Patients are already facing copays, coinsurance, and deductibles that are much higher than only a year or two ago. If you think they're unhappy now, wait until you see what happens when you try to collect their share of your payment directly.

New headlines this month have focused on how difficult, if not impossible, it is to shop for health insurance through healthcare.gov, the online clearinghouse for the uninsured who want to sign up for Obamacare.

Those problems will eventually get fixed, and if I know the government, the solution will involve throwing gobs of money.

But let's think forward for a moment. Regardless of how the drama of the health insurance exchanges' operability plays out, eventually a lot of people who didn't have insurance before will gain it. One potential problem: the quality of that insurance shows every sign of declining across the patient population.

If your life depends on getting paid in full for your work, and most hospitals' lives do depend on it, that task will get much more difficult.

While it's good that many people who once were uninsured will now be covered, what is the quality of that coverage from a collectability standpoint? Many, if not most, who sign up through the exchanges will be choosing the cheapest plan available, known as the bronze plan.

It remains to be seen how many "healthy" people will sign up. And even those who are fortunate enough to hang onto their employer-provided health insurance plans may find out that their plans are little more than bronze as well. This is part of a recent trend with employer-based plans, where patients are already facing copays, coinsurance, and deductibles that are much higher than they were only a year or two ago.

If you can't collect the patient's share of payment effectively, you're in trouble.

That puts hospitals, the place where care is most expensive, in a difficult position. If they want to be fully paid for their work, and if they want to fulfill their contracts with health insurers, hospitals are required to collect these growing amounts of cash directly from patients.

They've been getting better at it, but a side effect of this change they haven't counted on until recently is a level of hatred, and at least as importantly, payment resistance, from patients.

I use the strong word "hatred" because when I was talking to a CFO about this problem in August at the HealthLeaders CFO Exchange in Colorado, he used that word when we talked about his organization's efforts to collect the patient's share of hospital payment.

To be sure, the trend of greater patient financial responsibility for their healthcare is not necessarily driven by Obamacare. In fact, it's chiefly driven by the fact that health insurance deductibles, coinsurance, and copays have been seen by employers and payers for a few years now as the last best hope to get a handle on the growth in healthcare costs.

The theory is that patients will begin to ration their healthcare and shop for the best price because they're more responsible for the cost. Well, that may happen, but other negative consequences of this trend are less immediately apparent. Sometimes, they just can't, or won't pay.

One consequence, this CFO argued, is that patients begin to blame the hospital for the crushing level of healthcare costs for which they are now responsible. This makes them less likely to pay than ever.

In any case, the CFO and several of his colleagues agreed that hospitals will likely be the focal point of hatred from patients simply because they're trying to collect on a bill that used to be paid by someone else.

In most cases, patients find out about the huge share of the cost of care they are responsible for from the hospitals themselves. So it's at least partially a case of 'blame the messenger.'

Patients have signed their benefit forms, and they've signed up for insurance, but little do they know that they've gone from a $500 deductible to a $5,000 one. All of a sudden, a trip to the hospital and they have to come up with thousands of dollars to pay the bill. And they haven't budgeted for it.

Many hospitals are already suffering from huge bad debt burdens. Hospitals are at the end of the chain; they're the ones trying to collect the balance, and they have to explain to the patient why that is. It's not an easy conversation. And woe to the hospital that can't collect the patient's portion of the bill prior to service. It's certainly not easy to collect it after.

What hospitals are really left telling many patients is that they have poor insurance. Their coverage is little more than a catastrophic plan. Much of the rest is up to your patients and their employers, who are stuck with skyrocketing rates for that catastrophic coverage.

They're in for a rude awakening, and it's not your fault. But they'll be blaming you.

There's ample disagreement about how much control hospitals can exercise over readmission rates. Farsighted leaders are taking on a big endeavor by focusing on all-cause readmissions.

This article appears in the October issue of HealthLeaders magazine.

Hospital leaders have long known that they would be at risk for penalties from the Centers for Medicare & Medicaid Services based on how well they prevent 30-day readmissions for three targeted diagnoses. But that amount of lead time may not have been enough: More than 2,000 hospitals faced penalties in the 2013 fiscal year based on discharges between July 1, 2008, and June 30, 2011.

Still, no matter how badly they missed, hospital penalties for FY 2013 were capped at 1% of Medicare reimbursements. But that cap ratcheted up to 2% for FY 2014 and 3% for FY 2015. Besides that, the number of conditions and diagnoses at risk also are likely to increase dramatically.

There's ample disagreement about how much control hospitals can exercise over readmission rates, or whether readmissions rates are indicators of quality patient care. Regardless, that is a political debate that has already been fought on the Medicare side, and commercial payers are likely to follow suit. The rule is the rule, and it's left to hospital leaders to figure out how best to reduce readmissions such that quality patient care and the metric are both best served, if that's possible.

Looking at all causes

In terms of strategy, what's the best way to approach this large and growing risk of reduced revenues? Not necessarily by targeting the conditions CMS has highlighted for penalties, say those who have had success in reducing readmissions. The debate centers over whether hospitals and health systems should target the three diagnoses—heart attack, heart failure, and pneumonia—that are guaranteed to provide an immediate return on investment by avoiding penalties or instead focus on so-called all-cause readmissions, says Laura Jacquin, managing director at Huron Consulting Group, a Chicago-based consulting firm.

"What we feel is best practice is to consider all-cause because it reflects better preparation for the future and knowing that, in true CMS fashion, we can expect more diagnoses to be added," she says.

Still, it's a big endeavor to attack readmissions for all causes. Therefore, it may be easier to manage by staging your system's interventions by focusing on certain diagnoses as pilots with the goal of expansion, says Jacquin.

Regardless of the approach, one of the most important decisions that can be made is to ensure there's a standard method to how the organization is treating all patient populations. That's where WellStar Health System, a five-hospital, 1,321-licensed-bed system based in Marietta, Ga., chose to begin six years ago.

Reynold Jennings, WellStar's president and CEO, says what makes implementing a readmissions strategy so complicated is that there's no single reason anyone gets readmitted to the hospital, so it's an imperfect metric of quality care to begin with. But the holistic approach works better because all facets of care delivery have an impact on readmissions.

Focusing on just the three diagnoses that may generate penalties is shortsighted and may be counterproductive in the long run. That's why so many CEOs these days boil down their strategy to reduce avoidable readmissions to "doing what's right for the patient," as Jennings says. That's a frustratingly simple answer to a very difficult question, and "doing what's right" can mean spending lots of capital and staff time on things that may not yield a definable return on investment.

Jennings says WellStar, which also owns ambulatory, primary care, imaging, and other therapeutics, was able to get to a viable readmissions strategy that is scalable through its medical home program.

"The 3%–5% of the sickest patients who have three or more chronic illnesses consume at least 30% of all healthcare dollars and maybe as much as 50%," he says.

So it makes sense to focus on that group of chronically ill patients. Studies have shown that many such patients get readmitted due to environmental factors beyond the health system's control, such as compromised financial means, mental health problems, or lack of a strong family support system. Jennings thinks, however, that about half of the system's patients don't have those additional risk factors, and thus are a good place to start.

"There's nothing a hospital can do to take care of thousands of patients who fall into that first category, but the other half of readmissions is due to poor chronic medical management," he says. "Originally, most of the literature focused on the primary care physician's office, but without specialty physicians and their teams aligned with the primary care doc, you can't get to medical home management on an outpatient basis."

What WellStar is doing to intervene with patients for whom it can make a difference on readmissions is an approach that has already paid dividends, Jennings says.

"I personally don't think most hospitals are implementing a proactive strategy," he says.

Based on published readmission rates, he says an 8% readmission rate for all causes is the best case, while 14% is the midpoint. WellStar is at 8%.

"The hospitals in the higher range have a less synchronized and less coordinated medical staff leadership structure," he says. "Therefore, care is delivered in a silo fashion without regard to the patient as a whole. How we got down to 8% is we got into clinical service line management."

WellStar expanded its clinical service line management from seven departments to 11 over the years, and includes both its employed and its independent physicians on clinical service line councils, on which more than 100 physicians, both independent and employed, serve. Those councils meet and figure out how physicians can and should collaborate on the sickest patients.  

Further, under an accountable care organization, the health system can redistribute dollars to allow primary care physicians to spend time they need on, for example, predictive modeling, care managers, and call centers for medication management.

"Quality of care to the patient represents the keys to the kingdom," says Jennings. "You'll cut some revenue if you tackle all-cause, but if you go after the easy-to-solve issues on readmissions, you won't always get there. That's why we got into Medicare Shared Savings: We saw the wisdom of attacking all spectrums simultaneously."

Risk stratification

One of the key strategies that healthcare organizations should consider to get to the best practice of all-cause readmissions prevention is to look at ways they can identify patients who might be at higher risk of readmissions, as WellStar has begun to do, says Huron's Jacquin.

"More clinically integrated systems can accomplish this better, and that's an opportunity for some revenue," she says. "But the bottom line is, it's not something you can turn on overnight."

She also says such leaders recognize that doing medical management work with an eye toward reducing readmissions is going to impact revenue negatively, but it's the right thing to do and will pay off in the long run as penalties are increased and diagnoses added.

"At this point, there's not really much you can do to limit the revenue impact," she says. "And besides, CMS won't sit still."

Leaders need to develop different tools and different approaches for high-risk, moderate-risk, and low-risk patients, but most important, they must identify such patients.

"Building these things anticipating all-cause means it won't be quite as difficult later," she says.

Montefiore Medical Center in New York City's Bronx borough has a long history of taking risk with its patients. Anne Meara, RN, MBA, is associate vice president of network care management for CMO, Montefiore Care Management, a healthcare management company that works with a network of more than 3,400 physicians and ancillary providers who provide care to more than 225,000 individuals covered by a variety of government-sponsored and private sector health insurance programs. She says focusing on readmissions only is likely to be less effective than working to eliminate system breakdowns and improving chronic care management.

Hospitals, from a leadership standpoint, are often lured into focusing on the readmission and not the factors that led to it in the first place. So it's not that targeting can't work, but that it's very short-term and not sustainable. In fact, Meara says focusing on readmissions at all leaves out all the interventions that can be made to a patient's care along the way. The readmission represents the culmination of all that effort, or lack of it.

"Focusing on the readmissions is focusing on the far end of the continuum," she says. "Particularly with preventable readmissions, there are systems breakdowns along the way—some related to things in control of the healthcare provider and some not so much. We're focused on many stops along the way and moving preventive care and chronic care management further upstream in the continuum."

Meara says Montefiore's efforts to reduce readmissions critically involves partners outside the health system because patients in the area access many different healthcare providers that aren't necessarily owned or controlled by the health system. In partnerships with local payers and other healthcare providers, including other hospitals, Montefiore has implemented extensive interventions geared toward helping avoid readmissions in all stratifications, even among patients who may have psychosocial issues or transportation problems. They scale up interventions based on risk factors.

"These are not high-tech interventions, but they are resource-intensive," she says. "Many hospitals are engaged in post follow-up phone call programs. The difference with this is, we stayed involved."

Other hospitals may stop intervening after the postdischarge follow-up call, for example, and they often don't go beyond checking on prescription-filling and adherence. The care transition managers involved in the Bronx Collaborative—which includes three hospitals: Montefiore, St. Barnabas Hospital, Bronx-Lebanon, and two payers: EmblemHealth and Health First—not only search to identify challenges surrounding patients likely to be readmitted, but also are coached to intervene.

Results bear out the return on this increased level of intervention. Among 500 patients who received two or more "interventions" in the Bronx Collaborative to manage the transition between hospital and home, only 17.6% were readmitted to the hospital within 60 days of discharge versus 26.3% among a comparison group of 190 patients who received the current standard of care. When the other 85 patients who received only one intervention for a variety of reasons are included in the results, there was a higher readmission rate, at 22.8%, but still lower than the standard.

"That's where it's difficult for hospitals—where the savings are not accruing to them. That's the dilemma. The question was how do we move to the place where the way we are reimbursed works with this?"

Montefiore leadership makes a compelling case to local payers that using the same case manager who intervenes during hospitalization and follows up for 60 days postdischarge builds trust as well as, critically, compliance with postdischarge physician appointments and drug regimens. The case managers integrate such follow-up into what Meara calls "usual care" to enhance transitional planning processes.

"We have very strong working relationships with the two health plans involved," says Janet Kasoff, EdD, RN, the senior director of the Center for Learning and Innovation for CMO, Montefiore Care Management. "I'm really happy that those people did see this as an opportunity. In order to reduce readmissions, we need to work together."

As part of the discussions about readmission prevention with payers, the Bronx Collaborative was formed to improve healthcare in the Bronx, with the Care Transition program to combat high readmission rates at all three hospitals.

"Working together, we did craft a care transition fee such that we were paid for this work," Meara says. "That's a differentiator. Hospitals need to be looking to go down this path of contracting in different ways with payers, but who has? It's a huge challenge to make this kind of investment if there's not some share in the savings to be had."

That said, now is the time for hospitals to face up to going down that path with payers. Given the readmission penalties that are there now and those that are likely in the near future, sticking to business as usual is clearly not the right way to go.

"You need to be asking yourself, if I'm not part of an ACO, how can I partner? One of our partner hospitals is not going to be an ACO, but it will be a good partner in our ACO and I think that's the pathway," says Meara.

"The ability to demonstrate that hospitals and payer organizations can work collaboratively toward a goal and establish standards and processes across organizations that sort of collaboration has much broader implications," Meara says. "We can't only rely on ourselves to be successful."

Reprint HLR1013-4

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This article appears in the October issue of HealthLeaders magazine.

The volume of healthcare mergers and acquisitions lately has been stunning. But to some hospital and health system executives, it's nothing compared to what's coming over the next decade.

This article appears in the October issue of HealthLeaders magazine.

In fact, Cleveland Clinic President and CEO Delos "Toby" Cosgrove, MD, boldly predicts that what he calls a "big dozen" integrated regional systems will come to dominate the healthcare industry. While this consolidation is "a long way away" from completion, he says, independents will continue to disappear—a trend that will pick up speed as time goes on—thanks to declining reimbursement, lack of capital access, and their inherent inefficiency compared to integrated systems.If many of the most influential health system leaders are to be believed, independent hospitals are a dying breed, and small systems might be right behind them on the endangered list. The United States has around 5,700 hospitals, according to the American Hospital Association, and already more than half of them (slightly more than 3,000) belong to systems. Expect that trend not only to continue but to accelerate, industry leaders say.

What's more, Cosgrove says, the drivers of consolidation have changed. While the healthcare industry has gone through M&A waves before, this time around consolidation isn't a play for market dominance. For one thing, government regulators are watching closely and often are breaking up even completed mergers that they deem have local or regional monopoly at heart more than operating efficiencies. Instead, today's mergers and affiliations are more a reflection of several factors that are making independent hospitals, and, in fact, comprehensive service hospitals of all kinds, functionally obsolete.

This trend is most visible as organizations formerly known as hospitals change their names to reflect "health system" or just "health" while eliminating the word "hospital." This change implies that instead of focusing on acute care, such organizations can provide a continuum of healthcare services. Whether the actual transformation of service offerings (typically incorporating primary care, rehab, and other services outside the acute care setting) is nascent or well in progress is another story.

The new dynamics of consolidation

Today, many systems of significant size are combining—or in some cases, trying and failing to combine. The dynamism around the acquisition and affiliation game has never been stronger. Unlike acquisitions of a different era, much of this activity is centered on linkages in disparate markets. In other words, it's not the traditional play to gain market share in a particular small area that is driving this trend.

Instead, the impetus stems from the increasing complexity of healthcare, the ability to drive efficiencies in the back office by leveraging technology, and the push to cut costs engineered by the federal government, employers, and health plans. It's also about reducing duplication of services—not just in small local areas—but in large regions.

The health plan sector, for example, has consolidated markedly over the past couple of decades. The top 25 health plans in terms of market share account for nearly two-thirds of total premium dollars, according to the most recent (2009) data from U.S. News & World Report and the National Association of Insurance Commissioners. So why won't hospitals and health systems consolidate in a similar fashion?

They will, says Bill Thompson, who, as president and CEO of St. Louis–based SSM Health Care, recently inked a merger with Madison, Wis.–based Dean Health Systems, a physician-owned system that approved the merger with a 97% majority of its physicians voting for it. SSM had operating revenue of $3.3 billion in 2012.

Thompson says delivering value is the key metric for hospitals and health systems going forward, and that systems that want to grow and prosper need not only to lower their prices for care over time, but must also lower their internal cost structure so that they can compete with other low-cost interlopers like drugstore chains that will eat away at their margins through better and cheaper primary and chronic care management. In other words, hospitals and health systems in the future will have to compete on value and price through expanding the portfolio of businesses that health systems own or with which they affiliate or otherwise share risk, and also through economies of scale.

"We're looking for opportunities to lower our cost structure while we lower our price point. That will enable us to make a profit," he says. "The other economic pressure at work here is that the organization that continues to deliver value—that is, that manages its price point lower while improving quality—is typically rewarded in the marketplace by attracting more and more business. We're facing what other industries have been facing for years—particularly retail. The current environment is asking us to behave similarly."

He argues that's in part because the consumer of care—the patient—is less insulated from the cost impact of their decisions than in the past. While many patients are far from influencing what health services they consume, it's clear that the federal government and, to a lesser extent, employers are forsaking the fee-for-service economic model and using evidence-based guidelines to affect consumption.

"There are more and more individuals who are feeling this price pressure, which means the individual has much more skin in the game," says Thompson. Couple that with cost pressures on government and the employer, "and with the cost of care approaching 18%–20% of GDP, that puts pressure on government and employers to the point where it becomes unsustainable."

Thompson says the merger with Dean—a network of clinics and medical facilities that provide primary, specialty, and tertiary care throughout southern Wisconsin—will work to lower costs because "consolidation and economies of scale allow me to control my internal cost because I have negotiating leverage with my vendors and can apply that to lowering my cost structure."

Thompson, who says he is excited to bring many aspects of Dean's model into SSM, says he doesn't expect the market for M&A to subside for a while. He sees consolidation accelerating as standalone hospital boards become more aware of their inability to compete, and, like Cosgrove, predicts that several big systems will end up dominating the provider landscape.

Meanwhile, the hospital industry continues to experience a degree of churn. "I'm always puzzled by the lack of equilibrium. You have Tenet acquiring Vanguard. Later we'll see them spin off assets in some markets, [and] those will be acquired by someone else who's striving to get larger in a particular market," he says. "They'll all still be trading assets even if you have the 'Big 12,' so to speak."

Monopoly concerns misplaced?

There is disagreement about whether the consolidation ultimately will lead to monopoly power within a few systems and thus no bending of the cost curve. Cosgrove, for one, discounts those concerns.

"When people ask me about that, I point out that right now 50% of our hospital bill is being paid for by the government, and what we get paid is fixed. You get roughly the same amount for gallbladder surgery, for example, in Boston, New York, and San Francisco," he says. "Everyone in Washington and the insurance industry says we'll get to 75% of the hospital bill being paid by the federal government. If that's the case, it will be hard to have a monopoly when you have prices that you don't have control over. Of that remaining 25%, some will be no-pay and some will have private insurance."

So will government as payer have the monopoly power, as is the case in many nations with single-payer healthcare?

"I haven't really thought about it like that, but I think that's exactly right," Cosgrove says.

CMS has its own projections about payer mix in the near to medium–term. CMS expects the total government share of healthcare spending (local, state, and federal) will reach nearly 50% by 2021, up from 46% in 2011.

Still, even health system CEOs in relatively stable markets and who are not looking to grow through acquisition are not so sure monopoly is not on the minds of at least some players orchestrating merger activity in healthcare. After all, many hospital operators are for-profit companies, and allegiance to shareholders comes first.

And there has been an explosion of private equity operators in healthcare as these groups have acquired struggling hospitals and systems in an effort to turn around their finances and reap the benefits of consolidation. (See related story, page 14.) Even such nonprofit stalwarts as Cleveland Clinic and Duke University Health System have entered into affiliation agreements with for-profits, exemplified by Cleveland Clinic's "strategic alliance" with Community Health Systems and Duke's joint venture with LifePoint Hospitals, called Duke LifePoint Healthcare.

Bill Atkinson, president and CEO of WakeMed Health & Hospitals, an 1,100-licensed-bed nonprofit health system in Raleigh, N.C., says the insurance industry can serve as a cautionary tale for those who expect consolidation to reduce overall healthcare costs for the government, employers, and individuals.

"If you look at the insurance industry, there is stability in size," he says. "But the real snapshot is looking at insurance consolidation and asking if insurance costs went down. The answer is no, so what does that tell you? Where the money is going is changed, but it has ended up in the hands of the companies and has not generally trickled down to the people it should be about—the consumers."

"We'll all lose if consolidation is just an opportunity to squeeze out more margin," he continues. "You have to start with the assumption that the system needs to meet the needs of the patients in the community. This is not first and foremost in some organizations."

He says WakeMed, which reported 2012 total operating revenue of nearly $1.1 billion, with total margin of 8.10%, is content to focus on its local area, and if another system is looking to acquire it, it may have to wait a while.

"What it means is we're not always looking for the next economic angle," he says, and performing its mission of improving health in the local community "doesn't have to be about ownership."

He cites as an example Harnett Health System, a two-hospital system in nearby Harnett County that WakeMed manages and which just opened a new 50-licensed-bed hospital with help from WakeMed's A1 bond rating.

"We've not had to own it to make it a healthy system," he says. "We built that hospital with them. They wouldn't have had access to the loans to build it in our absence, but at the same time they didn't need us to own them to make that happen."

Still, Atkinson says the way his system operates isn't for everyone, and concedes that following "the economic angle" can produce value in healthcare as it has in other industries.

"There are plenty of organizations that have reduced cost and at the same time have produced value. Look no further than Amazon," Atkinson says. "The question is whether healthcare organizations will effectively use the resources they have to increase value overall. All of us have demonstrated time and time again in micro attempts that that can be done."

No longer hospital-centered

As Cleveland Clinic and others have demonstrated, integration and achieving economies of scale and scope are not dependent on ownership. In truth, the fact that headlines in healthcare are focused on hospital ownership is a bit of a relic. Inpatient care is no longer a growth area, given the focus on population health and treating patients in lower-cost settings engineered by both the Patient Protection and Affordable Care Act and commercial and employer emphasis on preventive care.

Many local hospitals—typically dominated by community-based directors and focused on provincial interests—often lack the capability to expand their offerings much beyond the inpatient care space. Over time, that could lead them to seek affiliations or acquisitions with systems that can build out that outpatient capability, among other business imperatives like investment in IT and care pathways.

But just because some hospitals and small health systems are realizing they don't have the firepower to make that transition, getting to that point is often frustratingly slow, Cosgrove admits. That sluggish pace presents an obstacle to Cleveland Clinic becoming one of the Big 12 that Cosgrove envisions will eventually dominate healthcare.

"A lot of communities and boards have difficulty giving up that control and responsibility for their community hospital. That has been a real process. Every time we've done it it's taken as much as two years to get from the point of them insisting on being independent," Cosgrove says.

At the same time, the process is getting easier, he says.

"It has accelerated because people are feeling the financial pressure, and as reimbursement goes down, they'll feel that increasingly."

He contends that inpatient bed count has to go down one way or another.

"There are 200,000 fewer beds than there were because of shorter hospitals stays and because more is being done in an outpatient setting," he says. "As hospitals have empty beds and decreased reimbursement, they're incented to be part of a system."

Cleveland Clinic has put together an impressive array of care sites that Cosgrove says "is built on the principle of doing the right thing for the right person in the right location."

It's got partnerships not only with Franklin, Tenn.–based Community Health Systems but also with national drugstore chain and pharmacy benefit manager CVS/Caremark, and has developed its own family health centers for chronic care. Cleveland Clinic's community hospitals perform common procedures such as deliveries, orthopedics, and general surgery but increasingly don't do complex procedures such as heart care or neurosurgery. Those cases are fed to the clinic's main campus.

"We've connected all of that to our EMR and transportation system," he says. "So we move people around and their records follow them."

This process will become more ingrained over time as Cleveland Clinic becomes increasingly integrated and more of a system.

"Our model of care is something that's appropriate for the 21st century—particularly because we're an employed-physician group, so we don't have incentives to do more operations and tests," Cosgrove says.

Acquiring struggling hospitals does not have to be part of the equation for whether a hospital or health system ultimately is able to remain independent, says WakeMed's Atkinson. Consolidation will continue, he says, and that's neither good nor bad, "but a rural hospital with a tough population base to cover is the same thing the next morning after you buy it."

Perhaps that money earmarked for growth through acquisition would be better spent improving ways to manage patient health, which is part of what Cleveland Clinic and others are doing, although they are also acquiring formerly independent hospitals.

"We're doing that pretty assertively," says Atkinson. "We were the first in the area to create freestanding EDs."

WakeMed has four of those, with a fifth planned, and Atkinson says they can treat everything except level I trauma or imminent birth, and claims that about 90% of what's presented in those EDs can be handled without a bed.

"What I'm saying is you can get out on a limb and find new ways to get care closer to people and probably improve the clinical outcome and significantly reduce cost. Those EDs allowed us to stop building as many beds as we had been. Our biggest campuses are ambulatory and don't have inpatient beds and may never have them."

Reaping the rewards of population health

Cleveland Clinic's relationship with CHS—which owns, operates, or leases more than 135 hospitals and reported 2012 net operating revenues of $13 billion—originated about a year ago when CHS leaders asked Cleveland Clinic to help CHS with its quality, says Cosgrove. Though Cosgrove doesn't describe the partnership this way, it could be considered a virtual merger in that both organizations are seeking to leverage each other's perceived competitive strengths—Cleveland Clinic on quality and CHS on operations.

Cleveland Clinic puts a priority on publicizing its treatment outcomes on its website, and has spun off a company, Explorys, that now has 40 million patient test histories, physicals, and lab results in an effort to offer reporting, analytics, clinical integration, at-risk population management, and pay-for-performance solutions for its clients.

"The more we talked, the more they realized there were things we could do for them, but we realized they could do a lot for us," Cosgrove says. "While we've concentrated on quality, they've really concentrated on efficiency. If you're looking at value for your healthcare dollar, those two things are what you have to focus on. So we each brought different strengths to the relationship. The relationship came about because both leadership teams believe effective population health management will increasingly be a differentiator for patients and the payers for healthcare services.

"Our ability to access big data will be a tremendous advantage for us," Cosgrove says, "and we think there are economies to be had without necessarily owning the other or merging."

Another step many organizations are already busily taking is the idea of expanding services outside the outpatient arena—even to the payer side in bigger systems—says Dennis Vonderfecht, president and CEO of the 13-hospital Mountain States Health Alliance, based in Johnson City, Tenn. Its health plan, CrestPoint Health, has 15,000 members, but significant expansion is on the horizon.

"You're seeing volume declines across the country, and part of it is due to the ACOs and focus on keeping people out of high-cost settings. We're seeing the same declines in our organization," he says. Vonderfecht expects to lose as much as 30% in inpatient volumes over the long term if recent trends hold true.

"If we lose 30%, that's a lot of our revenue, so we're working on backfilling that by moving to the top of the healthcare food chain to capture part of the savings through creative initiatives with other insurance companies," he says. "But we can capture all of it if we're the insurer. Also, to lessen the impact of volume declines, we're focusing on outpatient ambulatory and retail activity. For example, we now own seven pharmacies."

Burgeoning health systems won't be the only source of competition, however.

"You'll find the major disruptor will be in primary care," Cosgrove says, adding that drugstore chains like Walgreens, CVS, and even Walmart are emerging to fill gaps in primary care.

"They're getting more sophisticated and with the shortage of primary care physicians, they'll take up more primary care—we hope, linked with providers."

Size and success

Vonderfecht says no one has all the answers, but at every conference he attends, "the size you will need to be successful keeps growing. You can only take so much cost out, and larger systems have an advantage there."

He believes very large regional systems like his, which operates in four contiguous states, will be most successful.

For his part, SSM's Thompson couldn't agree more, and he worries about the same things leaders worry about with any combination—that the promise of better efficiencies and lower healthcare costs will never be realized. "There will be organizations executing on this and at the end of the day they will not have derived any benefit from it," he says.

He also questions how big his organization needs to be, and whether there is such a thing as being too big.

"We're on the same bigger-is-better bandwagon as everyone else, but can I derive the same or better significant economies of scale as a $15 billion [revenue] organization as I can as a $5 billion one? The jury's out that everyone can achieve the cost savings they're targeting."

And Thompson has advice for anyone else on this road:

"You have to fully understand what you're trying to achieve when you go into these deals, make a detailed integration plan, and work with an organization that understands there will be equal disruption to achieve the benefits we believe are there through the transaction. The worst outcome will be if you don't change following these deals."

Reprint HLR1013-2

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This article appears in the October issue of HealthLeaders magazine.

Unless you take steps to equip them to do so, physicians will continue to be unprepared to lead changes in clinical guidelines critical to performing under healthcare reform.

A huge amount of change is in process within the American healthcare system, and physicians will play a huge part in whether or not healthcare costs will moderate and quality will improve. Trouble is, in most cases, they're unprepared to play a leading part. That's because the large majority have no leadership training.

Team-based care, which is at the foundation of reimbursement based on added value, is foreign to many of them, says David Nash, MD, MBA. He is dean of the Jefferson School of Population Health, based at Philadelphia's Thomas Jefferson University.

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I'm not revealing anything revolutionary here, but Nash says that's not necessarily their fault, because physicians are trained to lead themselves, not others. "Imagine a football team of docs," he says. "They don't know each other's names, they don't practice together and they all want to play quarterback when they play on Sunday and they want to play well. That's where we are in physician leadership."

Underlying the attempts to push for and deliver value on the insurance/employer/patient side and the provider/physician side, respectively, is a belief that physicians will work together with other physicians as well as their colleagues in nursing, case management, and with medical technicians, among others, to deliver efficient, coordinated care to patients.

"We want doctors to be the leader of the team, but we don't teach them how," Nash says.

The physician is supposed to be the leader of this teamwork approach to delivering healthcare. But financial incentives alone won't necessarily deliver the expected outcome, says Nash. Physicians have to be trained to operate this way, because it's the opposite of how most were trained in school and in residency.

"Some people consider physician leadership an oxymoron," says Nash. "That's sad and totally not fair, but I've actually had doctors say to me there's no such thing [as physician leadership]."

Yet physician leadership as a concept or area of scholarly inquiry has received a lot of attention in the past decade. The school Nash leads in Philadelphia is ample proof of that in itself. But Nash says Jefferson's School of Population Health is far from sufficient to achieve the lasting change and value in healthcare that nearly all players in this game profess to want to achieve.

If value and higher quality are really the goals, Nash says, hospitals and health systems must take the lead on providing that training to their physicians. That's easier said than done; this training is expensive.

It often takes doctors away from their practice for periods of time, many doctors who need this training most are not employees of the hospitals and health systems where they practice, and many leaders and board members worry that an investment in physician leadership training may train doctors only to have them compete with the health system.

Yet the evidence that physicians need this training is ample.

"The average board certified internist has had seven years of post-college training," says Nash. "In that seven years, she may have had only two hours of classroom-based leadership training. And we expect these people to lead the development of the patient-centered medical home?"

Of course, there's a problem in painting an entire diverse group of 600,000 practicing physicians across the country as deficient in leadership skills. Physician leadership is not an oxymoron. Many of the most well-known proponents of evidence-based medicine, infection and quality control, clinical integration, and many other groundbreaking innovations in patient care are physicians.

They're heading up ACO programs. They're chief medical officers. They are leaders in promoting and developing clinical informatics. More and more hospitals and health systems are tapping physicians as their CEOs. So they are out there. There just aren't enough of them, says Nash.

You simply can't practice population health without physician leadership and physician integration.

The American College of Physician Executives has been training physician leaders for 30 years. Members of that organization, including Nash, self-identify as spending more than 50% of their work time in a leadership role.

"But we only have 11,000 members," says Nash. "So you're talking about 2% or less of practicing physicians who are in a leadership role. For success under reform, we need 10-15% of physicians in that role."

There's also been an explosion of graduate training programs exclusively designed for docs that are exclusively online. But funding and time is a huge issue. Organizations, and more particularly their boards, need to take charge, Nash argues.

"Funding physicians to go to ACPE and various master's programs is a great start, and is one strategy, Nash says. "Another one is to bring ACPE faculty to their institution.That's the on-site program. Third, you can grow your own physician leadership program, and there are several outstanding ones."

Nash mentions physician leadership programs at Texas Children's Hospital, Ochsner Health System in New Orleans, UnityPoint Health in Des Moines as examples.

"At those, docs fight to be included," he says.

But those organizations commit significant institutional resources for physician leadership training, making their creation a board-level decision.

"Hospital CEOs don't want to do this," says Nash. "Boards have to do it. I counsel them that it's their fiduciary responsibility to demand the commitment of resources to physician leadership training."

Nash says CEOs are understandably reluctant to pay to train leaders from the physician ranks when they reason that the physicians may at some point use that training to compete against the hospital or health system.

"I don't subscribe to that worldview, but I understand its appeal," Nash says. "But I could make a strong economic argument to the cost of free training if you believe health reform means we're headed to bigger systems that are risk-bearing, integrated across sectors, boast seamless coordination, and that there are leadership challenges to implement the new measures coming our way."

He says healthcare will require a small army or leadership-trained physicians to run the core components of health reform from ambulatory quality to patient-centered medical homes. After all, your hospital or health system's PQRS [Physician Quality Reporting System] score is going to be online in 2015, so the hospital error rate will be researchable, he says.

"Who's running that store?"