Healthcare leaders need to determine what to build, what to own, when to partner, and above all, how to innovate.
This article first appeared in the January/February 2015 issue of HealthLeaders magazine.
What Color is Your Parachute? Most healthcare executives are familiar with the best-selling career advice book and its various updates and spinoffs that have been helping folks since 1970. The level of introspection called for in the book is similar to the introspection healthcare organizations must conduct to find their place in a healthcare service world that's rapidly changing.
So, what will your organization become as healthcare reform and financial realities make the care continuum and care coordination top strategic priorities? Many top hospital and health system leaders believe that being reimbursed based on value is inexorably marching forward, but the rate and even the scale of the change is extremely market-specific, thus putting ever-greater pressure on leaders to determine a proper course for the future. Some mixture of innovation, caution, flexibility, and market share will separate the winners from the losers.
Beyond announcing that they are in formal discussions, neither organization is talking. But history and circumstance yield five reasons why now may be an ideal time to partner.
''Here's what we do know: negotiations will be ongoing for the next 45 days or so to "create a new, unified system." But whether that means the two organizations would actually merge is to be determined.
I'm betting it won't be a merger. Notice the absence of the words "merge," "merger," or "acquisition" in the release.
Unfortunately, for those of us tasked with making sense of it all, there isn't much to go by. Fortunately, I have spoken with the leaders of both organizations within the past year or so, though not on this topic, so I can offer a little insight as to why a strategic alliance, or even a full merger, would make sense.
For starters, 'WellStar already has a strong collaborative agreement, and a joint health plan, with Piedmont Healthcare, another large local system, so that could be a model. It can be exceedingly difficult to merge two cultures.
Doing so may not be necessary to achieve the economies of scale and skill that a lighter partnership might entail. So why spend the extra time, money, and risk necessary to create a merger when any number of "merger-lite" options are available?
But Emory Healthcare has already tried a joint venture with another healthcare company, for-profit HCA Healthcare. And after 12 years, that partnership was dissolved in 2010.
The case for a full merger can be made in part, based on the fact that academic medical centers are increasingly being split off from university control to stand on their own. Emory University has not done that, and in a recent interview with John Fox, the outgoing president and CEO of Emory Healthcare, he was circumspect when I asked him about managing in that environment of university oversight.
He did indicate he was excited to be joining Beaumont Health as its CEO and that although it has a strong academic component, it does not have a university to answer to. Further, Beaumont has recently completed a full merger with two other organizations.
Whether that augurs a full merger with Emory health system and a competitor is anyone's guess—and probably has little to do with how the ongoing discussions play out.
Let's go through some of the likely talking points between Emory Healthcare and WellStar:
1.Fox is Moving On Fox has been with Emory Healthcare for 14 years—12 as its top leader. Now that he's announced he is moving on it could mean that Emory was put in play in response to his decision—or prior to that point.
Fox's first day at his new post will be around the end of March, close to the expiration of the 45-day window of further negotiations announced by both organizations this week. Emory has not named a successor for him, nor has it announced a search beyond saying that the executive leadership team will report to Wright Caughman, MD, the CEO of Emory's Woodruff Health Sciences Center, and Michael Mandl, chairman of Emory Healthcare's board, until a successor has been named.
2. Negotiating Posture with a Dominant Commercial Insurer
Anthem's Blue Cross Blue Shield of Georgia has the dominant share of the commercial insurance market in the state. Other states have more dominant insurers, but this health plan, as of 2012, controlled 50% of the large group commercial market in Georgia and 32% of the small group market. Its closest competitor controls 19% and 23% of those markets, respectively.
WellStar's collaboration with another big Atlanta competitor, Piedmont Healthcare, through its Piedmont WellStar Health Plans, could make serious inroads not only in negotiations, but in competitiveness, by adding Emory Healthcare into its orbit.
There are also ample opportunities for clinical collaboration through such a vehicle, and those wouldn't require a merger. If a full merger isn't ultimately the plan, we could still see Emory split off from university control in an independent transaction, as many 'other AMCs have done recently. (See reason 5.)
3. Adding an AMC to the ACO structure
WellStar, as previously mentioned, has a recent history of partnership with its competitors, rather than acquisition. Besides the fact that a full acquisition would be considerably more of a hill to climb than another type of collaborative arrangement, WellStar President and CEO Reynold Jennings said in a previous release announcing another clinical partnership with Piedmont that "we believe that the future of healthcare in America is through organizations working together and partnering and not through owning and controlling."
That leaves little room for wiggling unless the calculus has changed markedly since 2012. He said essentially the same thing to me back in 2013, when I was primarily discussing with him how the partnership has helped WellStar focus on reducing all-cause readmissions.
So a full merger may not be in the cards with Emory, even if that is the preference of Emory University (which again, we don't know).
4.Coordination of Care and Standardization of Practice
Jennings has expressed to me the difficulty of changing practice patterns and care utilization while at the whims of divide-and-conquer historical negotiations with health plans. One way to collaborate with competitors is through the health plan.
That leads to standardization of practice under their own terms to some degree, and provides somewhat of a bulwark against the diktats of other plans. But that type of entity needs scale, and Emory can provide it.
5.AMCs' Move Away from University Control
I've said a lot about this previously, but there are many reasons academic medical centers are under more financial pressure to remake their business models than just about any other slice of the hospital sector.
Not only is the inpatient line of business no longer a growth area, but thanks to the Patient Protection and Affordable Care Act, many of the subsidies that supported the educational mission of such organizations are ratcheting down significantly.
Disproportionate share funding is also being reduced. This is a particularly acute problem in states like Georgia, where the state government has chosen not to expand Medicaid. Sequestration is a major problem. Universities in many cases, have decided that they don't want the uncertainty.
Regardless of how this story turns out, it will be interesting and will likely be something others will try to emulate. Vertical integration is the way of the future in healthcare.
Wellstar and its current partners are building that. Whether it will ultimately make a difference in cost and quality of healthcare is complicated by so many factors as to be un-knowable.
But for hospitals and health systems trying to remake the business model into one which can thrive under value-based reimbursement, the consolidation trend—whether in actual mergers or tight partnerships—is their friend.
Knowing how much it costs you to provide a healthcare service is critically important to your hospital or health system's future. Without it, you're flying blind.
Transparency can mean different things to different segments of the healthcare industry. For the patient or consumer, it can mean being able to figure out how much they're on the hook for with healthcare services before they receive them, to act as a tool to determine value. It can mean the ability to review standardized quality information across providers to help make a determination on the site of care as well. There have been big strides made in these areas, but we're not there yet, as an industry.
For physicians, it can mean access to quality scores and methodology about themselves and their referral partners. Payers and providers struggle with transparency in what has previously been deemed "proprietary information," such as claims data, and common definitions for quality and cost. We're not there yet either.
But one area that's ripe for exploitation by healthcare providers, whether they're hospitals, affiliated providers or physician practices, is their own cost data. This is not the price for a service that a health entity charges a patient or negotiates with a payer or employer, but rather, what it costs the healthcare entity to provide a given service in terms of labor, infrastructure, materials and equipment.
Likely, you're not too sure about those numbers either. But you can be. And you should be.
That type of granular cost data can provides an area where an organization can have some control and a central touchstone about its ability to compete with others, says Rita Numerof, PhD, president of Numerof & Associates Inc., a consulting firm in St. Louis that focuses on helping healthcare systems deliver better value.
"The idea that most consumers have been shielded by the cost of healthcare is true, but a more fundamental issue is that healthcare leaders and physicians and other payers have also been shielded," she says.
It's Not So Easy For just about every other service that a consumer buys, transparency is an easy concept to grasp. You know what you're buying, the implied guarantee that's offered when you buy, and the mode of recourse if you're not satisfied. That's difficult to come by in healthcare, where even providers have a tough time understanding what it costs to provide a given service or a bundle of services associated with a condition or diagnosis.
"We are so far from a true market-based model in healthcare delivery that it should be concerning to most healthcare leaders," Numerof says. "Because most of the money flow in healthcare has been at a gross up level, often they can't even see their cost structure from a service line perspective."
While a standardized definition of quality is still elusive, and may stay that way, price (and cost) can become a way to distinguish your organization. And you don't know how low you can go with pricing without knowing what it costs to provide a certain service over a wide variety of payer mixes. Cost can become your lodestar. If you don't know this information, you don't know where you're vulnerable.
More sophisticated organizations are looking at activity-based costing, or what it costs to deliver a certain set of services, in order to get greater insight into the cost of the activity itself, not the labor required to provide it. If providers are gradually moved into a more capitated system, as Numerof predicts, "they [will] need to understand those costs in a more horizontal way."
What's included in activity-based costing are your raw costs of goods, materials, some formula for overhead and indirect costs and the assignment of direct costs which includes the amount of time to deliver that cost and who's delivering it, she adds.
The way you do it, who's doing it, and your expectations on overhead all factor into what it costs to deliver that service. Even if it's approximated, you'll be a lot smarter about what it really costs to provide certain services.
A Lack of Will But this is new ground. Over the last several decades, says Numerof, most systems have focused on their biggest cost—staffing—as opposed to looking and rethinking care delivery processes, which is the essence of activity-based costing in healthcare.
It's not a problem of lacking talent or skill to do these things, she says, but a lack of will.
"They haven't had the market need to do it," she says. "If you think about it, the systems that have been put in place have been about getting paid and adjudicating claims at the CPT code level. You've got a whole sub-industry segment that has been born out of the desire to optimize coding. This is the way it's operated for the last 12–15 years."
Do they have to now? That is the crux of the argument, after all.
"Depending on the market, some are moving faster than others," says Numerof. "Competition will force the issue, and large employers and entrepreneurs are also forcing the issue. Together those things will make it such that you'll see more and more moving in this direction over several years."
Too, even if capitation is not in the cards for your organization, risk-based contracting certainly will be, and delivering and demonstrating value transparently will be a key part of that. Without knowing what it costs to provide a wide variety of services, you'll be flying blind.
Stung by heavy losses and health plan divestitures in the late 1990s, owning a health plan is back in the strategic good graces of health system leaders. This time it's different.
Once, at open enrollment, I was given wide choice among health plan companies. Unlike today's plan choices, which almost always come from a single insurer, 20 or so years ago, I got to pick the company I wanted to provide my health insurance coverage. This would be unrecognizable to most of today's employees.
It was so long ago that most people have probably forgotten that health plans owned by big hospital systems were once ubiquitous. I could choose, if I remember correctly, between a Blue Cross Blue Shield plan, Health 123 (Vanderbilt) or Health Net (Baptist Hospital and affiliates). Only one of the three still exists. Guess which one?
It was a market share grab that largely ended badly for small players—and local health plans were definitely small players. Once it became clear they were causing huge losses, provider-owned health plans were often divested as quickly as possible.
They were closed or sold for a pittance of the costs that had been sunk into them. "Never again," I heard many an executive profess. But more recently, and sometimes lost amid the consolidation binge we're seeing for healthcare services—many organizations are firing up their health plan offerings again, this time through the exchanges as well as through their accountable care organizations.
Has the industry forgotten the lessons of the past, or are different forces at work this time around that will make this sort of strategic investment pay off?
This Time It's Different Bill Eggbeer, who leads the payer-provider innovation practice at Miami- FL-based BDC Advisors, and who has worked with such clients as Duke Health and Johns Hopkins Medicine as well as CHE Trinity Health, tells me it's different this time, and that whether or not hospitals or health systems choose to enter the health plan space, they must learn to think like health plans.
And if they're going to operate like the premium dollar is the engine that ultimately drives profits while services become the cost center, they might as well own one or even several health plan options. Or so the new thinking goes.
We have been down this road before, Eggbeer says, when I mentioned the way I once experienced open enrollment.
"It was prompted by a similar sense that cost was out of control," he says. "[Health plan ownership] was an approach that has in some notable cases, like Kaiser, proven to be very effective at delivering high quality care at a reasonable or controlled level of cost. But in many cases, it led to near disasters in provider systems. Interestingly, for those that stuck with it and have figured out how to do it, they are by and large very happy now."
He mentions several examples of so-called "provider health plans," that flourished: Sentara in Northern Virginia, Providence in the Pacific Northwest, Intermountain Healthcare in Utah, and Presbyterian in Albuquerque. Was it that these particular institutions, plus a few more, enjoy special advantages?
Not really. They just were quicker to understand the cost equation in healthcare and to get a handle on it, says Eggbeer.
A Deadly Lack of Data Many of the plans that failed didn't have the information systems, or sometimes, the data that would enable provider systems to make decisions about best practices or to uncover areas of overutilization and inefficiency.
By contrast, legacy health plans "had this embedded in their business," says Eggbeer. "It got out of control."
He remembers one health system he once worked with that went more than a year without data about the cost of the pharmaceutical component of its health plan.
"When they finally got a handle on it, they were in deep trouble," he says.
A second major issue was the huge consumer backlash to restriction of access and restriction of networks.
"Hopefully we're smarter about that this time," says Eggbeer. "Though it's not entirely clear to me that we will be, generally some consumers are willing to make choices to control their cost exposure better."
Balancing Network Restrictions The key difference may be that at least some consumers are making the choice to limit their own networks in return for premium savings. How that gets administered on the health plan side and who the providers and networks are is critical, however, as is the need to balance network restrictions. There's already pushback in California about narrow networks being too restrictive.
There are some tailwinds for those that wish to go down the health plan route, through various means.
One factor is the development and expansion of the individual market, that is, people who don't have health coverage from their employer who are seeking coverage through the Obamacare exchanges.
"I was talking to a health plan exec recently and he was saying they were still having a hard time selling narrow network products to large group customers because HR departments were still reluctant to impose restrictions on choice," says Eggbeer.
"But he said their individual narrow networks are selling like hotcakes. So just [the fact that] the consumer has some choice as opposed to it being imposed makes a big difference."
Indeed the government itself, healthcare's dominant payer, is playing a more active role in trying to cut costs. The Patient Protection and Affordable Care Act and Medicare Shared Savings, says Eggbeer, are really "health plan-very lite, where you've got a defined population, and some accountability for cost and quality, but not full accountability."
Many experts think Medicare Shared Savings will evolve over time into a more fully accountable plan design. Indeed, the much ballyhooed CMS announcement this week about Medicare payment reform shows movement in that direction. A follow-on announcement by several health organizations—most of whom have both a provider and payer arm—adds to the urgency.
Medicare also administers the Medicare Advantage program, which is a full-risk health plan model and has achieved much higher levels of penetration than its predecessors in the 1990s.
Finally, we're much further out on the cost limb than we were back in the late '90s, Eggbeer says.
Employers More Active Exacerbated by the recession, during which employers experienced costs in every other sector of their structure as flat or declining, healthcare costs continued to rise at roughly the same clip.
"That was impacting their competitiveness," Eggbeer says.
Where they had been passive funders of healthcare coverage in the past, employers have been getting more active in healthcare cost management through their health plans. They're using different models, whether they be based on centers of excellence, bundled payments, partnerships with local provider systems, or a combination of all three.
Eggbeer says health systems that may find success in health plans this time around will have invested significantly in making their physician networks high performing, which means effectively engaging physicians in governance, leadership, and refining clinical processes. They also need to invest in the IT capability that will allow shared data and education for those physicians across the group.
"The health systems that are just kind of acquiring or contracting with docs in loosely affiliated networks or federations of unaligned practices are not going to get enough traction," he says. "If you look at organizations that have made successful bets with health plans, they also have successful endeavors in physician network development. They go hand in hand."
The health plan business and provider business are fundamentally different. Their accounting is different, their cost structures are different, and the way the product is sold is different. Figuring out how to do that under one roof is challenging.
"You want to integrate the two, because what you're trying to do is create a seamless offering for the consumer. But if you don't understand the differences in the two and don't have the expertise and decision-making processes, you have problems," says Eggbeer.
Think Like a Health Plan And that brings us to thinking like a health plan. If a health plan is part of your business model, it may help conceptually to think of all revenue as coming through the health plan, Eggbeer says. Most of that revenue will be used to support the cost of delivering the services. What's left over is margin, if there is any.
The simplicity of the business design may belie the difficulty of execution. Whether a standalone hospital or system ultimately adds payer capability of some sort to the mix, the trend is poised to affect, in some cases drastically, how business is done in healthcare.
An initial partnership with a relatively small Indiana hospital begat Walgreens' WellTransitions program, which has shown a 46% reduction in unplanned hospital readmissions for the patients who use it.
Seven years ago, Marion General Hospital, which is actually a health system with multiple locations in two counties in Marion, Indiana, had no idea of the eventual implications of its decision to sell its pharmacy to Walgreen's in 2007.
For the record, neither did the retail chain with more than 8,200 stores.
Nevertheless, that move was the catalyst for a major reduction in preventable readmissions for the health system, and ultimately, a new line of business for the national drugstore chain.
The pharmacy, located across the street from Marion General's main hospital in the system's ambulatory surgery building, was the birthplace for what eventually became WellTransitions, a contractual relationship by which Walgreen's works directly with hospital staff on medication reconciliation, education, take-home prescription fulfillment, and follow-up for patients about to be discharged.
An April 2014 study, in which the chain researched 744 matched pairs of WellTransitions patients and non-patients retrospectively to evaluate the effectiveness of the program, found that program patients were 46% less likely to experience an unplanned hospital readmission within 30 days than the control group. But that came much later.
In 2010, the head pharmacist at the location, Steve Kroh, who had previously been a Marion General employee, came to discuss the beginnings of what would become WellTransitions with Marion General's leadership team, including Bernadine Wallace, MSN, RN, who is the health system's chief nursing and operating officer.
"One of our largest challenges at the time was medication reconciliation," says Wallace.
'Sounded Like a Dream Come True'
Kroh brought an idea to the meeting. Walgreen's wanted to pilot a new program in which its pharmacists would do bedside delivery of medications, reconciliation with those meds and the patient's current regimen, and provide advice and follow up for such patients post discharge.
That would include follow-up phone calls with the patient or their caregiver on day 2, day 10 and day 30 post-discharge, as well as a central contact for questions that pop up in between those follow up calls. Patients must choose to be in the WellTransitions program.
"It sounded like a dream come true for us," Wallace says. "We had been working with them on a bedside delivery program within ambulatory surgery. We decided to expand that program to all our patients in the hospital, which is terrific, because if you get them their meds before they leave the hospital, they're more compliant."
The opportunity to make a positive difference in readmission rates was a key motivator in deciding to be, in effect, an alpha test site for the WellTransitions program, says Wallace.
At the time, readmission penalties from the Centers for Medicare and Medicaid Services hadn't been fully implemented yet, and no hospitals had been fined for exceeding readmission limits. But word was out that it would be happening soon, and that up to 3% of a hospital or health system's Medicare reimbursement would eventually be at risk through readmission penalties.
Marion General's leadership team knew this was destined to become a big problem if left unaddressed. Indeed, some 2,610 hospitals nationwide incurred readmission penalties by late 2014.
"Although our rates were better than a lot of the national numbers, we knew there was room for improvement, in high-risk areas especially," Wallace says. "Another area was in improving HCAHPS scores. At one time we were in the top 10% but we had seen a decrease in those scores."
Even though there were many possible advantages, not the least of which would be taking some responsibility from the nursing staff for this type of work, the effectiveness of the program didn't become clear immediately.
"We've had a lot of growing pains in that it took a while to see outcomes, but it has been wonderful," says Wallace. Challenges included getting the right information to work with the hospital's IT system and convincing the nursing staff that Walgreens' involvement with discharge did not mean more responsibility for nurses.
"We weren't giving up on it, but took a while to reap the benefits from it," she says. Once-monthly meetings over issues in the program have moved to quarterly maintenance, and the hospital did not have to hire additional labor to accommodate WellTransitions.
'Significant' Improvements to HCAHPS Scores
Now, in addition to follow up post-discharge calls that were already being made by the nursing staff regarding nursing issues, Walgreen's calls the patient within 72 hours, at 14 days and at 30 days post-discharge to help resolve medication issues.
Nurses let patients know to expect these calls, but that's the extent of their involvement beyond the nursing-oriented discharge calls the nursing staff does with every patient within two days of discharge.
"We do let [patients] know they'll receive another call from a pharmacist who is part of the program, and that it's for their safety," says Wallace.
She says Marion General has seen improvement in its readmission rates and a marked difference between those patients who elect the WellTransitions program and those who don't.
Marion General has also seen "significant" improvements to its HCAHPS scores of 5–6 percentage points. But she notes that the real challenge is to sustain that improvement as organizations are measured against an average of hospitals.
"The real challenge is to stay ahead of everyone else," Wallace says. She says that Marion General's success with readmissions reiterates how important it is to partner with other companies or entities that have special expertise.
"We're truly taking a team approach, where we both agreed we're in this for the long haul," she says.
The program has matured, says Harry Leider, MD, Walgreens' chief medical officer, and now 20 hospitals and health systems have partnered with the drugstore chain through the WellTransitions program.
"Many times, the discussion with the hospital boils down to 'why can't we do this?'" he says. "The difference is in the data system to track the patients and more importantly, how we follow them into the community, and their interactions with our stores."
Enabling More Profitable Admissions
Of course, many hospitals are skeptical of the full effect of the readmission penalties on the financial health of the organization. Although they would like to avoid them, reducing either readmissions or admissions can be damaging to finances, given the inherent problems with fee-for-service reimbursement.
"This is the core of one of the issues," says Leider. "For many hospital systems, the penalty for readmissions might not be enough to overcome the additional revenue from readmissions."
But if avoiding the penalties isn't enough to encourage hospitals to take control of readmissions, another way of thinking about it is that with so many hospitals at or near capacity, beds can be freed up for more "profitable" admissions, Leider says.
"In the economic analysis on this, many of the clinical conditions that drive readmissions like COPD, uncontrolled diabetes, asthma, tend not to be financially positive for the hospitals," he says. "They would do much better on neuro or surgical case, for example. So this not only can reduce Medicare penalties, but can free up beds for more profitable admissions."
John Fox comes from Emory to lead the merger of three Detroit organizations. Having no previous history with any of them, he is seen as a visionary who can meld the cultures into a cohesive whole.
What could prompt a CEO to leave a 15-year career as head of a globally significant health system
At which his latest plaudit came from helping other more overwhelmed organizations treat Ebola patients effectively and safely?
At which his two largest hospitals were named number 2 and number 3 in the University HealthSystem Consortium Quality and Accountability Study?
Which is the largest and most comprehensive academic health system in the state with $2.7 billion in annual revenue?
A challenge, that's what.
John Fox
And a challenge it will be in late March when John Fox takes the lead at Beaumont Health, a recently created entity with $3.8 billion in annual revenue that merges the former Beaumont Health System, Oakwood Health System, and Botsford Health Care in the metro Detroit geographical area.
The merger became final in September only after Beaumont scrapped a planned merger with Henry Ford Health System the year prior that would have created a $6.6 billion health system, one of the largest in the state. The different cultures at the two organizations were seen as reasons that merger was ultimately scuttled.
Fox will face cultural integration issues anyway as he attempts to bring together 33,000 employees, 5,000 physicians, and eight hospitals under one cohesive umbrella.
As a new leader with no previous history with any of the merged entities, Fox is seen as a visionary who can meld the cultures of three very different organizations into a cohesive whole. His predecessor, Gene Michalski, who began a 44-year healthcare career in the lab at Beaumont Hospital, Royal Oak, will retire.
I got the chance to speak with Fox during a 40-minute interview last week, in which we talked about his hopes and the challenges ahead. The following interview has been edited for clarity and brevity.
HLM: To some it may seem as though you were at the pinnacle of healthcare leadership at Emory. Why did you decide to leave?
Fox: I've been here for almost 16 years. There have been a lot of challenges, but overall we've been successful. Beaumont was a special opportunity that appeared. As they contacted me and as I investigated more, it looked more and more attractive as something to take on now, given their position.
I also thought it would be interesting to work again outside the umbrella of a university. Beaumont is an independent healthcare system, and some academic medical centers are owned by a university. There's nothing wrong with that, but it increases the complexity.
HLM: It could be construed as odd that a community health system like Beaumont would turn to someone who has run an academic medical center for 15 years to lead it into a future where it intends to compete on lower costs and higher value. Do you have a sense of why the board decided you were the one?
Fox: My emphasis to [Beaumont's board] was how the environment is changing and my thoughts as to what any healthcare system needs to do to respond to it, university owned or not. Interestingly, Beaumont has more residents and fellows than Emory Healthcare, with a big teaching history, which I like.
The board also wanted someone with experience melding cultures. My experience has been with several mergers both in Indy [as executive vice president at Clarian Health, now IU Health] and Atlanta. The founding systems of Beaumont are great, but the reality is I don't have any history with any of them. The board thought that might be useful in putting together what is essentially a new organization.
HLM: Although I know you weren't involved, certainly you viewed the recent merger with interest. What is most important about what it allows Beaumont to do, other than gain scale and grow its network into a must-have for payers?
Fox: The merger sets up the ability to build a value-driven system that really can perform well. There's a ton of work to do, but they're in a great position to do that going forward and they made the unequivocal commitment to be a single system, not a confederation, and that's critical.
I think that brings clarity to everyone that we'll go forward together and we'll need to figure out the best way to do that based on what will help our performance and patients and families the most. The goal will be best care at an affordable cost, which is not the way the world used to be. To use a Southern expression, that world is gone with the wind.
HLM: What will make Beaumont stand out in that environment?
Fox: They've got a great asset base, most importantly of people, but also facilities. Their commitment, which starts with governance, is clear and laser-focused on improving the value of healthcare services by delivering high quality, well-coordinated patient care at the right time in the right setting at an affordable cost.
All that is critical and they have certain system advantages that will be useful. One example is that by the end of 2015 they'll all be on a common electronic medical records system. They've got great geographic coverage to serve the metro area. They also have a good distribution of assets and a great set of core competencies from each of the founding systems. They're all bringing something to the table that when you add it up, it's powerful synergy.
HLM: The cynic might say that yes, the stated goal is to create a lower cost and higher quality organization, but an unstated goal for many hospital mergers is to maintain leverage over payers. Is that at least part of the math here?
Fox: That discussion is out there [about near-monopolies] and can easily be flipped for the health plan side. What I mean is that if you don't like the price, it's an argument you can always grab. My view is the right thing for an organization to do is to make sure it's affordable for the community it serves.
I'll pick a Beaumont situation as an example. Part of my attraction is that they were thoughtful and disciplined on where they would garner savings that would be translated into value for those they serve. There are obvious savings if they can get everyone on one EMR. And you just have to have the discipline to do that.
The merger issue is complicated, but there's no industry in America that hasn't felt the market pressure to use scale to get more economies or synergies out. And there's price risk around that. You've seen it with airlines, in manufacturing, and in banking, and just look at the payer community.
For some health systems—not Emory, and not Beaumont—that particular health plan near-monopoly forces them to go into the health plan business. That has occurred in both Michigan and Atlanta. That monopoly situation convinces those health systems to say, 'the only way we'll get a fair competitive playing field is if we create it.'
HLM: As a new CEO, what do you think your biggest challenge will be?
Fox: The biggest challenge will be respecting and making sure everyone respects what the founding organizations bring to the table, but also being very clear that we're becoming one new single organization, and that's what we're all committed to.
It's a simple message. By doing that we are working for the patients in helping make their care convenient, higher quality, and affordable. We have a moral obligation to walk down that path and we can't stay rooted to silos.
This will be a fair amount of work and dealing with it will be part of my learning process. One of the biggest things I'll need to do is listen to what people are saying to determine the best way to effect successful change.
With a myriad of opportunities to change the business model at hospitals and health systems, CEOs must choose a path, but more importantly, they must motivate others in the organization to carry it out.
It's tough to get 40 CEOs in a room to agree on anything, but if there's one thing on which they have consensus, it's that translating strategy into execution at their organization is among their greatest challenges. No wonder. If even the leadership doesn't completely understand how healthcare reform will affect their business specifically and over what time period—and don't let anyone kid you, no one does fully understand—it's difficult to chart a course.
But it's not impossible.
Executing on strategy is something CEOs must do. They have to be soothsayers of sorts, divining the future of their organization and critically, developing a road map to get there, with landmarks of achievement and success that will be evident along the journey, lest anyone lose faith. And ultimately, that's what will get you there: your employees' faith in the vision.
"Because of all this turmoil—all this constant change—if you can give them focus as to what their priorities should be and you continually follow through with that, that really helps," says Charles Hart, president and CEO of Regional Health in Rapid City, SD.
What I learned from that discussion at our most recent invitation-only CEO Exchange back in September is that not even top leaders are brash enough to think they have the answers. Yet they have to present a confident vision of the future, that if x, y and z are accomplished, the organization will thrive now and into the future. Talk about putting yourself out there.
You've probably heard the expression, "culture eats strategy for lunch." I hear it all the time and get awful tired of hearing it. But the reason people say it is because it efficiently describes a truth. While it's hard to make a universal declaration on a transformative environment that varies so widely geographically, what's exciting about much of today's work in cutting costs, rewarding quality, and reducing overutilization is that these tasks dovetail nicely with the reason most people got into healthcare to begin with.
That mission allows leaders extra goodwill to build a collaborative culture, a culture that's focused on those goals. That's not a small thing, because it's rarely been the case that patient, employer, payer, and provider interests have aligned at all. There are many strategic paths that will help an organization's top leader reach the board's goals, but only one way to get them executed: people at the front lines who believe in that strategy.
"You have to convey a sense of confidence to the people all around you. At the same time you are dealing with several complicated circumstances for which there are no immediate answers," says Paul Macek, vice president of affiliations and partnerships at UnityPoint Health Methodist/Proctor in Peoria, IL. "What helped me was that as long as I was clear on the vision we were attempting to achieve, I could navigate through all of the ambiguity and uncertainty."
I was lucky enough to be the moderator for three sessions at the CEO Exchange, where I got to hear how 40 healthcare CEOs are trying to solve the issue of execution. As agents of change, today's CEOs have a lot more on their plate than their predecessors—so much new—that it seems there's little time for the building of consensus and the development of shared motivation to do what's right for the patient.
To read their insights, take a moment to download my free report, "The CEO as Agent of Change," on the sessions. You'll see that even though CEOs don't have all the answers, they have an abiding faith that if they rework processes, care protocols, and incentives for quality care with a focus on value for the purchaser—whether that's a person, an employer, or even a health plan—all will turn out OK in the end. That's exciting, because it's why some of these most talented people got into healthcare in the first place.
There are huge investments to be made, in both people and infrastructure. Depending on the size of the organization and its current capabilities, leaders may be starting an accountable care organization, alone or with other hospital or health system partners, to help manage that focus on value that's coming on like a train. Maybe you've realized your organization can't do it on its own. You don't have the scale or the continuum of care that will be required to manage value. So you're merging with larger organizations or carving out creative business partnerships.
Where can you be more efficient? How can you change sites of care to better utilize your organization's talents? How can you communicate better with the rank-and-file so they know there's a plan to succeed?
Our CEOs didn't have all the answers, but they had some helpful suggestions, and their tactics on motivation should be required reading for peers. They all learned from one another. You can learn from them, too.
Creating a sense of desperation has helped Banner Health fully embrace changing its business model from volume-based to value-based. Its unofficial motto: "The quicker the better."
This article first appeared in the January/February 2015 issue of HealthLeaders magazine.
Healthcare executives are fond of using the analogy, fast becoming a cliché, that their organization has one foot in the boat and one on the dock in terms of dealing with healthcare reform. They say this because changing from one way of getting paid to another (from volume to value) requires a deft balancing act with great potential for disaster.
Thus the cliché. And it's a good one.
I have sympathy for executives who know they may be cutting their own financial throats if the reimbursement system doesn't keep up with their pace of change. They're being asked to do a 180-degree turn on their traditional business model and there's nothing, not even a sextant, to guide the way, to continue the metaphor.
But some organizations are embracing, indeed even helping to drive, the shift. If most executives want to conduct the move slowly, one inch at a time, executives at Banner Health, based in Phoenix, want to vault into the canoe from a running start, strap a motor on it, and trigger a detonator that will destroy the dock once they reach safe distance.
"Going forward, probably two-thirds of the scorecard will be based on population health management metrics."
That's one way of taking the metaphor further. Another more meaningful way of operationalizing that metaphor is through the balanced scorecard, which Banner uses to track performance in areas of finance, customer relations, operations, and clinical quality and IT infrastructure.
Incentivized for Performance
It uses these measures to incentivize and reward performance, an admirable goal, but much of it had to be retooled to work in a value-based reimbursement environment, says Becky Kuhn, president of the Arizona healthcare giant's eastern region.
"We've had a balanced scorecard for about 10 years," says Kuhn. "The whole organization is aware and incentivized for performance, but what has been interesting to see is that until three years ago, incentives were all facility-based. Going forward, probably two-thirds of the scorecard will be based on population health management metrics."
Though some facility-based measurements remain, those that include a population health bent include a focus on member growth in Banner's ACO structure, clinical performance, member satisfaction, end-of-life care and health promotion, among others.
The bottom line: "Our balanced scorecard looks dramatically different, reflecting the story of where we were as an organization to where we intend to be," she says.
To make the kind of rapid progress in switching the business model, the idea of taking baby steps toward a population health orientation is anathema. They're trying to transform as quickly as possible. Making that kind of move, however, doesn't come without constant reassessment and checking the progress of the path to change.
But every time they reassess, says Kuhn, they come to the same conclusion, making a swift transition is best, even though nearly 80% of the system's business is still on the "dock," the fee-for-service world.
This Time It's Different
That begs the question: "How much can we endure to get from here to there, because the things that we do to be there negatively impact the things that we do here?" asks Kuhn, anticipating a reporter's question. "But every time, we convince ourselves—that this is the future. That is where we need to end up. And so the faster we move toward it, the better."
And that is the question all senior leaders have to answer. Once they've come to the conclusion that value-based care is here to stay, of course. The trend seems unstoppable, but once, so did managed care, and we know where that ended up. It may be dangerous to believe, but it appears this time is different.
With the growing influence of high-deductible health plans, active participation in value-based reimbursement schemes from CMS, and a growing clamor for transparency in quality and price, many will choose based on those metrics. This doesn't just include patients, but those who buy their healthcare.
Where do you think health plans, and ultimately patients, will go? Likely they'll ultimately do the same thing they do with anything they shop for. For Banner, price and quality will eventually be the most important defining factors in determining winners and losers in healthcare reform, so they're paddling furiously.
Like the rest of us, physicians aren't generally too enthused about their whereabouts being tracked—until they see what an OR control system can do for efficiency and hospital revenues.
What if a hospital could essentially guarantee that adding technology could help provide care at lower cost while at the same time boosting volumes in resource-intensive areas such as imaging and surgery?
Sound like a win-win? Hold on. It's complicated. Technology can be a great aid to efficiency, but it often comes with a nasty side effect—loss of privacy.
Bob Bonar Jr., Dr. H.A.
CEO, Children's Hospitals and
Clinics of Minnesota
Like the rest of us who feel squeamish knowing that our cell phones can tell people where we are, physicians, generally, aren't too enthused about their whereabouts being tracked.
Until they see what a control system that employs tracking technology can do.
After moving to Dell Children's in 2007, CEO Bonar noticed something he didn't expect to see at a brand new hospital—delays—and expensive ones, particularly in the OR.
"We were plagued by constant problems in the OR in terms of efficiency and effectively utilizing our ORs," he says. "It was sort of like the airline industry: If you have one bad weather event in one city, it reverberates all over the country."
Delays in the OR can cause a cascade of other delays that contribute to inefficiency, patient and physician dissatisfaction, and a host of other less-than-optimal outcomes. "You'd get them talking about this issue and some surgeons would say, 'I was there, but the room wasn't ready,' so there was a lot of finger-pointing going on," says Bonar.
It was maddening to everyone involved, especially because it was happening in a new, state-of-the-art facility, at least on the medicine side. In terms of operational efficiency, the hospital might as well have opened in 1987 instead of 2007.
'Why Can't We Track People?' "While ORs contain multi-million dollar hi-tech equipment, most manage their workflow using very low-tech devices," says Bonar. Most hospitals still manage their patients, staff, and equipment with magnetic white boards, dry erase boards, or static screens, he says.
"When we were building the hospital, we looked at utilization of various tracking mechanisms. If we can track equipment, why can't we track people? But [the tracking tools] were all extremely expensive and they weren't fully integrated."
What Bonar needed was a way to track both equipment and personnel to get actionable information on where the bottlenecks were. He started casting around for help and found it in Tom Feo, who had developed tracking technology for the transportation industry and had been chairman of the mechanical engineering department at the University of Texas, right down the road from Dell Children's Medical Center in Austin.
"The more we talked, [the more] he was quite convinced the technology could be applicable to an OR," says Bonar.
Dell Children's was willing to serve as a testing ground for integrating the technology into healthcare. Similar problems had already been solved in logistics technology for transportation, he says, which is similar to the OR in that both must bring together numerous multiple resources together at one point in time.
By 2009, Dell Children's had installed an OR "control system" in its ORs and integrated it with the critical care units "so we were able to use the technology throughout the whole hospital," Bonar says.
There was some resistance from physicians at first because some of the surgeons didn't like the idea of administrators and schedulers knowing where they are at all times. (Physicians, and others, are tracked through RFID).
He credits them, however, with adopting the technology despite their misgivings.
Results The investment has paid off handsomely. By February 2012, with the technology fully implemented and all users fully trained, the hospital had seen:
A 20% increase in surgical cases
An $11 million annual additional contribution margin to the health system
A 35% drop in outpatient wait times
An incidental finding of about $1.2 million in unbilled anesthesia fees
Greater productivity and reduced anxiety physicians among physicians and care teams
"If there's one thing surgeons like, it's efficiency," says Bonar. Two other hospitals in the Seton Healthcare Family have since integrated the system, and two more are on the docket for 2015.
"We ended up dropping about $125,000 [to install] the system and everything else we looked at was more than twice that amount and wasn't integrated," he says. "To be fair, that was early on, but we saved about 50% as far as the cost of the system."
One "really interesting" unexpected benefit was finding the unbilled anesthesia revenue.
"We had been doing this through manual entry of charges. I remember when I was a young department director, we'd stand out back by the ER and stop [nurses] to see if they left with yellow stickers they forgot to put on the card. That was what was happening," he says. "When you automate it, you don't miss the charges. It's that simple."
Bonar says hospitals should always be looking, to the extent possible, to try to take the human factor out of managing schedules. The schedule needs to "talk" to your surgeons and anesthesiologists without having to go through a human being. Eventually, such innovations will make the hospital a place where surgeons and other senior care team members want to work.
Additional Benefits "To the extent you can improve the efficiency of your organization, you'll make yourself more competitive when you sell into networks," Bonar says. "That's particularly true of the children's hospital."
But it's also true of an adult hospital. The technology is now being used at Wesley Medical Center, a Wichita, KS-based HCA hospital licensed for 726 beds. Although the system just went live in early November, Matt Leary, the hospital's chief financial officer, is excited about the possibilities.
"This became a technology that we thought could help with improving turnaround and on-time starts and quickly realized how it could impact the whole perioperative line from the time the patient shows up," he says. "The anesthesiologists quickly began to have a lot of functionality to improve process and throughput in the OR."
Wesley has plenty of exponential opportunity to improve efficiency, says Leary, given that it operates more than 30 anesthesia locations and of those, 20 are ORs.
Like many hospitals, it struggling with getting good "optics" on when it could get the room turned around, and all the other variables, such as patient arrival, physician arrival, and anesthesia started.
"We could have really good turnarounds of 30 minutes, but sometimes it was 45–50 minutes," says Leary. "We should [have] around 25–30 minute turnarounds. We're shooting for an experience where for the doc and the patient, there's high reliability of start and end times."
He admits the technology can be perceived as pretty intrusive. "We're asking a lot of people tough questions. The great thing is we have a great relationship with anesthesia and they were alongside with us. This puts a very bright light on when and where things are happening, [in] real time."
"Right now, as the CFO, as I am able to look and see that a certain case started 15 minutes late, but the patient was here, we got them registered, it looks like the anesthesiologist did his check-off, so what happened? It really brings accountability at a high level."
Weekend barista Steve Simonin might not seem like your average high-ranking executive, but his other job is president and CEO of Iowa Specialty Hospitals and Clinics. His tireless work to take two struggling hospitals and combine them into one thriving system might be the biggest reason why the people in Clarion still have access to healthcare.
In our annual HealthLeaders 20, we profile individuals who are changing healthcare for the better. Some are longtime industry fixtures; others would clearly be considered outsiders. Some are revered; others would not win many popularity contests. They are making a difference in healthcare. This is the story of Steve Simonin.
This profile was published in the December, 2014 issue of HealthLeaders magazine.
"Because of our culture, we've never had to pay recruitment fees for physicians. They come to us, which is odd in rural Iowa where there are more pigs and chickens here than people."
Steve Simonin, president and CEO of Iowa Specialty Hospitals and Clinics in Clarion, slaves over a hot grill or espresso machine most Saturdays. It's not because he needs extra cash. He owns a small coffee shop and restaurant in the tiny town that still has a hospital thanks in part to his leadership. Appropriately for the kind of work Simonin does on Saturdays, the place is named "Grounded."
He calls it an "expensive hobby." Some hobby. But as the hospital CEO, he employs 500 people in a town of 2,800. What's a few more?
"It allows me to get out of the mold as just the CEO in town," he says. "Here, you employ most of the people and you're a neighbor to the rest, so it's kind of difficult for people to see me as anything other than the big boss."
That's the main reason that Simonin has held down this unpaid part-time position as a short-order cook for nearly three years—one where he wears a chef's hat and shorts to work instead of a suit. "I've been here 18 years and all I've done is hospital administration my whole adult life. I have a master's degree in hospital administration, so all I know is the corporate boardroom," he says.
He got a taste of a different perspective when one of his staff encouraged him to "take a walk in my shoes." That, coupled with an inability to sit still, led to opening Grounded. "Now that I do this every Saturday morning, I have a new respect for our support services," he says. "And I like to think they have more respect for me, as well."
Though Simonin himself would never characterize his leadership as having saved the town's hospital, there's a very good chance it's true. And if results equal respect, Simonin should have it. Those results—turning two struggling rural hospitals into one that's combined and thriving—represent one big reason he was named to the HealthLeaders 20 this year.
What makes the story all the more interesting is that Simonin was let go once—from this very same job.
At that time, Iowa Specialty Hospitals and Clinics (now two hospitals under the same corporate name) was just one hospital in Clarion, and it was called Wright Medical Center. Simonin managed it under a contract the board signed with a much bigger nonprofit hospital company that employed a large group of physicians who worked at Wright. Those physicians wanted to work for Simonin at Wright, and he wanted the same thing, but they were all employees of the managing health system. He hired them at Wright. The health system terminated Simonin's contract. The board at Wright terminated the management contract and hired Simonin back as the CEO.
"They called me up the day after Christmas and terminated my contract," Simonin says. "Best day of my life, but it was really just a transfer of employment."
Simonin didn't go off half-cocked by hiring the doctors. Months prior, he had decided, after leading Wright Medical for four years since 1996, that it was time to find a new job. But he was in the middle of a personal crisis, as his mother in Sioux City, Iowa, had been diagnosed with metastatic lung cancer. He spent many days and nights with her at the big hospital in town there.
"I had stayed the average amount of time for a CEO, and I figured I would wait out the year," he recalls of the idea to seek greener pastures. "But I had applied for jobs and got no attention. I started doing some life coaching, and realized with help that I really hadn't differentiated my hospital."
He had also suddenly been thrust into the role of patient advocate somewhere where he wasn't in charge. "I started seeing healthcare differently in Sioux City. I was wondering if my hospitals were loud, or dirty, or if the call button always brought someone quickly to the bedside. In my hospitals, can I go to the nurse's station? In my hospitals, do my patients lack a patient advocate? All of this started to resonate with me."
Simonin credits a consulting relationship with Quint Studer, founder of Studer Group, with focusing him on how to bring care and compassion back to the bedside.
In 2003, after Simonin hired that first group of physicians, word got out. By 2005, more specialists wanted Iowa Specialty to hire them.
One of Simonin's biggest risks since his new tenure began was taking another struggling critical access hospital into the fold. When the former Belmond Medical Center was absorbed, the two became Iowa Specialty Hospital. "I think they were getting ready to close it," Simonin recalls. "They had zero debt, but had a census of 0.8 and 50-some employees. Yet people were using it less than a Band-Aid station at the time."
Now boasting a bariatric surgery center as well as numerous specialty services, the Belmond hospital is in a new facility built with funding from the USDA. "It's only 15 miles away, so this was a very risky thing for us to do. It would have been easier to walk away, but we've built a new hospital, the employee base has doubled, and a bariatric center of excellence went there. Docs started coming back and patients started coming back."
Above all else, Simonin credits the system's success for making it a preferred practice location for physicians, despite the obvious disadvantages of its location and size. "Because of our culture, we've never had to pay recruitment fees for physicians. They come to us, which is odd in rural Iowa where there are more pigs and chickens here than people. There's not a lot in this county, but docs are driving up from Des Moines to work here. I'm not saying we're Mayo, but we're a destination."
Perhaps not surprisingly, both campuses are in the 95th percentile for patient satisfaction, physician engagement, and clinical quality performance, according to Press Ganey. "Our vision is to be the benchmark for all rural healthcare. We pride ourselves in getting calls from other rural healthcare organizations around the country, and we think we're setting the bar for them. It's a huge point of pride for all of us."
Simonin has a positive message for all his fellow rural CEOs who are struggling: Innovate. "There's opportunity out there. Don't see doom and gloom in your future," he cautions. "Whether it's merging with another community or bringing on some interesting services, we're interested in showing them that path. People come to visit to learn from us."
And they just might be asked to flip a burger or two while they're there.
