Nonacute Care: The New Frontier

What happens outside the hospital is increasingly important to success, so healthcare leaders need to influence or control care across the continuum.

This article first appeared in the November 2016 issue of HealthLeaders magazine.

If you're running a hospital, one irony in the transformation toward value in healthcare is that your future success will be determined by care decisions that take place largely outside your four walls. If you're running a health system with a variety of care sites and business entities other than acute care, the hospital's importance is critical, but its place at the top of the healthcare economic chain is in jeopardy.

Certainly, the hospital is the most expensive site of care, so hospital care is still critically important in a business sense, no matter the payment model. But if it's true that demonstrating value in healthcare will ensure long-term success—a notion that is frustratingly still debatable—nonacute care is where the action is.

For the purposes of developing and executing strategy, one has to assume that healthcare eventually will conform to the laws of economics—that is, that higher costs will discourage consumption at some level. That means delivering value is a worthy goal in itself despite the short-term financial pain it will cause—never mind the moral imperative to efficiently spend limited healthcare dollars.

So no longer can hospitals exist in an ivory tower of fee-for-service. Unquestionably, outcomes are becoming a bigger part of the reimbursement calculus, which means hospitals and health systems need a strategy to ensure their long-term relevance. They can do that as the main cog in the value chain, shepherding the healthcare experience, a preferable position; but physicians, health plans, and others are also vying for that role. Even if hospitals or health systems can engineer such a leadership role, acute care is high cost and to be discouraged when possible.

That revolutionary value-based concept economically justifies investments by the formerly acute-focused organization into nonacute care proficiency. Nonacute care—including not only home health, skilled nursing, rehabilitation, long-term care, and hospice, but also primary care—is now the focus of cooperation and investment for organizations that recently saw anything outside the hospital environment as peripheral and important only as a destination for discharged patients or a source for inpatients.

While no one prescription fits all, an intricate dance is underway in which smart organizations are weaving nonacute capabilities inextricably into the fabric of what has historically been a hospital-dominated revenue stream.

Strong business case
If your organization seeks to own parts of the postacute experience, repurposing acute care space is one way to bring better and more comprehensive capabilities to the forefront.

"The bottom line for hospitals and health systems is that there will be excess capacity. What happens with that? Do hospitals start utilizing those beds in a different way? Do they close?"

There's a general trend toward more and more care not being done in the acute setting, says Kerry Weiner, MD, the chief medical officer for hospital and postacute care medicine at TeamHealth, a provider of hospitalists and other specialist physicians to hospitals and postacute care providers. Indeed, total inpatient days in community hospitals have steadily declined between 1994 and 2014, from more than 207,000 in 1994 to more than 180,000 in 2014, according to the American Hospital Association. At the same time, total outpatient visits at the same organizations increased from just more than 382,000 in 1994 to more than 693,000 in 2014.

"That could free up beds on the acute side. And as technology progresses, more care can be done at a lower level," Weiner says. "The bottom line for hospitals and health systems is that there will be excess capacity. What happens with that? Do hospitals start utilizing those beds in a different way? Do they close?"

Some will, and some have.

Baton Rouge General Medical Center chose a slightly different option when it closed the emergency department and the acute care operations at one of its hospitals in April 2015 in a strategic move to accomplish two goals at once.

Mark Slyter, the hospital system's former president and CEO, saw an opportunity in the fact that one of its hospitals, Baton Rouge General Mid City, a 325-licensed-bed hospital, was losing an astounding $2 million a month. The reasons were various. Much of the losses stemmed from the closure of Louisiana's so-called charity hospital system combined with a period of years of strain with the state budget. In any case, the financial situation was untenable, says Slyter. Just more than 33% of patients visiting the hospital's emergency department had no insurance of any kind, and only 13% of inpatients were commercially insured. The rest, around 54%, were Medicaid and Medicare patients.

But an interesting discovery was that four out of five patients being treated in that hospital's ED were really not emergency patients, Slyter says, and could be more effectively treated in a nonacute setting. The decision to close that hospital's emergency department in April 2015 was difficult politically, he says, but was a no-brainer both for patient care and for financial reasons. To help navigate the resistance to the closure from a skeptical community, Baton Rouge General worked on developing partnerships with community groups, including the Louisiana Business Group on Health, to create the Better Access to Care Coalition, a program that helps patients find the appropriate site of care for their issues instead of just going to the ED.

"As we developed our plan for Mid City, we talked to around 5,000 members of the community, physicians, stakeholders, and industry forecasters to create a new vision for healthcare in Baton Rouge that is not only sustainable but that meets the needs of the community," says Kenny Cole, MD, Baton Rouge General's chief clinical transformation officer.

The plan was to reinvent Mid City and add to the continuum of care in areas that either it did not provide or that were critical to keeping the nonemergent patients out of the ED but still within Baton Rouge General's ecosystem.

After Baton Rouge General reviewed its survey of community members and recommendations from physicians and employers, it decided to transform the hospital by making it, in effect, not a hospital. Much of the survey focused on the types of services local residents wanted added or retained at Mid City. There were some minor variations; for example, Mid City residents rated access to pharmacy care 8.5 out of 10 in terms of importance while the community as a whole rated it 8.9, but the results were fairly consistent. Based on the surveys and input from industry consultants, ultimately the board made the decision on what services to retain or add with input from the senior leadership team. At Mid City, chronic disease care, senior care, behavioral health services, and postacute services received the lion's share of investment in the "reinvented" Mid City location. The hospital still has the same number of licensed beds, but now some have been reallocated to expanded services in areas such as behavioral health.

"By doing that we've been able to continue services there—over 20 of them—and kept over 800 people employed there," Slyter says. "We've taken a situation that's pretty difficult to work with and improved its performance both financially and in what the community gets out of it."

Slyter says it's difficult to reinvent such a large organization, but big changes being forced upon hospitals also force nimble decision-making and a sense of urgency. Employment is down from 1,100 prior to the ED closure, and services are down from 25, but Mid City, which once was losing $2 million a month, is now ahead of schedule financially, says Meghan Parrish, the health system's director of marketing and communications, who adds that the former hospital is on track to break even within the year.

"When you're evaluating what you aspire to be, there's only a few levers you can pull," Slyter says. "You can build it, buy it, or partner."

Mid City's transformation represents at least part of the "build it" angle.

Slyter says he doesn't see Baton Rouge General as particularly interested in buying other pieces of the care continuum, but the system is embracing the partnership idea wholeheartedly because postacute coordination is where it will generate savings and demonstrate value to purchasers, whether such purchasers are governmental entities, private-sector employers, or individual patients.

The biggest partnership is, perhaps ironically given the focus, with another organization largely known for its hospitals, Ochsner Health System in New Orleans, a nonprofit academic, multispecialty health system that owns, manages, or is affiliated with 25 hospitals and more than 50 health centers. Ochsner and Baton Rouge General announced in late March a letter of intent to execute a joint operating agreement for Baton Rouge General's three hospitals and 31 clinics, but the deal stops short of a merger or acquisition.

Indeed, Ochsner is far from the only partner for Baton Rouge General's effort to focus on influencing nonacute care. The health system is partnering with Lafayette, Louisiana–based LHC Group for home health, and Boca Raton, Florida–based Promise Healthcare for long-term acute care. Although patients are explicitly told through conversation and through discharge forms and other means that they can choose any organization they want for postacute care, the health system can more efficiently share information with those on its preferred provider list and verify that the partner organizations follow the health system's quality protocols.

"With Ochsner what we were looking for is clinical integration options within the partnership to improve access and enhance the quality we were already well known for, and do that in a more affordable environment," says Slyter. "You need the access points. Their complementary primary care and specialist locations dovetailed well with the locations we had, so both of us immediately came out with much better access."

He also says the possible agreement with Ochsner adds depth and breadth to both organizations, and that Ochsner's investments in IT are generally compatible with Baton Rouge General's. While the adoption of value-based reimbursement is slow from the commercial side in the region, Baton Rouge General is moving into more shared savings arrangements. Slyter would rather the pace pick up, in fact, because he says as a low-cost provider, Baton Rouge General is in position to be a disrupting force pushing value.

"Some markets look at this as responding to the market. In our case, since we are the more affordable provider in the market and more efficient, we have an opportunity to drive the market and bring value before it's directed to us by a payer," he says. "In doing so we'll be in a better strategic position because it will be harder for our competitors to adapt to that."

Baton Rouge General already owns a 4,000-member health plan for its own employees with statewide access, focusing on large employers. Slyter says the health system is using that health plan as a vehicle to tailor products and take on risk. In addition to that, Ochsner has some contractual arrangements with payers that Slyter says "move the needle on value and shared savings."

"As we work on this partnership, we would hope they would help us participate in those as well," he says. "If anyone's paying attention to value-based purchasing … and the transformational shift from SGR to MACRA, those are absolutely driving us to change the delivery system. You either need to embrace or fight it. We're embracing it because we believe it's the right way to deliver care."

The other way around
While many health systems are diversifying into other delivery capabilities, away from a historic focus on acute care, some health plans are also shifting the way they do business by vertically integrating with the provider side.

"There doesn't need to be one or two models that will ultimately win," says TeamHealth's Weiner. "There are a number of approaches and it will take years to shake out. A lot of it depends on the local environment and who the big risk-takers are in that environment. That's sometimes a health system, sometimes a health plan, and sometimes a medical group."

There's already a lot of local variation in these models, based on factors such as the level of competition within a market for acute care services, the number of payers competing in a market, and a variety of other considerations such as population demographics. Weiner has seen many organizations attempt this transformation, and recommends, at least initially, seeing what can be accomplished by collaborating.

"That's where we've done well with health plans and hospitals."

But collaboration can also be an intermediate step.

One of the more well-known and ambitious attempts at this transformation is the development of Pittsburgh-based Allegheny Health Network by Highmark Health, an entity created in 2013 that includes payer, provider, and other established healthcare organizations that generated consolidated revenues of $17.7 billion in 2015. Allegheny, a subsidiary of Highmark Health, focuses on providing care. It's an integrated delivery network with seven hospitals and about 400 outpatient offices in western Pennsylvania.

Cynthia Hundorfean, Allegheny Health Network's president and CEO, took over in February after serving as chief administrative officer at the Cleveland Clinic since 2005. She says her most important challenge is standardizing how the health system interacts with the various structures added onto the hospital and nonacute network that her predecessor, John Paul, developed in his five years as president and CEO.

"We still have a lot of variation both from a system and clinical perspective, and that's why postacute provides such a huge role for us in pulling together a common strategy," she says.

The system has a good head start toward standardization because a lot of the strategy for nonacute services has been executed, says Hundorfean of the work of Brian Holzer, MD, president of Highmark Health Home and Community Services, and his team, which began work upon his arrival in 2013.

"We still have a lot of variation both from a system and clinical perspective, and that's why postacute provides such a huge role for us in pulling together a common strategy."

Holzer says he was brought on to construct a postacute network, fully scaled from scratch, in about a year and half. His guiding principle was to develop a set of end-to-end solutions for how he would expect all patients to be treated, with his parents as his totem. Holzer, who has an MBA as well as an MD, says he approached the challenge like any other business problem: How would you want to have your care created? "I was a total neophyte on this. The former CEO said 'postacute,' and I said, 'What?' " he says, laughing.

Two weeks later during a meeting with Paul, he wasn't smiling so much.

"I came into his office and said, 'I don't understand. If I do my job well, won't presidents of the hospitals be angry with me?' He said, 'Yes, and full speed ahead.' "

As it turned out, the CEOs of the hospitals had been encouraged to support his work despite its effect on the traditional metrics upon which hospital CEOs had been judged. The case had been made with them that healthcare was changing and they were to change with it. He says Allegheny Health Network's processes around postacute care simply didn't work well, "so we built something very different," that included owning much of what became the health system's postacute network.

"As an industry, we do a deplorable job of building consumerism into the equation and telling people what they should be thinking about when they consume healthcare services," Holzer says. "We believe that long term, people will pick us because of our competency in the postacute arena. No one wants to be in nursing homes or hospitals."

Holzer spent his first six months on the job integrating postacute services into five distinct service lines: home health, palliative care, hospice, home medical equipment, and home infusion. After they inventoried the service lines, the team determined the health system lacked scale and lacked expertise to quickly develop and operate a complete postacute network.

That put Holzer on the deal path for some services, and on the partnership path for others. Home health, hospice, home medical equipment, and infusion were identified for ownership, while strategic partnerships with entities that owned higher fixed-cost assets like skilled nursing and long-term acute care were preferred. He and his team took a service line approach when evaluating such deals.

"By bringing all this underneath the five service lines, we could focus on where we could have the most input over patient care without large capital outlays and other expenditures," he says. "When you look at the services required to deliver care into the home and community, we focused on not owning high-fixed-cost capital intensive segments that we will partner with going forward."

Allegheny developed a preferred network model in those spaces while seeking scale and expertise surrounding home healthcare. The health system bought a 25-year-old home medical equipment company with Johns Hopkins and bought into a joint venture with Mars, Pennsylvania–based Celtic Healthcare for home health and hospice companies, for example.

"So we clearly bought expertise and the ability to run home healthcare companies that others are finding very challenging from a cost and regulatory point of view," Holzer says.

He's particularly proud of a partnership between Allegheny and homecare and hospice organizations.

"Our flagship institution used over 100 home health companies in the year we started this," he says. "That comes with great variability, and so when we brought them under our own umbrella, we had to integrate the back office to deliver a seamless service to hospitals and discharge planners as well as the patients."

He says expectations were low with clinicians that the model would be able to demonstrate value. In 2014, the health system was referring approximately 45% of its inpatients to its legacy home health system, he says. But that's changed. Year to date in 2016, AHN's Healthcare @ Home model is getting referrals in the low 80% range.

All-cause readmission rates dropped 5% in 2015 compared to 2014, and by more than 8% in the high-risk population, he says.

Patients can still go anywhere they want for postacute care, but Holzer says the system was designed to make patients and their caregivers carefully consider all the reasons it might mean better care coordination to stay in Allegheny Health's ecosystem.

During development, one key exercise for the group was writing a new patient free choice form—given to patients as they prepare to transition out of acute care, he says. Writing the form anew was an opportunity to educate clinicians and other members of the patient care team on the right way to introduce postacute care options and importance of patients making their own choices. That exercise not only increased compliance with ensuring patient freedom of choice, but Holzer says patients are more often picking Network organizations as the better choice.

"We've also created a call center to streamline the intake process, and developed a shared EMR," he says. "What happened was we created an end-to-end solution that once freedom of choice is provided, we are most of the choice of our patients and their physicians."

Critical to success of the carefully linked care continuum that was created, Holzer says, was the sense of urgency in creating home health services within a large healthcare network.

"There was buy-in from Cindy and from the previous CEO, and they owned it," he says. "If some of those factors don't exist, you can't be successful. If you're trying to fill beds, this will never work, because if you do it right it will reduce your length of stay and your acute business. But I'm an MD by background; I went into this believing if you do right by the patient, the business thing takes care of itself."

Hospitals positioned well
In many cases, hospitals have positioned themselves to be in charge of the quality of the postacute experience, which also puts them in charge of absorbing extra costs. This is both a major challenge and an opportunity, says Bill Bithoney, MD, a former hospital executive who now is chief physician executive and consulting managing director in BDO's healthcare advisory practice. In a bundled payment program, for example, if a hospital partners with a nursing home with high costs, the hospital gets hit financially. Of course, hospitals, physician practices, and health plans can all serve as the base for such capitation. The important thing to remember, he says, is to pay attention to the Centers for Medicare & Medicaid Services' star ratings when choosing partners.

Bithoney's experience with risk is well earned. From 2008 to 2011, he served as chief medical officer, chief operating officer, and finally interim CEO of Sisters of Providence Health System, a Springfield, Massachusetts–based health system, which is now a member of Trinity Health in Livonia, Michigan. Bithoney says SPHS was a "good health system with good outcomes." Yet the health system was nevertheless experiencing huge losses under fee-for-service. The irony was that the hospital was well-positioned, given its nearly complete postacute network and largely capitated population, to take risk. In fact, Bithoney, before the passage of the Patient Protection and Affordable Care Act, recognized that finding a way to take risk was going to be the only way to save the health system financially.

"We decided to go full risk, with capitation in Medicare Advantage programs particularly," he says. "We found that we were able to deliver great care because we had a great postacute network. Going at risk made us profitable, so this is an incredibly powerful tool to turn a money-losing system into a surprisingly powerful system."

By the 2009–2010 fiscal year, the hospital made a profit of approximately $9 million on about a $400 million revenue base, according to Bithoney. "It was a big advantage to have all these pieces together," he says, mentioning that the health system already had behavioral health programs and a psychiatric hospital.

Whether they want to own or build or partner to achieve nonacute capacity is the decision hospitals and health systems have to make now, Bithoney says. Obviously, they need a method to determine the quality of potential providers and partner only with those who have good outcomes, he says. Bithoney says his definition of "good" means five-star providers as rated by CMS.

Critically, it's not just the postacute network that's important; the preacute network is also extremely important. Bithoney says hospitals and health systems should own or partner with practices that have been certified as patient-centered medical homes on some level, and they should use Medicare data that identifies physicians to make sure those partners are high quality and low cost. Ideally, they should partner only with those who are above the 75th percentile in outcomes while being below the 25th percentile in cost, Bithoney says.

"If you don't want to own your systems of postacute care, typically hospitals negotiate discounted fee-for-service contracts in lieu of increased volume," he adds. "If you'll send a lot of patients to them, you'll remunerate them at a lower level."

Although not one of Bithoney's clients, Dennis Murphy, who took over as CEO of the 15-hospital Indiana University Health in Indianapolis in May, agrees that hospitals are well-positioned to lead the move toward value. For three years prior to taking over as CEO, Murphy was chief operating officer at IU Health, where he worked at integrating the pieces of the continuum his predecessor, Dan Evans, brought together over his 14-year growth-oriented tenure, in which the system grew from three to 15 hospitals. That growth, perhaps more importantly, brought IU Health to ownership positions that would help the system achieve vertical integration.

"Hospitals seem to have the ability to bring these pieces together," Murphy says. "Like a lot of big health systems, we're developing some of that in-house—home care, durable medical equipment, dialysis, video visits, and urgent care centers are part of that structure."

Yet there are still pieces of the continuum that IU Health would prefer not to own, he says. Nursing homes, again, would be on the partnership docket, he says. The health system is creating what Murphy calls "really close partnerships with a select set of skilled nursing facilities where we can partner using joint protocols rather than owning and operating."

In his previous role as COO, Murphy says he spent much of the past two-and-a-half years thinking about how to integrate the assets the system already has, with the ultimate goal being a well-engineered system of care for patients rather than an individual set of pieces.

"We waited for patients in the past, and that's where our interactions began," Murphy says. "Now we're trying to be far more proactive about reaching out to patients and trying to keep them healthy."

Bithoney says risk stratification is critically important to getting the math right when you're building a system of care in which each part depends on the other to better manage patient risk and, thus, costs.

"We found that 3% of patients account for 49% of cost," Bithoney says. "So bringing an intensity of resources on those patients is where you're going to make your money and produce highly efficient and improved health outcomes."

At least at this point in healthcare's transformation, you can't distribute that kind of effort on all patients and expect to be successful taking on risk, he says.

"We're very much involved with workforce management," Bithoney says of his current work. "Targeting is incredibly important, and handoffs work only with interoperable EMR programs. Just sending an entire EMR across the continuum is of almost no value. If I send those notes in a standardized format that includes medication reconciliation, the patient's discharge summary, and recommended postacute care, that's much more valuable."

That kind of so-called precision medicine is the future, he says—and it will be abetted through a "big data overlay," he says. "That will help in predicting drug-on-drug interactions and avoiding them, for example. Physicians sometimes rebel against clinical guidelines and what they call 'workbook medicine,' but evidence-based medicine is here to stay, and we know it works."

Person-centered vs. hospital-centered
Ascension, the St. Louis–based Catholic nonprofit health system with 141 hospitals and 2,500 sites of care in 24 states plus the District of Columbia, is in the midst of a transformation of its own, aimed at creating a person-centered and personalized healthcare experience versus being organization-centered. It's a difficult leap, but Jesse Jantzen is at the forefront with the most complex patients as president and CEO of Ascension Senior Living, the division of the organization that handles interactions between the acute care side of the organization and its largely owned network of nursing homes and assisted living facilities.

Jantzen sees his role broadly as transforming the field of care for the aging, but he says that can only be accomplished through better coordination with all other aspects of a senior citizen's care. He contrasts person-centered care with organization-centered care: "When a person presents himself, if we say, 'You came to a skilled nursing facility, so we do this here,' or 'You came to a doc's office so we do this here'—that's more oriented to the business or the service line. If you're really person-centric, you start with what their needs are and how well we are integrated and connected so that we can quickly get them to the right place."

That's difficult, because for most organizations, what you have in terms of facilities and capabilities is foundational. Jantzen says a board chair told him many years ago that the shift toward customer-centrism has to be based on the system's capabilities and how well the people in that system can direct the customer to the right person or facility that will best meet his or her most immediate needs.

"In other words, if I'm a shoe store and all I have is red shoes, it doesn't matter who comes in. They will all leave with red shoes," he says.

Acute care has always been the "red shoes" of many organizations, even if their capabilities extended to rehab, imaging, and skilled nursing, among others.

"Senior living and nursing have not been the area that gets the most attention; it's been physicians and acute care, but a couple of things are changing," he says.

Jantzen says senior living services are extremely valuable in integrating systems of care in the postacute environment. He says, in general, the healthcare industry is waking up to the importance of postacute providers, and specifically senior living, as the industry transitions to a value-based environment. He says thanks in part to the IMPACT Act of 2014, which requires the submission of standardized data by long-term care hospitals, skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities, postacute integration is now a prerequisite to drive quality in various Medicare value-based opportunities, while preparing for a more prominent shift in the future.

Jantzen is encouraged by commitment from Ascension's highest levels to support and enable the senior living agency to grow and thrive because of the important role it plays in systems of care.

"We are piloting collaborative work within our national health system to develop and implement clinically integrated systems of care across the continuum," Jantzen says.

He says that in cooperation with Ascension subsidiaries Ascension At Home and Ascension Medical Group, Ascension Senior Living is ideally positioned to deliver care in the right postacute setting at the right time. Simultaneously, he says the senior living organization is navigating its way in trying to define how it can best contribute to ACOs, narrow networks, the comprehensive care for the joint-replacement model, and other bundled payment models.

"Although a nursing home may not be the first choice, we are here to serve when people need us, with a wide range of services," Jantzen says. "Part of the transformation is meeting the needs of the person, agnostic of location. In the past, people thought the institution was the solution—if you move into our place, then we'll take care of you. But where do they want to be? The core of this is to meet the person where they are."