes in how people think about their work and relationships with other players in the healthcare market. Our main goal is to set a framework where organizations can compete and be successful in this new environment.
HealthLeaders: The rhetoric is promising, and healthcare reimbursement is not necessarily a zero-sum game, but will there not be winners and losers? How do you keep a coalition of payers and providers together in the face of that?
Lansky: I can't speak for all the different parties who are participating in these conversations. I can only speak for large public purchasers. Any marketplace has winners and losers. Winners should be those who create value. That said, any framework we come up with, along with the federal government's promise to move toward value-based reimbursement, needs to be clear about what it will take to be a winner.
We're not trying to get cheap healthcare, we're trying to get high-quality affordable healthcare. If we're moving toward that goal, then whoever wins or loses, at least it's a fair competition based on value. That's not been what the healthcare marketplace has been up until now.
HealthLeaders: What progress has been made as of yet on finding consensus on payment models so health systems are not serving so many masters with so many different formulas?
Lansky: I don't think we've yet made progress on that point. We're a little bit early in the process. Providers and purchasers who have been moving most quickly toward new models are looking for agreement on key features.
They're looking at what the measures should be on three tracks of work: one around ACOs, one around bundled payments and one on high-cost payments. Ideally we would come to agreement and what success would look like on each track and reward success in a technical way.
That's not a matter of a big intellectual agreement about payment. It's really getting into the nuts and bolts of how you develop a good mechanism for judging performance and making payment changes.
HealthLeaders: Aren't large employers, given the size of the population they serve, in a position to demand what they want from providers?
Lansky: Based on where they sit in the larger environment, it's difficult for major purchasers to play that card. Their resources are largely focused on their own industry. Of course, one would assume the largest employers have the most market influence, yet they also often have the most dispersed populations.
So generally, they're not connecting with any one provider system, so they need to use a large national carrier to make those payments. Those folks represent 50–60 million lives. So compared with that, it's hard for us to be influential.
HealthLeaders: What are the employer side's most important responsibilities in helping change this system?
Lansky: I honestly don't think we've come to a decision about that question. A principle is we want to be effective and we want to have conversations among people who are willing to be bold, experimental and candid about what they're learning so we can shape the best practices going forward.
Bigger is not better. The goal isn't to have one model or one answer, but to collect learning and experience, candidly, to develop a suite of tools that can help accelerate this process. We'll look at everything from how ACO payments should work to migration from single-sided risk to two-sided risk. How does an ACO acquire an attributed population? What's the right way to engage consumers and encourage their uptake of these models? There's a whole range of practical implementation elements we want to learn about.
HealthLeaders: Other than the roughly half of reimbursement the Task Force has committed to being value-based by 2020, how do you measure progress toward the goal?
Lansky: Given the diversity of participants and the complexity of the environment, we're trying to develop a meaningful set of measures. We have to think hard about the right answer. I expect there will be themes that emerge from these recent announcements and our work at some point.
What's critical are the multi-payer alignment questions. We're seeing that the more innovative delivery systems are coming up with better ways to provide care and are willing to redesign the care models for cost effectiveness and better outcomes. But they have 6–10 different payers, each with different levels of comfort with payment changes.
So if you have each payer with different ways of paying for that or different requirements for reimbursement, it makes it hard [for healthcare service providers] to deliver the optimal model to the patient. We need to figure out how to obtain a competitive marketplace, yet send a consistent signal on what is needed and how they're going to be evaluated for delivering the care we're trying to improve.
HealthLeaders: How do you align your commitment with the similarly timed announcement of a commitment to value based reimbursement from public payers?
Lansky: A number of clinicians are saying they won't do it unless Medicare says they have to. Secondly, we all say we want to pay for value, but collectively we have made very little progress in measuring it. The new SGR legislation should provide payment adjustments to physicians based on value, but we have a challenge as an industry to agree on a set of outcomes measures and utilization or cost measures that advance our social interest in value. These new programs will kick in in the next few years, and it's dangerous to reward value using the wrong metric.
HealthLeaders: What about the timing of the Task Force's public announcement on value-based reimbursement? Were you just waiting for the Feds to announce theirs to release yours?
Lansky: Well, we were aware they were working on it, and we were very pleased the commitment came, but it was only a happy coincidence that ours came shortly thereafter.
Whether it's meant to bring together employed or independent physicians or both, a physician enterprise needs to be flexible and transparent enough to achieve both cost reduction and better outcomes.
This article first appeared in the April 2015 issue of HealthLeaders magazine.
One of the more important strategic imperatives for hospitals and health systems is "physician alignment." That's been shorthand for finding a way for healthcare organizations to share risk and accountability with physicians as the industry moves gradually toward a changing payment orthodoxy based on cost and outcomes. Lately, the drive for physician alignment for many organizations is more than just talk. Many organizations are backing this drive with considerable investment in new management structures and specialized talent, information technology, and team-based care. Importantly, it's heavily physician-directed and led.
Organizations need to reach a critical mass of integration such that they can enter shared-risk contracts or ACO-type arrangements and feel comfortable that doctors and their fellow clinicians will follow care protocols, learn from each other based on evidence of cost and outcomes, and practice in a team-based environment. Building a physician enterprise that allows the organization to execute on its targets in these new arrangements is of top importance for senior leadership at many, if not most, healthcare organizations.
Why is the physician enterprise so important? Because it's the multi-tool for the organization. Whether you are a standalone hospital or an interstate health system, no other aspect of your organization can bring down your efforts, or ensure their success, than whether your physicians will cooperate to help lower the cost structure—the metric that will put the organization ahead in the value equation.
The Community Launchpad program draws innovative ideas from employees, rather than seeking outside advice. A bottom-up approach is the only way to succeed in today's market, says one health system CEO.
Healthcare leaders have gotten used to hearing about disruptive innovation, with the notion that nontraditional competitors can eat your lunch and make you pay for it. How can traditional hospitals and health systems compete with outside innovation?
Rather than turning to outside experts, Community Health Network, a health system in Indianapolis, looked inward to answer that question. In 2012 the leadership team created Community Launchpad, an organization within the health system, "to allow a culture of innovation to flourish and become an aspirational goal," says Pete Turner, Community Health Network's vice president of innovation and the man behind the debut of Launchpad.
Bryan Mills
Launchpad solicits employee participation through an Internet-enabled suggestion and development capability. The system allows staff to submit ideas anytime, but it goes beyond the suggestion box by setting up competitions and by asking employees strategically connected questions to help solve specific problems.
"This is how we can take the word 'innovation' and make it more than just a word on the wall," says Turner. "The word innovation is threaded throughout our strategic plan, but until we came up with this, we struggled with how to activate that word—allowing our employees and the external world to invest in healthcare innovation that will either make Community Health Network a better place to receive care or to practice medicine."
Turner says Community needed better processes, more infrastructure, a mechanism for seed funding, and a safe environment for innovation to flourish. In preparation for launching the program, leaders spent several months looking not only at how healthcare organizations innovate, but also to other industries such as universities and life sciences to help figure out what makes innovation centers successful.
"For one, it starts and stops with the support of the CEO," says Turner. "Fortunately, we have unbending support to push the envelope" from CEO Bryan Mills, a 30-year employee of the organization and its predecessors.
In this year's competition, organizers asked employees to submit any idea, but with special emphasis on improving pricing transparency, making billing statements easier to read, or optimizing the electronic medical record.
Some 800 employees submitted ideas through a "Shark Tank-like competition," Turner says, referencing the popular ABC television reality show, in which a panel of potential investors hears pitches from aspiring entrepreneurs, and can invest in those ideas if they so desire.
Though Community Launchpad's competition has some notable differences from the TV show—there's no browbeating of contestants, for example—there are cash incentives for employees who make the final round of the eight-week program, and they retain the opportunity to share in profits or savings as their idea moves toward a full exploration of its commercial value.
Nine of of the recent submissions were ultimately chosen for Launchpad's innovation pipeline.
Three of the most promising:
A wearable smart device that alerts caregivers and gives real-time feedback to patients with congestive heart failure as they become symptomatic.
A mobile work station that provides home care nurses an uncontaminated surface to conduct medical procedures.
A patented soap dispenser with a built-in digital timer that notifies the user when appropriate hand hygiene is complete.
Regardless of whether the ideas ultimately lead to commercial products or other innovations, Launchpad is also an effective employee engagement tool, says Turner. "This helps make Community Health Network a better place to work and receive care. In the best case, it can generate alternative revenue streams while employees get to test their entrepreneurial spirit."
Launchpad embodies Mills' belief that Community Health will not succeed in a command-and-control fashion.
"Top-down is not an effective way of getting things done," Mills says. "If we had received 50 ideas instead of 800, we probably would have been satisfied. But our hunch was right. With Launchpad, we can put a challenge out there, request and process people's ideas, and then act on them immediately. That gives me confidence we can continue to operate our organization in the local market."
Mills says he personally spends a lot of time trying to figure out how the organization should respond to healthcare trends such as transparency, value-based purchasing, quality metrics, and dealing with local competition.
"But those things don't keep me up at night," he says. "What does is trying to pick a path and be the best communicator I can be. I can only can be effective if people see me as real, credible, and transparent, so my investment in communication is far greater than it has ever been. When it all shakes out, it's really helping 12,000 [employees] focus on a shared vision on a daily basis."
While women make up 78% of the healthcare workforce, only 19% of hospital and health system CEOs are female. But the CEO of a hospital with an all-female executive team says her responsibility is simply finding good leaders.
Women play an oversize role in healthcare decision-making for families, but an undersized role in healthcare leadership positions.
Rachelle Schultz
According to a 2013 report by the independent nonprofit organization Rock Health, while women make 85% of the decisions about their children's doctors and make up an astounding 78% of the healthcare labor force, they make up only 19% of hospital and health system CEOs, and only 14% of the positions on boards of directors for healthcare companies.
An independent hospital in Minnesota is bucks that trend hard, though not intentionally, its CEO says. Winona Health, a 99-bed organization, is not only led by a woman, President and CEO Rachelle Schultz, but the entire leadership team of nine is made up of women.
Schultz, who has led the hospital for the past 13 years after spending the first part of her career with the predecessor to Phoenix-based Banner Health, says the distinctiveness of her all-female leadership team only dates to mid-2013, when the CFO, who was male, departed for another organization. The all-female leadership team will likely be short-lived, she says.
"It certainly wasn't deliberate," she told me. "I'm always looking for the best fit—the person who can work with the team we have."
To be clear, neither Schultz nor Winona Health sought publicity for their leadership team's gender makeup. While an all-male leadership team is increasingly rare, male-dominated ones are the rule. But an all-female team crosses firmly into "man bites dog" territory.
Schultz's reaction to talking about having an all-female leadership team is similar to her response to being asked to give a speech about what it's like to be a female CEO: bemusement. That's not to say she hasn't given such speeches. She has, multiple times.
"That's hard to describe because I don't know what it's like to be a male CEO," she says. "I just don't find it to be a problem. Some places I go I might be the only female in the room, but someone has to point it out for me to notice that. With my own team, it's all women, but it's definitely not the usual thing I run into at other organizations."
The leadership team's gender is accidental, she says.
"Hiring is my decision, but we always do a full gamut of the interview process with the rest of leadership team, physicians, and nurses," she says about Winona Health's hiring process. "There's a whole gauntlet a candidate needs to go through, especially at the senior leadership level. The collective also has to see what I see in a candidate."
Schultz says she likes to think of herself as a thoughtful executive who seeks to find good leadership for her health system. She's not necessarily a crusader for women in healthcare leadership.
"It is unusual, and I get that when we do our annual report, it is a noticeable thing, especially in my own community where there aren't that many women leaders," Schultz says.
Some members of the Winona Health executive team are long-term employees. "Some have been here 20-30 years, and they are people I found when I first got here," she says. "We put them in roles where they flourished so they have evolved into the senior leadership team."
Other people have been recruited. When the prior CFO left voluntarily in 2013 to work for another health system, Schultz hired Jan Brosnahan to replace him, but not because of her gender. One chief reason she was hired is that she didn't come from a healthcare background.
"That said, there were not a lot of female CFO candidates from outside healthcare, either," Schultz says. "Jan worked as controller for a corporation in St. Louis. She had a learning curve but she rolled up her sleeves and figured it out. We needed someone who could look at new models of care, and she's really done an awesome job at that and brought some great ideas."
Brosnahan brought a focus on financial forecasting, as opposed to budgeting, which the organization had not had in the past, and it's a big improvement, says Schultz.
"I'm an advocate for great leadership and personal and professional growth for people who are willing to do the heavy lifting and who are not on the sidelines observing, because there's some really hard work to do," she says. That's true for leaders everywhere in healthcare today, male or female.
One day, an all-female leadership team at a hospital like Winona Health will be unremarkable. The fact that it isn't means there's still work to do.