The big (local) aspirations of the Louisiana health system are evident in two recent deals. While consensus on clinical strategies is being built, "we won't forget the strengths we have as a market leader," says the CEO of one partner hospital.
Two recent deals highlight Ochsner Health System's desire to create a healthcare system that is 1) better set up to provide a continuum of care services and 2) agnostic about where within the ecosystem a patient receives care.
Warner L. Thomas
That's more difficult than it sounds.
One deal was with 223-bed, Covington, LA-based St. Tammany Parish Hospital in late 2014. The other, announced April 20, was with Slidell Memorial Hospital,a 229-bed acute care hospital in the city with which it shares a name.
Such deals help immensely with caring for an attributed population, says Ochsner president and CEO Warner Thomas. And a health system's ability to manage attribution will be a key determinant of success as healthcare reimbursement transitions to a more holistic model of reimbursement and away from fee-for-service care in a large majority of services a hospital or health system offers.
They also reveal a strategy for a health system that has aspirations of regional significance.
Mergers Can Get Complicated
The anticipated synergies with St. Tammany and Slidell Memorial, in some instances, are far in the future. But in the meantime, there are plenty of other areas of streamlining and efficiency that can be mined even before the care coordination piece is ready for prime time, Thomas says. The fact that all of this work is possible without the need for a full asset merger, means Ochsner and its partners don't need to do everything at once. "Sometimes, mergers get very complicated," Thomas deadpans, when asked why that wasn't the preferred route of cooperation between Ochsner and St. Tammany, particularly.
"St. Tammany was looking for a partner to help them build certain clinical capabilities that would be challenging and we can bring scale and accountability to the organization." At the same time, he says, St. Tammany is a financially stable market leader across Lake Pontchartrain from Ochsner's base, so it represents increased access to an adjacent market.
"We're successful and we chose Ochsner for their strength," says Patti Ellish, St. Tammany's president and CEO. "But we won't forget the strengths we have as a market leader. The partnership tells the community we can have an impact together, and not be consumed by one another."
What to share was a critical piece of negotiations between both boards, and governance was a close second. Ochsner's physician group presence and ambulatory services are examples of assets that will be managed under both organizations in the form of a new board of directors for the strategic partnership. With the St. Tammany partnership, which is much further along than the one with Slidell, a joint operating board was formed.
Consensus and Cooperation That equal representation leads to consensus not only on the clinical strategies the two organizations want to do together, Ellish says, but also for cooperation in other areas. As examples, St. Tammany is developing a new neuroscience program through the partnership that will allow patients to get care closer to home rather than having to go "across the lake," to New Orleans.
Patti Ellish
The partners are also working on a program to be able to offer pediatric subspecialties. Outside of clinical program development, the accord means the two systems will share a comprehensive electronic health record system. Ellish says St. Tammany was already on the "glide path" toward an enterprise-wide EMR, but the deal with Ochsner accelerated the change. St. Tammany will be moving to Ochsner's Epic-based system.
These examples of cooperation and others that will develop over time allow Ochsner and its partners to be dispassionate about where a patient attributed to the newly formed Ochsner Health Network goes for care in the region.
"We were very clear about that when we put this together," Thomas says of the deal. "We didn't want to have the wrong incentives about where patients went. From a financial and governance structure, this aligns all our interests."
Further discussions that are not quite as far along include developing congruent strategies on post-acute care, as well as a coordinated approach to physician recruiting going forward. Ellish says there are other more obvious opportunities for efficiency, for example, where both already have well-established service lines, such as sleep centers.
"In that case, we are both doing it very well," she says. "We've achieved system efficiencies, important clinical services were defined and combined, and together we are now servicing a larger area. I know it sounds small, but you build on those early successes."
Speaking of building on early successes, both leaders at St. Tammany and Ochsner see a future for joint contracting with commercial health plans.
"We're heading down that road right now," says Thomas.
Both organizations have met the parameters around necessary financial integration, and will meet the parameters around clinical integration once they are on the same IT platform. "We have a lot of experience around risk contracting and population health and we'll bring those to St. Tammany in time," Thomas adds.
If that can be accomplished, neither of these strategic partnerships, nor similar deals in the future, need be a precursor to a full merger, he says. "That's why we structured it the way we did."
St. Tammany's Ellish says this model is an appealing way to work together "not just because we were afraid to be merged and acquired. The message was different. It's a partnership," she says. "We're independent, but look under the covers—we'll be integrated clinically and financially."
Anthem's Joe Swedish believes providers and payers are ready to cooperate on creating a new healthcare system focused on customer service and moderated cost.
"Collectively, we're creating a renaissance period in healthcare."
Those are bold words. But if anyone is qualified to make such a sweeping statement, it's probably Joe Swedish, president and CEO of Anthem Inc., the nation's second-largest health insurer, headquartered in Indianapolis and operating Blue Cross and Blue Shield plans in 14 states. By "collectively," he's talking about cooperation between providers of healthcare (in this sense, the full gamut of healthcare services) and the payer side, all pushed by value-minded government payers.
Joe Swedish
President and CEO
Anthem Inc.
His prediction parallels a bold move in Swedish's own career, which was centered on the healthcare services side prior to being named Anthem's top leader just two years ago. From 2004 to 2013, he led Trinity Health, which had 47 hospitals when he departed to take the Anthem post.
If he didn't think a renaissance was in the offing, he wouldn't have made the switch, he says.
Two weeks ago at a Nashville Healthcare Council luncheon, former U.S. Sen. Bill Frist sat down for a one-on-one with Swedish in front of a roomful of many of the top healthcare executives in the country. Swedish articulated a vision of a future of better customer service and moderated cost mandated by a system that is morphing toward greater patient responsibility for healthcare costs.
Renaissance or dark ages?
However, Swedish's contention that healthcare is headed into a renaissance period, and all the positive vibes that image brings to mind, is highly debatable. While healthcare costs are indeed growing at a much slower rate than in recent years, the rate of growth still outpaces the rate of growth in incomes. On top of that, patients are expected to pay more of their healthcare out of pocket, so premium growth trends are far from truly capturing how healthcare costs are squeezing many, particularly the employer-sponsored class, who are being asked to cover a much larger portion of their costs in coinsurance and deductibles. Drew Altman, president and CEO of the Kaiser Family Foundation, has written that the amount that people with employer-based insurance pay for premiums has risen 212% in the past 15 years. Let that rate of growth sink in for a moment.
If a renaissance is indeed in its early stages, then we're definitely still in the latter stages of the dark ages for accountability and value. But there's no way to verify that contention. The sample size is too small and the time period is too short. Statistics could support either argument. Renaissance or not, what is certain is that healthcare is changing dramatically as players attempt to get a handle on value.
Swedish says that in the provider world, his focus was on infection rates and cost structure—things where his organization could make a difference internally. As a health plan leader, he says he is focused on managing total cost of care. Anthem's data repositories hold promise in that they can help effectively analyze individual markets, systems, and physicians to manage and reduce variation. And it will happen because the federal government, which "controls the gold," is pushing it, he says.
That means to stay relevant, health insurers need not only to develop shared value partnerships with providers (Anthem has 120 ACOs that Swedish says are critical to that effort) but they also need to build a more consumer-centric model. Insurers should help patients choose the right plan, with clarity of benefit structure, help in emergencies, and give straight answers to patients about their medical condition.
Again, it's a fine vision, but given history, not many patients would think of their health insurer as an institution that is looking out for their best interests. Swedish concedes that point, saying the industry's "net promoter score," a tool to gauge the loyalty of customer relationships, is "dead last."
Anthem will have to fight those perceptions in order to succeed, he says. But with customers making choices on a variety of deductibles and plan designs, health plans have to be responsive in engaging and communicating with customers.
Now that really would be a Renaissance. With a capital "R."
Risk and total cost of care
Swedish anticipates lots of competition, saying he believes about half of healthcare delivery systems are reporting they will create some type of insurance product, with some such as North Shore-LIJ Health System going "all-in" with licenses and risk-bearing products in the markets they serve.
"I'm no big fan of that, no secret. I lived through the '90s and saw the damage that it put on delivery systems that didn't know how to take risk, manage it, or come up with the reserves," he says.
Though he's biased, he says Anthem's partnerships with health systems to create "integrated health systems" offer more incentive for both sides to get value mechanisms right, and less risk, than the alternative, captive health plan. Anthem has such partnerships in primary care with Aurora Health Care in Wisconsin and has launched Vivity, an "integrated health system" in Los Angeles with seven hospital systems in the area. Anthem shares both upside and downside risk with those organizations.
Swedish says regardless of their strategy to deliver value, healthcare organizations need to develop and maintain a focus on what he calls "total cost of care," a concept that means taking responsibility for coordinating as well as providing care.
He explains: "After that patient left your office, did you know they went to CVS and picked up four meds? I've got claims data that shows total cost of care. If you are going to play in population health, you have to engage in this, too."
Healthcare leaders should celebrate creation of innovations like telehealth and other new models, he says.
"That's the revolution and renaissance," he says. "Healthcare is lagging other industries but the speed of change is picking up amazingly fast."
CEOs responding to HealthLeaders Media's 2015 Industry Survey seem to be undecided on whether healthcare really is headed to a value-based future. One prominent hospital CEO, Ron Paulus, MD, says it's a big mistake to think value-based care won't make big inroads or that it has already happened.
Ron Paulus, MD,
President and CEO
Mission Health
Some hospital and health system CEOs are making two critical mistakes: They either think value-based healthcare is a passing fancy that will fade away or that the biggest disruption in healthcare is already behind them.
That's the view of Ron Paulus, MD, president and CEO of Mission Health in Asheville, NC. He sees his peers making these strategic mistakes as healthcare transforms due to a variety of factors.
Paulus and I reviewed together some of the results from the Premium Edition of HealthLeaders Media's 2015 Industry Survey, which debuted in January. Indeed, it seems as though respondents, including the CEO subgroup, haven't quite made up their mind whether a value-based future is really where healthcare is heading, despite all the indications that it is gaining traction in fits and starts.
In Figure 1 of the survey, 37% of CEOs characterized their organization's transition to value-based care as at the investigation stage. Only 28% of the total group of survey respondents said that. So maybe Paulus is onto something when he says many leaders think—erroneously, he says—that value-based care won't make big inroads (certainly the 10% who chose "not pursuing" fit in this category) or that it has already happened (possibly the 7% who say the full rollout is complete or nearly complete).
"I take away from this response that pretty much everyone is just beginning, but in every CEO meeting I'm in, this is the No. 1 issue on the agenda," Paulus says. "As for Mission Health, we are underway with active pilots and some of them are being rolled out."
Table stakes for the value-based game seem to include a substantial investment in data analytics, whether in-house or with a partner that can help dissect and disseminate data. And CEOs are well aware of the need for that investment in order to be able to compete in a value-based world. In Figure 6 of our survey, 77% of CEOs cited data analytics as among their top three investment priorities, while only 62% of all respondents chose that item. Still, both groups picked data analytics most often among their top three investments, outpacing even other value-based or accountability tools, such as investments in care redesign (53% of all respondents), in patient experience improvements (51%) or in nurse navigators and care coordinators (45%).
For Paulus and Mission Health, data analytics is a "top priority for me." As for the difference between the CEO group and all respondents, he attributes that largely to the "siloization effect."
"Everyone's kind of touching the elephant in a different way," he says. "If you're not working on the data, you're less likely to see it and feel it. But at the CEO level, I feel it because that's where we're putting a huge amount of money."
He says most of that money goes to two things: trying to get better analytical data out of the electronic medical record, and integrating that data so that it can be used effectively in treating patients. Mission has a Cerner platform, but because Paulus says his health system "can't wait," he's made a separate investment in HealthCatalyst as the data analytics partner in the "medium term."
"In the long run I want one solution," he says. "We're using the Cerner platform for certain aspects, like health information exchange, while HealthCatalyst is generating a vendor-neutral data warehouse. Building the databases is like shoveling snow, but integration of the data is like building snow castles," he says.
Because moving to value-based care takes a war chest, CEOs are looking for the best way to fuel financial growth over the next five years as they hope to make a transition to reimbursement that is also predominantly value-based.
The most popular answer for both groups of respondents was that they will fuel financial growth through expanding outpatient services: 63% of all respondents and 60% of CEOs. But other strategies were less similar. Some 32% of CEOs said they would fuel growth at least partially through developing their own or partnering with existing convenient care facilities, while only 22% of total respondents chose that as a strong growth area. Developing a health plan business unit was also higher on the priority list for CEOs than for the entire group of respondents, at 27% and 18% respectively.
Paulus was surprised that only 27% of CEOs expected to acquire or develop a health plan business unit. At a recent eight-CEO dinner he attended, he said all eight, including himself, were interested in getting into the health plan business in some fashion, whether that means building a Medicare Advantage plan, participating with proprietary plans in the exchanges, or even commercially, with employers.
What's different this time
But haven't hospitals and health systems tried to get into the health plan side of the business before? And didn't they lose vast amounts of money on the experiment two decades ago?
"That's a fair concern," Paulus concedes, harking back to his experience as Geisinger Health System's chief technology and innovation officer, prior to becoming CEO of Mission Health. During his tenure, Geisinger was one of CMS's Physician Group Practice Demonstration participants (CMS's first pay-for-performance initiative).
"At Geisinger, we had an interesting control trial because we were able to compare the PGP demo and our MA plan side by side," he says. "We saw that we were very successful on the MA plan and only marginally successful in the PGP demo."
He says the PGP project earned money in early years, "but when you net out not just what you spent but what you cannibalized, it was at best neutral and may have been a loss."
Conversely, on the Medicare Advantage side, "you get 100% of premium, not just a percentage after a threshold, but also important, you can directly interact with the consumer; you have all the data stream immediately, and when you have a delivery system, you can intervene on those consumers."
That's difficult in an ACO model with retrospective attribution, he says.
"I realize there's prospective plan, but it was really the partnership with doctors and patients that made it work," he says of his Geisinger experience. "It wasn't always true that the health plan and the clinical enterprise got along, but in the Medicare Advantage plan, one of our department chairs who had been most antagonistic toward the health plan realized that across 20 clinical parameters, we were statistically significantly better in 19 of the 20 in our Medicare Advantage plan. He stood up in a meeting and said with the data, we now know the Medicare Advantage plan is like a drug that works and it would be unethical to withhold this drug because patients do better with it than without."
That's why providers should really consider developing a health plan, he says.
Paulus says he tries to avoid making any of the top four strategic mistakes he's identified by measuring how well leadership is focusing on avoiding them every day. They are:
Not focusing on the patient first: "Not in a flippant way, or holier than thou—we have our own struggles—but sometimes we can be so caught up in all our own troubles that we're not doing the things the patients most need and want, and that includes focusing on the service experience, convenience, access, and price. That's hard because it's asking us to change our model before we have the incentives to change it, and in ways our docs and nurses or administrators may not like."
Focusing on cost reduction and not quality improvement: "You get cost reduction by improving quality. Cost and quality go hand in hand. They are friends. Yes, it's harder to lower costs by improving quality than it is to just cut things, but it is the only sustainable way."
Thinking that things aren't going to change: "This is living in denial."
Thinking they already have changed: "Another form of denial. We're like a chimera right now—part one animal and part another. At least partially, we're still living in the fee-for-service world from the '60s. But change is here."
At a time of rapid and fundamental shifts in healthcare, top leaders must evolve their skill set and their management style to achieve the goals of better, more efficient healthcare delivery.
This article appears in the March 2015 issue of HealthLeaders magazine.
Healthcare is changing in significant ways. The industry is migrating to a highly connected world that is growing more transparent. Meanwhile, the very measures of success for healthcare organizations are shifting.
In such an environment, physicians, nurses, and other employees look to the C-suite to make sense of it all and to help them understand their organization's place in healthcare's future. But effectively developing and translating a strategy into a new set of policies, expectations, and desired results would be difficult for anyone, especially those who have reached their lofty positions by excelling at a business model that becomes more outdated and irrelevant with each passing day.
The pace of the transition can be breakneck or slow and measured; but in either case, some senior leaders are proving old dogs can yet learn new tricks—because they must.
You're as at risk for the self-pay or indigent populations you serve and their overall health as any of your bundled payment-taking, direct-to-employer-contracting, Pioneer-ACO-participating peers.
During my visit to the American College of Healthcare Executives' annual Congress event in Chicago this week, sessions predictably focused on the intersection of volume-and value-based reimbursement. To their credit, many organizations are taking this threat of lower reimbursement, higher patient acuity levels, and lower utilization to heart.
Not me, you may say. We steer clear of CMS demonstration projects and Medicare ACOs. And our commercial payers aren't even interested in any value-based determinant to reimbursement. So we're just fine.
Ed Rafalski
Senior VP of Strategic
Planning and Marketing,
Methodist Le Bonheur Healthcare
But what about your own employees? What about the self-pay or indigent population? You're as at risk for those folks and their overall health as any of your bundled payment-taking, direct to employer-contracting, Pioneer ACO-participating peers.
It just may not show up the same way on your financial statements. But money is being spent—and lost—for this cohort of patients, especially if you're not strategically trying to manage the unhealthiest of these people so they don't over consume costly healthcare services, to say nothing of improving their health and quality of life.
That was one of the main points from representatives of a health system that is being proactive about risk-based reimbursement, where it can, even though in the sense of formal structures with government of commercial payers, risk-based contracting has not made inroads.
"All of you are at financial risk if you have a high percentage of self-pay and Medicaid patients," said Ed Rafalski, Memphis-based Methodist Le Bonheur Healthcare's senior vice president of strategic planning and marketing, in a session addressing fellow health systems at ACHE Congress earlier this week. "This is all about managing complex patients in a different way. That's how we're building our population health strategy."
Because the health system loses money on Medicaid and self-pay patients, reducing their acuity could pay big benefits in both patient outcomes and the system's financial health. So Methodist began working on a community faith-based network back in 2006 that by 2010–11 became a vehicle for better managing the health of high-acuity multiple comorbid patients in the area, Rafalski says.
Though the network was created as an outreach program for all faiths, Methodist staff soon realized they could use the network and geographical and demographic data from the system's patient encounters to help pinpoint the highest concentrations of self-pay and Medicaid patients.
Familiar Faces The belief was that use of a trusted patient navigator would lead to better, more tailored care, and eventually, to better self-and family-management of chronic conditions. Most of these patients are familiar to any health system—they used the emergency department exclusively as a one-stop-shop for all their healthcare needs.
Methodist discovered that the top 10 ZIP codes consumed 56% of all charity care costs.
Further, the "hot spot" of utilization and cost came from South Memphis in one ZIP code, 38109. In 2010, this ZIP code, which had but one federally qualified health center safety net clinic, accounted for only 9% of inpatient visits, but 65% of total charity care costs for Methodist.
Methodist calls these folks "familiar faces," while other healthcare organizations often call them "frequent flyers." Whatever the moniker, they and the poor management of their chronic diseases figure heavily in the healthcare cost equation. Therefore, concentrating resources on this ZIP code would have a big impact on the charity care population.
Commercial payers in Memphis, where the eight-hospital Methodist Le Bonheur Healthcare is based, weren't and still aren't particularly interested in introducing value-based reimbursement structures at this point, although Cigna did provide some of the funding for the program. At this point, it has one patient navigator for about 70 patients, mostly in that one ZIP code.
In support of the goal of moving patients toward better chronic disease self-management and better health generally, the navigator offers nonclinical support, such as managing doctor's appointments, arranging transportation, securing meals or groceries, getting prescriptions filled or financial aid for prescriptions.
About two thirds of the patients approached with the offer of help with these functions have accepted the invitations thanks in part to the trust built from the interfaith network, which counts almost 600 houses of worship in the area as members. Results through 2014 show decreased per-patient costs by 43% compared to the 2010 baseline. Not surprisingly, ED utilization has decreased 23% for this group of patients managed by the care navigator.
Now that the program has shown such promise in high-risk patients, Methodist would like to expand it to those it considers "rising risk" patients. That is, those who are on track for high utilization absent intervention.
"We know the approach works, so we want to expand to the next level of patients who are at risk of becoming familiar faces," says Razvan Marinescu, MD, the director of planning and business development at Methodist.
Methodist leadership recognized the issue and did something to combat it, and the beauty is that it's a model that can be effective no matter your organization's payer mix or patient mix.
Obviously, this type of high intensity intervention is not cost-effective for most patients, but it can make a huge difference in cost and quality of life for some. That's what's known, annoyingly, but quite appropriately, as a win-win.
Hospital and health system leaders gathered at the American College of Healthcare Executives annual congress are cutting costs and focusing on efficiency as they prepare their organizations for capitation.
Whether health plans force the issue or not—and in many areas, they're not—hospital and health system leaders believe en masse that they are facing a future of capitation in some form or another. And the time grows short to get ready.
Kevin Cook
President and CEO,
University of Mississippi Medical Center
That's the message from top executives attending and presenting educational sessions at the 2015 American College of Healthcare Executives Congress in Chicago this week.
A true capitated environment is still not the reality for many organizations, however. How they bridge the chasm between being reimbursed for volume instead of value is the key challenge for most. In a time of uncertainty, many are challenging their managers and staffs to maximize core business efficiency.
What does that mean in healthcare? The same thing it means for most businesses under stress: efficiency is the core to success, so organizations must focus on efficient deployment of labor resources, benchmarking, and productivity work.
External benchmarks used to attack labor costs understandably raise defenses among employees, says Kevin Cook, president and CEO of the University of Mississippi Medical Center in Jackson, MS. And layoffs are often counterproductive and ineffective.
In helping to cut costs and lower the cost per procedure at the state's only academic medical center, which has three campuses and 24,000 yearly admissions, Cook says he first had to get past those barriers.
"Internal benchmarking gets past the defenses," he says. "If you look at your six most productive pay periods, it allows you to benchmark against yourself in terms of productivity."
In doing so, says Cook, he asked employees and managers to replicate their best pay period in terms of productivity.
"We've established you can provide quality care at that level. Just replicate what you've done the six times prior."
Lynn Torossian, who took over as president and CEO of 191-bed Henry Ford West Bloomfield (Mich.) Hospital in late 2013, faced a big projected budget loss in 2014, so she engaged her senior leadership team and managers in a series of 100-day "workout" plans aimed at cutting that projected loss of $7 million.
"We faced tremendous market forces and consolidation in our market," she says. "Payers are looking for reductions, and there are utilization declines."
She wanted her leadership team to understand and commit to the concept that "change is your job from this day forward."
The first workout period focused on reducing waste. Torossian launched it in October 2014 after building support during a full-day executive session with the senior leadership team, key physician leaders, and select board members. She challenged each manager to make two changes per month. By the 90-day mark, 253 such plans had been implemented. Not all were successful or even highly significant in terms of dollars saved, but it all added up.
Torossian pressed the staff to make changes even though many might not work out as planned. The important thing was to get to work. By the time 90 days had passed, estimated savings from their ideas added up to more than $1.5 million.
"Everyone was scared to death at first," she says, "But they came to realize this is career development as much as organizational improvement."
Measuring cost per unit of service can also be a helpful tool toward preparing for a future of reimbursement for value, whether that means bundled payments or capitation. Such work helps focus organizations on so-called top of license work from staff members. For instance, organizations can benchmark costs per patient day or per procedure, such as a PET or CT scan, and then try to match tasks to talents and salaries.
This approach "builds confidence [managers] can own and change the system," UMMC's Cook says. "They're no longer passive victims. They become the agents of change. We need middle managers to own change if we're going to survive."
Your strategic vision for how your organization should fit into the care continuum should be realistic, but aggressive. Here's a North Star: Think of where you can add the most value and then focus.
Of all the megatrends affecting healthcare, from ICD-10 to consolidation, from Medicare demonstration projects to partnerships with payers and employers, one thing hospital and health system leaders can count on is the inexorable march forward, broadly, of value-based purchasing.
By that I mean that those who are paying for healthcare represent a lot of different constituencies—from employers to traditional payers, to the government, to individuals—but what unites them is that they want verifiable value for the money they're spending.
And they're getting better at determining the factors that influence value. Can your organization provide better outcomes than the competition? How can you prove it? What's the secret? The answers to those questions should inform every strategic decision leaders make.
For last month's cover story in HealthLeaders magazine, I wrote nearly 7,000 words on defining your place in the care continuum and I feel like I barely scratched the surface. I found several diverse examples of how some innovators are employing their time, talent, and vision toward demonstrating value.
But even given the unique nature of each of their stories, I kept coming back to one thing—the confidence of the people I interviewed and the clarity of purpose they demonstrate for finding how their organizations will fit in going forward, whether we're talking about a regional health system, a small hospital, or a giant nationally focused health system.
They all have the confidence of their convictions, and critically, a detailed plan to get there. Some important themes are common, regardless of their vast differences in size, scope and scale:
1. Inpatient is not a growth area.
Sure, inpatient is the most expensive site of care, and thus holds a big share of revenue, but organizations are trying to think more holistically—adding outpatient, ambulatory and even "e" modalities (telemedicine is growing) in the hopes of building a cohesive and coordinated system of care with the idea that commercial contracting will take on a more capitated style of reimbursement.
Further, many heretofore provider-only organizations are entering territory that was one reserved only for health plans. "Capitation is our friend," says Curt Kretzinger, Mosaic Life Care's chief operating officer.
The beauty of growing beyond the inpatient space is that it can be a good strategy even if value-based purchasing has not made inroads locally, by providing investment opportunities in growth areas such as primary care and outpatient surgery. But the continuity-of-care aspect of operating in a capitated environment should not be discounted.
2. For big systems,loose confederations are out—true operating company structures are in.
Ascension owns one of the largest health systems in the country, but it has largely operated as a loose confederation of regional systems that have been free to find their own way in many respects—especially in clinical standardization.
As taking variation out of medical care becomes a more important contributor to value, the organization is taking a big risk by building out and rolling up modalities like post-acute care and home health. That takes huge investment, but dovetails into Ascension's larger strategy of "taking care of millions of lives from birth to death," according to Anthony Tersigni, the system's president and CEO.
He believes that standardization of clinical practice and other operational priorities are more difficult under a holding company model.
3. Hospitals and health systems mustbecome more paternalistic toward patients.
Navigating healthcare can be complex for even the most educated individuals. Ellis Medicine President and CEO James Connolly says the most recognizable healthcare authority in a given region needs to take responsibilities that it hasn't in the past. For instance, in helping patients make thoughtful and efficient decisions with their healthcare.
In some ways, this means getting into areas of social services and social work that hospitals have traditionally not been involved in. Building these linkages, in Ellis's case, with more than 50 local agencies and partners, helps patients avoid readmission or expensive follow-up care that happens when their social needs are neglected.
It's a tough learning curve, but Connolly says it's necessary given value-based reimbursement that is coming on ever more strongly in both the commercial and government payer sectors. "What we built is equally applicable to Medicare, Medicaid or commercially insured people," he says. "The main thing we were developing was the ability to coordinate and manage care in the community. That's a cornerstone toward being an ACO."
Not that every hospital or health system should become an ACO, or even should become part of a larger one. That's a decision that can only be made based on the facts as you see them and on the details of the possible deal.
Accountability, by contrast, will not be optional.
Rather than dictating a solution to improve patient care and patient satisfaction, leaders at Novant Health enabled nurses to find their own way.
This article first appeared in the January/February 2015 issue of HealthLeaders magazine.
Leaders at Winston-Salem, North Carolina-based Novant Health had identified a big problem, and it started with its nurses. According to a strategic plan that was meant to guide Novant toward a population-based business model—which some say is a fancy name for capitation—nurses weren't spending enough time in direct patient care. Results from an internal survey that measured time at the bedside were shocking to anyone who envisions nursing as a patient-care profession.
Amazingly, nurses in the four-state, 15-hospital, 2,795-licensed-bed system were spending only 2.5 hours of every 12-hour shift at the bedside. In a world where careful management of complex patients is said to be a key not only to achieving better outcomes but even to future survivability for health systems, that simply wouldn't do. Besides, that lack of patient time probably had a lot to do with patient satisfaction scores that were substantially lower than optimal at many, if not most, of Novant's hospitals.
When a hospital is caught in the middle of a fight between a multi-state for-profit hospital chain and state leaders, the result is chronic, long-term uncertainty. That's no way to run a business.
Tenet's long-running attempt to buy five hospitals in Connecticut was a struggle between behemoths. Born from a smaller-scale deal between Vanguard Health Systems, which was acquired by Tenet Healthcare in the middle of negotiations with the state, the deal would have expanded the population of for-profit hospitals in Connecticut from one to six of the state's 29 total hospitals.
Kurt Barwis
That caused problems. Lots of problems.
At times, it seemed the deal would go through imminently. But another regulator, another issue, would inevitably pop up, complicating things. Ultimately, after governors, attorneys general, a state healthcare commission and the legislature all had their say, it wasn't meant to be.
Final restrictions placed on Tenet over staffing, service, and pricing at the five hospitals prompted it to withdraw its application to buy the hospitals. Two years of work between state leaders and the national for-profit chain, not to mention expense and chronic uncertainty for the hospital went up in smoke.
Tenet's final decision to walk away came only shortly after the state's Office of Healthcare Access made it known that changes in staffing, services, and pricing would be prohibited for five years following the acquisition of the hospitals by a proposed partnership between Tenet and Yale New Haven Hospital. That proved a bridge too far.
The deal lived through two legislative sessions, many different proposals and players, and at least two resuscitations before ultimately dying over the latest demands from the state.
There's blame to go around on both sides, but very little rancor, at least from official channels, even though the future of financially troubled Waterbury Hospital, also part of the deal, is now in serious question.
Other hospitals that were involved, including 154-bed Bristol Hospital, are in much more stable situations financially, but still suffered as a result of the failed deal. "Part of the reason we're in this situation is that we need to get some economies and other resources," says Bristol Hospital President and CEO Kurt Barwis, whose hospital was one of the proposed acquisitions by Tenet. "I get that communities have opinions and feelings, but they all came together and were heard and we thought there was an agreement."
Barwis recounts how one year into the process, when Tenet was first on the verge of abandoning the deal, Governor Dannel Malloy (D) encouraged the company to see it through, and insisted that differences could be bridged.
Tenet did return to negotiations only to hear about the strict terms of acquisition insisted upon by the state Office of Healthcare Access. Ten days later, Tenet issued this media release. This time, it looks like there will be no reprieve. That's just fine for Barwis, who supported the deal that would roll up his hospital and four others from the outset. But despite that support, and more importantly, after two years plus of uncertainty, he is relieved that finally, there is resolution.
Although he regrets nothing about his organization's part in the process, ultimately, its outcome robbed the hospital and its leadership team of critical time to reposition the hospital for a very different, value-based future. It will take years to recover, he says.
Barwis and his board started that process with the Tenet deal three years ago, in the middle of a financial downturn, amid problems with the state budget in which there were more recipients for Medicaid while resources were being pulled away, he says.
"So my board went out and found a way," he says.
But as the process dragged on, a couple of things changed.
"One, our financial situation improved so much, that the first time Tenet pulled out a year ago, we went out and were able to secure refinancing of our debt and borrow for our strategic plan. And at the same time, we had signed a network relationship with Yale New Haven and service lines were developing very well," he says.
Tallying the Costs of Uncertainty When the process of reeling Tenet back into negotiations restarted, however, it was tough for Bristol Hospital to "get on with our life," as Barwis puts it.
"We wanted to get back to building our emerging clinically integrated network," he says. But you can't do that as long as the lenders of capital think they're going to get knocked out when Tenet comes back. "So you start to reflect on all you can't do, and the list starts to grow longer and longer in your mind," says Barwis. "I'm in nowhereland and I can't execute."
Not only that, but employees are caught up in the uncertainty, too. Barwis says local media always asked him how much was spent on legal fees and consulting surrounding Tenet's proposed acquisition, but he says that's absolutely dwarfed by the problems the long-term uncertainty created.
"I'm a finance guy by training and people ask me all the time how much we spent on legal and consulting fees, which is easy to quantify. But the other thing people don't quantify is the need to close the transaction," he says.
There was, for instance, a defined benefit pension plan that had to be frozen. To reduce risk as the transaction moved toward completion, the manager had to move from a long position to very short position aimed at removing risk of not having the cash needed at closing of the transaction. As a result, that fund missed a huge run in equities.
"We missed a whole bunch of upside in the defined benefit pension plan, which has nothing to do with what we've spent on the deal, but everything to do with our viability going forward," he says.
Bristol has also always had great corporate partners in philanthropy, says Barwis. When it became likely the hospital would be bought by a for-profit, they changed their giving.
"The moment we say we're going for profit, that money gets reallocated to someone else," he says. "Now this deal's not going to happen, so how do I get that back? It will literally take years."
And the uncertainty and opportunity cost also rears its head in the little things no one thinks of, says Barwis. Last summer, during one of his regular lunches with rank and file employees, two maintenance workers mentioned that they wanted to borrow from their pension plan for college tuition in one case and to purchase a home in the other.
Barwis had to strongly advise against borrowing because any loans would become due on a change in ownership, and workers would also be subject to a 10% tax penalty.
Despite the reluctance of investors to refinance the hospital's debt, Bristol was able to finally refinance on favorable terms once it became clear the Tenet deal was verifiably, "nail-in-the-coffin dead," says Barwis.
Lenders should have been happy to step up. Bristol finished 2014 with 8.5% revenue growth.
"At least for us, we had something to fall back on," he says. "I've talked to the other CEOs, and some of them are in great shape, but others have laid off people," he says.
"It's really unfortunate for those that are struggling right now. You had to get your medical staff convinced, prepare them, and part of that journey is you try to give them a clear indication of why that [Tenet-owned] future is better, and then you're stuck with saying now we have to make some hard decisions. Two of those hospitals will have to figure out the future without a capital infusion."
It might not seem so, but in fact, they are. Many of the advantages of a merger are now available through strategic partnerships, while disadvantages seem minimal by comparison.
Traditional mergers and acquisitions have been effective tools for cost reduction, taking aim at reducing duplication, achieving economies of scale, and (notwithstanding denials by those involved in such deals) a tool to achieve better negotiating strength. Despite the difficulty of merging cultures, overcoming regulatory or legislative hurdles, or the time and effort needed to complete the transaction, M&A can still be highly effective.
In the newly released HealthLeaders Media Intelligence Report, "The M&A and Partnership Mega-Trend," 44% of respondents said their most recent deal was either a merger (10%) or an acquisition (34%). Close behind, however, was the 38% who said they pursued "a contractual relationship, but not M&A."
Mergers and acquisitions are no longer seen as a tool to solve all scale or market share issues. In fact, when one refers to healthcare consolidation, traditional M&A is no longer necessary.
Matthew Heywood, the president and CEO of Aspirus Inc., parent of Aspirus Wausau (WI) Hospital and Aspirus Network, helps illuminate the distinction.
"The old-school mindset is that if I have huge market share and I'm the only hospital in the community, we can control our price," he says. "But that's changed. The market wants to know they can go to one place and get their [continuum of] services."
For Aspirus, that meant an alliance with several other organizations, effectively covering the entire state, in a partnership he likes to call a "super-ACO."
For him, providing one-stop shopping for healthcare purchasers is the ideal, and whether you achieve that end with a full merger or something else contractual is immaterial. In fact, it could be effectively argued that mergers take so long and involve so much integration that the partnership model in most cases is a preferable first step, even if later a merger or acquisition is on the table.
The "super-ACO," called AboutHealth, includes seven independent health systems: Bellin Health in Green Bay, ThedaCare in Appleton, Gundersen Health System in La Crosse, UW Health in Madison, Aurora Health in Milwaukee, ProHealth in Waukesha, and Aspirus in Wausau.
"The question is how to get tied into a network so you're part of that one-stop shopping," Heywood says. "If you're a major employer … you don't have to go to us individually, you've got the state covered in one contract."
Another recent report on M&A activity in healthcare singles out the hospital sector for the largest drop in merger activity between 2013 and 2014.
"The largest drops in deal volume from the YTD 2013 to the YTD 2014 periods were experienced in the Hospital (-58%), Behavioral Care (-43%), and Home Health (-13%) sectors," says PricewaterhouseCoopers' "Q3 2014 US Health Services Deals Insights" report, released in November.
"Looking more deeply into the continued decline in the hospital sector's deal volume, we note one primary driver of this trend as the surge in non-traditional M&A structures that are excluded from our analysis," PwC's report says. "These structures include alliance based transactions such as joint ventures and other forms of market based partnering."
So despite the drop in M&A activity, consolidation continues to progress rapidly in healthcare services. But by forging creative partnerships instead of merging assets, hospitals and health systems are harvesting consolidation opportunities without the expense and uncertain progress of a traditional merger or acquisition. Many who are trying these new partnerships see them as a way to achieve most of the positives of a merger with few of the negatives.
The PwC report does conclude that as these nontraditional deal structures mature, "we do see them as precursors to ultimate M&A deals in the future after the parties align interests and become more familiar with each other."
Maybe. I'm not so sure. Why couldn't these partnerships become more or less permanent structures?
I could see such partnerships as a potentially more permanent state of affairs in an environment where mergers can be blocked by legislative or regulatory hurdles—which is what recently happened with Tenet's foray into Connecticut—and lengthened by complex business arrangements. They're further risky because the Federal Trade Commission, despite the seeming encouragement of M&A in the Patient Protection and Affordable Care Act, is taking a jaundiced eye at full mergers in its efforts to ensure competition isn't infringed in any given market.
It's not unusual anymore to have to unwind already-completed mergers, as just happened with St. Luke's Health System's deal with Saltzer Medical Group in Nampa, Idaho. On the other hand, partnerships, even partnerships where all is merged other than assets, seem to be viewed by a very different and more permissive prism.
Maybe it's because they're so new, and each one so different. In either case, partnerships are proving to be a quicker and perhaps more substantive way to find a resolution to often vexing financial and operational challenges.
A cautionary note for leaders, however. The integration work needed to make a merger or acquisition work is widely recognized. But that effort is no less important with a nontraditional alliance. With an affiliation or operating agreement, it's clear that hard work outside the financial realm will be necessary to make the partnership work.