For a variety of reasons, many healthcare organizations have delayed the necessary operational moves they need to make to be able to compete on value. There's still time, but not much.
I promised to come back this week with some solid recommendations for those of you who have delayed the transformation of your business model from a volume-based one to one based on value. It's the current holy grail of healthcare to make this transformation, yet many obstacles stand in the way, not the least of which, for many of you, is survival.
Let's be honest: It can cost a lot to transform. Changes in labor, internal and external incentives, possible loss of volume, bad IT engagements—all must be factored into a transformation of this magnitude. CEOs like to tell me it's like turning a battleship—slow. Wouldn't it be nice to just have to turn it once? I'd argue it's more like navigating a clipper ship around the Cape of Good Hope—lots of twists and turns, with strong winds and storms likely. Subtle and sometimes not-so-subtle course corrections will be required.
Many organizations are hoping to navigate this transition by forming or joining an ACO. But that's just a destination. Getting there is the bigger challenge. Some hospitals and health systems are way down this road. They've spent precious capital on hardware and software and labor to better coordinate care and, ideally, provide less costly interventions before more costly ones are required.
But many, perhaps most, have not.
"For some groups that have not done any of this, it's a huge marathon," says William DeMarco, a consultant from Rockford, IL, who helps organizations prepare for value-based reimbursement by helping them build ACOs or other value-based operational constructs.
"When we see estimates of what it costs to launch an ACO, they're often in the millions of dollars and have scared the daylights out of a lot of people, and that's before they realize that the ACO is probably not the only thing they'll be spending money on."
DeMarco says such estimates are often overstated. But even if they aren't, focusing on how much it will cost as a reason to delay investment in transformation is counterproductive. "Whether you form an ACO or not, you'll still have to spend money to get ready for reform," he says.
And ACOs get results, he says.
But whether or not you decide to form a full-fledged ACO, building the expertise and knowledge to operate within one is critical and should not be put off.
Make Primary Care a Focus For instance, regardless of whether an ACO or even participating in Medicare's shared savings program is in your immediate or short-term plans, making primary care a focus, using case managers and paramedics to better coordinate and steer care to lower cost areas will be invaluable.
"It's not so much something you have to do, but you can do it and save some money," DeMarco says. "Contracts will get better and savings will come back to you."
He mentions a new program in Minneapolis that provides additional primary care training to paramedics. If they're sent to a chronically ill patient, that training has paid off handsomely. Usually, the ambulance has to go to the ER first, but with additional training in primary care, paramedic crews can assess a situation and exercise judgment on whether a particular patient actually needs to go to that high-cost treatment site.
"For this paramedic program, for every dollar spent, they're getting nine dollars back," says DeMarco.
He says this example shows much of the delay in refashioning how care is delivered is not necessarily predicated on participation in ACOs or Medicare shared savings, and is misplaced.
"It gets back to the failure of clinical integration for many hospitals because they did not see it as a financial plus for them," says DeMarco. "They only saw that it would reduce the number of stays and readmissions, and would thus reduce dollars in revenue stream, therefore it was not rewarding to do it proactively. But now, they are punishing you for some of these failings."
The fact is that managing chronic care is becoming more important as the population ages, and investments in better coordination as well as seeking the most efficient use of expensive health resources will pay off through rewards or penalty avoidance.
Lose the Old Thinking Part of the struggle is getting healthcare executives to let go of some of their old internalized attitudes about what's "good" for the hospital and getting back to focusing on what's best for the patient. That sounds simple, but it's far from it given how hospitals and physicians have historically been reimbursed. Personally, I've heard tales similar to the following:
A patient comes in with bronchial symptoms, and stays overnight on suspicion of pneumonia, but the hospital or physician doesn't get an antibiotic prescription to the patient for three to four days after discharge. Some organizations have even waited for six or seven days with hopes they could put that patient in a ventilator unit. It would mean more money, after all.
Except often, even now, it isn't. The hospital would not be reimbursed for the additional days in the ventilator unit, but the thinking among those who make such decisions at a patient care level had not changed.
Even disregarding the many other problems within such a scenario, why would you fill a bed at a loss?
I don't know if the tale is true, but the fact that it's even believable—and it is—is ridiculous. Yet it fits the strange ethical minefield that's created by the volume-based payment scheme. A head in a bed is not good, even financially, if you fill it at a loss. Left unmentioned, of course, is the ethical issue with treating a patient in such a way as to derive maximum reimbursement from a flawed payment model.
Making such bets on reforming patient care can be risky work, but the return on investment is becoming more definite. Sometimes there's an assumption that the big health systems are the only ones doing this work because they have all the resources and experience and the little guys don't, DeMarco says.
But there are companies that will manage a complex accountable care platform for a per-member, per-month charge, limiting the capital outlay necessary to begin transformation. As the transformation builds momentum, further capital investments can be contemplated and ROI can be better assured.
"The era of fee-for-service medicine is being replaced. What does that mean? Shared risk. We're past the tipping point on that," DeMarco says.
"More than 40% of Medicare eligibles are either going through an ACO or a Medicare Advantage program. That permanently changes Medicare in terms of reimbursement and conditions of participation. There will always will be some fee-for-service. But for the vast majority and as the differentiator, you need to get ahead of this ball called risk."
Here's the dilemma for hospital and health system leaders: Many feel their reimbursements will ratchet down regardless of whether or not they make the big investments needed to transform their business models.
More than half of hospital and health system CEOs who participated in the 2014 HealthLeaders Industry Survey (61%) expect their organizations to record flat to negative financial results in 2014. Though many expressed a better degree of understanding of how healthcare reform efforts from both public and private actors will affect their margins, the reasons why are myriad.
If you've spent heavily investing in labor, capital and IT to help coordinate care and improve quality, you may see similar negative results to those who have largely ignored the call for reform. The picture isn't pretty for the majority of healthcare organizations regardless of their commitment to value-based care. But expect the margin stories to diverge from here.
Our annual industry survey is a massive effort that produces massive insight. We break out a CEO-only report as well, and I'm annually in charge of writing the analysis.
But I wish I'd gone for a stronger lead this time.
The fact that the majority of hospital leaders think that they will have either flat or negative results for the year is compelling. It suggests that they not only will feel the effects of a ratcheting down of reimbursement and a ratcheting up of risk-based payment, but that they increasingly won't have additional dollars to be able to invest in the labor, data analytics, data capture and coordination of care that will be necessary to perform at a level consistent with a positive margin.
Or have they already invested? That's not clear from responses to the question above.
For that reason, let's not read too much into this one data point. Maybe some who will stay flat or report negative results expect to do so because of the investments they have to make to compete under value-based reimbursement, not because of the reimbursement regime itself.
But regardless of the reasons, my take-away from that question, and from recent conversations with CEOs, is that a big portion of them feel that their organizations are under siege. That's reflected in their margin expectations for this year.
Here's the dilemma for leaders: Many feel there's no way around making big investments that may or may not pay off. That is, reimbursement will ratchet down regardless, and whether they make the investments necessary to transform their business model now or later, they'll only be rewarded by losing less money than they otherwise would—maybe.
Uncertainty can be a great reason for standing pat, but make no mistake: The organization will fall further and further behind.
Perhaps some of the angst reflected in the responses to this question is temporary. Many CEOs, after all, have not paid the proper level of attention to making these investments prospectively, as their systems have continued to operate largely under fee-for service payment schemes. In a sense, and paradoxically, a deferment of investments in critical labor and infrastructure needed to compete under a largely value-based reimbursement methodology helped keep from infringing on results to this point. But that bill is now coming due.
The writing has been on the wall for several years now that hospitals and health systems would have to change the way they do business. Deferring might have been nice or even necessary, but others are now way ahead.
Catching up may not be as painful as you think, though you may have a few more years of those expected negative financial returns, and the pain level goes up the longer you put it off. The investment in the future is necessary, if painful.
In any transformation, pioneers get the worst of it though, and there are many sources of help now that didn't exist four years ago. There's a track record from early adopters. Companies are springing up to help hospitals and health systems compete and gather data, lowering the table stakes of playing the volume reimbursement game.
By now, others have made mistakes that you can learn from. The research, from us and from others, is out there. You just have to mobilize your team to get it, and give them permission to devise a way through the transition that puts the least amount of pressure on your bottom line for now, but also into the future.
It's a tough balancing act, but only you, as the leader of the organization, can attempt it. So how do you get going if you've hitherto employed a strategy of delay, delay, delay?
I'll be back next week with some suggestions from someone who's been building ACOs and helping transform volume-based healthcare organization for the past three years. He says there's light at the end of the tunnel, and it's not an oncoming train.
When healthcare outsider Carlos Migoya took over as CEO of one of the most dysfunctional public hospital systems in the nation, Miami's Jackson Health had lost hundreds of millions of dollars and was on the cusp of being sold to a for-profit chain. Three years later, things are very different.
Carlos Migoya, President and CEO of Jackson Health System
During his 40 years as a banker, Carlos Migoya spent a lot of time making personal calls on businesses. He says he usually made between 20 and 30 calls a week. That level of contact helped him develop a strong sense about which businesses were likely having major problems.
"It got so I could quickly tell the difference between what was a well-run business and what was not," he says. And how did he feel about Miami, FL-based Jackson Health System?
"I had never seen a place that was as broken as this was."
Migoya had little to prove. He didn't need, or initially ask for, the job to help fix what was so broken. In what was widely seen as a last-chance opportunity to keep the health system under county ownership, Migoya came to Jackson in May 2011 as its president and CEO after a year as Miami city manager, which followed his retirement from banking.
He certainly didn't need the money. Retiring from the last of several senior positions at Wachovia Bank took care of that. In fact, he donated $160,000—the bonus he earned for turning around Jackson's money-losing ways—back to the hospital itself.
"I wasn't doing this as a career move, but as a community one," he says.
Big System, Big Problems Jackson's turnaround is a big story for a lot of reasons. For one, public safety net hospitals are often poorly reimbursed compared to their competitors, but it's mostly a big story because of how deep in the red the organization was, how it had become a national laughingstock for incompetent management, and simply because of how big it is. The main hospital, Jackson Memorial, has 1,550 licensed beds, and it's only the biggest of six hospitals in the system.
Migoya came aboard as the hospital evaluated a takeover offer from a for-profit suitor. The offer was billed as a billion-dollar effort, but Migoya says it really amounted to assuming Jackson's huge debt and committing to making capital expenditures for several years. No cash.
"It was essentially takeover payments, like they say in the car industry," he says.
Migoya convinced the board to let him and his team try to crack the problem before making any rash decisions such as selling out.
"When I got here, there was little accountability, and little control over what was going on," he says. "Frankly, sad to say, very few department managers knew their budgets, much less where they stood against them."
Thankfully, the level of clinical care quality was high, he says, freeing him up to make administrative moves that he was confident would turn the financial tide. Migoya put together a leadership team made up of individuals who were used to accountability and put them to work overhauling the rest of the senior administrative staff. He says hiring the right chief operating officer and chief strategy officer were his best decisions.
'Never Waste a Crisis' "What we needed was the right strings pulled administratively to not only stop the bleeding that happened in the past, but to determine how to grow going forward," he says.
Migoya's new COO and CSO found other attractive, experienced hospital executives to join the senior leadership team, and all recruited heavily from for-profit hospitals. Ultimately three-fourths of the senior administrative staff was turned over, Migoya says. By the end of the 2012 fiscal year, the first for which Migoya and his team were responsible, they had turned a predicted $400 million annual loss into an $8 million profit just by implementing and holding managers accountable for basic business best practices, he says.
"Never waste a crisis," Migoya says. "Jackson was literally about to close its doors if we didn't do this transformation," he says. "Our days cash on hand were in the single digits and we had over 120 days in accounts payable. We had to make some radical changes."
Migoya says his most important duty during this time was making the case to county commissioners and unions that difficult choices had to be made in the restructuring.
"That was difficult for unions to understand and difficult for the commissioners," he says. "But over time, we delivered on our words and we've built much better relationship with both county commissioners and the unions."
The numbers were significantly better in 2013, in which the health system booked a $45 million profit. Migoya says profit would have been higher, except that to invest in the future, the health system added staff in clinical areas and invested heavily in information technology. Even a $1 million loss last December thanks to increasing numbers of self-pay and uninsured patients was only a small blemish on the turnaround.
More Work To Do The turnaround is nice, but Migoya insists the current Jackson team is only half-finished. Now that its finances are stabilized, he says the system's "sentinel" strategy is to make sure it becomes an attractive hospital for all patients. That means transforming the hospital's payer mix to some degree. Like most safety net hospitals, Jackson depends a great deal on government reimbursement. Medicare makes up about 15% of its payer mix, and Medicaid, 35%.
"We also want to get away from the stigma that people come here only if their life depends on it, and go somewhere else for everything else," he says. "Modernizing [the] plant is a big piece of that. Getting employees to be more patient-centric, to focus on patient satisfaction, and, last but not least, that the management team caters to managed care companies to make sure we have competitive rates."
The capital to fully implement that strategy came in an $830 million capital bond approved by Miami voters last November that will provide funding for modernizing the existing campuses as well as adding urgent care centers, a children's ambulatory pavilion and a new rehabilitation hospital. That will make Jackson attractive not only to local patients, Migoya says, but to medical tourists.
"Jackson deals with a lot of people who have huge trauma. Somewhere else is where they often go for rehab care. So having a rehab hospital that people will use here will attract medical tourism," says Migoya, noting that Miami is a gateway to Latin America.
An important factor in getting the bond issue passed was the creation of a citizens' advisory board ensure the funds will be used as intended. That's part of our transparency," Migoya says. "We will create a website where anyone in the community can see how much money [from the bonds] we've used, and for what purpose."
Focusing on the future will be important, he says, because the radical transformation of the healthcare industry will be a negative for Jackson, especially the health insurance exchanges and the fact that the state of Florida has not yet expanded Medicaid.
"Legislators are dragging their feet," he says. "If we have expansion, the negative impact to Jackson will be $75 million next year. Without it, the negative impact will be closer to $150 million. So that's one more reason to make this an attractive place for paying patients. We have to offset that and we won't get tax money to do it."
Medical equipment tagging is saving a New York hospital hundreds of thousands of dollars a year. Its savings on patient tagging will be known soon. Next? The COO is considering employee tagging, to monitor hand washing and reduce infection rates.
Paul Milton sees his chief responsibility as chief operating officer of Ellis Medicine as trying to make the hospital and health system more efficient. It was not always that way, says Milton of his five-year tenure at the 438-bed community and teaching hospital system in New York's Capital region near Albany.
It's not hard to pinpoint when he shifted his attentions to efficiency.
It was 2008, when the health system merged two community hospitals driving heavy volume to the remaining facility's emergency department and general patient population.
"So we really had to get on our game because of the volume increase," he says.
Good thing, because that crisis provided the motivation to tackle bigger things later. Moreover, he says, Ellis caregivers had to get on their game because efficiency—in patient care, in wait times, in patient satisfaction—is an increasingly critical ingredient in the recipe for success, no matter where organizations are on the journey of replacing a volume strategy with a value one.
"We needed to do as good a job as possible to make sure the patient flow and length of stay and discharge worked really well," he says. Because Ellis Hospital had to take over ED services from the merged hospital that closed to inpatient care, volume increased dramatically—17 beds were added over the course of 90 days to the Ellis Hospital ED. Patient flow was the chief challenge in integrating the two into one.
"With everything we were doing in trying to improve flow, I was thinking about how we could make sure the nurses' time is best spent with patients and not running around looking for an IV pump," he says, noting the chief time-waster his team identified.
Thanks to a local partnership with GE, which has a large presence in nearby Schenectady, he got an early demonstration of how RFID tagging could work to reduce nurses' time spent locating equipment and decided installing it was the right move operationally.
The tagging easily identified the location and status of each of the 500 IV pumps the hospital was trying to track—to that point unsuccessfully. An incidental discovery was that the hospital was oversupplied with the devices.
"Once we redid the workflow and we tagged all the pumps, instead of needing 500, I [realized we] only needed about 340," says Milton. "That value was roughly around $400,000 a year. Multiply that by three years and that's where you get $1.1 million. We used those savings to purchase the technology."
Milton says he works most frequently with the operations team in avoiding backups from the ED, which can mean patients waiting for a bed, a big no-no given the culture leaders at Ellis are trying to integrate.
"The focus on overall flow includes a lot of different departments: Transportation, the whole registration department, the case managers," he says. "And increasingly, [CMS's new] two-midnight rule is getting a lot of attention."
With tracking technology already in place, Milton says adding patient tracking tags was as simple as assigning them to patient. That way, the staff can further streamline patient flow from the ER.
"My thinking all along was to start small and build on it, so after success with IV pumps, our next wave was tagging patients when they come into the ER," he says.
RFID tags on patients track them from the time they register at the ED to the time of discharge either from the ED or from an inpatient room. Implemented only three months ago, Milton says it's too early for definitive results on wait times, but he will soon have more data he can review on those metrics.
"We're getting really good data for patients who, for example, go down for X-ray, and the system does some automatic prompts that should help the staff," he says. "The staff are pleased, particularly at the end, with discharge. They cut off the wristband and throw it into the RFID box, which sends environmental services a message saying that room's ready to be cleaned. It's definitely gotten us more efficient on turning over the room."
It's all part of what Milton says is a no-wait culture organization-wide, primarily focused on improving the patient experience.
"Whether with value-based purchasing or specifically with HCAHPs, we look at wait times from an ER patient from the time when they're registered to when they see the physician, to when the decision was made to admit, to when the patient gets to the room. Those stats we look at daily," he says.
And they're not finished with the potential of RFID tagging.
"The GE guys are on me to tag employees," he says. That initiative has to do with hand hygiene and infection.
"I'm willing to be an early adopter with minimal financial risk to test out this technology, which records whether caregivers go into patient rooms without using the sanitizing dispenser," says Milton. "I'm going to know if you're doing that. If that reduces infection rates, we'll save a lot financially and also the patient will be safer."
Jeffrey Parker has worked for famous food corporations and as an executive at his alma mater, but has found his most satisfying work in his position as CEO at Calhoun County Dental Center. Now his dental centers provide care to the subsets of people that need him the most.
This profile was published in the December, 2013 issue of HealthLeaders magazine.
Ten years ago, Jeff Parker, after a successful career as a high-level executive at ConAgra Foods, General Foods Corp., and Sara Lee, found himself retired to a South Florida barrier island where, as he puts it, he spent his time "getting older but still wanting to contribute to society."
He decided to put some of his money to good use by endowing a scholarship for 75 students and shortly thereafter became an executive in residence at his alma mater, Jacksonville State University in Alabama. He occupied that chair, but he still wasn't scratching the itch of entrepreneurship and he was disillusioned after helping at least a couple of people at the university's entrepreneurial center develop successful businesses. He never heard from them again.
"Later, I was asked by a dentist to look at and offer some advice for an underperforming, nonprofit dental center for Medicaid children in Anniston, Ala."
Before he knew it, the founder of what was then known as the Calhoun County Dental Center, a retired cardiologist named Warren Sarrell, asked him to lead the nonprofit. He accepted and became CEO.
The original dental center was founded in Anniston, Ala., by the Community Foundation of Northeast Alabama to provide dental care to a subset of the population that private practice dentists frequently refused to see because of low reimbursement—kids in that county eligible for or on Medicaid. Parker was brought on to grow it. And grow it he did.
Now, after eight years of steady growth, the still-nonprofit company employs 250 people, has 34 straight quarters of patient growth, boasts 14 clinics statewide (of which five also have optical capabilities), and is serving as a model for states nationwide seeking to improve dental (and now optical) care for their economically disadvantaged population. Last year, the Sarrell Dental and Eye Centers (named for the founder, who died in 2012) had 135,000 dental visits and 9,000 optical visits for what had been a severely underserved population.
"Six of 10 Medicaid eligible children in this country cannot see a dentist," Parker says, explaining that many dentists don't take Medicaid patients because they do not reimburse at the same level as private insurers or a cash-paying patient.
The idea that Medicaid and the Children's Health Insurance Program don't pay enough is a myth, Parker contends, with evidence to back up the claim. Strangely enough, the organization has succeeded at least in part by driving down dental costs. In fact, the company's average reimbursement per patient has gone from $328 in 2005 to $125 in 2012. Scale has been the key, including electronic health records and digital panoramic x-ray machines. That, and salaried dentists.
"In other words, whatever is state of the art equipment, we have it, and it's paid for, off of primarily Medicaid and CHIP revenues," he says. "We don't rely on cash donations or grants to sustain ourselves. If I can build 14 offices with as good equipment as anyone else, with my major source of income as Medicaid and CHIP, there's enough money if you run it properly."
Good dental health has been cited as a key variable of whether someone is less or more susceptible to future, more serious health challenges, and the focus on prevention resonates in the imperative in all of healthcare to reduce spending and improve care. Parker has had battles with the state dental society for years over protecting their turf. Peace between the two groups has been the rule of late, because even though Sarrell is allowed to see adults and those who are not on Medicaid, the center does not actively recruits these patients.
Parker claims that Sarrell's model of dentistry—which forgoes the small-office, mom-and-pop profit motive of most private practice dentists—is largely what has allowed the organization to be so economical. It's also what attracts the best and brightest young dentists to practice there, he claims.
"I think it is difficult for anyone in America to rationalize how the CEOs of Cedars-Sinai, Children's Hospital of Atlanta, or even the University of Tennessee Medical Center, can do neurosurgery, heart transplants, and liver transplants and no one questions them," he says. "However, in over 40 states, the Dental Practice Act restricts a business person from using a nonprofit dental clinic for the underserved using licensed dentists to clean teeth and fill cavities. Personally, I feel this is a national disgrace."
Sarrell has about 60 dentists, 90% of whom live in the Birmingham area, the state's largest city. With only two offices in Birmingham, Sarrell rotates dentists among the far-flung clinics. All of the dentists undergo chart review from a chief dental officer, so dentists know they will be audited, which, along with straight salary compensation, eliminates any incentive for overtreatment.
"The overwhelming majority of our dentists are paid a straight salary," he says. "There is no incentive but to do the right thing every time for our patients."
To facilitate better outreach and recruitment of patients, the company employs a full-time community outreach person with college degree in every community it serves.
"We are recruiting the top students from the top universities in our region to Sarrell Dental, notably because of our competitive salary and benefits," he says. "But a differentiating factor is that we can also help some of the poorest children from some of the poorest counties in America."
Other states have taken notice. Parker says Sarrell is on the cusp of expanding outside Alabama, and he's now more satisfied than ever about his "retirement job."
"Some kid or parent thanks me all the time for getting dental care for their kids. There are different ways of getting paid, and that's a heck of a good one," he says. "We have had more than 500,000 patient visits without a patient complaint to the Alabama Dental Board."
In general, accountable care organization models are thought to carry too many variables and financial risks. Executives at smaller organizations balk because they see no structural model surrounding participation in ACOs that seems replicable.
Nearly half of hospital and health system executives have no plans to implement an accountable care organization or ACO-like model in the near future. Instead, they're waiting for ACOs to become more stable and secure.
If and when that happens, it may be too late.
Specifically, hospital executives find ACO models to be unstable and financially risky. That's one reason 46% of hospital chief executives in a recent survey reported no plans to participate in an ACO or ACO-like model in the near future.
The survey, conducted in October 2013 by Purdue Healthcare Advisors, a nonprofit consulting firm, showed that CEOs feel that either their hospital or healthcare organization is too small for an ACO-like structure (49%) or that there are too many unknowns and inconsistencies surrounding the models to take the risk of participating (52%).
Financial concerns, not surprisingly, surround the chief reasons top executives are unwilling to consider bringing the ACO model to their organizations.
Many Unknowns According to executives with PHA, the survey results confirmed what they had been hearing anecdotally from CEOs with whom they have consulting relationships. "There are all these unknowns as far as the model, reimbursement, what's the right mix of services in inpatient and outpatient and population health and how you pull all that together and remain fiscally viable," says Mary Anne Sloan, director of PHA.
Randy Hountz, director of PHA's Purdue Regional Extension Center, says the fact that many executives thought their organization too small to participate was not surprising, given that respondent profile shows that roughly 30% of respondents headed 100–249-bed hospitals and 40% headed organizations with 99 or fewer beds.
"Larger systems tend to have a better infrastructure to support some of these initiatives," he says. "They have more [physician] practices, which ACO models are dependent upon. Also, not all of these smaller systems have employed physicians. It's extraordinarily more complex if you don't.
Too Small to Participate? The "too small" complaint is likely shorthand for the fact that there is no architectural, financial, or IT model surrounding participation in ACOs that seems replicable, Hountz says.
Couple that with the fact that best practices, even if they are known, are generally not shared among organizations that see such "secret sauce" as a competitive advantage.
"There's a lot of competition, so if you do find a secret sauce, I don't know if that's for sale or borrow—as much as we as healthcare consumers would like to think that knowledge will be readily shared."
There is some good news about accountable care progress, even if these organizations aren't readily adapting to ACO models, Hountz says.
"Even those not becoming one are still working on medical home-like models, which still requires a change in thinking and significant culture change for a hospital to implement," says Hountz. "If you're a physician practice or health plan, it's a lot more natural projection to do these because you're focused on outpatient and preventive care anyway. With a hospital, it's somewhat counterintuitive."
Cost Cutting is Top Priority Further, 89% of survey respondents agree that cost pressures are significant generally, and that reducing waste and inefficiency is their number one strategy—not ACO participation. However, only 15% said that improving quality of care was their primary strategy for reducing costs. That's troubling, says Hountz.
"In many industries, improving quality is the way to become world-class in cost and customer value and perception," he says. "It doesn't seem like that's penetrated the healthcare market. [There are] tons of measures, so they don't ignore it, but it's not their primary strategy."
Instead, many, if not most healthcare organizations view cost reduction through a supply chain lens instead of a quality of care one, primarily because reimbursement, unlike in other industries, comes most often from a third-party payer, not from the patient or healthcare consumer.
Sloan says that line of thinking is flawed, and not only because patients are having to provide increasing levels of out-of-pocket funds for their own care. They are becoming more "customer-like" if you will. She says many healthcare organizations still view quality as only a clinical issue. While with cost efficiency, executives are thinking more around the supply chain. She argues that the two are not necessarily mutually exclusive. CEOs and other top executives still seem to think, says Sloan, that improving quality costs money.
"In reality that's not the case," Sloan says. "That is our biggest challenge in the healthcare industry, recognizing how those intersect and are dependent upon each other."
Sloan hopes that despite the risk they have to take to adapt to billing, IT, and quality reform tasks, smaller organizations don't sell themselves short.
"There are smaller organizations that may be able to very successfully implement these types of programs because of local relationships," she says. "They may actually do better because of their relationships or geographic location than some larger players. Larger systems do tend to have infrastructure capability, especially around the data required and physician employment models. It's complex. Certainly, larger systems could have more opportunity and resources. But I would hope the smaller organizations don't sell themselves short because they may have more resources than they know."
But even if they buy into the notion that improving quality pays dividends that don't easily show up on an income statement, not many top leaders are currently willing to take that kind of risk when it's uncertain that higher quality will pay off in the long run. Some of those concerns are justified, as many feel they can't count on staying viable long enough to make such investments pay off over a long time frame.
"The bottom line CEOs and CFOs are asking is how can we do this in an efficient way and meet all of these initiatives that we have to meet and remain financially sound?" says Sloan. "I was at an event recently with a couple of hospital CFOs. Their biggest concern was the immediate uncertainty of inpatient volume and whether health exchanges will increase the number of insured while they simultaneously see a rise in their charity cases and bad debt. That's hard to predict for CFOs. When you get uncertainty like that, you can only take so much risk."
Steven Sonenreich made waves when he announced that Mount Sinai Medical Center in Miami Beach, FL, would start publishing what it charges commercial insurers for procedures. While that promise has been partially blocked, he has not stopped in his efforts to increase transparency.
This profile was published in the December, 2013 issue of HealthLeaders magazine.
From Mount Sinai Medical Center in Miami Beach, Fla., Steven Sonenreich isn't afraid of making waves. He shocked many, including another health system CEO, during a radio talk radio show a few months ago by announcing that his health system would start publishing what it charges commercial insurers for procedures—something new that might make healthcare better or at least more affordable.
"We will post our prices relative to Blue Cross and Aetna, our contractual prices," said Sonenreich, during an appearance on WLRN 91.3-FM. He challenged other hospitals to do the same.
"We've all seen the cost of insurance rising at such an alarming rate, and that has caused the expense to the employer and the employee—in terms of employee contributions, deductibles, and copays—to also rise dramatically, and that's of great concern to me as an employer," he says.
The radio show visit was in the wake of the decision by the Centers for Medicare & Medicaid Services to release individual hospital reimbursement rates that, for the first time, allowed independent analysts to compare reimbursement rates among hospitals and health systems across the country, at least on Medicare and Medicaid.
The problem was and is that Sonenreich is not allowed to do what he promised—at least, not exactly.
Why? Contracts with insurers almost always preclude the release of this data on competitive grounds that some regard as dubious.
"The majority of insurers are marketing organizations that want to have the broadest network possible," he says. "They should do more to manage expense for policyholders in order to hold down the cost of health insurance."
Insurers argue that allowing hospitals to know what each other are getting from the insurer puts the insurer at a disadvantage. Maybe so, but conveniently, that custom also obscures whether the insurance company is in fact performing one of its key roles as an arbiter of prices for its customers—employees and employers. It dulls the incentive for the insurer to drive the best bargain, and it's yet another instance of opacity in an industry that is too unsafe and too expensive. Most agree that patients and employers would benefit from healthcare cost transparency as it relates to reimbursement rates, yet it's contractually forbidden.
Since that day on the radio, Sonenreich has walked back those provocative comments because he must. Instead of publishing prices for individual procedures, Mount Sinai will instead soon release its "blended rate" so as to avoid technically violating its contracts with commercial insurers. Sonenreich's determination to increase transparency in hospital-insurer contracting is not altogether altruistic. He's hoping the release will show his system as a low-cost, high-quality provider that could benefit local employers who might include Mount Sinai Medical Center in a so-called "narrow network" that would save costs.
He contends that most of the impetus for consolidation taking place in healthcare today is, for the most part, about monopoly power, and not economies of scale and scope that health system leaders tout when seeking approval for a merger. Yet he can't prove it to the general public because insurers insist on making the prices they pay healthcare providers a secret.
"Consolidation, which some would like you to believe is about efficiencies, has instead hurt competition and raised prices," he says. "When we looked at state data of large systems in our marketplace, the reimbursement and pricing they were able to receive from insurance companies was at times 45% higher than all other hospitals in the marketplace and their cost was 25% greater. So all consolidation did was drive up price and cost."
That's particularly true in south Florida, he says, because of the fact that the market is made up mostly of small and medium-sized employers who don't have the clout to force insurers to resist rising prices.
"When I look at rising cost of insurance for our organization and employees, it's alarming because a major component of price rises has been the consolidation of the hospital industry," he says. "What's occurred is we have many large hospital systems that are using that size to leverage insurance companies for much higher rates. They would like you to believe it's to improve operations, but it's really to drive pricing leverage."
Reimbursement rates for commercial insurers aren't the only place Sonenreich feels like his standalone academic medical center—a 672-licensed-bed hospital with four satellite centers that reported 2012 net revenues of $550 million—can make a difference. Similar "gag" clauses are embedded in contracts hospitals and health systems have with medical device suppliers.
"It makes no sense that vendors are able to charge different hospitals different rates for the same products," he says. "We want the playing field to be leveled. We meet the quality of others, so it's not fair that we should receive 40% less reimbursement for doing the same things others are doing. That makes it very difficult for us to grow our mission."
Instead of attempting to predict outcomes based on aging data, healthcare leaders should rely more heavily on forecasting, which is a less precise but more accurate gauge of how a strategy is likely to pay off, says a medical economist.
Health futurist and medical economist Jeffrey Bauer, PhD., was once a weather man. For the first six years of his career, he focused much of his research on when and where hail was likely to occur as part of a research grant from the National Science Foundation. Eventually, he left that interest in weather behind.
But even as he moved his career away from weather and into the "dismal science," of economics, he retained his meteorological roots by keeping his focus on forecasting, rather than predicting, the future. Now a well-known author and speaker for healthcare executive audiences, Bauer has a forecast for healthcare over the next decade, as radical transformation of the business model takes hold.
But a forecast is only one set of probabilities that can be assumed with varying degrees of accuracy based on current and future conditions. It's what you do with the forecast to adapt to future patterns that's the key to whether your organization survives the purge that Bauer sees coming.
Forecasting vs. Predicting His new book, Upgrading Leadership's Crystal Ball, focuses on ways healthcare top leadership can effectively work to reduce the probability that their scenarios will fail by employing forecasting techniques, rather than predicting techniques.
First, it's helpful to see the difference between forecasting and predicting, says Bauer.
"Predicting is trend analysis," he says. "You have databases, you look at past data, find a mathematical equation that fits it, and use that to extrapolate into the future. You look at how the relationships have worked in the past and you come up with your prediction."
But data from the past quickly becomes obsolete in the rapidly changing healthcare business environment. From changes in reimbursement protocols to the advent of the Obamacare exchanges to a multitude of other drastic changes in how healthcare services are paid for and evaluated, predicting has lost its efficacy, Bauer argues.
"If the underlying circumstances that created that data have changed, then extrapolating from that data gives you stupid answers," he says.
Instead of attempting to predict outcomes based on old data, healthcare leaders should rely more heavily on forecasting, which is less precise but a more accurate gauge of how a particular innovation in care protocols or basic business strategy is likely to pay off.
Using forecasting is more helpful in both healthcare transformation as well as with the weather because there are too many variables involved to accurately predict an outcome.
"Weather is literally unpredictable, so you need a different way to look at it, which is by estimating probabilities and possibilities and weighing them," he says.
A Realm of Possibilities The forecaster approaches the future as a realm of possibilities that can go any number of different ways. That results in a less specific glance at a possible future, but a much more accurate one, that will prevent unwise decision-making.
For instance, says Bauer, "we can look not more than a decade ahead and see a far more cost effective way to provide healthcare one-third less expensively. That leads us to consider alternative ways to provide it."
Ambiguity exists, so effective executives need ways to assign probabilities. That way, executives can seek out strategies to increase the probabilities they desire and decrease the ones they don't.
Fine, so leaders should think differently about how they gauge strategic initiatives in order to better predict how they will affect the organization, or indeed, whether to do them at all. But how does this philosophy translate into the real world of deciding where to invest your precious capital and labor?
Bauer says that in conversations with health system CEOs following his speeches, they do recognize the need to evaluate the future better. They want to target initiatives that will likely be successful under a new payment and quality dynamic in healthcare, but they aren't sure how to begin to evaluate things differently because their lieutenants are used to predictive modeling.
Courage to Change Few CEOs have the courage to change for a variety of reasons, he says. There are rigidities in practices that are tough to break, there's an unwillingness to take on the medical staff, there's a familiarity to doing battle with insurance companies rather seeing those negotiations as an opportunity to do business, and a substantial percentage of top leaders are "just cruising toward retirement," he says.
But breaking down those walls is exactly where the opportunity exists, Bauer argues.
"I make the majority of my living giving speeches to hospital execs," Bauer says. "The most common comment I get after my speech is hospital C-suite people saying what they hated about it is that 'deep down inside, I know you're right,'" he says. "But courage to make the changes doesn't match the awareness."
For example, Bauer's main "pitch," strategically, is that CEOs need to quit thinking that horizontal integration will achieve anything that will move the system forward or alter its business model.
"Moving from two hospitals in a large community under the same ownership to 7 or 10, I think, is generally a waste of time," Bauer says. "I think we need vertical integration."
Vertical integration is much more difficult to organize and achieve, he says, but breaking down silos and remaking the organization into one that handles many more healthcare interactions than inpatient is the key to survival. That means adding talent and pieces of the businesses that make up the healthcare continuum.
But how many people are really doing that? It's a difficult idea to implement because to make such a leap, healthcare organizations probably have to run the risk of failing to increase the probability of doing something good, says Bauer. Horizontal integration may fail as well, but it's easier and results won't be known for quite some time. There's no going back if you horizontally integrate.
'Don't Give Me Numbers'
Boiled down to its basics, Bauer's focus on forecasting over prediction means that CEOs should "quit assuming numbers will tell you anything," Bauer says.
Operationally, they should ask their other chiefs for the probabilities of success given several directions the organization could go to better achieve vertical integration. They should assign a likelihood of success to each of those options, and try to think of solutions to reduce the undesirable probabilities and increase the desirable ones.
Leaders need to develop scenarios to get the organization where it wants to be broadly. Defining that is the CEOs job. It's also the CEO's job to order his or her lieutenants to quit spending so much time analyzing numbers that are misleading.
"Don't give me numbers and spreadsheets," Bauer says, describing what he would like CEOs to tell their deputies. "I want thought, focus on the realm of possibilities, and how we can work with partners to come up with different and better outcomes. You won't get that through extrapolation of old data."
While adhering strictly to his reliance on forecasting versus predicting as a better tool for hospital and health system leaders, pressed for a prediction of his own should they not embrace the principles of forecasting, Bauer relents, a little.
"My current prediction for the future of healthcare is pretty dismal," he says. "I predict 35% of the organizations in healthcare today will not be in business two to five years from now because they want to hold on to a totally irrelevant 20th century health system."
A former Harvard School of Public Health Associate Dean says CEOs may be ignoring one of their biggest waste reduction opportunities—cutting the duration of meetings. He offers five strategies for tackling meeting bloat.
This article first appeared in the November 2014 issue of HealthLeaders magazine.
David A. Shore studies meetings for a living. But he hates them.
One reason is because although many people recognize meetings as a waste of time and money, they are ubiquitous—particularly in healthcare.
With exceptions, when Shore, a former associate dean of the Harvard School of Public Health, says meeting time is largely wasted time, statistics are on his side. Shore, who founded the School's Programs in Project Management in Health Care, Forces of Change Program, and Trust Initiative, is also on the faculty of Harvard University Extension School.
In a recent working paper, From "Wasteful" Meetings to Parsimonious Meetings Management: Preserving Human Capital in Health Care Delivery Organizations, Shore and his son Douglas, an associate applications analyst on the Clinical Data Repository team at Partners HealthCare in Boston, argue that vast opportunities await top leaders in healthcare organizations—if they're willing to attack the meeting culture at their organizations.
He says that healthcare management and leadership spend as much as 4.5 to 5.5 hours a day in meetings, representing the single largest expenditure of time for those highly compensated individuals. In 2011, Shore notes, more than $2.7 trillion or 17.9% of US GDP was spent on healthcare, of which, as much as $750 billion, or almost 30% of the total spent, is estimated as waste.
I'd be willing to bet that a substantial portion of you are avoiding preparing for a meeting by reading this.
Meetings Come with Side Effects
Meetings are not included in that waste estimate, says Shore, but they should be. With human capital costs (salaries and benefits) hovering around 40–70% of overall hospital expenditures, human capital greatly exceeds supply chain costs as the second largest hospital expense, he says.
"Meetings are like medicine. They often come with side effects," he says. "Any unplanned economy produces vast examples of waste."
Furthermore, Shore estimates that on average, it costs a hospital $1,400 to hold a one-hour meeting. There is no bigger waster of organizational resources, Shore says.
"When I talk about that average of $1,400, that's a very conservative number because it's the direct cost of salary and benefits," says Shore. "If you add opportunity costs in there (the lost opportunity to do surgery, for example, during that time), that number is easily eclipsed. Take that number and multiply by the hundreds or thousands of meetings that take place in a hospital or health system in the course of a week, and you're wasting a lot of money."
But there's good news, he says. Everyone else dislikes meetings as much as Shore does. That means it's relatively easy to get traction on meeting reduction because there are no "champions."
'Good Traction' on Meeting Reductions
"Change is exceedingly hard in organizations and harder in healthcare," he says. "But this is one area where we've found extraordinarily good traction, because unlike everything else in healthcare where there are champions, there are very few champions for meetings."
As part of a recent engagement, Shore worked with one organization where the chief operating officer was reluctant to heed his advice about cutting down on meetings. As an exercise, he advised her to schedule one meeting a week that she knew in advance she would cancel, just to see if anyone objected.
"The reaction was quite the opposite," says Shore. "People began talking about how impressed they were that she was canceling them. They thought she was being very respectful of their time."
A leader's perspective should be that there should never be a meeting unless a decision is to be made, he says. "That should be the mantra. The problem is that the majority of meetings are in passive mode," says Shore.
5 Ways to Tackle Meeting Bloat
He suggests five ideas that are often easy to implement in order to start to get a handle on reducing the waste resulting from meetings.
1. Block Out No-Meeting Periods
One idea for CEOs is to establish no-meeting zones. These consist of blocks of time, one day a week, of two hours, where no meetings can be scheduled throughout the organization.
2. Create Buffer Zones
Another idea is incorporating the notion of a transition time or buffer zone, between meetings. "You can move all one-hour meetings to 50 minutes," he says. "I guarantee there's nothing that can be done in a one hour meeting that can't be done in a 50-minute meeting."
The return on investment for that 10-miute buffer is that it allows people to return phone calls and email to move the organization along, he says. Obviously, the organization is not responding to customers when its workers are involved in meetings.
3. Train Meeting Leaders
One that may be a little more difficult to implement is the notion of privileging for meetings. In other words, in order to be empowered to call a meeting, one must have training in running them.
"We allow people to run meetings taking vast amounts of time and resources with absolutely no preparation or training, and no data to know how successfully or unsuccessfully they are doing it," says Shore. "We believe if you're going to use that many resources, you're going to need some training on running meetings."
4. Justify Your Meeting
That lack of training can lead to enormous variability in meetings—an obvious parallel to variability in clinical practice, another area of waste often targeted in healthcare organizations.
"They should give the business case for having a meeting, and justify the need for all the people who are there," he says, adding that through his research, he's discovered that in most meetings, at least a third of the people involved need not be there, don't know why they are there or why they should be there.
"86% of people we've surveyed have a negative feeling about meetings, while 14% see them as necessary or interactive," Shore says.
5. Consider Meeting Alternatives
Though it's not his idea, Shore advocates the use of lean huddles instead of traditional meetings. Such "huddles" last 15 minutes and usually tackle daily business within a defined department or area. "My lean huddle methodology allows for virtual huddles and was designed for that," Shore says.
"One CEO who came to one of my events says his use of huddles is liberating. He's the fourth CEO of this health system in 86 years. For as long as they can remember, they've had a three-hour management meeting every Monday morning. His management team sent him flowers when he canceled it."
To request a copy of the draft paper, contact David Shore.
In a wide-ranging interview, Banner Health president and CEO Peter Fine details the executive team's role in nearly half the $70 million in savings the organization achieved between 2012 and 2013, and lays out a prescription for success in a dynamic future for healthcare.
Peter Fine, President and CEO of Banner Health
Since he arrived at Banner Health in 2000, president and CEO Peter Fine has preached the cost-cutting and expansion gospel as payers and government have first slowly, and then quickly started to squeeze healthcare organizations for efficiencies through the blunt tool of reduced reimbursements.
That resolve was never more needed than during the financial crisis, when Banner, similar to other organizations across the country, experienced substantial declines in patient volume combined with reimbursement reductions amounting to hundreds of millions of dollars.
In a state where Medicaid pays only seven cents on the dollar for the cost of care, Banner had to streamline itself using tools and tactics borrowed from industrial engineering, Lean, Six Sigma, and business process reengineering. As importantly, the case had to be made that the initiative was critical to the organization's mission and culture, engaging clinical and administrative staff across the organization to collaborate in the process.
In Banner's case, the executive team played a key role in its most recent drive to bring an additional $256 million to the $5 billion (revenue) organization's bottom line by 2017. Rules of engagement were as follows:
Cost-cutting would be done by empowered, cross-functional teams, whose recommendations would be respected and accepted whenever possible
Changes that could negatively affect care delivery or patient experience would be unacceptable
A soft landing would be provided for any employee whose job was eliminated
With these rules in place, eight cross-functional teams—each composed of middle managers, a consultant guide, and a sponsor from the leadership team—were formed. During an intensive eight-week pilot, each team was trained. Then they analyzed the cost structure of one function and recommended cost reduction tactics.
The pilot culminated in a day-long meeting of the senior leadership in which 123 recommendations were reviewed and 116—valued at $104 million to $133 million annually or 18% to 24% of Banner's G&A expense—were approved. Among the approved recommendations were opportunities to save nearly $4 million in HR administrative costs by deploying more self-service technology supported by a shared services organization, nearly $8 million from insourcing second physician reviews of inpatient charts, and up to $3.5 million by creating an internal facility for drug compounding and packaging.
Fine's happy to boast of the results so far. In a wide-ranging interview, he details the executive team's role in nearly half the $70 million in savings the organization achieved between 2012 and 2013, and lays out a prescription for success in a dynamic future for healthcare.
HLM: Why is cost cutting so important for today's hospitals and health systems?
Fine: Clearly the pressures on reimbursement and the reduction of the use of services that are a driving force in today's environment—whether fostered by federal programs or large businesses—require us to reach a level of efficiency not only from a cost but a clinical outcome perspective at levels we have not historically performed at in this industry. I don't believe these pressures are going to change.
HLM: I think I know part of the answer, but why did you as an executive team decide to focus on general and administrative expenses first?
Fine: Because the opportunities to spread fixed overhead over a big base are undeniable. In a large system, back-office functions, if they are going to meet the needs of the direct caregiving environment, have to function at a high level for the customer base.
I define the customer base as either frontline parts of the organization who are in the direct caregiving environment or an external customer who is trying to interact with our organization for some service. We're measuring everything we can. Doing it with data offers a great opportunity to find improvement.
Most people think what they're doing must be right. If it wasn't they wouldn't be doing it. What that means is it becomes very difficult to self-analyze in looking for opportunities. We've developed a culture where that's ingrained. We see ourselves as a company that is looking to enhance reliability and reduce variability in order to produce better clinical outcomes. One of the key ways to reduce cost in any organization that is producing some product or service is if you reduce variability, you increase reliability.
HLM: What did you mean when you guaranteed a "soft landing" for any employee whose job was eliminated in this process?
Fine: One, we have good employees and we want to keep them. The question becomes if we are going to do something that gains efficiency but results in a reduction in workforce, how do we reallocate resources? We will continue to grow, so we can retrain or find new opportunities for them in Banner's sphere of influence. So it's definitely not a guarantee, but what the "soft landing" really means is identifying where they can contribute.
HLM: As you've gone through this process re-engineering journey with your employees, what is the most surprising thing you've learned?
Fine: I think there are three surprising things. One, I've learned how hard it is for people to self-analyze the work they do. Also how difficult it is to identify and apply data to establish a set of actions to be implemented and it's very difficult for people to maintain their objectivity.
Some of the changes we made in our corporate areas, we're asking people to redeploy assets related to work they've become comfortable with and used to doing. Anytime you upset the status quo when people honestly believe what they're doing is logical, it's difficult.
So how can you affect their thinking and cause them to look at things differently? We used Booz & Company as outside consultant to help with that, which is unusual for us; we try to do the work ourselves. But we'd capped out our ability to influence the change processes and needed much harder data than we were producing ourselves. Doing this is less about a magic formula and more about the data.
HLM: Were there any areas where you achieved more than you thought possible? Less?
Fine: There were some things we've talked about where we achieved at a level we didn't expect, but also some things where we went too far and had to pull back. When it came to the issue of recruiting, for example, we strained ourselves rather than enhanced. We've corrected that.
In most cases, we've been smart enough to figure out what didn't work. We've taken hundreds of millions of [dollars of] overhead out by combining back office functions. This is a highly chaotic, ambiguous, and complicated healthcare environment, which I strongly believe will lead to massive consolidation over the next five years.
Because of reduction of resources and revenue, people have no choice but to figure out ways to reduce overhead. And the fastest way to do that is through combinations in an operating company model whose stated purpose is to reduce overhead.
HLM: If you were starting this over again, what's one thing you would do differently?
Fine: In any process like this, you have to bring people along. We did a good job of prepping people on the front end, but if there's one thing we probably could have done better, I would focus on more in-depth information gathering. We did that up to a point, but I'm not sure we always thought through implementing things—the outcomes didn't necessarily match what we thought.
Maybe if we'd done a deeper cut of information we might have identified things in a more appropriate way. The problem with that is you get analysis paralysis. There is no perfect data and we had to be willing to accept some degree of non-effectiveness. Overall it was the right decision because the things that didn't work were far outweighed by the things that did.
HLM: Many of these are obviously one-time gains. You were one of the first CEOs who mentioned that you thought the bogey for cost-cutting was being able to make a margin on Medicare rates. Have you achieved that, and if not, what's standing in your way to getting there?
Fine: We can't do it universally yet, because until you find the fully insured piece of the business that will fully support Medicaid, which pays seven cents on the dollar in costs, it will be hard to operate the whole company on a Medicare reimbursement rate level.
The fully insured are still subsidizing the shortfalls of Medicare and Medicaid. The only way you can get capital and margin without better reimbursement is through reduced overhead.
