Last year, Cleveland's MetroHealth, the local safety net system, provided $130 million in care for the uninsured, says John Corlett, vice president of government relations and community affairs. The 731-bed MetroHealth Medical Center, which also has 17 clinic locations in the local area, last year got a $36 million subsidy from the local government, and about $28 million from disproportionate share funding from CMS.
The balance, some $66 million, came from the health system's margin. That's not exactly a drop in the bucket for a system that takes in nearly $800 million in revenue each year.
"So that's how life was before the waiver," says Corlett. "Going forward, we'll enroll up to 30,000 uninsured adults and get paid through this Medicaid waiver."
Fortunately, through work with the Centers for Medicare & Medicaid Services and local government officials, life will be different, because the portion of the care burden borne by MetroHealth's margin will be greatly reduced in 2013.
That's because CMS recently approved the launch of MetroHealth Care Plus, essentially a Medicaid waiver demonstration project. It will provide a medical home and health coverage to up to 30,000 uninsured residents of Cuyahoga County, where MetroHealth is located. That designation allows MetroHealth to access $64 million of annual federal Medicaid matching funds that will fill that $66 million hole in the budget quite nicely, according to Corlett. Meanwhile, the anticipated drop in DSH funding over time will be cushioned as well.
Unfortunately, the scheme is unlikely to survive past the end of December. That's because Ohio has decided to budget for the Medicaid expansion called for in the Patient Protection and Affordable Care Act, which would supplant the waiver program. But for hospitals and health systems similar to MetroHealth in the roughly half the states that have decided to let the federal government set up their exchange, such a waiver, if granted, might have a much longer shelf life.
Nevertheless, Corlett says the program is worth doing not only because it provides new funding for the uninsured, but because it allows MetroHealth to expand many working relationships with outside health providers that it will need as shared risk ramps up in coming years.
"We'll be financing care from providers outside MetroHealth," says Corlett. "So we will reimburse them because they're augmenting our primary care services."
MetroHealth Care Plus, which is how the new initiative will be branded to consumers and providers, is also providing a pharmacy benefit, which is a new expense.
"We will have to learn over time how significant that expense will be," Corlett says.
The program requires MetroHealth to become an insurer in fact, if not in name, because it effectively must finance care and take on risk for a population of up to 30,000 previously uninsured, who do not have to access care at MetroHealth, necessarily.
"An actuary worked with us to develop per-member, per-month figures, but we'll have a better sense in three months of how much we're spending outside and how much stays inside," says Corlett, noting that initial projections indicate that about 25 cents of every dollar the system will spend on this population will go outside the system to federally qualified health centers and other ancillary providers.
The fact that MetroHealth Care Plus will be paying outside entities is early practice for the types of shared risk contracts many healthcare organizations will have to take on as both government and commercial payer sources look to force providers to take risk surrounding quality of care.
Though hospitals and health systems in other states should investigate such a waiver, especially if their state will not be setting up its own insurance exchange, Corlett says it won't come easy.
First, the matching funds could only be used if the hospital were to designate funds (in this case, the county subsidy) toward caring for the uninsured population. MetroHealth was able to designate its county subsidy because represented state or local funds not previously used in the Medicaid program.
Technically, a state could contribute additional funding to get the matching funds MetroHealth got in this case, but that's unattractive for the same reasons some governors are resisting the Medicaid expansion—their state budgets are riddled with healthcare expense already.
Corlett says state and CMS officials granted the waiver in part because they were intrigued with a program at MetroHealth called Partners in Care, which was essentially a patient-centered medical home for the uninsured. That program will now morph into MetroHealth Care Plus.
"We reasoned that if we invested more in primary care and care coordination, that if we applied that PCMH team approach and care coordinators, we could over time reduce utilization of the ED and inpatient portion of the hospital," says Corlett.
"Because we were in effect, the insurer, that benefit could accrue to us. After a year or so, we noticed our patients enrolled in Partners in Care did use less ED, and when they went for inpatient care, their costs weren't as high."
MetroHealth also started to see better health outcomes around diabetes and hypertension, for example, and all of its 15 local primary care "health centers" are now certified as Level III medical homes by the NCQA.
Corlett predicts enrollment will ramp up rather quickly. One of the unique features MetroHealth negotiated with CMS was the ability to auto-enroll a large number of patients at the beginning. Patients previously in the system's DSH program who had completed an application in past 90 days could be auto-enrolled.
"That was about 7,500 patients," says Corlett. "They can disenroll if they want, but they have to opt out."
He says the initial reaction from the uninsured has been such that it won't take long to hit the 30,000-member ceiling.
"It's in our interest to."
Corlett says although Ohio is expanding Medicaid, which means its waiver will be short-lived, he encourages safety net hospitals in other states to look into something similar, if they have the wherewithal and meet the requirements.
"If a state chooses not to expand, the waiver exists, and I would think that in states that choose not to expand and that also have large urban public hospitals, it would be an alternative they might want to look at."
In the business of healthcare, it's hard to escape the reality of reduced profitability as far as the eye can see. That dour outlook is being reflected in the bonds of nonprofit healthcare organizations. If you owe money to an individual or institution, they like to keep a close eye on the general health of the business, in addition to the individual market in which you operate.
And based on their calculations, all is not well.
A report this week from Moody's Investors Service revealed that 2012 was a record year in terms of the amount of hospital and health system debt downgraded. At $20 billion of nonprofit healthcare debt downgraded, 2012 represents the highest amount of downgraded debt since Moody's started tracking the metric in 1995, and is more than double the amount of upgraded debt (which is reflected in improving business trends).
Granted "since 1995," is not a long history. Also, the report is loaded with caveats. Three large systems accounted for more than half the downgraded debt, so the record amount of downgraded debt is, by itself, not necessarily a harbinger of hard times.
Indeed, many hospitals and health systems that saw upgrades on their debt were able to realize a stronger financial position through expense management strategies and balance sheet improvement, showing that those strategies may still have some room to run.
Yet Moody's expects similarly bleak results in terms of upgrades vs. downgrades in 2013. Clearly, this trend is not your friend.
It's difficult to make correlations between individual systems and the macro environment. Your hospital or health system may be doing well. You know all the stuff going on at your organizations better than analysts at Moody's do, after all, and if you're comfortable, maybe this news is concerning to a degree, but it's not going to change your long-term strategy.
So why does it matter?
To make a deeply flawed, but helpful analogy, your state may be running a budget surplus, but that doesn't mean that unsustainable federal deficits won't have a detrimental effect on you, eventually. Similarly, the view that healthcare is at best a low-growth business is reinforced when downgrades outpace upgrades.
There are positives. Low interest rates have allowed many to refinance and even take on additional debt to fund the deep structural changes that are needed to transform business and clinical practices away from the current fee-for-service reimbursement environment.
Low interest rates coupled with expense reduction and waste elimination strategies have also allowed the bold to chase acquisition and fund outpatient growth strategies that may have previously been cost-prohibitive. But expense reduction and balance sheet improvement have their limits, and interest rates won't always be this low, say analysts from Moody's.
"With expected flat revenue growth and many low-hanging expenses already removed from operating structures, management teams and hospital boards will seek deep process changes to reshape their model of healthcare delivery and create greater efficiencies," the report argues.
If you're delaying this type of deep systematic change for any reason, you won't be able to hide much longer.
Because time appears to be growing short for those who have failed to articulate a strategy of how to survive independently in a much more complicated financial milieu for hospitals and health systems, and because some of the reasons for upgrades noted above have a limited degree of sustainability, you should be aware and be ready to adjust your strategy quickly.
The time for watchful waiting on strategy appears to be over.
This article first appeared in the January/February 2013 issue of HealthLeaders magazine.
One long-held belief is that it's easier to find the truth of any story by following the money. That axiom might be the most appropriate for determining the winners and losers in healthcare reform writ large. While some leaders practice watchful waiting, many others are taking big risks by affiliating, partnering, and acquiring outside their own organization's areas of expertise. They argue that such a dramatic change in reimbursement patterns and accountability demand big strategic changes in their organizations. The future, they argue, belongs to those who seek to build their capabilities far beyond the hospital and beyond even outpatient services. They seek to be the healthcare destination for their patients—envisioning a future dominated by cooperation among healthcare services, payment for those services, and reducing waste.
Yes, traditional consolidation defined as hospitals acquiring hospitals is still viable and, indeed, pressure to consolidate is unrelenting. But some organizations are going outside of that narrow hospital-focused model to develop expertise and capabilities that go far beyond providing healthcare services to patients for a fee. Instead, they're building networks that can handle—to varying degrees—payment, patient management, and services. Payers and providers are recognizing that hospitals are being asked to do things payers have done for years: handling actuarial work, building networks, monitoring quality, and managing utilization and claims.
Of course, that logic has failed before, as hundreds of health systems started health plans in the early 1990s. Later, many of them proved financially unviable. In a similar way, today's innovative partnerships and acquisitions might be tomorrow's folly.
While many larger systems are acquiring other hospitals and smaller systems, which could be an attractive strategy, that's a business most executives know. What's really risky, and what might bring associated reward, are nontraditional alignments that combine all of what healthcare providers are being asked to do by employers, the government, and commercial payers.
Dealing with declining reimbursements
Such groundbreaking structures have worked before. In putting together two disparate parts of the healthcare system, Stephen Rosenthal had a head start. He is president and chief operating officer for CMO—The Care Management Company LLC, a wholly owned subsidiary of Montefiore Medical Center, a four-hospital system based in the Bronx, N.Y. The CMO idea was strategically ahead of its time in that its developers were seeking a way to be accountable to results of care and, ultimately, a way to deal with declining reimbursements from both government and managed care sources by delivering proof of efficacy. That foresight is paying off in other areas now, and others are emulating Montefiore's organizational structure. That wasn't the case at the beginning. Rosenthal says the creation of CMO in the late '90s was simply a response to the rise of managed care, specifically the practice of cutting reimbursement rates as a blunt way to control costs. Montefiore executives thought they could do better if it were allowed to take on some risk. "Given the market constraints at the time, the payers—both government and private insurance—were so dramatically cutting rates that on a transaction basis it would be difficult to go forward and survive," he says. "If they gave us full responsibility for the patient, we theorized, overall we would save money in the system and could use the dollars saved to sustain the infrastructure."
Bringing that idea to fruition was hard to do at the beginning, he says, but it's gotten easier because technology, which plays a major role in monitoring patients, is better and more user friendly. And, he adds, "It's an easier sell now because technology is in the national consciousness."
CMO, in fact, is one of the key reasons Montefiore was chosen as one of 32 Pioneer ACOs by CMS' Center for Medicare & Medicaid Innovation: Montefiore can already do much of the risk management that the Pioneer standards demand, but at the beginning, it's no exaggeration to say that Montefiore bet its future on it.
The Montefiore Integrated Provider Association is the risk-bearing entity. It's made up of providers of all stripes who have a relationship with Montefiore that includes community representatives. Each entity, Montefiore and the providers, has one vote on the board "so we would always have to build consensus for our activities," Rosenthal says.
The IPA can assume financial risk for patients assigned to it, which, says Rosenthal, "is the beginning of managing a population." The care management operation, owned by Montefiore, provides all the infrastructure support that an integrated delivery system needs to manage a population.
"We do all the data analytics and the contracting between insurance companies, the government, and providers, and establish network opportunities," Rosenthal says. Additionally, CMO educates providers, whether employed by Montefiore or not, and develops all care management strategies so the sickest patients get truly managed care, he says. CMO employees, often nurses, make sure each of these patients has a clear individual care plan that works for the patient, their family, and their physician, he says.
"What this means is we offer a tremendous amount of support for the physician," he says. "We're available to the patient all the time. Our goal is to be proactive ... to prevent costly services to the patient and the system."
He stresses that hospitals can be disadvantaged in such a program, where much of the savings shared among participants comes from preventing admissions there, adding that Montefiore itself is fortunate because physicians in the community have come together in the IPA, under which transparency of information is critical, he says.
"That's critical because you have to join together in real cultural and behavioral changes that need to occur with a provider population. When managing a population, you're looking holistically, and that fosters creativity," he says, adding that the exchange of clinical data and claims data from insurance companies and the ability to manipulate it makes it possible to proactively identify the individuals to apply the right interventions at the right time.
As part of the Pioneer ACO, CMO now manages about 23,000 Medicare fee-for-service beneficiaries, of which less than 10% account for more than 50% of medical costs.
"You can drill down into those individuals and be very proactive," says Rosenthal. "Of the individuals with the most needs, more than 900 people are being actively case-managed with the goal of improving their health and the quality of their care while also lowering costs."
Population health and long-term contracts
Most hospitals and health systems haven't had the head start on managing populations that at Montefiore was essential to its continued existence, but that doesn't mean they can't catch up with something similar, as most healthcare organizations will need to adapt to the increased accountability.
There are other blueprints toward managing population health, though many are in their infancy. Texas Health Resources' CEO Douglas Hawthorne, FACHE, recognizes that, and as a longtime veteran of the healthcare industry, he wants to lead the transition, partially through innovative structural deal-making that broadens the Dallas/Fort Worth Metroplex–based health system's business footprint. Part of that transition includes being able to manage the health of populations. He thinks Texas Health will achieve that goal at least in part through a contract, not an acquisition. He says even very large organizations must bet their future, at least in part, on the performance of partners who can aid in achieving quality and cost-of-care targets. In Texas Health's case, that contract is with Healthways, a disease management company that seeks such big, geographically exclusive partnerships as its main growth strategy.
"Most of what we've done in our existence is diagnose and treat those who appear at our doorstep, and we've done a good job at that," Hawthorne says. "As we evaluate that population, we might admit the same patient for the same reason multiple times, so we're seeing a revolving door from acute stage to chronic stage."
However, future reimbursement, and thus, the margin case for his business, rests on the premise of providing accountable care essentially from birth to end of life. The 10-year contract, terms for which are undisclosed, and the value of which can vary greatly depending on the achievement of performance targets for Healthways, focuses on prevention and patient and family involvement in a patient's care. Practically, that means that Healthways will provide the following services to Texas Health-affiliated physicians:
Analytical tools that identify at-risk patients to create individual personalized plans
Smoking cessation, coaching, and weight-loss programs
Emergency room admissions data and follow-up needs to reduce readmission rates
Those interventions might sound simple and practical, but perhaps not revolutionary. The practical truth is, however, that given the astronomical cost of an inpatient admission, preventing one can pay off substantially. But doesn't that mean, at least in many cases, that Texas Health will be preventing itself from much-needed revenue that admissions bring?
As if anticipating the question, Hawthorne, who has invested in a health system merger and large physician group practice acquisition as well as an organic build-out of ambulatory care locations during his tenure, admits the twitchy nature of the conversion in payment methodologies, as payers, including the government, haltingly make changes to the way they pay for care.
"We're working against traditional models, and as we transition, we want someone who's aligned with us through the long term," he says. But best utilizing the evidence-based information and data capability that Healthways brings to the equation won't happen overnight, he concedes.
"That's why transforming communities will take more work than adding a new service to the hospital."
In fact, the goal has become to keep the patient out of the hospital through a combination of careful maintenance and a more hands-on approach to treating patients after their hospital stay is over, or with an eye on managing their condition such that they don't have to visit the hospital at all. The idea is that's where Healthways and its capabilities come in.
Texas Health is betting that disease management pioneer Healthways, led by CEO Ben R. Leedle Jr., can serve as a similar pivot point for the health system to make needed interventions on a targeted set of high-cost patients—very similar to what Montefiore developed years ago with its CMO—The Care Management Company.
"We'll be working with them to strengthen and expand—on a service line basis—support for people with chronic disease," Leedle says. "We'll intensify care transitions postacute to reduce readmissions likelihood and partner with them on direct-to-employer marketing of these capabilities."
Hawthorne says the speed of the transition is one reason such partnerships have become so important.
"We know what we do well. We've had remarkable outcomes caring for people at the tertiary level, but as we get into areas of moving the model to more of a health model than a sickness one, to create from scratch all the pieces that are now readily available in an organization like Healthways was not attractive," he says. "Speed and agility and confidence in a partner were important. We didn't have the expertise or time to create this ourselves."
Leedle says other health systems will be looking to answer the same value question as they take on risk, and Healthways hopes to develop similar long-term contracts with geographically diverse health systems with size and scale. That geographic exclusivity, however, would preclude it from doing similar deals with close competitors in the same areas, for example, that Texas Health serves.
Leedle envisions a partnership that can demonstrate differentiated value over the competition, and even speculates that health systems that prove they can deliver better quality at a lower price have a significant opportunity to offer large employers. "This work is filled with potential channel conflict and tension, but in the end, we're headed to a marketplace where large employers will demand the very best value, and we think they'll sort out where that best value proposition is coming from."
The Virtua executive team's biggest challenge, as CEO Rich Miller sees it, is transitioning from a reliance on acute hospital-based care into providing or arranging care outside the hospital's walls.
From that perspective, the New Jersey-based non-profit healthcare system's CEO is probably not much different from hundreds of other health system CEOs across the country, many of whom are making big—and risky—changes in the ways their hospital or health systems do business.
It's clear that in order to continue to exist, as an array of incentives and disincentives work together to force institutions to look at healthcare more holistically, senior leaders must not only provide a vision for what the future may look like, but they also must evoke a change in culture from their employees. Further, and most importantly, they must articulate a vision for how that transformation can be achieved.
As I've pointed out previously in this space, the challenges are relatively easy to identify. The key difficulty in any transformation is not in identifying processes that are less beneficial for patients (and soon less beneficial to the bottom line), but in finding out what changes deliver the biggest improvement in patient satisfaction, elimination of waste, and ultimately, improvement in outcomes.
"Getting people in all settings to think differently about the connectivity between each setting is what will make the model work over the next 10 to 15 years," Miller says of the four-hospital, 885-staffed-bed system in Marlton, NJ. "It's kind of like turning a battleship."
If that's the case, the turn is already well under way. The system is banking on the fact that it will be able to organize transitions effectively and efficiently, and with 46% of its business now in the outpatient sector, that ability is crucial to long-term survival.
To continue to the ship-turning analogy, sometimes technology can act as a rudder, Miller says. In Virtua's case, a move toward a patient-and-equipment tracking system helped supply proof that changes in processes can pay big dividends, not only for the system itself, but for patients and employees.
In Virtua's case, says Alfred Campanella, Virtua's executive vice president of strategic business growth and analytics, the system is on the third leg of a technological journey that is enabling that culture change not only among senior leadership but all the way to the most elementary levels of patient care.
Having invested years ago in its EMR and data warehousing capabilities, Virtua leaders believed they had two of the three legs of their competitive stool built. The third, however, wasn't possible without the first two, and was perhaps the most important: real-time location systems that track things that are moving, whether assets or people.
Perhaps it's obvious that in an industry that has to focus on effective transitions in care settings this kind of technology will be essential, but it's a foreign concept for healthcare.
In 2010, Virtua was in the process of building a replacement hospital for its Voorhees campus, its largest. Miller says the leadership team identified that it was an opportunity to redesign care such that it functionedusing the most up-to-date technology, methods and strategies for efficient patient care and access to treatment.
Part of that planning involved implementing an asset and patient management tool from GE, called AgileTrac, to track bed and patient flow, as well as mobile assets used by patients, and often "hoarded" by caregivers who wanted to assure they would have equipment when needed. Of course, this all created a vicious circle of equipment hoarding and bed delays that belied the goal of achieving efficiency. "We were building this million-square-foot replacement facility where the biggest challenge is knowing where equipment and people are," says Barry Graf, Virtua's vice president of integrated operations.
Graf says the importance of both right-sizing inventory and making sure it's always readily available for patient care held promise of big returns on investment. Not to mention the savings of time and effort among the clinical staff who were spending inordinate amounts of time on the phone and on foot searching for equipment or trying to get rooms cleaned and turned over for the next patient.
Backlogs in the ER were the most visible sign of the problems, but so was hallway clutter. Equipment used in patient care was often "parked' in hallways between use.
To minimize the disruption associated with the move to the new hospital, executive leadership rolled out the new technology, which uses RFID tags to track equipment, patients, and employees, at the existing hospital prior to the move.
"We wanted to work through and optimize workflow so when we moved, they would be developed already," says Graf.
Now, any caregiver can go to any computer and identify where a piece of equipment is, which eliminated hoarding, and allowed Virtua to right-size its inventory. The new, 1 million-square-foot Voorhees hospital is three times the physical size of the building it replaced.
"Employees realized they don't have to walk so far to get things done," says Graf. "When you have that high-level caregiver, such as a nurse, you want them focused on the patient and not looking for equipment and so do they. This is maximizing time to spend with the patient which improves outcomes." Three of the four hospitals at Virtua now use the system, and by the end of the year, all will be using the RTLS, or real-time location system.
The new system has resulted in an estimated $1.2 million in savings. Average ER-to-inpatient bed wait times have decreased from 16.2 hours to two, and the average wait time for "ASAP" equipment delivery is down from 202 minutes to 12.
For "routine" equipment, it's down from 184 minutes to 14. By the time the fourth hospital has been rolled out, Virtua will be making use of 9,000 patient tags and 11,500 of them for asset tracking. But those figures don't even begin to address the downstream improvements in patient care that can't immediately be categorized in a statement of ROI.
There's a lot of talk about "disruptive" technologies in healthcare these days, says CEO Miller.
"This has been disruptive in a good way. It's the best we've rolled out," he says. "When we give tours and we show visitors and patients these features, their eyes light up. We're sharing information at a much different level."
What's the point of issuing individual mandate rules, as the White House did this week? Of course it has to be done by statute, but what does the sound and fury signify? Apparently not much.
Through a pair of documents, one from the IRS and one from the Department of Health and Human Services , the Obama administration has issued a set of proposed rules surrounding one of the most controversial parts of the Patient Protection and Affordable Care Act for public hearing.
The most surprising news about the proposed rules is that it appears exemptions built into them for enforcing the individual mandate are so permissive that only 2% of the population would owe a penalty.
Wait a second. I thought that by the time of the passage of the PPACA in 2010, 46 million people were uninsured. That number was heatedly disputed then, but even taken as fact, it represents about one sixth of the total United States population of about 313 million, or around 17%.
Since most of the provisions surrounding the health insurance portion of the law won't go into effect until next year, the number of uninsured must be at least as high now.
Some of those millions undoubtedly will find health insurance once the state-level exchanges are set up, but there's nothing to suggest that a large majority of them necessarily will, even though the law supposedly compels them to do so.
Those who do won't face a penalty, of course. Some of those uninsured certainly live in states that so far have refused to set up an exchange, but certainly not the majority. It makes sense to give those people an exemption.
Those who would also be exempt include taxpayers with incomes below the filing threshold and members of Indian tribes, for example. Those are worthy exemptions.
Other exemptions, to put things kindly, are more dubious, but still sound reasonable.
They include those who cannot afford coverage, people who qualify for hardship exemptions, individuals who have short coverage gaps, those who don't want to purchase health insurance for religious reasons, members of "health sharing ministries," and individuals who are incarcerated.
The problem seems to be that some of the exemptions (who's judging what's affordable, for example) are so wide that pretty much anyone could qualify for at least one of them. But what about the 2% who still don't? Will they be responsible for paying a penalty? Well technically, yes, but who's counting?
Not the IRS, which has already told Congress that it won't enforce the collection of the, ahem, "shared responsibility payment" for people who violate the requirement that they obtain health insurance. (I thought the Supreme Court had already gotten the administration to admit that the penalty, or "shared responsibility payment" is a tax, but I guess that's another story).
It's unclear at this time, but it's reasonable to project that because the state exchanges will be supported by the government through subsidies and coupled with a Medicaid expansion, that payer rates may not be generous.
Medicaid (already known as one of the stingiest payers for hospitals and health systems) is already a challenge for hospitals who charge that it doesn't come close to paying for the cost of treating its beneficiaries. The fact that penalties paid by those who ignore the individual mandate are likely to be minuscule doesn't help the economics of the ACA.
Despite the apparent pointlessness of the new rules given the ultimately tiny percentage of taxpayers who will find it possible to actually violate them, it's clear that what the Obama administration is planning on enacting is far from a real individual mandate. It's also neither a tax nor even a "shared responsibility payment," whatever that means.
In practice, it seems it will be more of a "suggested donation."
As senior leaders at hospitals and health systems make drastic changes to their business models, they face unprecedented upheaval. The level of disruption to this highly regulated industry is unmatched compared with previous shocks such as the move to DRG payments by Medicare in the '80's, or the HMO explosion of the '90's.
The fact is, the incremental changes that hospital boards and CEOs are implementing around cost control, coordination of care, and expansion of the primary care base are not likely to be enough to maintain independence for a large percentage of hospitals and health systems.
That's evident simply from reading the daily news. You can count on seeing a merger or two, and big ones, pretty much weekly, as hospitals and health systems try to adjust to drastic expected declines in reimbursement over the next 10 years or so.
The news is coming so fast and furious that we're doing frequent "M&A Roundup" stories to effectively report on them. There are four mergers in this story alone. Unprecedented.
So what do we have to look forward to as reform progresses? More of these tie-ups, for one thing, just to adjust to the new revenue reality.
I had a revealing chat recently with Gary Ahlquist, senior partner with Booz & Company in Chicago. He had me flabbergasted when he suggested that hospitals can expect a 20%-25% decrease in revenue over the next 10 years.
And further, he predicted that up to 1,000 hospitals (that's around 20% of the number of hospitals in existence in the US) will be realigned or reaffiliated during that period of time. Given the pace of consolidation we've witnessed over the past few months, he may be underestimating those figures.
"The one caveat to that statement is uncertainty around what the posture of the feds will [adopt] around consolidations," Ahlquist says. "However, there's some guidance from feds that the given margin pressures, we're talking now about survival."
Some hospitals and health systems will pursue these combinations from positions of strength and before they reach the point of doing deals only to ensure their survival. Part of that is because most acquirers won't be looking to your survival as the key to whether they decide to do a deal or not.
"The bottom line is that hospitals... standing alone... can't deliver quality of care that is appropriate and sufficient."
But mergers are not a panacea.
Outside the merger boom, hard work must take place on care solutions, Ahlquist says.
Another word for care solutions is so-called bundling, which is the subject of a lot of talk but not so much action outside of a few pilots and ad hoc arrangements between hospitals and health systems and employers, insurance companies and even Medicare.
But those solutions will become an imperative, Ahlquist says, and will become "a natural place to drive standardization from a consumer's standpoint."
Ah, the consumer. Many have long predicted that consumers would begin to shop for their healthcare based not only on quality, but on price.
Those predictions have proven, so far, to be premature. For one thing, the difficulty of comparisons between providers has thus far been a limiting factor, as has comparison of quality scores, although it's getting better.
The real driver may be the fact that as consumers foot more of their own healthcare bills through coinsurance and high deductibles, such comparability will be essential.
So while predicted revenue declines of 20%-25% are shocking, the news is not all bad. Absent internal reforms and repositioning, such declines would prove a death knell for many hospitals. Ten years is a long time—if you begin the work now.
"In order to make care solutions work, you need data from the payer and provider about the patient. The payer doesn't know much about what happens between patients and doctors," says Ahlquist.
"The provider doesn't know about patients because they get care outside the system. But together they do have the information they need. At one level, it's an absolute requirement in changing the system. More and more people are realizing that."
Even if you'd rather watch paint dry than watch college football, you're likely aware of the flavor-of-the-week online rubbernecking experience: the Manti Te'o con.
Although the rest of the world just learned at least part of the truth on Wednesday night, multitudes of people much closer to the situation, including, Notre Dame officials are saying, the Heisman trophy runner-up himself, were duped for almost as long into believing that a young woman named Lennay Kekua was a real person.
Not only that, but that she was the girlfriend of said player, and that she had died tragically of leukemia several months ago, coincidentally on the same day as the player's beloved grandmother.
In this and other hoaxes, senior healthcare leaders can learn a lot of lessons.
How could a person—indeed, a vast group of people—be duped into believing in the existence of someone who, ultimately, is the figment of a cruel and twisted imagination? Whether the player was ultimately in on the hoax is immaterial to this question.
For starters, it was an excellent "story" which took on a life of its own once the sports press got hold of it. The inspirational impact of the story coupled with the infatuation the sports media has with "storylines" outside the field of play conspired to blow it up to fantastic proportions.
That is, until someone decided something didn't smell right about the inconsistencies surrounding the story, and did some digging. In short, they were skeptical. They believed the story was too good to be true. As they followed the clues—the mistakes the perpetrator left behind, they came up with this.
It's not the first time someone has been conjured into existence, with huge consequences for people who so wanted to believe the story that they ignored little clues and little mistakes, ultimately being fooled.
But what does all this have to do with healthcare and healthcare reform? Well, little and big deceptions or half-truths can cost you in healthcare. Just today, a story came to my attention about a hospital in the U.S. Virgin Islands that, despite what was apparently a very convincing website, doesn't exist. At all.
It all strikes me as a cautionary tale about how credulous we all can be when contemplating the huge changes that must be made by leaders in healthcare. That's hard enough without having to suss out the truth. There are things we want to believe—sometimes—despite evidence they may produce less than optimal outcomes.
For instance, hospital and health system mergers are sprouting up like mushrooms after a spring shower, yet statistics say that less than half are ultimately successful in achieving the efficiencies they promise.
Software and cloud computing services that claim to offer the most up-to-date evidence-based medicine guidelines are necessary, but how much should we rely on their accuracy or efficacy? How do we vet their claims in a hurried and harried decision-making environment?
What constitutes good value when purchasing them? What is the definition of value in healthcare reimbursement, and will software help prove that your facility or system offers it? Same with billing systems, cost reduction techniques, consulting services, and on and on, ad nauseum.
What hoaxes such as the Te'o con and the nonexistent U.S. Virgin Islands Hospital can teach us is that we should nurture a healthy skepticism in making such big decisions. It also teaches of the vulnerability in all of us to believe what we want to believe. We want to believe a merger will cut costs and ensure our continued existence in a time of massive uncertainty, so maybe we're too quick to discount the potential negatives.
The bottom line is that skepticism is healthy, but education is paramount. Let's not turn the current trend of both vertical and horizontal integration into the next healthcare industry panacea. If any industry should have a hangover from believing in multiple panaceas over the years, it's healthcare. And I include myself in that caution.
The only defense you have against your own credulity is through educating yourself and avoiding the mistakes that others have made before you. I find that hearing lots of different perspectives helps me in discerning what's hype and what's not, and HealthLeaders Media can help with that. We offer tons of research reports drawn from surveys of bona fide healthcare executives.
We have condensed face-to-face conversations with healthcare executive thought leaders through our Roundtable series. Decisions these people make will ultimately decide whether our nation can handle its healthcare needs without bankrupting us all.
Finally, HealthLeaders magazine, with its emphasis on peer commentary, ties it all together. Best of all, most of it is free. I can assure you that we exist, and so do the people we solicit for advice on best practices.
Not that anyone is specifically out to con you as you make your way through an entirely new regulatory framework, massive spending on technology, and a vast reshuffling of the healthcare infrastructure, but let's at least admit that you could easily fool yourself, and that making ill-considered and short-sighted decisions will be judged harshly by the marketplace.
Shouldn't those decisions be as informed as possible?
As the leader of NCH Healthcare System in Naples, FL, Allen Weiss, MD, would like to see fewer people using his hospitals for care.
In theory, so would we all. Hospitals, in a generic sense, are more than ever, for serious illnesses. They're also expensive, and as many hospital safety reports in recent years have shown us, often deadly.
Hospital and health system executives who realize that the unsustainable cost trajectory of healthcare threatens their continued existence are many. Just witness the ever-increasing number of merger announcements in recent months.
But even among that group, you'll find a few who think spending is likely to level out sooner rather than later. These are the early adopters of new ways to create incentives for healthcare organizations to keep people healthy.
Count Alan Weiss among them.
An aim of keeping people out of the hospital is not the kind of thing a hospital CEO with 75% of his local market share is expected to say, even in this enlightened time. Yet Weiss is convinced that his health system's future lies in finding ways to keep his beds empty. And unlike many others, he's taking steps to make sure that happens sooner rather than later.
But a couple of things have to happen first.
One is innovative collaboration with commercial payers. Weiss announced an interesting one right before the holidays, with Blue Cross and Blue Shield of Florida. Weiss calls it the "first step towards a revolutionary accountable care organization."
It's a bold, but savvy bet, Weiss says. The deal involves lots of sharing of data and a good deal of trust, but it's trust borne out of about a decade of work building from what Weiss calls "a competitive and professionally distant relationship" between the payer and the health system.
"We were bickering over price, not value, which made no sense," he says.
Seeking a better way, Weiss and the CEO of the health plan met in Jacksonville last year. This followed early discussions that suggested the insurer would like to steer more patients toward NCH because of its high quality scores and better than average record of value—especially compared to its competitors.
"We have room for improvement, but the whole industry is just so off in terms of waste, any little improvement we have looks better than you can imagine," Weiss says. "[Blue Cross Blue Shield] started the conversation, but we were poised to come to the same conclusion: What can we do to improve ourselves?"
Sharing of claims data was a good starting point, and the exercise revealed that even though NCH physicians were doing a pretty good job of eliminating waste, a combination of resources could make real-time interventions on physician decision-making based on evidence possible. That would eliminate so-called hidden waste.
"Just getting a seamless exchange of information among the clinicians is an early objective and knowing who's doing what among the physicians, almost in real time, makes a huge difference," Weiss says.
As the collaboration begins to develop in 2013, electronic-assisted connections with the insurer will provide "almost real-time feedback" that NCH's physician medical director will be sharing with physicians.
For example, it turns out that NCH physicians had been ordering quite a bit of thyroid testing, particularly with patients who had already been admitted.
"You can't check them then because it's a bad time to measure," says Weiss.
So the system, based partially on data from the insurer, developed a new educational piece on how best perform thyroid testing.
"It's easy to do and makes sense so we don't do unnecessary tests," he says.
For another example, radiology is the single biggest cost outside the hospital and evidence shows that one third of them should not be done, says Weiss.
"For every 250 X-Rays performed, somebody gets cancer," he says. "These initiatives just encourage physicians to think of appropriateness," which many have never been trained to do.
Egos, he says, took a backseat in the work.
"We were past deciding who were the leaders and followers in this business relationship," he says. Instead, it was a question of exploring how we can use both of our resources together. They're expert at handling claims; they knew more about us via claims than sometimes we do. We know about quality. Together we filled in the blanks."
That doesn't mean there aren't future issues to iron out in such a partnership. Outcomes need work, Weiss says, but they're attacking processes first. "This is not rocket science."
To learn how to do this right, Weiss says, the open-ended collaboration with Blue Cross Blue Shield allows for limited downside risk for not meeting its targets, he says, which are multiple.
"One good thing about this relationship is that with limited downside risk, it's like learning day at the casino," he says. "We're playing cards, but in a sense, we're not playing for real money. Later, it's the real deal. Right now, we don't have a downside risk."
Except that keeping people out of the hospital has its own serious costs.
With other payers, a hospital visit can be lucrative, as it can be with Medicare, as long as its limited quality targets, such as preventing 30-day readmissions for the same condition, are met. As the relationship develops with Florida Blue Cross Blue Shield and other payers—"This is not a monogamous relationship. We are going to get better at this," Weiss says—he hopes that payers will recognize a need to share their profit margin with providers.
"We have to get Florida Blue and others to understand if we can keep everyone healthy, they need to share with us their profit margin," Weiss says.
"If we can get to that point we have it made. We'll be like the Maytag repair guy, which gets them away from paying us for sickness. That's the tragedy of the current system. We can't afford to continue to do what we've done."
Amidst all the worrying and hand-wringing over the fiscal cliff, the resolution of which was not kind to hospitals, perhaps another nugget of news escaped your radar screen this fall—the combined number of people enrolled in Medicaid and Medicare now exceeds the number of full-time private sector workers in the United States.
CNSNews.com, an arm of the conservative Media Research Center, makes its case based on publicly available statistics from the Centers for Medicare & Medicaid Services and the Bureau of Labor Statistics.
To wit: In 2011, the latest period for which data is available, 70.4 million people were enrolled in Medicaid for at least one month. Also, 48.849 million people were enrolled in Medicare that year, which equates to a gross combined 119.249 million.
Though there is no current information on dual-eligibles, those eligible for both programs and thus susceptible to double-counting, in 2008, dual-eligibles made up about 15% of the total, which would mean by 2011, about 10.56 million dual-eligibles would be enrolled in both programs. That would leave a net of about 108.69 million enrolled in Medicare or Medicaid or both.
That compares to 112.56 million people working full-time in the U.S. in 2011, and about 94.75 million who work in the private sector, according to the Bureau of Labor Statistics.
Though there's nuance associated with the figures, those are staggering statistics simply because they confirm that more and more of hospitals' operating income in the future will be coming from government sources, and the commercially insured will be less and less able to subsidize relatively poor reimbursements from government sources.
Not that you aren't already aware of that, but it figures to get much worse. In fact, arguably one of the bigger groups of losers in the recent negotiations over the fiscal cliff was hospitals, which face additional payment reductions that they likely haven't planned for.
That means you have to pay increasing attention (I bet you think you couldn't possibly pay more attention) to what Congress does to reimbursement and what the rest of the federal and state regulatory bureaucracies do to those government-sourced reimbursements.
We're currently at $16 trillion in national debt and counting. Even governments that control the world's reserve currency have to pay attention to that. Don't they?
As we approach yet another likely Congressional stalemate surrounding whether to increase that roughly $16 trillion debt ceiling—since that was not resolved during the recent last-minute bargaining to avert the fiscal cliff—you can bet that hospitals, and healthcare in general, will face increasing scrutiny and will present an attractive target for lawmakers going forward.
Fortunately, hospitals and chief executives, by and large, have gotten this message. Several have told me in the past several months that "these are the good old days" and that reimbursements will never again be as relatively high as they are now.
With a few notable exceptions, they're working on the assumption that they need to get their expenses down by about 30% to survive on current Medicare rates. What they don't and can't know, entirely, is whether that will be enough.
How quickly those reimbursement rates will be ratcheted down, and by what means, leads to planning for a rainy day in the dark. It's just not possible to anticipate how far the cutting will go. As a result, many smaller hospitals are getting out of the game. The current high level of consolidation in hospitals is evidence enough for that. After all, there's no more draconian solution to long-term survival than giving up your independence.
In any case, don't look for quick or easy answers on how much will be enough. If recent history surrounding Congressional budget negotiations is any indication, there are none.
If you're reading this, that means the world did not end a week ago. On the other hand, it also means your struggle with waste and inefficiency in healthcare continues.
In light of some of the new rules and regulations stemming from the Patient Protection and Affordable Care Act, as well as the noise surrounding the unprecedented level of consolidation in healthcare services, sometimes structural transformation can take a back seat.
This is especially so when so many seemingly more immediate concerns are competing for the CEO's attention.
But you can't rest on working to get waste out of the system. It's a necessary precursor to being able to deliver on value. Excess costs are your enemy, and they're insidious, because they're not as visible as, for instance, a ratcheting down of reimbursement rates, or the potential combination of a local competitor with a deep-pocketed bigger system.
Yet they fester.
The more activist CEOs—those who are not just looking around for an exit ramp for their organization to lock arms with a competitor that is deeper-pocketed and further along the accountable care journey than they are—recognize this. They realize that the prerequisites for survival in an accountable care world have efficiency at the top of the list.
Ron Paulus, MD, who has been CEO of Mission Health in Asheville, NC, for a little more than a year, has focused on eliminating waste because he believes he can drive more volume to his hospital if he can make the visit less wasteful, both in time and other resources.
If that were the only reason to attack inefficiency, it would be enough. Really, the initiative—as well as verifiable tracking of results—adds to the mosaic Paulus can present at contract negotiation time. It also prepares Mission Health to participate in other value-based purchasing initiatives.
What's the most important way to integrate such change? Paulus thinks it first comes from the frontline staff, ironically, some of the lowest-paid employees.
He employs a dedicated team of facilitators to help frontline staff on their value stream mapping—a lean manufacturing technique used to analyze and design the flow of materials and information required to, in this case, provide a variety of healthcare services.
"We have dedicated facilitators, but we believe that you have to get the front line staff directly involved," he says. "So what we have done is provide backfill staff so that we're not decimating the front line when we're asking them to pull out to get into the value stream mapping world."
This exercise ensures that a lot of high-cost steps get analyzed and retuned, but it's only part of the equation of re-engineering processes so that they are more efficient. With the help of the facilitators, Mission Health employees and facilitators also do an experience map at the same time, which requires following patients and caregivers through their entire encounter with the health system, and takes measurements of what patients and caregivers are feeling about the value of certain tasks.
That's where the "shadow" comes in: shadowing patient and caregiver experiences in such a painstaking manner is necessary for effective re-engineering.
At Mission, this observation and re-engineering work is taking place both in the emergency department and the OR, in time-consuming engagements that trace the patient's experiences throughout the entire continuum of their care.
All of this effort stems from the quality team, which includes performance engineers.
If all of this sounds like a lot of work that's outside the traditional scope of providing healthcare services, Paulus concedes that point. But he counters that this is what's required to orient the system toward a future in which only value will be rewarded.
"Outside of patient safety and our patient safety event mapping algorithm, this is the number one priority, because it's getting into how you fundamentally redesign the care process."
Outside of demonstrating value, this kind of work has dramatic potential applications in right-sizing potential capital projects. For example, Mission Health sees more than a 102,000 ED visits annually with 54 beds.
"We probably should have 85 beds, but we can't have 85 beds unless we build something," he says. "So this is to try to maximize the efficiency and to provide learning insight into what the building should look like once we have the ability to do the optimal design."
And to design optimal care processes, he adds. But does this painstaking work result in cost reduction? Many CEOs argue that they've seen many benefits from such re-engineering engagements—except cost reduction.
"It's too early in this experience, but I've done this before and have gotten costs down," says the former chief innovation officer at Geisinger Health System, who built his reputation as a leader on such work at Geisinger, which has been modeled around the country.
The key is going in with a cost target. "I've arbitrarily said we've got to get at least 15% of the cost down in every redesign," he says.
There are two ways to get at that cost, he adds. One is in the marginal costs associated with the care of any given patient. If you eliminate a step, that removes some level of cost. But often, you're still stuck with the fixed cost.
To attack the fixed costs, you increase throughput in the same fixed cost structure. For example, Paulus thinks there's room to see 115 patients through the ED where there once was room for only 102.