Ralph de la Torre recently spoke with HealthLeaders to discuss the organization’s success with the VBC model.
Editor's note:This article appears in the March 2023 edition of HealthLeaders magazine.
Steward Health Care Systems prides itself on being a leader in the transition to value-based care (VBC). This Dallas-based operator of 39 hospitals across Arizona, Arkansas, Florida, Louisiana, Massachusetts, Ohio, Pennsylvania, Texas, and Utah generates roughly $6.5 billion in annual revenue and was founded on the VBC model.
CEO Ralph de la Torre, MD, recently connected with HealthLeaders to discuss the organization’s success with the VBC model, why hospitals may be reluctant to adopt a VBC model, and why that could change in 2023.
HealthLeaders: Why is VBC a better payment model?
de la Torre: In VBC models, the providers as a group, form an integrated care delivery network, now referred to as an accountable care organization (ACO), whereby all the participants agree that they are going to take care of a pool of patients. In return for caring for this pool of patients, the insurer, Medicaid, or Medicare agrees to pay a fixed amount per patient per year. If the ACO meets certain quality standards and the TME [total medical expense] is less than the amount allowed by the insurer, then the ACO gets to keep some or all the difference between the fixed amount per patient per year and the actual money spent on caring for the patient during the year. The opposite is also true. If the actual expenditures for caring for the patient exceed the aggregate fixed amount per patient per year, then the ACO must pay some or all the difference to the insurer.
The VBC model works best if the patient stays within the ACO that is handling the care. First, ACO is generally linked through the electronic medical record. Second, the providers in the ACO are out of the “click” mentality and are free to focus on the right care, right time, and right place.
HL: Are doctors and hospitals reluctant to adopt VBC?
de la Torre: Change is a big deal. And VBC models are a big change that requires a big scale to support the TME risk and the cost of the infrastructure. It takes many PCPs to get an ACO going. Or they can be a smaller group with a decent-sized financial backer that is hoping to invest in the smaller group as a platform for growth. But the true “currency” of the VBC/ACO model is "covered lives." And basically, only PCPs get covered lives.
So, a small PCP group may be offered a VBC contract by an insurer but they need to consult with an actuary to first see if they have enough lives to take on any “downside” risk. Generally, the more downside risk you are willing to take, the greater the upside opportunity is as well. Then the group has to determine, even if they have the right number of covered lives, do they have the ability to manage the care of those patients successfully throughout the whole continuum. Then there are subtle factors like the homogeneity of populations. Obviously, patients of similar geography and socioeconomic status are easier to manage for smaller groups.
If the answer to either of those questions is "no," then they are looking at a big change. To be in a VBC model, they will have to join with other physicians. That will involve some loss of autonomy no matter what the model. That is something that physicians remain reluctant to do.
HL: Is a VBC model financially beneficial to a hospital or health system?
de la Torre: It would depend on the system. For Steward, because we have been thoughtful about creating and investing in the infrastructure and the information technology backbone as well as the human capital to support the network, we routinely reap tens of millions a year in profit from our contracts.
As to whether a hospital or health system can be successful in a VBC model, it will depend on that entity’s willingness to embrace change. Are they willing to work together, knowing that there is a learning curve and some economic risk to do what they originally wanted to do—provide patients with the best care, at the right cost. There are a million details that flow from there that will determine success or failure but if management and the physicians cannot agree on that first part, the venture is doomed to fail.
HL: Do you think more providers will adopt a VBC model in 2023?
de la Torre: Yes. Because it works. The numbers show it. Medicare saved $1.6 billion in 2021 alone. Think about what will happen when all Medicare recipients are in a program. Payers get it. Big corporations get it (or are at least investing in it). Walgreens, CVS, and Amazon—all of the executives that were assigned as “talking heads” after their big acquisitions stated that the new businesses were part of their move to value-based care.
We all thought we’d be further along towards value-based already, so I’ll be more measured in my view than I offered years back. We will certainly advance VBC in 2023. More commercial payers are getting more constructive on the model and providers are more aware of not only the patient benefit but the financial opportunity. And of course, Medicare has put out 2030 as the target for all beneficiaries to be treated by a value-based care provider. We’re still not to the point of leaps, but we will see gains in value-based contracts.
Jay Noyes has been with the organization for 15 years and stepped into his new role at the end of October.
Castleview Hospital— a Price, Utah-based healthcare provider with 39 total staffed beds and over $222 million in total patient revenue—has appointed a new chief financial officer.
Jay Noyes has worked as the financial controller and ethics and compliance officer for Castleview for the last 15 years. He took over as CFO effective October 30, 2022.
"We are so excited to have Jay step into this important leadership role," Greg Cook, chief executive officer of Castleview said in a statement announcing Noyes’ appointment. "He is an exemplary leader with a tremendous amount of financial experience and expertise. His commitment to patient care, physicians, employees, and the community is evident in all that he does, and I know that he will help us further advance our mission of Making Communities Healthier."
Noyes has previously been responsible for the oversight of financials for the 2015 emergency room and Intensive Care Unit expansion and the Castleview urgent care and retail pharmacy build in 2017.
"Castleview is such an important part of this community," Noyes said in the release. "I am really excited to take on this new role and continue working with this incredible team of individuals. I look forward to building on the strong foundation that already exists and helping the leadership team look for even more ways to improve the overall health and well-being of this community."
National Health Expenditures grew by 9.7% to $4.1 trillion in 2020, according to CMS data, and accounted for almost 20% of the nation’s GDP.
COVID-19 and the resulting labor shortages, budget cuts, rising expenses, and inflation fueled the need for the government to step in and offer financial relief to hospitals and health systems. The CARES Act provided $175 billion in emergency funding for hospitals and other healthcare institutions, but it is unlikely there will be more federal aid to come, leaving it up to the states to provide much-needed financial assistance to these organizations.
The organization provides primary care for older adults on Medicare.
Oak Street Health—a system of value-based primary care centers for adults on Medicare with over $1 billion in total revenue—has secured $300 million in financing from Silicon Valley Bank. The financing will provide Oak Street Health with operational and strategic capital for several years.
"Oak Street Health is rebuilding healthcare through its innovative model and approach to providing high-quality services and support for patients," Tom Hertzberg, Market Manager and Head of Central and Southwest U.S. Life Science and Healthcare Banking for Silicon Valley Bank, said in a release announcing the funding. "We are excited to meet Oak Street Health's financing needs and provide them with advisory expertise."
Founded in 2012, Oak Street Health takes a technology-first approach to providing primary care for older adults on Medicare, and those in underserved communities. Oak Street offers patients preventive care, personalized wellness plans, integrated health services, and educational and social activities aimed at supporting their overall health and well-being.
"Hercules Capital is pleased to once again partner with Oak Street Health as they continue to grow their national footprint and provide high-quality primary care to older adults across the country," Michael Dutra, Managing Director at Hercules Capital, said in the release. "We are impressed with Oak Street Health's dedication to patients and are happy to support their continued growth with this new credit facility."
CMS is on a mission to ensure all its programs are fiscally responsible.
CMS says the first improper payment rate for the federally-facilitated exchange program was less than 1% for the 2020 benefit year, which the agency credits to the automated process it utilizes to determine eligibility for the program.
"Protecting our programs' sustainability is one of CMS' core strategic pillars. We are focused on program integrity so that people today—and in the future—continue to benefit from access to quality care," CMS Administrator Chiquita Brooks-LaSure, said in an email release. "This low rate of improper payments in the Federally-facilitated Exchange is a testament to the effectiveness of our efforts to ensure program integrity, furthering the Biden-Harris Administration’s goal of maintaining the long-term sustainability of CMS' programs. We are committed to strengthening and maintaining these efforts to bring down improper payment rates across the board."
CMS defines improper payments as payments that do not meet program requirements, including overpayments, underpayments, lack of sufficient payment information, and fraud. CMS notes that the "vast majority" of improper payments are not fraud.
CMS says improper payment rates in Medicaid and the Children’s Health Insurance Program (CHIP) showed significant declines in 2022 from 2021. The 2022 Medicaid improper payment rate was 15.62%, a decrease from the 2021 reported rate of 21.69%. CMS says that of the 2022 Medicaid improper payments, 86.82% were the result of insufficient documentation. These situations occurred when a state or provider missed an administrative step; there were no indications of fraud or abuse. For CHIP, the 2022 improper payment rate was 26.75%, a decrease from the 2021 rate of 31.84%. Of the 2022 CHIP improper payments, 76.05% were the result of insufficient documentation, not fraud or abuse.
Rising expenses are still an issue for most healthcare providers.
Lehigh Valley Health Network—a care provider operating 13 hospitals in Eastern Pennsylvania—released its fiscal year 2022 earnings report, which showcased a year-over-year decline in operating income, a rise in revenue, but an increase in expenses for the year ended June 30, 2022.
Lehigh Valley Health Network reported an operating income of $78.5 million for the fiscal year, which resulted in an operating margin of 2%, a drop from the $150.7 million in operating income, and 4.4% margin for the 2021 full year.
Lehigh Valley Health Network saw an improvement in emergency room visits and inpatient volumes for the full year. ER visits increased by 21.1% year-over-year to 285,115. Inpatient volume continued to experience marginal growth of 0.5%. Physician visits and outpatient registrations increased year-over-year by 12.2% and 3.1%, respectively. Walk-in visits grew by 47.4% year-over-year. Lehigh Valley Health Network also opened three new hospitals during fiscal 2022.
Expenses grew by 14% when compared to the last fiscal year, however, revenue grew by 12% year-over-year. The healthcare provider attributed the rise in expenses to the high costs resulting from wage, labor, and supply challenges.
"While staffing challenges and the need for outside contracted labor continues, management has been working diligently to improve staffing and reduce utilization of temporary labor wherever possible," Lehigh Valley CFO Thomas Marchozzi, said in the earnings release. "Enhanced recruitment efforts continue in all areas to combat staffing shortages."
Physicians are interested in adopting a VBC model, but only if the level of risk remains low.
For over a decade the United States has lagged behind other nations when it comes to the universal implementation of a value-based care model. Several factors are to blame for the U.S.’s hesitation to fully adopt a healthcare delivery system that pays physicians and hospitals based on the quality of care they provide patients, with risk to the providers being the biggest roadblock.
About 80% of physicians say they have an interest in participating in a value-based care program, according to a recent report from Bain and Company. However, that interest drops as the risk level to the provider rises.
"The mismatch between payers that want increased cost savings and providers that only want upside risk has restrained VBC growth in the U.S.," the Bain report says. "Physicians have well-founded concerns about their ability to take on risk, fueling their hesitation. Bain’s research shows physicians continue to face financial, operational, and administrative hurdles to adopting VBC."
However, physicians say that they would be more disposed to adopt a value-based care model if they were guaranteed improved financial resources, medical coding and billing processes that are more effective, and adequate staff that can manage the reporting and outreach requirements. The majority of the physicians surveyed by Bain—37%—cite "sufficient financial resources" as the key factor in their willingness to adopt value-based care.
"If we want hospital behavior to change, there needs to be greater transparency and accountability," says Dr. Vikas Saini, president of the Lown Institute.
A new report from the Lown Institute—a healthcare think tank—suggests that New York City hospitals have not been holding up their end of the bargain when it comes to local tax breaks and community investment.
The study looked at 21 hospitals and found that "nine have a Fair Share deficit—meaning that the value of their community investments fails to equal the value of their federal, state, and local tax breaks." The study found that—in total—the nine hospitals are $727 million short of equaling the $1.2 billion in tax breaks they received in 2019.
"Communities make good faith investments through these tax breaks and expect that hospitals will hold up their end of the bargain," Vikas Saini, MD, president of the Lown Institute, said in an email release regarding the study. "Our evidence shows that’s not always the case."
New York-Presbyterian had $493 million in tax breaks and had the largest Fair Share deficit of all hospitals at $359 million. That figure is nearly half of the city’s total deficit, according to the Lown Institute study. Montefiore Medical Center had the largest surplus at $76 million.
These are the nine New York City hospitals with Fair Share deficits for 2019:
New York-Presbyterian Hospital - $359 million
New York University Langone Medical Center - $167 million
Mount Sinai Hospital - $98 million
New York-Presbyterian/Brooklyn Methodist Hospital - $43 million
Staten Island University Hospital - $25 million
Mount Sinai St. Luke’s Roosevelt Hospital - $25 million
Wyckoff Heights Medical Center - $4.3 million
New York-Presbyterian/Queens - $3.7 million
Brooklyn Hospital Center - Downtown Campus - $1.6 million
The report suggests that the total Fair Share deficit is enough to triple the City’s budget for annual school meals, create new affordable housing, or even pay off the medical debt for every patient sued by an NYC hospital over the last half-decade.
"If we want hospital behavior to change, there needs to be greater transparency and accountability," Dr. Saini continued. "New regulations are long overdue."
When it comes to workplace violence, hospitals, and health systems must be proactive, not reactive.
Most often, in the wake of tragedy, leaders get together to discuss what could have been done to prevent such a shocking incident, but what if that plan were already in place?
Recently, HealthLeaders hosted a Now Summit event on the topic of workplace violence within the hospital and health system space. In the first of three sessions from the online discussion, healthcare leaders— Dr. Peter Hahn, president and CEO of Michigan Health-West, and Elizabeth Seely, chief administration officer for the hospital division of Ohio State University Wexner Medical Center—discussed how their organizations work to prevent incidents of workplace violence.
Incidents of workplace violence cost hospitals approximately $2.7 billion in 2016, according to a study from the American Hospital Association. Additionally, 13% of employee sick time is the result of workplace violence, according to the American Nurses Association. Workplace violence-related absenteeism can cost hospitals $53.7 million a year, according to the AHA report.
Throughout the conversation, Seely and Hahn discussed the different safety measures hospitals and health systems are taking to keep their organizations safe and where the biggest investments in safety measures should be made.
HealthLeaders: What steps does your organization take to prevent workplace violence?
Elizabeth Seely: It’s helpful to recognize the prevalence of workplace violence and to start with a definition. Violence in the workplace really can range from something that is verbal, threatening, or non-verbal, it can be physical aggression, it could be intimidating or harassing behavior. It can be bullying, and it can be a physical assault. We tend to think about those things that are physically violent, but there is typically a pattern of progression, and any aspect of that continuum should be considered workplace violence.
One of the things that we’ve done at Ohio State is made this a top priority of leadership. There’s been an investment of senior leadership time and attention. In establishing the organizational support, we put together a workplace safety steering committee. It is a group that I chair and that has leaders at the most senior levels of the organization, including our chief legal officer, our chief human resources officer, our communications leader, nursing, and physician leaders, as well as our security colleagues. That group really makes sure we are devoting organizational leadership time and attention to this topic.
We also want to make sure we’re understanding what’s happening at the bedsides of our various clinical environments. We’ve also engaged a workplace safety work group that includes frontline individuals and management that interfaces with our steering committee so we’re able to hear what is happening and what are [our employees’] concerns. We’ve also done a campaign to make the public aware of what is not acceptable behavior in a healthcare setting. We also communicate to our staff that this is not part of the job and not something we expect them to tolerate.
Peter Hahn: We are very similar [in our approach]. Violence in the healthcare space has been present for a long time but has certainly increased during the chaos of the pandemic. We think about [workplace violence] in three broad buckets—prevention, response, and learning.
In terms of prevention, we’ve invested in extensive signage to send a message to our visitors and patients that this is a place of healing and there is zero tolerance for any type of aggression. Investing in prevention, we have very regular drills at all of our sites on how to respond to aggressive visitors or patients. We use Epic as our EHR and use that as a flagging system for patients or visitors who’ve had a history of any type of violence on the spectrum that Elizabeth spoke of.
With the response, we have a mandatory eight-hour training for all of our patient-facing employees. It is pretty extensive and takes quite a bit of investment in terms of training the trainer and then all of the patient-facing employees. We use a badge communication system and that is part of the response that any nurse, technician, or physician can use to alert others in their department if they are facing a situation. And then there is an investment in security obviously and additional training for security in terms of de-escalation. There is a debate over whether invisible or visible security works best, but we’ve invested in a lot more visible security—especially on the hospital floors. And we do extensive debriefs even for the slightest violent situation, so that we are constantly learning.
HL: Where should hospitals focus their financial resources when it comes to preventing workplace violence?
Hahn: There are key areas, facilities would be an example for us. We installed card-key access points in the ICUs, the EDs, and different areas of the hospital where before—pre-pandemic—we had really advocated for free access. But we’ve installed more card access points throughout the hospital and clinics. There have been investments in technology. But our key investment is in personnel education.
There is also the question of how you handle applications to co-worker behavior. I would say it is very similar training because whether you’re dealing with a patient, visitor, family member, or even a coworker, the techniques are the same in terms of recognition, prevention and response, and de-escalation.
HL: How should preventing workplace violence be integrated into a hospital and health system’s budget?
Seely: First and foremost, the obvious is the security department and making sure you have security resources and making sure that those are responsive. As organizations grow, recognize that new sites might require additional investment in security presence. We have some large ambulatory locations that we’ve built over the past five years and those are seeing a large volume of patients. So, we have security resources in the hospital and directed to some of our high-risk areas—the emergency department and our behavioral health setting. We’ve also recognized we have some very high-volume ambulatory settings, so we’ve invested in a security presence in those settings. The training of the officers and de-escalation that Dr. Hahn mentioned is very important.
We’ve also integrated new technology into our processes. We were an early adopter of body-worn cameras for our security officers. Our officers are not armed but having the body-worn camera and letting folks know, 'hey, I’m turning this on now,' tends to help calm things down because people realize their behavior is being monitored.
The other thing I would say, in terms of the budget, is to think about workplace safety not just from the aspect of your security team but what else can you do in the physical environment. If you’re undertaking a renovation project or building something new, think about workplace safety and how you design that space. Think about how people will enter and think about the physical barriers out front.
We had an incident in Columbus—not at Ohio State—where an individual drove their vehicle into a free-standing emergency department, right through the front glass window into the lobby. That was a tragic incident and so having concrete barriers and those types of things looked at when you are budgeting for a new project or renovation [is key].
The other thing we’ve done that does require a budget investment is to invest in staff that can help assist the clinical teams who may not be as adept in addressing patients with challenging behavior. We have implemented a behavioral emergency response team made up of social workers and mental health clinicians who will provide consultative support to teams that are dealing with a patient that is challenging in a non-mental health setting.
The healthcare provider's third-quarter earnings fell short of expectations, but leadership believes the company's operating model will drive future positive performance.
Cano Health—a Miami-based value-based primary care provider and population health company—has reported its 2022 third-quarter financial results, which came in below analysts' expectations.
Total revenue for the quarter grew by 33% year-over-year to $665.0 million but did not meet projected forecasts for the three-month period. Additionally, Cano Health reported a net loss of $112 million and has lowered its revenue estimates for the full year to between $2.7 billion and $2.75 billion, a decrease from the prior guidance range of $2.85 billion to $2.9 billion. Cano Health says it is lowering its guidance primarily due to lower-than-expected capitated revenue per member, per month, for new members. The organization is expecting new membership for the year between 300,000 and 305,000.
"Cano Health delivered improved profitability while achieving steady organic growth," Dr. Marlow Hernandez, Chairman and Chief Executive Officer at Cano Health, said in the earnings report. "While financial results were below our expectations due to lower revenue from new membership growth, existing membership performed in line with expectations. As these new members integrate into our care platform, we expect they will perform similarly to existing members in future periods. In response to our rapid growth and the higher cost of capital in the current economic environment, we are optimizing key areas of the business to leverage existing assets and prioritize cash flow. We are confident Cano Health's operating model will continue to deliver better health outcomes for our patients and sustainable long-term value creation for our shareholders."
