Savannah's Memorial Health offers small businesses a direct care model to help employers afford healthcare for their workers. It benefits the health system by smoothing revenue—but don't call it a health plan.
Savannah's Memorial Health, like many hospitals and health systems trying to figure out the implications of healthcare reform, has seen an increasing level of bad debt and struggles with primary care affordability among its patients.
Memorial Health, which covers 35 counties in southern South Carolina and northeast Georgia, exists in a service area where many small to mid-size employers are trying to continue providing healthcare benefits for their employees, but are being squeezed under traditional health plans because of their small size.
Call it an unintended consequence for which there are many contributing factors.
As a result, the service area has seen a dramatic rise in the underinsured, says William (Bill) Lee III, the chief strategy officer for the system anchored by 635-bed Memorial University Medical Center.
Given a pace of premium inflation that few of them can afford, many such employers have tried to limit their exposure by offering employees stipends to purchase health insurance on their own. But a rapidly increasing number of individuals just aren't doing so, says Lee.
For the health system, that means an increase in self-pay patients over the past year. And collecting relatively low-dollar, but still important, revenue from patients directly is a big problem.
"When you are serving an ED with over 100,000 annual visits, and a lot of the patients have high-deductible health plans, which often don't pay until a $1,500 or even $5,000 deductible is met—and it's easy to spend that in one setting—we've got to be able to collect those dollars," says Lee.
Self-Pay Problem "Within our physician practice—we employ about 125 physicians—for people with high deductibles, an office visit bill is $280. It's a challenge in how we deal with that in a population where our self-pay was above 10% in 2013."
To help reduce the impact of this problem, the leadership team is not afraid to try interesting partnership ideas. In one successful instance, it's worked directly with employers in the Savannah area on a so-called provider-sponsored network. It is not an insurance plan, but partners with third party administrators and companies such as Gulfstream, a business jet manufacturer with a large local employee base.
The partnership means employees have a direct primary care link where out-of-pocket costs are minimal as long as they utilize physicians within the Memorial Partners model, the health system's physician organization.
"Employers want affordability, primary care access, and ease of process," Lee says. "The question was could we create a product that enables the majority of those employers to have that, and when there's a need for a higher level acute care, have a wrap network component so you do have some level of coverage. But the primary focus on plan design is around primary care."
Lee says one important reason the system has tried to innovate in this area is because of a strong relationship with local employers.
"They have leaned on us to educate them and their employees on finding plans that make sense for coverage for their team members and that's affordable, but ensures they are not exposed without coverage," he says.
Don't Call It a Health Pan
Part of the reason the system has been able to leverage these relationships is through a relationship with Physician Care Direct, which handles payment and payment methodology for the primary care experience.
William, (BJ) Lawson, MD, CEO of Physician Care Direct, says his company is focused on "reforming delivery at its most basic level, primary care," saying that there's no need for a true "insurance" product at that level.
"We've identified we have a problem with chronic disease and a baseline level of health and well-being. Those things have to start in primary care," Lawson says. "We've got definite ROI associated with targeted primary care investments, and we're rewarding physicians based on value. Why are we pretending we need to insure for everything?"
The idea behind so-called "direct care," generally, is that primary care is more akin to getting an oil change as opposed to fixing your car after an accident. That part of healthcare, which Lawson says makes up 80–90% of most patients' annual healthcare needs, can be made affordable and does not belong in the same category or risk spectrum as, for example, a heart attack, a knee replacement, or a car accident.
"This care, directly purchased from the provider, makes them more viable as well, and allows them to start being proactive," says Lawson. "As we studied the economics, this replicates the environment of an onsite clinic that an employer might actually fund, but does so using existing practices. They just have to start changing how they pay primary care providers and it's a great win for all sides."
Lawson calls this an employer health ownership plan, as opposed to a health plan, and it's the foundation. Though higher-acuity reinsurance can be layered over the top, for basic, primary care services, there's no cost share to the patient. It's only when the patient goes outside the medical home, to see a specialist, for example, that the cost share, deductible, and insurance start to kick in.
A 'Game-changer' for Small Employers
Lawson says this plan can allow local brokers to offer coverage that is 20% less expensive for employers with fewer than 50 employees than competitive insured options.
That 50-employee threshold is especially important for employers who would like to provide health coverage for employees, but who can't deal with the huge annual increases in premiums for full coverage.
"Locally, we had a coalition of small business owners who have between two and 50 employees who were caught in the gap between buying a full benefit plan versus giving employees a stipend and telling them to go out on the exchange on their own," says Memorial Health's Lee. "We wanted to see how this type of pricing transparency and access would work for that group."
Such plans now encompass more than 1,000 lives this year, and are poised for growth as the option gets more attention locally through Memorial Health's efforts and those of brokers.
"It's essentially a game-changer for small employers here," says Lee. "It gives them a way to fund healthcare differently and provide access to employees."
But it's also a game changer for the physicians and for Memorial Health, who actually get paid for the visit within one week of delivering the care. With traditional insurance, payment could be 75 days later, or potentially, never, if the patient is on a high-deductible health plan and cannot pay the bill out of pocket.
Lee says it's not immediately obvious how much of a better idea this type of plan is for both sides. But over time, he expects it not only to help reduce the effects of bad debt and collections efforts, but also to improve patient care and satisfaction for physicians
"As a large organization, you have to remind yourself to be nimble," Lee says.
After 28 years serving THR in various capacities, most recently as COO, Barclay Berdan says he's ready to take on the strategic challenges of leading the 25-hospital health system.
Arlington-based Texas Health's board conducted a nationwide search, but the man they chose to succeed Hawthorne is a familiar face. Compared to outgoing CEO Doug Hawthorne's standards of longevity, Barclay Berdan is almost a newbie, with only 28 years of experience at the health system.
Barclay Berdan
By almost any other standard, he's a grizzled veteran, who distinguished himself from other finalists thanks to his recent work as senior executive vice president of system alignment and performance, and as chief operating officer for the past two years.
Berdan steps into big shoes. Hawthorne has long been recognized as one of healthcare's visionary leaders, and has built Texas Health from a single standalone hospital into a 25-hospital health system that aspires, either through ownership or partnership, to cover the entire continuum of care.
Many of the system's strategic decisions have been copied by other health system leaders seeking to transform the way health systems deliver, and how they are paid, for care.
I arranged a quick call when Berdan was named Hawthorne's successor last week to get a sense of where he plans to take the organization, as well as his thoughts about the competitive landscape in healthcare and his thoughts about how to guide Texas Health to a prominent place there. He will take over for Hawthorne officially on Sept. 1.
HealthLeaders: Congratulations on the new job. Or, given the responsibilities that have landed on you, should I say condolences?
Barclay Berdan: No, I'm very happy about it [laughs]. I think congratulations are appropriate.
HealthLeaders: Where were you when you were officially offered the job?
Berdan: That's not a very exciting story, I'm afraid. I was in a conference room in our corporate headquarters.
HealthLeaders: Did you always think you'd eventually be CEO of a health system?
Berdan: I always had it on my list as an opportunity I would like to take advantage of, but I've been so in love with Texas Health, that sort of limited my options. But I'm pleased and delighted the board has asked me to serve in this role going forward. It's a privilege to take over after such a great leader of Doug Hawthorne's stature.
HealthLeaders: During your time at Texas Health and its predecessors [since 1986], have you been offered other CEO jobs?
Pretty frequently I'd get emails from search consultants, but quite frankly, we've had plenty of challenges and opportunities at THR and I don't recall ever returning any of those emails or calls.
HealthLeaders: When you and I first met in person for a HealthLeaders Media Roundtable on using population health strategies to build market share a couple of years ago in Dallas, you were senior executive VP of system alignment and performance. What did you learn in that role, and in your most recent role as COO, that you think will help you most as you take over leadership of the system?
Berdan: Well, I think leadership is both a skill and an art. My style is to try and first listen pretty intently to the staff in our system, or physicians, or employers or payers and particularly listening to patients on what all those groups want, and then help drive to a consensus on a clear direction.
Once you have it, it's really important to communicate that direction clearly and frequently. If you have a great organization like Texas Health, with a great group of leaders, you let them run in that direction. You constantly coach and advise and reconcile some turf or leadership conflicts, give them the appropriate resources and then celebrate when you achieve the result or the goal.
If you do that openly and honestly and create what I call "personal capital," which is primarily trust as a leader, that just builds on itself. Topics can change, and emphasis can change, but you have that trust. For example, population health is still getting an awful lot of attention, but not everyone's aligned in that direction.
It's still a challenge to get payers to create mechanisms with organizations like ours to help shift the financial incentives. Sometimes different groups like payers or physicians or health systems want to move at different paces.
My role is in trying to help each party develop an understanding of the perspective of the other parties and work to bring that together. More often than not, that strategy works.
HealthLeaders: You spent a lot of time talking in that Roundtable about giving physicians tools to manage their patient panels in a different way. One example you used was helping docs figure out how to manage the patients who need the most resources, and who might face expensive complications, instead of having physicians be fixated with working 35 patient visits through their office per day.
That's the essence of care coordination. How much progress have you made in turning those tools into reality and in aligning the economic incentives to use those tools effectively?
Berdan: There are a lot more tools available today than back when we talked. Not every tool that's available can integrate properly with your other systems and we've shifted focus on is how to integrate this stuff into the workflows without creating a big burden on the practices.
That implies some changes in processes and IT. Some of that technology is there and some needs tweaking and further development. You have to have a willingness on physicians to reexamine those workflows. Most physician offices are designed historically to be reactive to patients.
We're trying to create a different set of workflows that allows them to be proactive with patients who would benefit from that interaction.
HealthLeaders: Texas Health has a lot of accomplishments it can lean on in developing an integrated physician network, building out its outpatient and market strategy, and in coordination of care. What has been accomplished in those areas, and what's still left to build?
Berdan: In terms of integration and building a network, we still have a quite a bit to do on the post-acute side. We have a great partnership in home health, a great partnership with rehab, a great partnership in imaging with Envision and great partnership that's growing rapidly in surgery centers with SCA.
One of the tough nuts to figure out is the skilled nursing side. That's much more of a cottage industry and in many cases it's very underfunded, so it's hard for some of these organizations to make the investments they need to make in order to retool their workflows so we can create a seamless continuum of care. That's what we'd like to focus on in the next year or so.
HealthLeaders: You're in the final three years of a 10-year strategic plan. That seems like a long time for a strategy plan and a lot can change. How do you keep it relevant over time?
Berdan: 10 years is long. We've intentionally internally called it "Climbing Transformation Mountain." Along the way, every three years or so, we get to a "base camp," to continue the metaphor. We stop, take a rest, reassess, and decide whether we have the right tools, team members and skills. We completed that review at the second base camp in 2013.
Now we're in the last part of the climb to the summit. That helps people get a sense of what we're trying to accomplish and that last climb is the toughest part. When we get there, we'll see another mountain in the distance.
Sometime during 2015, we'll begin to put together a group of leaders to assess the environment again and begin to formulate the next 10-year strategy. Clearly those plans are directional and vision-focused, but if you don't have your eye on the focal point, it's too easy to get distracted or waylaid.
We're really looking at opportunities to fully deploy our population health strategy. We're redesigning care backwards from the outcomes we want. The advantage there is it really allows us to pursue upfront the highest quality- and evidence-based outcomes and the workflows we use to get to those outcomes are safe and reliable almost to the point that we would be comfortable warranting some things from a bundled care point of view.
That said, there's still a lot of variation in performance out there in facilities and practices. We have to understand that variation and coalesce around outcomes.
HealthLeaders: You mentioned that employers want to channel their business to healthcare organizations that can help them not only manage the cost but the quality of care. Given that payers are still trying to make that value proposition too, how has the competitive playing field changed for Texas Health?
Berdan: One of the things we've tried to do is lead in terms of quality. Back in spring, we published online a quality and safety report. That is designed to offer a transparent view of the organization's clinical outcomes. Many organizations themselves have not been as transparent with their quality and safety outcomes. So we stepped out this spring.
Whether we're performing great or not, it's on there, and we have demonstrated that we have a covenant with employers and the public so that they can see how we're doing. One of the bigger benefits is really internal. It motivates our leaders to make sure if there's a gap, they close it. We've not seen any of our competitors follow our lead.
It's scary in some ways. We had an awful lot of folks who were concerned about doing it, but since we've gone public, we've seen people reinvigorate their attention to the process and the outcomes. When asked, local employers felt it was appropriate. That said, I'm not sure employers and payers are yet using the data themselves, but they respect that we've done it.
HealthLeaders: In the medium- to long-term, is Texas Health's main competitive threat from other hospitals and health systems, or are there other entities that concern you more?
Berdan: I don't think there necessarily is a main competitor. The North Texas market is very interesting. We still have a huge number of uninsured. The ACA hasn't fixed that because Texas hasn't expanded Medicaid.
This is a vibrant and growing region but it's aging at the same time. That means a lot of people want to be in this market. We've retained our share in inpatient and grown it in outpatient, but there are a lot of potentially disruptive players in this marketplace.
For example, I worry a bit that in a few years we may have as many freestanding ERs as we do CVS or Walgreen's drugstores. That doesn't make a lot of sense to me. We also have a predominant physician population that remains relatively independent, so there's still a lot of change that has to go on in the marketplace.
There will be traditional and nontraditional competitors. We've differentiated ourselves. We are and have been great acute care company, but that's not the only thing that fulfills our mission of improving the health of the community.
We're great at taking care of the sick and injured and delivering babies, but how do we manage cost of healthcare to make it more affordable? We're trying to make more sense of it from patient's point of view.
Our job going forward is to help them manage and traverse their healthcare journey through a lifetime. And there's a lot of waste. We want to take that out and be a relevant guide and navigator through various stages of the patient's life. In essence, we're concerned with the well-being of populations because that drives value.
HealthLeaders: Doug Hawthorne has been here a long time. In fact, he's been here since before there even was a Texas Health Resources (as you have too). How do you feel about filling such big shoes?
Berdan: They are very big shoes to fill, but it's an honor and privilege to take the baton from Doug and continue down the track he set. He's a unique individual who has taught us all a lot and created a lot. I'm fortunate to work with him and to have the opportunity to carry forward.
HealthLeaders: Sorry to get personal, but how old are you, Barclay? How long do you envision yourself doing this job?
Berdan: I'm 61, which is pretty young these days (laughs). I feel energetic and as long as the board feels I'm providing good leadership, I feel confident I have a good number of years left to contribute.
HealthLeaders: Can you name the top two or three strategic challenges that will be priorities for you as CEO?
HealthLeaders: They are pretty basic. First is to make sure we have a smooth transition and don't lose a beat. Second is to make sure we drive to the highest levels of performance in quality and safety and sustain those to be a reliable organization.
Third, we have to do that and remain affordable. Fourth, we have to continue to look to how we can innovate across health and healthcare, and begin to redesign care delivery and link it to prevention and well-being.
You can't cut your way to profitability. The CEO of a 12-hospital system divulges how to achieve both growth and cost cutting. He ought to know. He's slashed $165 million in costs while investing in growth.
You're so focused on cost cutting that you might be strangling the opportunity for your organization to grow.
How do I know?
Dan Wolterman, president and CEO of Memorial Hermann Medical Center in Houston, told me so.
I'm working on a story about growth strategies for healthcare organizations for an upcoming issue of HealthLeaders magazine, and I had an interesting interview this week with Dan. I'm hopelessly over budget in word count as so often happens, but even though it won't fit into the magazine, some of what we talked about is too important not to share.
As I try to do with all the folks I interview, I ask them at the end to think about what we've talked about generally, and to think of advice they would give their leaders at other organizations. In this case, we were talking about the difference between cost control and growth strategies.
The challenges of surviving on less reimbursement are daunting, so it's tempting to rely on a strategy that offers near-immediate results: reduction in headcount, salary or hiring freezes, supply chain work, and administrative overhead reductions.
Some or all of these strategies may be necessary, but it's easy to get lost in them if you don't have a disciplined strategy of where to invest some of those savings on growth.
Part of that is difficult because developing strategy for growth means taking huge perceived risk while a lot of uncertainty rules the business environment. That's also known as vision and entrepreneurship, and more of it is needed in healthcare today.
Back to Wolterman. He knows of what he speaks. His 12-hospital system cut out $165 million in costs through a variety of strategies. But they didn't forget about investing in growth, and when well planned and executed, some of those strategies can achieve both growth and cost cutting.
Wolterman had three pieces of advice for those who are doing their best not only to shore up the balance sheet for today, but to ensure their organization's long-term future is bright. Here's what he said:
1. Don't be too consumed by cost cutting
"You can't cut enough costs to get yourself to profitability over the long term. You may get it for a couple years. But if you're not maintaining the revenue side, you're eventually down to core fixed costs and you can't get rid of them.
We cut out $165 million in costs about four years ago in an effort to get our cost structure down. All of that was administrative overhead and some nice, but not necessary things.
That jumped our profitability up. But if that's all we did and for the foreseeable future we let the market cut our revenues and volumes because of utilization going down, we would be in trouble. You can't just focus on one dimension of your plan."
2. Learn to cut costs by investing
"[You] fall short in not looking at other ways to cut costs. For instance, how to use evidence-based medicine to wring out costs from falls or hospital-acquired conditions. What about working on your pharmacy formularies and physician preference items that don't have good spend control?
Those can really help improve your system and can increase your margin. A lot of folks are just looking at traditional things that administrators can directly control, such as supply expense and headcount."
3. Prove your quality and outcomes; get enhanced revenues
I don't think folks are really aggressively looking at how to get after enhanced revenues in their market for the same level of volume. By that I mean a lot of stuff you read in your magazine and others is that the price we get for episodes of care is being ratcheted down by payers. Woe is us.
Well, that may be, but if you have a strong accountable care organization or clinical structure, it is possible for you to take control of that. Payers tell us they're surprised we have the highest charges in terms of what they're contracted to pay us, but they also say when they look at total cost of care data, we are lower and our quality and patient safety is better.
That's what the game is about.
Another example: We earn an ACO agreement with Aetna and when they sell it I get 100% of that volume. I accept a reduced revenue per patient, but I get fourfold more volume. That's why growth is so important. With systems like ours, we have high fixed costs, and you have to cover that."
Health savings account fees have the potential to eat away at a tool that's meant to help achieve a lot in healthcare. As more employers expect employees to fund first-dollar coverage of their health needs, little attention has been paid to this detail.
When I started covering healthcare 14 years ago, the best piece of advice I ever got was "follow the money." Money motivates people, actions, and events. But with money comes math. When you're following the money, sometimes it's necessary to break out the calculator, of course, which can be helpful in discerning why a certain hospital or health system is taking the action it is—motivation can be found deep in a balance sheet, bond offering or fee calculation.
This advice and experience came in handy when I was reviewing the statement for my health savings account, in which a bank holds the money that I and my employer contribute. The bank takes a $2.50 per month fee for essentially managing an FDIC-insured savings account with an accompanying debit card. Don't get me wrong. I appreciate that my company offers benefits. It's one of the reasons I like working here. And I chose the high-deductible option with HSA over another option. But critically, I didn't get to choose the account manager, as I would with a savings or checking account. I didn't shop for that service. My personal bank doesn't manage it.
The ultimate irony is that while I'm expected to shop around to find the economical choice when spending those dollars on healthcare services, I can't shop around for my HSA. And if $2.50 a month sounds reasonable, it isn't. These fees are substantial.
That $2.50 a month might not sound like much, but that's just for maintenance of the cash account. If you somehow manage, over time, to accumulate enough in your HSA to think about investing that money in many of the vehicles your HSA administrator offers, $2.50 a month is just the beginning. If you invest in mutual funds after accumulating the required $2,000 cash floor in the account, you're subject to management fees and other fund fees that can run between 1% and 2% per year. Again, doesn't sound like much, but it can add up to a lot over time, especially if, like your 401(k), you accumulate a significant amount in these accounts over time.
Speaking of 401(k)s, fees in that industry have already caused controversy. So much so that the Labor Department instituted new rules on fee disclosures for 401(k) participants beginning in 2012, and the Supreme Court seems interested in further weighing in. Whether the new disclosure rules have been effective in helping plan participants realize how much of their money goes to management of their investments is debatable—many say they read like a dense prospectus more than a simple fee disclosure, but it's a start.
Since 401(k) fees are ubiquitous, and HSA accounts are less so, the attempt to reform them has been embarrassing to employers, but even more so for fund managers and 401(k) managers. They proved that for many, 401(k) fees were a rip-off. And not only were they a rip-off, they were cleverly hidden in the fine print, at least until the new disclosure rules went into effect.
Back to HSAs. My fees are clearly labeled in my statement, but considering the small amounts most people have in these accounts, $2.50 a month is a relatively huge percentage of their holdings.
Say I average $500 in my HSA for the year. They're going to charge me $2.50x12=$30 for the year. That amounts to 6% annually in fees for taking no risk. Even if I had the required $2,000 cash minimum for investing in further products beyond a savings account, it's 1.5% a year just to hold my money for me. Never mind that they get to hold and use my money while I'm waiting to incur a healthcare bill. Multiply that by the thousands of HSAs that are being established nationwide—enrollment reached 15.5 million last year, according to the trade group America's Health Insurance Plans—and you can see it's a very lucrative business line. It's a pretty sweet deal for the bankers, but not the account holders. If anyone ever offers you 6% a year with no risk, you should either jump at the chance or suspect you're looking at the next Bernie Madoff. It'll never happen to you, but it does to the banks.
So what's the message to hospital leadership about these accounts? Why should you care?
First of all, you're likely one of your city's or region's largest employers. You may offer HSAs and high-deductible insurance plans to your employees already. And you're in the best position to see the possible long-term effect from a high fee and money management structure that eats significantly into your employees' and your customers' ability to pay for healthcare services over time.
Admittedly, it's not high among your critical decisions in adapting to a changing business model in healthcare, but such concerns are part of the transition and their importance will only grow as consumer-driven healthcare emerges. As leaders who experience healthcare transactions, both as a provider of benefits and as a service provider, you're uniquely positioned to make a difference in how this increasingly important source of payment for healthcare is regulated.
You should do your part to make sure that your organization is being as transparent as possible with the employees you ask to use these accounts to pay for first-dollar coverage of their healthcare. And even if you are being transparent, make sure your HR folks are shopping around. These fees are being charged because it's what the early market will bear.
As HSA administration becomes more mainstream, the hope is that lower-cost options will hit the marketplace. But don't expect it to be quick. 401(k) fees have stayed high for many years, and with employees still not able to understand disclosures well, they'll continue to drain an outsized portion of money intended to fund retirement for the majority of Americans for years to come. As with 401(k), employers make the decision on an HSA administrator.
Unless yours is one of the very largest health systems, you may be best served by finding your unique niche. It doesn't preclude partnerships with larger organizations, but leaders must act.
In my story for the June issue of HealthLeaders magazine, Critical Times for Small and Rural Hospitals, I wanted to profile some of the strategic decision-making that successful smaller organizations are pursuing in their drive to remain relevant in a rapidly changing healthcare reimbursement environment.
I struggled a bit to find consensus among the leaders of the many organizations I interviewed. I wanted that consensus, because I was putting myself in the position of you, the leader of a similar institution that is looking for good ideas.
I never found it, but I decided as I tried to put into words what I had learned from these conversations, that lack of consensus is not necessarily a bad thing. Because the environment for healthcare services, and what will be in demand as buyers of healthcare—whether individual patients through the exchanges or employers or giant payers—is uncertain as those customers demand better value.
That can be a positive, though. It means you can tailor your own best solutions.
Overall, I think many hospital and health system executive leaders would reluctantly agree that much of what's causing the disruption in healthcare business models will ultimately result in better value and higher quality care for patients.
Getting there as an individual institution, and tailoring your offerings to best fit this uncertain future is what's so hard.
The three institutions I decided to include in the story represent a wide variety of options to stay relevant. I'm sure there are many other strategies I haven't heard of yet that may be as promising.
Thinking Beyond Inpatients
Charles Hart and his team at Regional Health in the Dakotas—a large system, but with a large share of critical access hospitals—are seeking to work within the regulatory confines of the critical access model to create assets that aren't duplicative.
That's a tougher job than it sounds. Most rural communities see a "hospital" as essential, and won't be giving it up easily. But there's opportunity in right-sizing the footprint of those rural presences without necessarily thinking in terms of inpatients. He's challenging his leaders to "bring something unique" to the health system as they do their strategic thinking.
An Oasis for Physicians
Steve Simonin, who runs two rural hospitals in Iowa, is also trying differentiation, and while it's on a different scale, again, he's trying to help his organization stand out from the crowd. He even brings up The Matrix in terms of describing his team's philosophy, which is never a bad analogy to be able to work into a healthcare strategy story.
Though Simonin runs two hospitals, essentially they are staffed as one hospital with two campuses. That provides more operational benefits than you might think.
Secondly, Iowa Specialty Hospital (with two campuses) is being positioned as an oasis for physicians who feel the pressure to become employees of a major health system and want nothing to do with that. He says the system is becoming a destination organization for obstetric, orthopedic, and bariatric specialties. It might not work for everyone, but it's working for them.
Thinking about this stuff in aggregate is easily overwhelming. But to see other organizations take concrete steps to improve their prospects can be a great way to develop ideas of your own about how to compete.
So take heart: Opportunities are opening up for those who are willing to take some risk.
A Resilient Independent Spirit Finally, there's Todd Linden, president and CEO of Grinnell Regional Medical Center, also in Iowa. Linden and his team have taken the more common approach for smaller hospitals of affiliating with larger organizations in order to achieve economies of scale, get access to executive talent that's unavailable to them as a standalone, and to achieve better contracting power with payers.
But it's found a way to do those things in a way Linden says doesn't break its spirit of independence and doesn't involve an asset merger. That kind of thinking requires creativity, and there's no one-size-fits-all solution, but it allows a smaller hospital to thrive while the world it's known begins to crumble.
Despite all the change in the air, even now, healthcare change is happening slowly. You still have time to figure out your place in the new ecosystem. But every journey starts with the first step. Maybe these three leaders can provide some inspiration that your choices aren't limited to selling out or slowly fading away.
For healthcare facilities that serve an important niche, such as critical access hospitals, a variety of pressures are changing the way they do business.
This article appears in the June 2014 issue of HealthLeaders magazine.
Although critical access hospitals are protected from many of the disruptions of the Patient Protection and Affordable Care Act, their fates will differ greatly depending on their individual circumstances. Geography, the right mix of services, affiliation with larger partners, and, most critically, cuts of preferential reimbursements that critical access hospitals currently receive but that are far from guaranteed in the future—all of these play a role.
Thanks to the decision of many states not to expand Medicaid, whether a small rural hospital or critical access hospital survives may depend on a host of variables over which leaders have little or no control. For instance, many organizations stand to benefit as more of the previously uninsured acquire health insurance, unless, of course, your state decided to not expand Medicaid.
But leaders can have only very limited influence on such circumstances. Where they can make a difference: strategy and vision. Whether they focus their strategic efforts in joining regional partnerships to make investments in EMRs, ACOs, and other care coordination models, or they find a way to offer services unique to their area or region could mean the difference between life and death.
Run them like a business
One lifeline many rural hospitals and health systems have utilized to stay afloat in recent years, so-called cost-plus reimbursement from CMS, is vulnerable, too. Most experts, including the chief administrators of these organizations, expect to eventually have to live under a value-based purchasing regime of some kind, even if it does not represent the majority of their reimbursement mix. President Obama's original budget proposal this year, even though it will not pass as is, cuts critical access Medicare reimbursement from 101% of cost to 100%.
"We've got to make sure we can run them as a business," says Charles Hart, MD, MS, CEO of Regional Health Inc., of rural and critical access hospitals.
Regional Health is a nonprofit owner of five hospitals, based in Rapid City, South Dakota. It manages, owns, or leases six critical access hospitals. It also has 40 other sites of care incorporated into the system, and its flagship, Rapid City Regional Hospital, is a 329-bed Level II trauma center. Despite its diversification, what happens to rural and critical access hospitals has deep implications for Regional Care's future.
Outside of reimbursement, Hart says the continued development of telemedicine and other remote healthcare modalities will put significant pressure on such hospitals.
"It's obvious that there will be significant changes, so from about three years ago, what we've tried to do is find ways for the individual hospitals to bring an additional service or something that's unique to our system," Hart says.
For instance, he says, many of them have a nursing home or assisted living facility, so they're trying to build bridges for patients who are transitioning from the ventilator unit or the critical care unit.
"They have to differentiate themselves," he says.
Specialty no longer a dirty word
Differentiation is the bedrock upon which Iowa Specialty Hospital is built—at least for the past several years since a 2007 merger brought together two hospitals in Clarion and Belmond, Iowa. Steve Simonin, its president and CEO, says the emphasis on differentiation is necessary because rural and critical access hospitals have to find a way to compete with and win against bigger, deeper-pocketed systems. Rural and critical access hospitals, especially, can't be all things to all people as hospitals have traditionally tried to be. Therefore, they have to develop areas of expertise and "specialize" in areas that offer high return on investment potential.
Simonin brings up the hit film The Matrix, in which humans were deceived through computer-generated mass virtual reality into believing their lives are much like we believe our lives are today, when in reality, their bodies were hooked up to machines and left in coma state between life and death as technology run amok used them, essentially, as human batteries.
"That's where most critical access hospitals are now," says Simonin. "When you're hooked up with a big system, they're sucking you dry for referrals. We woke up when we started acting on our own and thinking and acting as a business rather than as the ugly stepchild."
Iowa Specialty went to a fully employed physician model, which Simonin says is an oasis for providers who want nothing to do with working for a big health system.
"We're Keanu Reeves. We escaped from the Matrix," says Simonin.
Not that Iowa Specialty doesn't take advantage of its two campuses' critical access status while it still benefits them.
"We're utilizing our critical access status individually, but we're essentially staffed as one hospital with two campuses," he says.
But Simonin, like others, has little faith that the cost-based critical access hospital reimbursement program will endure, and even if it does, it won't be enough to survive without innovation and differentiation.
He's staked the organization on one thing that might seem counterintuitive: growth. Critical access hospitals, by definition, only receive their designation, and the concurrent bump in Medicare reimbursement rates, by maintaining no more than 25 inpatient beds, among other conditions.
Luckily, growth can be measured in many more meaningful ways than bed count.
"We wanted to increase our commercial payers as much as possible," Simonin says.
Now, because of the number of specialists it employs and its successful strategy to become a destination campus for both obstetric and orthopedic specialties and, soon, bariatric specialty, "we're at a higher level of commercial payers than we were in the past," he says. "We find that if people have a choice, they want to go to a place with the highest quality and patient satisfaction, and they don't care how big it is."
Gross revenues for the two hospitals combined were $20 million at the time of the merger. They're around $100 million now, and the hospitals boast 40 clinical providers now as opposed to the six they once had.
"Our communities have lost population but yet we're still growing," says Simonin.
In a bid for future growth, Iowa Specialty just brought in a full-time ear, nose, and throat physician as well as a bariatric surgery specialist.
"A lot of these people are coming from the bigger systems," Simonin says. "They don't want to be on call; they don't want fear of what the ACA's going to bring. A hospital's administration can't make money for the hospital; we're just agents for the providers."
Affiliation?
In Grinnell, Iowa, Todd Linden, president and CEO of Grinnell Regional Medical Center, offers another option: affiliation. Grinnell Regional is part of the Mercy Health Network, a large joint operating agreement in Iowa between Catholic Health Initiatives and CHE Trinity Health. But alone among the nine organizations that make it up, Grinnell is not owned by either health system—it pays an annual fee to be part of the network, which Linden says offers Grinnell opportunities it would not have on its own to participate in value-based purchasing with both government and commercial payers.
Grinnell has its own integrated physician network of which about half are its employees.
"Iowa is turning into a two-system state," says Linden, the other system being UnityPoint Health, the former Iowa Health System.
"Our alliance is bringing us the skill and scale to do risk-based contracting without being on the same balance sheet so we can contract with Iowa Medicaid, for example, and Wellmark Blue Cross," he says.
Linden says without the affiliation, which is reviewed yearly, his hospital likely would not have been able to maintain its independence even until now, to say nothing of the expected tougher times ahead.
"It's great to see because it allows hospitals like ours to still be independent," he says. "Part of the strategy is to bring the resources together to be able to do the analytics. A 50-bed hospital like mine can't put all that together."
In another example, the alliance hired a former insurance executive to help analyze where it could be better prepared to take risk with commercial contracts, Linden says.
"I can't employ that guy," he says. "We also rely on the network for clinical evidence-based medicine guidelines."
He still worries, however, seeing Grinnell's current position as transitory.
"You've got a couple different moving parts in contracting. Some of the minimum requirements we would struggle with," he says.
For example, even if Grinnell could get 5,000 people in a Medicare ACO, that's not nearly enough to effectively spread the risk.
"So whether it's Medicare Advantage or an ACO, we need to be part of something larger," he says. We also have to have partners for the services we don't offer, like access to quaternary and tertiary care. We have hospice, home health, but we don't have retail pharmacy, and we don't do long-term care, so those are two things we'll have to look at locally if we're going to be offering services at full continuum."
Capital needs
The best of times may be over if your critical access hospital has glaring capital needs for a renovation or rebuild. Though there always will be funding sources, an era of ultra-cheap financing seems to be over for the most part.
"It's really hard to drive around rural America and not find a critical access hospital that hasn't been redone or rebuilt," Simonin says. "We all saw the writing on the wall, and built a new hospital or renovated our existing hospital."
From his perspective, Hart is less certain of that need.
"Reimbursement at 101% of costs still doesn't cover capital, so to do it in a way that makes sense is often quite challenging," he says. "We were already providing subsidies, so while we've certainly upgraded, we've not done total rebuilds."
A better approach is a systematic determination of whether such hospitals currently meet the community's needs or whether the community might be better off without an inpatient hospital. This would mean turning the cherished local hospital into an outpatient facility, a cardiac rehab facility, or possibly an urgent care center. But political and fiscal realities often make that transition impossible, at least while the current reimbursement model rewards the inpatient model.
"Many communities are wonderful partnership communities, but the financial realities are going to be difficult," Hart says. "I would love to see the government give you options to truly put a system in place to create what these communities need versus assuming it needs a hospital. Because of the payment system, you design your system around that versus around patient and community needs."
Hart says the fact that South Dakota did not expand Medicaid is also weighing on difficult strategic decisions that require investment.
"If our state would expand, that would provide more life to the critical access hospitals, but it would create a financial cushion so we could continue the services the community needs."
For now, grand plans succumb to more measured attempts to make the system more efficient. Hart and his leadership team spend a lot of their strategic time on how to reduce duplication of services and remove variation.
"Do we really need three CT scanners in hospitals 10 miles apart?"
There are also opportunities to more efficiently allocate the patient load among the system's array of hospitals.
"The most important thing from our perspective is that we have a bed shortage in our mother ship and excess beds in our critical access hospitals," says Hart. "We developed systems to transport patients who are not critically ill (swing bed status) to the critical access hospital. We're finding ways to utilize resources that are less unprofitable but not ideal."
Based on where reimbursement is going, Grinnell Regional's Linden also thinks rural hospitals will struggle with urgent capital needs.
"The one thing that will cause us to consider whether we can stay independent through this affiliation model is whether we would have adequate access to capital. We're too small to have our bonds rated," he says. "Banks have to guarantee our debt, and with profitability being challenged, finding banks to take that risk is hard. We're in good shape now, but a decade from now, we don't know. There's no way we could borrow $30 million today for a major renovation or replacement project without the support of a system."
Philip Betbeze is senior leadership editor with HealthLeaders Media. He can be reached at pbetbeze@healthleadersmedia.com.
Reprint HLR0614-5
This article appears in the June 2014 issue of HealthLeaders magazine.
Based on the bills in conference, legislation to fix the Veterans Administration healthcare system will do little more than paper over problems that result from a fundamentally bad design.
Only in Washington are bureaucratic screw-ups and malingering on a massive scale rewarded so handsomely. In the case of the Veterans Administration hospital wait time scandal, the response to unconscionable cover-ups and bureaucratic failure consists largely of—you guessed it—more money.
Firings and prosecutions may follow, because apparently, Congress will have to pass a law to smooth that process.
What?
Only Congress could come up with a solution to healthcare wait times that essentially asks veterans to keep calm and carry on with the corrupt and unaccountable system responsible for the problem. Not only that, but the same bumblers who brought us this shameful episode get $500 million to hire new doctors and untold billions more to build new hospitals.
Never mind that in the proposed legislation, now in conference committee, there are provisions for those who wait a certain amount of time for an appointment or who live a certain distance from VA care to visit private doctors.
The question no one seems to be asking is why?
Why do we need a separate healthcare system for veterans?
Too Many Inpatient Beds
Political expediency is why the question of whether there's even a need for a separate healthcare system for veterans anymore hasn't come up. Yet private hospitals are as equipped as any VA hospital to handle most veterans' health needs.
Besides that, in many parts of the country, there are too many inpatient beds. Why not make that wait-listed patient volume available for everyone?
Further, what does helping veterans pay for college have to do with how long they're waiting for medical care? Most voters probably have no problem helping vets pay for college, but what is this provision doing in a bill meant to solve the problem of long wait times, management corruption, and cover ups?
Sen. Tom Coburn, M.D. (R-OK) released a report on the scandal this week. It is a compelling and disgusting reading.
For all of Medicare's problems, when's the last time you heard about beneficiaries complaining about wait times? (They, of course, obtain their healthcare services from private, as opposed to government, facilities.) The answer is rarely to never, partly because Medicare is a relatively good and fast payer, and partly because physician access is directly tied to reimbursement.
Medicare wait times average around 18 days for five specialties: cardiology, dermatology, obstetrics-gynecology, orthopedic surgery and family practice. And Medicare is accepted in 76% of physician offices, according to healthcare search and consulting firm Merritt-Hawkins. If you use the VA for care, depending on where you are, you could wait months and even die while waiting for an appointment.
Medicare Alternative? It's in private healthcare's best interest to get those patients in the door as soon as possible. It may be more expensive and less coordinated than VA care, (it is an integrated system) but that's certainly debatable. It's hard to coordinate care if the wait list is so long you never get in to see a doctor. Besides that, most veterans who use the VA for their care are already Medicare-eligible.
Medicare Advantage patients seem to be pleased with their healthcare overall. Why is a similar structure for veterans not an option? Structured properly, it might cost less, and it seems logical that patients would be better treated. Who cares if the patient in the next room is Aunt Jane instead of G.I. Jane?
I doubt veterans really do. Like anyone else, they want access to healthcare when they need it. The VA has failed miserably at this very basic function. And not only has it failed, it has covered up the failure until a few whistleblowers finally had enough.
Even if veterans' out-of-pocket costs at this time may be higher than if they used VA services, that problem could be corrected much more efficiently than the rushed-together bills currently in conference committee.
To be fair, the legislation temporarily (for two years) authorizes patients seek private health care if they reside more than 40 miles from a VA facility or have been waiting more than 30 days for treatment. But that half-step creates as much as a $50 billion new entitlement.
And the qualifiers on distance and time spent waiting are arbitrary and meant to protect the unaccountable bureaucracy that infects the VA. Also, once it's established, do you think it will really be temporary? The income tax was supposed to be temporary too.
A Modest Proposal How about this? Keep that provision, absent the restrictions about residential status or wait times, and cut the VA budget by $50 billion a year. Then unleash veterans and allow them to vote with their feet. After all, the VA is the institution that failed here. It should be punished where it counts—in its budget, as any private company would.
As much sense as it might make, such a solution is probably doomed—again because of political considerations. As someone wise mentioned to me recently, there's no pizzazz in common sense. Congress is fueled by pizzazz, and common sense has no home there.
If this scandal isn't enough to radically change how we, as a nation, provide healthcare to those who defended us and in many cases, are the worse off for it health-wise, it's hard to see that anything would do it.
Too bad. Appropriating money is easy. Fixing a broken system is hard. So while the culture and corruption that produced this scandal falls on individuals in the VA, the agency as a whole was simply working the angles. Congress created those, and is ultimately to blame for its lack of supervision and oversight.
That seems likely to continue, because based on the bills in conference, the legislation that will ultimately be passed papers over the problems that result from a bad design.
A recent conversation with a hospital president in Nebraska shows that it's not always payers who are forcing the value-based conversation.
Michael Schnieders
President, Good Samaritan Hospital
Hospital and health system leaders have been abuzz about the dramatic shifts their organizations face in moving away from fee-for-service reimbursement. That means, in most cases, that the Centers for Medicare & Medicaid Services and commercial payers are forcing hospitals, physicians and health systems to begin to take risk based on quality, cost, and outcomes.
But it's largely a regional story. One health system in Texas or California might be neck deep in negotiations with commercial payers while another in Nebraska feels like its dominant health plan hasn't yet heard the news.
CMS value-based payment initiatives are, of course, available nationwide, but this is a transformation that seems to need commercial backing to reach the tipping point. As a result, if the commercial payers aren't pushing it in a certain region, this 180-degree shift in the hospital and health system business model is still in its infancy.
That doesn't mean hospital and health system administrators don't know what's coming. In fact, in some areas, hospitals and health systems seem more willing to integrate risk-based reimbursement than are payers.
Such is the case in Kearney, NE. I spoke recently with Michael Schnieders, president of Good Samaritan Hospital there in connection with my cover story in the June issue of HealthLeaders magazine, which explores what's going on with value-based reimbursement in more mature markets.
Our interview ended early and I didn't include any of it in the magazine story because penetration in his area is so light, but his experience is illuminative for organizations where the commercial market seems inactive in the value-based purchasing arena.
But that doesn't mean business as usual is necessarily the smart choice, and you shouldn't think that value-based purchasing won't affect you, Schnieders says.
As for Nebraska, he and the 287-bed regional referral center, along with its corporate parent, are ready to get on with it, even though payers, by and large, aren't cooperating. Here's what Schnieders told me about how he sees the transformation, or lack of it.
HLM: In many parts of the country, payers are shifting risk. Are you seeing that in Nebraska?
Schnieders: Actually, we have not seen much willingness or movement by insurers to move into that model at all. The only payer in our marketplace that is interested in risk sharing is the worst and slowest payer: Medicaid. But we have not seen it with the dominant commercial payer in Nebraska.
Catholic Health Initiatives (Good Samaritan's parent organization) really wants to move from volume to value faster. Right now, we live in two worlds. Do I want beds filled or empty? We know there will be difficult times when we are still getting paid for volume and the volume's gone, so the sooner it happens the better. Other payers are more willing to talk about it. But they represent a pretty small market percentage here.
HLM: What about going direct-to-employer with your offerings?
Schnieders: That's one of the things we're talking about, but you have to have the right legal model—a clinically integrated network. Our new partner, Alegent Creighton Health, which is also part of CHI, already has that designation, so we are moving rapidly toward establishing a chapter of that in Kearney.
We have to prove to regulators and payers that we are clinically integrated. That takes time. But at that point, you can go directly to employers and do exactly what you're suggesting. We don't have large employers, but we have lots with 200–500 employees. That's certainly something we can handle and it would give us an opportunity to pilot, experiment and gather data.
HLM: Is cost shifting (whereby hospitals subsidize money-losing services and payers with higher rates from commercial payers) viable anymore?
Schnieders: It's not entirely dead, but with the volume-based model, the dominant payer is where we would shift. If they're saying they won't do it; they're increasing utilization review, and implementing preauthorization to decrease utilization once they are in the hospital or outpatient, it certainly cuts down on the opportunity.
HLM: Is it realistic to have a payer of your own?
Schnieders: That's a complicated question, and is tied in with developing our clinically integrated network. As we've been talking about establishing that clinically integrated network in Kearney, we'll also have a chapter in Grand Island, Lincoln, and Omaha.
Doctors here were concerned that a CIN would focus only on narrow networks. We did tell them we would be experimenting with narrow networks with our own covered lives only. The narrower network reduces variation, utilization and costs, and thus reduces premium.
They understand, as long as it's just our covered lives. Through that, we'll start tracking quality data. Primary care doctors know who the bad actors are. It'll be their peers deciding who's quality or not. Our new data registry that CHI has will show Dr. Smith and his 2,000 patients, and it can show how many have diabetes or other chronic conditions, and will show the ones, for example, who haven't seen an ophthalmologist in three years.
All the evidence-based data measures is in black and white, and we didn't have this before. Now it's very objective vs. subjective. We purchased a Medicare Advantage product and have bought into an actual commercial insurance company. So we're moving on the path of being an insurance product. In the near future, we could have a sizable presence and a product on the exchanges.
The simple demarcation between inpatient and outpatient status prodded by Medicare's proposed rule has the potential to turn into a big revenue problem. But good documentation can help.
The so-called "two midnight" rule has hospital and health system senior leaders extremely worried.
Although its enforcement by Medicare has been delayed a second time, hospitals and health systems still have to deal with it. In essence, the proposed rule calls on doctors, with the help of whatever decision-making staff the hospital has made available, to decide whether a patient is likely to need a stay in the hospital that extends over two midnights.
That essentially determines whether that patient, and his or her billing status, is designated as an inpatient or outpatient.
And that designation can mean a huge difference in reimbursement despite the fact that the inputs (bed occupancy, staff time) are largely the same. Some CFOs I've spoken with say reimbursement for outpatient status is as little as a third of what they would get for inpatient status.
Observation status has many implications for patients' pocketbooks as well, but that is a topic for another day. There are plenty of land mines, however, for hospitals and health systems in this simple demarcation between inpatient and outpatient status.
Given that the patient mix at many, if not most hospitals is heavily dependent on Medicare beneficiaries, this has the potential to turn into a big revenue problem. Despite the fact that the rule's enforcement has been delayed, it's still in effect. No wonder hospitals and health systems are rushing to improve their clinical documentation.
That challenge is far from simple.
A patient is an inpatient only if a doctor formally admits him or her, and this blunt mechanism causes a cascade effect for inpatient revenues for hospitals. It belies the complex medical decision-making behind making that determination.
Critically, according to CMS, "An inpatient admission is generally appropriate when you're expected to need two or more midnights of medically necessary hospital care, but your doctor must order such admission and the hospital must formally admit you in order for you to become an inpatient."
Who Can Predict the Future? That's a lot of i's to dot, and a lot of t's to cross. For many doctors, the two-midnight rule is understandably low on their list of priorities. It makes little sense to them from a medical standpoint, and they aren't necessarily highly attuned to the importance this issue carries to the hospital at which they practice, which may or may not employ them.
To boot, especially if they are salaried, whether a patient is designated as an inpatient or outpatient (both are staying in the hospital after all) doesn't affect them financially.
Besides, is the doctor supposed to be an Oracle who can predict the future?
Let's leave aside whether physicians or any staff the hospital hires to help them make this decision (case managers, physician educators, etc.,) can determine whether a patient will need to be in the hospital over two midnights with any great certainty.
The rule is the rule, and Medicare administrative contractors (MACs) will be paying attention to it, and, like recovery audit contractors (RACs), may dispute that decision after the fact, which can have a harrowing impact on a hospital's revenue picture.
One partial solution is through an almost ridiculously rigorous documentation program. The best way to do it is through real-time documentation on the patient electronic medical record. But assuming that part of the equation is there, it still doesn't address the physician motivation issue.
Stable, But Critical For instance, proper documentation means a physician cannot simply state that he checked on an inpatient during rounds and that the patient was "stable." He might be stable, but he also might have any number of critical conditions that make a hospital inpatient stay necessary.
If they're not in the record, then they don't exist, at least not for reimbursement purposes. And "stable" doesn't begin to pass muster.
MACs and RACs aren't physicians. They're contractors looking for key words to help identify records that show medical necessity and those that don't. Those that say "stable," simply don't.
The overriding issue with the two-midnight rule is what we spend a lot of time talking about at HealthLeaders: physician alignment.
Better Documentation Needed Maybe that's what Medicare's going for here. The penalty for poor physician alignment is such a serious hit to your revenue, your margin, and ultimately, your balance sheet, that you can't afford not to make it matter to physicians.
Or maybe I'm giving Medicare too much credit and they're just trying to save money.
Either way, achieving the goal of much-improved physician documentation is a good thing, societally. It's too bad using such a blunt tool to achieve it makes things so difficult on those who are providing the care.
Making it matter to physicians seems much easier to do if you can find a mechanism that provides a carrot or stick for compliance. Whether privileges are dependent on documentation compliance or whether employing all your physicians or some other tool will increase that motivation is organization-dependent.
Where the magic can happen for hospital and health system leaders is in determining the right combination that will motivate physicians to improve documentation. If you can't find it, your organization's revenues will suffer accordingly.
Only you and your staff can design the right solution to this problem. At the very least, that should provide you some sense of job security. It's yet another case where leadership is needed—in spades.
Some hospital CEOs, used to captaining their own ships, are finding that healthcare reform means there are fewer opportunities to run things as they see fit. Maybe that's a good thing.
This article appears in the May 2014 issue of HealthLeaders magazine.
It may not be obvious to the casual observer, but the responsibilities and roles of many local hospital leaders are changing drastically. That's at least partly because many hospital systems are acquiring formerly independent hospitals and, rather than allowing them to operate largely independently in a holding company model, the controlling systems are moving toward an operating company model. And this goes even for leaders of organizations that have been part of the holding company for years. That means some roles, such as marketing or revenue cycle management, are now being done at the corporate level, away from the local leader's exclusive authority.
That trend can be viewed positively or negatively, but local leaders have to make a choice: Retire, move to another organization, or accept new, and possibly diminished, roles within the operating company. As a result, the local leader's role is transitioning—even bifurcating. In some cases the CEO title may be retained locally for the acquired entity, but increasingly such individuals are being transitioned to president titles. Some look at this transition as an opportunity to lead differently, while others see it as a loss of stature and power.
At a macro level, many say the trend is past due and is a logical transition to a team-based approach to healthcare that is already well underway clinically at organizations that seek to thrive in a future where success will be determined by the level of value a healthcare organization can bring across populations.
Silo vs. system
The hospital, for a variety of reasons, is increasingly viewed as a cost center by many healthcare organizations. That is, in managing the health of populations, the object is to keep patients out of that most expensive site of care, if possible. Certainly achieving that goal is marked with fits and starts, and health systems can't do it without support from reimbursement mechanisms that have to change.
One outgrowth of a requirement to manage the health of populations is the importance of scale, which has brought rapid consolidation. And consolidation these days means not only shared governance at the corporate level, but also a reshuffling of management talent and responsibilities that accompany a transition from a holding company to an operating company organizational model.
The result: Individual hospital CEOs have to make the transition from having ultimate authority to being part of a team. Not only is this transition reducing the number of chiefs, but it also reflects what's going on clinically as these organizations try to better coordinate care across a multitude of sites.
David Brooks was once a hospital CEO with Providence Regional Medical Center, which was part of Providence Health & Services. Now, 18 months after moving voluntarily from the Seattle area to his hometown of Detroit, he leads a larger organization as president, not CEO. Brooks leads St. John Hospital & Medical Center, which is part of Warren, Mich.–based St. John Providence Health System, a six-hospital system owned by St. Louis–based nonprofit giant Ascension Health. It's a transition that doesn't mean much to him from an ego standpoint, but it's easy to see how it could for others.
"When you take that broader perspective, you think less as a silo and more as a system," he says.
But Brooks insists that now he's doing the work that he feels is most suited to building a better system of coordinating, organizing, and providing quality care—not just running a financially successful hospital.
"In moving toward a more population health–driven focus, the pressure comes from our systems and cultures not being set up for that," he says. "Good leaders know we need to think as broadly as we can. If we're going to be accountable for a population's care and their costs, we have to think of things as a system."
Like many other systems that are national or regional in scope, Ascension has been working on moving away from a holding company structure. Given the growing importance of being competent in maintaining and improving the health of populations, the operating company model holds a lot of appeal, Brooks says.
"The holding company model hasn't worked because it's clear that the performance hasn't been where we need it to be," he says.
While the holding company model may have improved standardization between hospital units, it didn't eliminate a lot of cost redundancies, it didn't create regional alignment, and it didn't create systemwide care protocols.
"It's tough emotionally moving through to an operating company model, but done well, that total system of care should be leaner and more consistent, and drive the triple aim much more effectively with better alignment on strategic goals," says Brooks. "You can't do that in a holding company model, because everyone has their own fiefdom and that doesn't accelerate performance."
Changing roles
Englewood, Colo.–based Catholic Health Initiatives, which owns or operates 87 hospitals in 18 states, has been transforming from a holding company to an operating company model for more than nine years; it's a long process and part of it means that local and regional leaders' roles have changed, says Michael T. Rowan, whose title, until recently, was executive vice president and chief operating officer of the system. He retains the COO title, but he's also now president of health system delivery.
"It used to be that the most applicable skill set was whether they had run a hospital before and how well they did that," he says. "That was the primary driver of the health system. Now, we're not hospital-centric."
Recognizing that new systems of care require new roles for leaders, the system has separated the local or regional CEO responsibilities from the job of the hospital president.
"We're now seeking a broader perspective on health from the CEO, so we're looking for a different kind of person," Rowan says. "For that role, we need someone who can create an entire continuum of care that works in a coordinated fashion."
Conversely, the hospital president's focus is expected to be more operational within the hospital. While CEOs at CHI must be leaders of the market working across the entire continuum of care, the president's primary responsibility is cost-effective care moving through the hospital. Therefore, the roles have widely different success metrics and expectations, he says.
"If you're the president, your goal is to move people through effectively, to lower length-of-stay, and to lower cost per case-mix-adjusted admission while at the same time improving
clinical outcomes. That's a very different job than the CEO who is the market leader and who must improve what percentage of second-graders have had their full course of immunizations or the percentage of seniors who have had their flu vaccine," says Rowan, offering an example of the distinctions.
More focused
Rowan's own role has changed as well, most recently in February, as the organization shifted two of its top leaders into more precisely defined roles. Rowan's oversight now includes the organization's core business line—87 hospitals and hundreds of other healthcare facilities in 18 states.
Given CHI's expanding offerings, which include massive investments in the risk side of the business, Dean Swindle, who is the system's chief financial officer, will retain that title but is also president of enterprise business lines. He will oversee finance and accounting, payer strategies, revenue cycle management, supply chain, and clinical engineering, among other areas.
Swindle also will highlight and identify new business ventures, ensuring that they are fully developed and that they have the resources necessary to achieve both growth and operational objectives.
Meanwhile, the system's CEO, Kevin Lofton, drops the president title and will focus on CHI's strategic direction and growth initiatives, including potential partnerships and consolidations with hospitals and health systems and other health-related organizations.
Behind the executive title changes is a conviction that CHI needs to become an integrated system nationally rather than a federation of affiliated organizations, and the reorganization at the top clarifies reporting structures and ensures the system operates as a comprehensive, integrated healthcare system, not a collection of hospitals. Rowan says a renewed push to quickly define the transformation came from the speed at which health reform is progressing from both the government and the commercial side. One reason the operating company model holds appeal is because of reduced variation, but also because the skills it is developing and acquiring through strategic corporate hires will pay off only with systemwide adoption.
"We have to bring in new people, for instance, with a plan development and insurance background," Rowan says. "For the most part, our individual hospitals cannot afford that talent by themselves. So that becomes a shared resource and you see integration there."
To take financial risk, he adds, health systems have to be able to collect rate data on populations as well as individual patients. But collection is only half the battle. Health systems have to analyze and manipulate that data and use it to make decisions. A data repository is expensive and, again, most facilities and even regional markets can't develop them on their own.
"Across the system, you have to learn to share resources, and the key to that is you have to have more and clearer standards—in other words, a CHI way of doing things," Rowan says.
For example, he notes that the organization once had 18 different definitions of an admission. Exercises as simple as determining a systemwide definition of an admission force a different kind of integration and cooperation around a set of standards. And standardization doesn't just affect the business and administrative side—systems also have to hold clinical providers to certain standards. Rowan says this is because, as you take risk with populations, you have to deliver care at a high level within a fairly narrow range of outcomes and costs.
"You can't afford a heart surgeon, for example, who does a bypass that costs $35,000 when you can go next door and a different surgeon is doing the same procedure for $18,000," he says. "You can't have that variability."
Leadership roles are no different, as far as variability is concerned. Such leaders, at least at CHI, must operate administratively within a narrow range of variation. The key challenge, Rowan believes, is that CHI and the healthcare industry have to come to grips with the fact that healthcare is moving from being a cottage industry with local standards to a big business with, in CHI's case, an altruistic mission, which means dealing with complexity in a much more sophisticated manner.
"In the past, if you were the CEO, you had a lot of room and authority and autonomy. That's being significantly narrowed. When I got here in the '80s, if you were the local hospital CEO you were probably king of your community. You contracted locally. There was a lot of influence because you could throw around service contracts and things like that, and you were a very significant business leader in the community. As we've evolved, as a local CEO, you might have moved from being president of your autonomous local hospital system to, now, one of 45. So you don't have that flexibility."
Rowan admits that CHI has lost a certain element of executives who have said this new type of work isn't what they signed up for.
"Execs react to this very similarly to physicians," he says. "The world has changed substantially, and some have taken well to it and some have not."
While the loss of experienced leaders who dislike the new role may have a downside, that natural selection has allowed CHI to recruit, by and large, leaders outside traditional areas, younger people who come in with a different set of expectations and skills. There is a certain drawback to the transition, however. Some elements of local character may be lost.
"Some say all healthcare is local, and historically that's been true; but it's been a mixed blessing because there shouldn't be different standards of care depending on where you are and what hospital you go to," Rowan says. "The other challenge is that the U.S. is made of many regions that are very different. So it's different when you put someone from the Northwest into the Deep South. Culturally those places function differently. We do begin to lose some of that local character, and there's probably some disadvantage in that."
Centralizing support functions
St. Louis–based SSM Health Care also is undergoing a rapid evolution of leadership roles. President and CEO William P. Thompson rolled out a reorganization plan last October that not only changes roles of many top leaders, but also, he believes, better integrates SSM's recent acquisition of Dean Health System. Among Dean's assets is a Wisconsin-based health plan that provides SSM the foundation platform for its efforts to manage the health of populations in the four states and 18 hospitals in which it does business.
The reorganization also removed some of the local support CEOs have had in the past in favor of corporate consolidation of those roles. A year ago, Thompson and the board decided to consolidate all major functional support areas.
Now, a central department of planning, finance, human resources, and communications for the entire system takes over for what were functions, and jobs, traditionally handled by local leadership. Some local control still exists, with local executives reporting to senior vice presidents at SSM. The goals are to ensure SSM has a consistent level of service in those areas in each of its markets. Second, it provides a means to transfer discovery of best practices across the system as quickly as possible.
"That was not easy to do when functions were siloed and separated," Thompson says.
Moreover, that reorganization of roles is the start of moving from what Thompson calls a "loose confederacy to a single operating company." The other major change in management philosophy is that SSM plans to operate in three distinct business units to help ensure cohesiveness: a hospital unit, a physician group unit, and a health plan unit. Restructuring the leadership at the corporate level also allowed SSM to bring aboard more physicians leadership roles.
"In particular, physicians are underrepresented in leadership," Thompson says. "When they were subordinate to hospital operations, their goal was to keep the hospital filled."
Two of SSM's unit leaders are physicians, and Thompson says they will work together because at the system and regional levels, they all have exactly the same goals and objectives as part of their performance evaluation.
"For instance, we expect to see 5% growth in patient service revenue, and certain levels of performance in quality, safety, and satisfaction, across the continuum," Thompson says. "Our expectation is that those business unit leaders will sit at the table and together determine the best opportunity for growth as a system. Working together, how can we lower the cost?"
Balance and pace of change is critical. Some 80% of SSM's systemwide revenue is still fee-for-service.
"We are still rewarded financially by having more admissions or providing more MRIs," Thompson says. "This type of strategic planning, and the reason to implement it now, is for when we reach a tipping point where we move from hospitals being the primary drivers of revenue into a capitated methodology where we assume not only performance but financial risk of delivering care to populations."
The success metric
Ultimately, systems like SSM will be evaluated on whether they can attract and retain patients. The "success metric," as Thompson calls it, will be the number of covered lives in the population for whom SSM is responsible.
"Regardless of the financial model, people will still go to providers who make it easy for them to get an appointment, who can reduce wait times, and who can make fewer mistakes and errors," he says. "That's a model we can implement today that will also be successful in the future."
But Thompson concedes it's been a difficult transition with some of the local talent. Selling the message that local leaders weren't being devalued by shrinking their responsibilities, resources, and autonomy is difficult.
"One of the ways we're positioning it is that we're not taking things away from the hospital presidents so much as giving them more time to do the things they do well," he says.
Sometimes, such leaders don't see it that way. The broader issue, and what Thompson is convinced is best for the organization in the long term, is that hospital presidents don't necessarily need to be engaged in the broader strategic plan for a region.
"While it is important for regional hospitals to participate in the strategic conversation, it is more critical that they spend their time implementing and improving strategic performance," he says.
Although the health system has not yet rewritten job descriptions to reflect the new reality locally, Thompson says they're working on it.
"We purposely don't use the term CEO, but we focus on the need to deliver high levels of service within the four walls of the hospital they're responsible for," he says, offering three areas of interest. "They still have to focus on that episode of care within the hospital, and second, he or she has to be fully engaged with physicians and employees because he or she doesn't deliver care at the bedside. Third—and this goes hand in hand with delivering quality and value—they have to be very strong expense managers."
Thompson says that's because the resources SSM—and, indeed, all health systems—will be able to devote to inpatient care will be challenged in the future. How to do it with fewer resources is the question he wants his hospital presidents to try to solve every day.
Communicating the message
Thompson and the board at SSM, for example, don't want local presidents to have to worry about things like human resources, a job that can be done more cost-effectively and with better standardization across the system.
"Or if we have an outstanding person in marketing, why not leverage that across the entire system?" he argues.
But he realizes such concepts can ring hollow to a certain cohort of leaders who are used to running their own show.
"Intellectually, they get it until the day arises and there's no longer a VP of planning sitting next door and they can't develop a program locally," Thompson says. "That's where the intellectual and visceral intersect. But each of them plays a critical role in the success of our organization as a whole. Unless they are delivering the best-quality care within their area, the whole organization will be suboptimized."
Thompson admits the transition, which extends well beyond redefining the local top executive's role or duties, is a learning process.
"We have not done it as well as we could, but we're moving so fast as an organization that more than once in a while, we are not doing a good job communicating the whys and wherefores."
He cites the example of his recent letter to the entire group of local presidents concerning benefit changes about which he received some vocal pushback. On reflection, he realized the letter did nothing to explain why the change was being made.
"We did it because we wanted to reduce variation and try to become more equitable and eliminate the special deals in return for values of fairness and respect," he says.
Such rapid change in roles means SSM runs the risk of losing talented people it wants to retain, says Thompson. Part of the effort to prevent those losses in talent runs directly to his office and is a matter of good talent management.
"One of the things we're learning is we have to do a better job of identifying our top performers and telling them that often, no matter where they are: 'Your job may be changing, but you are a vital contributor to our success, so we want to know where you want to go in the organization. Just because you're doing this job now doesn't mean there won't be future opportunities.' "
Besides, he says, even if the role of hospital president is more limited than in the past, there are systemwide opportunities to chair task forces that give presidents an opportunity to display their capabilities to a larger audience. Slimming down responsibilities in the name of better focus applies to him as well.
"Literally every day, I ask myself what I need to be involved in and what I can pass off to someone else," he says. "More and more, my responsibilities are to the system as a whole."
And responsibilities, while lessened in some areas, are broader in others.
"We're still calibrating this," he says. "But ultimately, because of our triad structure, it's more important to the business unit leader to get the support of other members of the triad than it is to get my approval."
Making the change
The transitions in responsibilities that Ascension, CHI, and SSM are trying to implement at the local leadership level have been less jarring for St. John's Brooks than he anticipated. He realizes that even as a president and CEO, he was never in total control and those who think they are, even at the very top of the organizational chart, are deluding themselves.
"I've never thought of it that way. The stakeholders we have, the constituencies, the complexity, has always led to leadership being a team sport," he says. "The CEO is captain, but should be very team oriented. Frankly, if total control is what you need, these aren't going to be the right roles for you."
On the other hand, if you like to be a leader in a team construct and can work well in a "matrixed" management environment, "you'll find great support in real tough situations," Brooks says.
"There's a tradeoff, absolutely. If you need minimal ambiguity, this won't work, but think of the other side of the coin," he says. "When you're in total control, it's lonely because it always falls to you. But if you want to flourish in an environment that can adapt and move quickly, this transition can be complicated but wonderful."
Today's local leaders have to want to be collaborative.
"Leadership's job is to make improvement. That's the only reason we exist," Brooks says. "If it's about turf, that will all feel very antagonistic. Our role is to create great systems of care. Not great hospitals or great doctor's offices or great home care. It all has to fit together. The joy is you're not just limited to the walls of the acute care model."
Reprint HLR0514-2
This article appears in the May 2014 issue of HealthLeaders magazine.
