Listen to MedAssets' Performance Analytics President Stephanie Alexander about the challenges and possible solutions for hospitals and health systems in developing accountable care organizations. [Sponsored by Emdeon]
Neal Peyser, Managing Director FTI Healthcare discusses the creation of payment incentives for better collaboration between hospitals and their medical staff. He describes how one facility was able to tap incentive payments from a commercial payer that were based on...
Don King is infamous for his catchphrase, "Only in America!" The much-derided boxing promoter usually delivers that line while grinning ear-to-ear and holding at least one tiny American flag. Many people of goodwill cringe when they see it, and roll their eyes. It's insincere, unctuous, tasteless, and it's probably true. Only in America can a small-time hood become a multimillionaire boxing promoter who's hated by many, if not most, of his former boxers, and who's accused of stealing his way to the top. Yet nothing sticks. He's the true Teflon Don. And he's a leader.
What do Don King and boxing have to do with healthcare? Well, while you were paying attention to more important things, the guy who led one of the largest hospital companies in America to the biggest Medicare fraud payment in history is on track to become Florida's next governor. In case you don't remember the particulars, Columbia/HCA, under Rick Scott's watch, pled guilty as a company to a variety of fraud charges in relation to a number of government programs, including Medicare. At the time, according to Forbes magazine, it was the biggest fraud settlement in U.S. history. Yes, Rick Scott, the former Columbia/HCA head, will be the Republican nominee for the governor's race in that state this November, after beating career politician and Florida Attorney General Bill McCollum. Now, only Democrat Alex Sink and independent Lawton Chiles stand in his way.
Though Scott was never personally charged or convicted with a crime in relation HCA's admission of fraud, he was forced out by the board shortly after the company's plea, as co-founder Dr. Thomas Frist Jr., took over to right the ship. Scott, wealthy from his HCA stint and his successive business ventures, campaigned on an anti-incumbent, anti-illegal immigrant platform. He cast himself as an outsider. He's clearly that. The Republican party—and lobbyists—overwhelmingly supported McCollum and ran negative attack ads in the last weeks running up to the primary. Voters bought Scott's side of the story—by a 3% margin. Scott paid handsomely to be the eventual Republican nominee; he spent $50 million of his own cash on his primary campaign. It apparently was money well spent. In a climate where voters seem to want anybody but the incumbent, often for good reason, they got "anybody."
One of Scott's biggest campaign promises is that he will do all he can to repeal the Patient Protection and Affordable Care Act. Ironic isn't it, given that Medicare was Columbia/HCA's victim? But hypocrisy is par for the course in politics. Whether you are a fan of the law or not, a repeal would cause huge upheaval in healthcare even at this early date, as institutions around the country are transforming their organizations to deal with its myriad likely ramifications for their businesses.
And don't think it can't happen. Though repeal seems a long shot, there is some precedent. The 1988 Medicare Catastrophic Coverage Act, which enjoyed much greater public support than PPACA, was repealed only a year after it passed when it became clear that seniors hated what it did to their pocketbooks and freedom of choice. A lot of people hate what they derisively call ObamaCare, even if they're not exactly sure why they hate it. They vote, and if many more people with Rick Scott's political opinions get elected, I'd say repeal is a possibility.
Did I mention that Scott is still very active in healthcare? He's a major investor in a chain of walk-in clinics across North Florida.
We praise true leadership in this country. It's a rare enough talent that it's extremely prized, even if that leadership could be ethically flawed. It's also well-compensated.
There's a lot of interest in healthcare consolidation and what it takes to make them work these days. Many people, increasingly including myself, see a wave of consolidation coming to the healthcare industry. It might seem obvious that in an era of astronomical healthcare cost increases and the tsunami of healthcare reform looming, that consolidation might take hold.
But in healthcare, it's never happened to any momentum-shifting degree. Healthcare, despite many examples to the contrary, is still largely a mom-and-pop business compared to say, manufacturing or retail.
At the same time, healthcare hasn't faced a situation quite like this one before, if indeed as many expect, reimbursement is gradually ratcheted down over time. That, coupled with the high expense of data and clinical systems that help hospitals achieve better quality, safety, and efficiency, may well lead to a wave of consolidation unlike any we've previously seen.
Some experts I've recently spoken with are of the "I'll believe it when I see it," variety. These are the people who have seen the wars over the years. They remember failed predictions of consolidation from years past. They've seen the many times prognosticators have cried wolf over this issue and are in no rush to call for widespread consolidation simply because some commentator says it's different this time.
But what really sold it for me that this time it is different is the fact that so much growth is apparent in outsourcing the major functions of the hospital. If you haven't noticed, there's a high level of interest and commensurate capital raising that's going on in the private equity markets for companies that are essentially outsourcers of physician talent.
These 'hospitalist' companies, which manage a certain cadre of physicians for the hospital with which they have a contract of typically between three and five years—were mere startups a few years ago. Now they're big companies. And they're branching out into emergency and intensive care medicine. How long before they're employing teams of cardiologists on a scale unimagined in the past?
Never before have hospitals outsourced the management of such a key cohort to their success. What reason is there for a redundancy of administrative staff at such hospitals when that company can as easily manage their physicians as a large, multi-hospital system? There's money to be saved—and made.
I realize that my argument can cut both ways. Efficient outsourcing can also plausibly save the independence of the local community hospital and help it compete with its larger, more efficient peers. It's just that I think it's more likely to happen the other way around.
No shortage of commentators like myself are predicting that the business of healthcare is about to get a lot more cutthroat. To hear some of them tell it, the unceasing double-digit inflation that has plagued healthcare for years will eventually lead to a race to the bottom, whereby only the most hardy and lean organizations will survive, putting everyone's healthcare at risk.
That doomsday scenario is indeed a possibility as we look far into the future of healthcare delivery. In fact, it's a widespread belief that many hospitals and health systems won't be able to make their necessary margins on essentially Medicare rates of reimbursement as healthcare reform takes hold, and they will close. I got more than a couple of emails from readers on my recent column about standalone hospitals, where I suggested few will actually close in the coming years. My correspondents vehemently disagreed, in effect saying, this time it's different.
Maybe it is different this time. That there is waste in the system, there can be no doubt. That we can't afford such steep annual hikes in healthcare costs is unquestioned. That we can't afford to continue to treat people in an uncoordinated fashion makes perfect sense. But in the race to get to that point, will so many hospitals get it wrong enough to actually cease operations? Is it really that bleak?
I don't think so, and here's one reason why. When faced with an ultimatum, hospital leadership, as leadership in any other business does, responds. Let's look at a big win this week in a story written by my colleague Cheryl Clark. In it, she discusses a study conducted by the Journal of the American Medical Association that shows hospitals have made huge strides against hospital-acquired infections caused by hospital-onset methicillin-resistant staphylococcus aureus, better known as MRSA.
MRSA is the scourge of hospital ORs around the country. Contracting it results in an often-crippling infection, usually on vulnerable people who have undergone an unrelated surgical procedure. And preventing its transmission is deceptively simple. Deceptive, because all it takes to prevent most cases is proper sterilization of equipment, and importantly, the hands of the people performing the procedure.
Anyway, hospitals have been able to decrease the incidence of the hospital-acquired infections caused by this bug by 9.4% a year from 2005 to 2008, the latest period for which data is available. By any measure, that's significant.
This reduction in infection rates hasn't happened by accident—or because the infections have gotten any less virulent. It happened because hospitals and their leaders, on both the physician and executive side, made it a priority. In some ways, the stick, rather than the carrot, has pushed this improvement.
Certainly, hospitals and physicians don't wish to do patients harm, but in the miasma of responsibilities involved in caring for patients, it's often easy to ignore something that doesn't have revenue attached to it. That's why handwashing and other sterilization procedures for too long were routinely ignored.
MRSA infections can be deadly. But more importantly, they're extremely expensive, adding days or longer to hospital stays for people who should have been able to go home much sooner. They also add costly drugs and much unnecessary pain and suffering to the equation. But perhaps most importantly they add cost—costs for which hospitals are increasingly on the hook.
Payers, including Medicare, have discovered that hitting healthcare organizations in the pocketbook is a sure way to get their attention. That the decrease came at the same time Medicare was implementing payment punishment when so-called "never events" happened, is probably no coincidence.
In the same way, perhaps a better focus on cost will further the goals of cheaper and safer care. No one can yet say for sure what healthcare reform will do to reimbursement, but most senior leaders I speak to think it will make hospitals financially weaker, because although more people will be covered by insurance, reimbursement per patient will actually drop, for reasons that are too complex to get into here.
Perhaps that will be a catalyst for efficiency in healthcare—a smaller pot of money. Hospitals and other health providers will adapt. It won't be pretty. Sure, some organizations won't be able to compete,
but my guess is the number that will actually disappear will be small. And maybe we'll all get better, and cheaper, healthcare as a result.
Hospitals, through the American Hospital Association, did all they could to derail the 2.9% Final Inpatient Rule cuts from CMS—even enlisting the aid of a majority of senators and House members via letters protesting the cut to CMS Administrator Don Berwick. He ignored them. But they haven’t yet failed because in Washington, calling something final doesn’t mean it’s over.
Look for the AHA to try an end-run around Berwick to rescind the cuts through Congress. If they’re smart, they’ll ask the same representatives that signed their letters to come through for them again via legislation. And they are smart, if a little heavy-handed.
I’m not going to try to get into the merits of the cuts here, which go into effect for discharges occurring after Oct. 1. The two sides have agreed to disagree. Whether the cuts will harm patient care is debatable, and so is CMS’ decision to ignore the increasing severity of illness of hospital patients.
This whole disagreement might fade with time, but don’t bet on it. What we might be witnessing is the first challenge to Berwick’s authority as the healthcare cost-cutter-in-chief. Implied in the letters was a threat from representatives who, despite their protestations to the contrary, and the voting populace’s purported disgust with wasteful government spending, can’t help themselves from trying to bring home the bacon at every
opportunity. I’m no oddsmaker, but in an election year, I wouldn’t be surprised if some of those who signed the letter don’t try to override Berwick and CMS in such a way.
Berwick was brought on as a person who has intimate knowledge of how healthcare works—and doesn’t work. Through his previous longtime stint as the head of the Institute for Healthcare Improvement, he’s spent a career pointing out the myriad ways healthcare could be made better and less costly. Some of it has to do with simple blocking and tackling. By that, I mean treating the patient as a customer who needs to get well and whose care needs to be coordinated. Too often, enough healthcare providers—certainly not most—appear to treat patients as money-printing machines who belch cash—by virtue of being covered by a number of government and nongovernment
payers—whenever something is “done” to them. That may sound like a cynical statement, but cost to the patient and to the taxpayer has been absent from the treatment decision-making process for too long. In the past, Berwick and IHI have suggested ways healthcare can operate more efficiently, and now he’s in a position to actually do something about it.
I’m sympathetic to the AHA’s position. If my boss sat me down and told me I was going to take a 2.9% pay cut, I could either accept it or leave. Hospitals don’t have that option, for various reasons, but they also have a powerful ally in their corner that I don’t have—and neither does any individual patient. They can pressure Congress to make this problem go away.
We found out in 2008 that hospitals aren't immune to recessions. Along with the rest of us, they had to try to do more with less: They had to lay off workers. They had to cut out or delay capital projects.
Like the rest of us, their investment portfolios took a huge hit. But they bounced back hard in 2009, as those portfolios recovered, and the economy took a turn, albeit a tepid one, for the better. The recovery in the hospital sector has been documented, as Standard & Poor's released a report this week that while not glowing, showed the prospects for standalone nonprofit hospitals certainly isn't bleak.
Citing sharper expense management and revenue cycle improvements, the report used terms such as "improvement in operating metrics" and "signs of stabilization" and "overall improvement in balance sheet medians," all of which is fancy finance talk for "things are looking better."
Still, long-term stressors remain.
In the short term, hospitals are still waiting for word from new CMS chief Donald Berwick on whether they will get relief from the proposed 2.9% reimbursement cut from Medicare, known as the "coding offset." Further, they are dealing with long-term structural issues that many predict will leave much less room for standalone hospitals in the near future as healthcare consolidates under payment and IT stressors that leave smaller facilities unable to compete with their better-financed, bigger brothers.
If your hospital is attractive financially, has a good payer mix, makes a margin, and dominates its local area, it's a fat target for larger systems that see growth and scale as the way to thrive under healthcare reform.
If your hospital doesn't have those attributes, well, you might be out of luck to either remain independent or be acquired. Something has to set you apart from the crowd to gain the kind of advantage that will drive patients to your door. But even that might not be enough. Nationally, we worry about the skyrocketing cost increases for healthcare. Nothing we try seems to stop it for long. But that doesn't keep people from trying.
Experience tells us that the cost of healthcare doesn't go down, no matter how many roadblocks legislators, companies, and health plans try to throw at it. Managed care was successful in holding down prices, but was an abject failure at building any support from the actual patients it was designed to cover. That's because people want as much healthcare as they can get. It's human nature.
I say all this because the many people who are calling for the wholesale demise of the standalone nonprofit hospital may be right when they say it's different this time. But I'm thinking they're more likely to be wrong. That doesn't mean there won't have to be adaptations by the ones that hope to thrive in the coming decade or so of healthcare reform legislation.
As a wise individual who has observed and been a part of the healthcare industry for more than three decades once told me, people still need and want healthcare close by. Despite all the worry and financial troubles of many nonprofit hospitals, "how often do you actually see one close?" he once asked me. "Not very often," he said, answering his own question.
That's true today, and I'll be surprised if it isn't still true 10 years from now.
I had to laugh the other day when I saw that hospital lobbying organizations were protesting the potential 2.9% in reimbursement from Medicare that CMS plan to introduce in 2011. Suffice to say, it is a complicated issue, but essentially, the government believes that this cut is necessary to offset the potential effect of coding changes on hospital reimbursement. It's called colloquially, the "coding offset," and you should expect to hear a lot more of it as we move through summer and into the fall, when reimbursement rates for the next year will be set. The rationale behind the coding offset is the assumption that hospital payments have increased solely because of changes in coding, or classification of patients. But that's not why I laughed.
The hospitals' argument—with which some 52 U.S. senators agree with via their signatures on a letter to Don Berwick, the new Medicare administrator--is simply that the reimbursement cut needs to be reconsidered, because hospitals want patient severity of illness to be included in the calculations. In other words, their patients are sicker than they used to be.
That sounds completely logical. But here's what I found funny: That's essentially the same argument that hospital administrators have routinely scoffed at from doctors. Physicians have been using the "my patients are sicker" argument with just about every attempt that hospitals or other organizations to improve quality of care. If the physician doesn't score high on quality or readmission data, well, his patients are sicker than the other guy's.
Smart hospital administrators and chief medical officers don't just take that "my patients are sicker" excuse at face value. They have found ways in recent years through ever more robust medical informatics methods to determine whether that was really the case. In most instances, the "my patients are sicker" reasoning didn't hold up under the increased scrutiny. Which is why they always laugh when the issue comes up in scuttlebutt about their relationships with some of their most difficult physician partners. The irony of hospital administrators using that same reasoning with this letter is why I laughed.
Look, to be fair, all the administrators (and 52 senators) are asking for is that patient severity be taken into account when this decision is being made. Their argument is that since more patients are being treated in outpatient environments, only the truly sick are admitted to hospitals for inpatient care. That makes sense, and it's logical, but just because something is logical and makes sense doesn't necessarily mean it's true.
Patient severity should be taken into account, but who's going to come up with a methodology that all parties agree with? And how long will that take?
Time is of the essence. The letter estimates that if the cuts are enacted beginning in 2011, as scheduled, hospitals will be out an estimated $3.7 billion compared with this year.
When even MedPAC itself estimates that hospitals are already being paid 5.9% less than the cost of care for Medicare beneficiaries, hospitals are understandably nervous about any further reduction in their revenues—especially because healthcare reform legislation seems to promise more of hospitals' revenue streams will depend on government reimbursement, which doesn't cover the true cost of care.
This is a first skirmish between hospitals and the new head of CMS. Despite his experience as the chief executive of the Institute for Healthcare Improvement, Don Berwick is an unknown quantity as the administrator of the largest payer in the land. It will be interesting to see whether he's prepared to do an end-run around the very members of Congress who can go behind his back and provide more funding for hospitals. Will "my patients are sicker" resound with him?
We're a little more than halfway through the year, and we're at the end of the fiscal year, and the economy fiddles while the Gulf leaks oil. But it's a good time to take stock. In that theme, what should land on my desk (really, my email account) on Wednesday morning, but a survey from the Conference Board, which says the majority of CEOs expect to increase their companies' profits in the next year.
The confidence measure, for what it's worth, remained at 62 in the second calendar quarter of the year (a reading of more than 50 points reflects more positive than negative responses). This level of optimism suggests CEOs think their business prospects will improve in the short term.
Of course, this is a broad swath of CEOs we're talking about. I wonder if the same level of confidence would be found in the hospital sector? Somehow, with the uncertainty of healthcare reform regulations looming on the horizon, I doubt it.
However, it's always possible. In addition to it being halfway through the calendar year, we're about halfway through the year on the 2010 HealthLeaders Media Industry Survey, which we publish each February. We won't get new survey results specifically for hospital CEOs for another six months or so. But that doesn't mean we can't have a little fun guessing what the prevailing attitudes are right now, right?
February 2010: Only 17% rated their organization's IT infrastructure as "very strong." That's troubling, especially considering the load that IT systems will have to carry in the future to better coordinate care and improve quality under certain aspects of the healthcare reform legislation.
February 2011: I'd predict that will improve for 2010, but probably not as drastically as it should. That's a negative for CEOs' economic outlook right now.
February 2010: Patient experience and patient-centered care improvements were the top priorities of 69% of healthcare CEOs at the beginning of this year.
February 2011: From what I've seen during multiple interviews lately (an admittedly unscientific method of coming to any conclusion), hospitals are really paying attention to this. The first or second thing out of the CEO's mouth these days is often related to patient experience and patient-centered care improvements latter—no matter what question I ask. That wasn't always the case. I've been covering healthcare for more than 10 years, and where we used to talk about reimbursement constantly, now it's about patient satisfaction. That's a positive for CEOs' economic outlook. They know if they provide a better product, it's more and more likely to get them rewarded. That's a big change in attitude.
February 2010: Some 74% of healthcare CEOs were hurting badly from the recession, according to the survey. Healthcare used to be seen as recession-proof. Though I'm not sure that was really ever true, healthcare is certainly more exposed to the vagaries of the economy now, as lost jobs equal more and more uninsured and people who have to now pay a significant portion of their healthcare costs and/or put off care.
February 2011: Well, according to the folks at the Federal Reserve, the recession's over, so this should definitely be a positive, right? Not so fast. Many think while the recession itself, that is, two straight quarters of negative growth, is over, the economy could fairly be described as stagnant. Jobs are still scarce, and there is still rampant pessimism about the healthcare reimbursement trend. Hospitals know they have to find ways to cut costs and be more efficient, but many are far behind the curve, and they know it.
Admittedly, this is a selective look and is little more than educated guessing, but I'm going to go out on a limb and say that hospital CEOs probably don't share the same level of optimism as their colleagues across American business. We'll find out for sure in a few months. I'd love to hear whether you agree with me or not.
High turnover is something that unquestionably costs money and time, but its tentacles extend into just about everything a hospital does. Quint's firm, the Studer Group, has done several studies that show that when a hospital is able to reduce turnover, other metrics also improve, and those metrics aren't applicable only to the financial side of the house.
Turnover is fundamentally about the culture of the organization, and whether it really demonstrates to its employees that they are essential to making an organization among the best in patient care.
Until the recent economic downturn, many hospital leaders could legitimately blame at least some turnover on external factors, such as shortages in clinical areas particularly, and the hot job market generally. But many of those external pressures have abated.
That means, however, that it's time now to address the internal problems causing turnover, because if employees are leaving at an accelerated rate, it has much more to do with a CEO and his or her policies than with external factors. Attacking turnover is not a panacea, but by doing so, CEOs can better deal with associated problems with morale, waste, patient handoffs, patient satisfaction scores, and medical mistakes.
Many CEOs don't see employee turnover as an area where they can make a substantial impact. Maybe they can't match higher salaries available elsewhere. Maybe they can't offer the challenge and cutting-edge leadership of the academic medical center. As a result, concerns about turnover are often shunted to HR. The CEO has many more important things to worry about, so the thinking goes. But CEOs can make a big difference in turnover, and they really should. In fact, few priorities touch so many other related criteria on which the quality of a hospital or health system ultimately will be judged.
Laurie Eberst, President and CEO of Mercy Gilbert Hospital in Arizona, says a consistent staff offers a "huge advantage from a quality perspective." Mercy Gilbert's parent, Catholic Healthcare West, thinks turnover rates are so important that it tracks controllable versus uncontrollable turnover.
Uncontrollable turnover would be equivalent to a top nurse leaving because her husband is transferred out of town instead of because she hates her boss, which should be controllable, says Eberst. Indeed, Studer's work suggests that people generally don't leave jobs because of the reasons they may give, such as a higher salary.
"What they tell you (in an exit interview) is not necessarily why they leave," he says. "They really leave because of their boss. Either they don't have a good relationship with their boss or they're not developed. All of this stuff, a CEO can control."
That suggests that organizations with high turnover in the ranks need to work on leader skills and most importantly, hold managers accountable for unacceptably high turnover rates. CEOs lacking motivation to address this issue in an urgent manner, he says, should develop a financial impact statement. Though it encompasses a wide variety of organizations, Studer Group's data suggest that every 1% reduction in turnover saves direct costs of $250,000 and $500,000 in indirect costs.
Pat Jordan, chief operating officer at Newton-Wellesley Hospital in Newton, MA, part of Partners Healthcare System, helped derive some of the data for those cost estimates, and says his CFO validated it.
"For us, the fundamental understanding is that [turnover] costs money and hurts quality and patient and employee satisfaction," Jordan said. Jill Fuller, CEO of Prairie Lakes Health System in Watertown, SD, says high turnover might be the CEO's highest priority, because of all the important facets of the organization that it touches.
"We had high turnover at one time and we had to change our work environment. HR doesn't do that by themselves. You make your organization a place where people want to work."
Prairie Lakes, a relatively short distance from Sioux Falls, a much larger city, had an unacceptably high 22% annual turnover rate in 2002. "We just compared ourselves to our peer group in South Dakota. Our turnover was 5.8% in 2008 vs. 18% for our peer group," Fuller said. "So that tells us that our good results are not just a result from the poor economy."
Fuller credits innovations in the work environment for the lion's share of the gains but admits the hospital tries to make sure salaries are within 3% of nearby Sioux Falls. For instance, Prairie Lakes is rolling out flexible work arrangements for managers as well as directors, to help retain good people.
Focusing on retention and reduction of turnover doesn't mean that low performers should be allowed to hang around, says Studer. Quite the contrary, in fact. But how can firing low performers help with turnover?
It's a hard concept to integrate into an organization.
Studer related a story about a hospital he worked with recently that told him there were 258 people out of 6,000 who weren't meeting performance targets over a long period of time. Of those 258, managers had only 50% with documentation about their low performance.
"They said they were confused. How do you lower turnover and also get rid of people? It's a good point. So we have them identify the people and talk about how much time to give them to meet performance expectations or have them out. Then we add some time onto that."
Until then, these underperformers don't count against turnover calculations for the managers. Using this philosophy, he says, an organization can come as close as possible to ensuring that the turnover they do experience is good turnover.
"CEOs own mortality and length of stay," Studer said, "and they have to own turnover."