Some hospitals and health systems are accessing considerable amounts of capital by selling medical office buildings and other properties.
This article first appeared in the January/February 2015 issue of HealthLeaders magazine.
Healthcare organizations have many competing priorities for where to allocate their capital dollars—construction projects, building renovations, equipment upgrades, IT initiatives, and physician employment strategies, just to name a few.
While there is no lack of opportunity to spend the money, raising it is another story as a variety of financial factors converge to create a tough credit environment for many hospitals and health systems.
Weakened credit ratings
"A lot of the revenue pressures we see have really been around since 2008," says Martin Arrick, managing director of the U.S. not-for-profit healthcare group at Standard & Poor's Ratings Services in New York City. "And they are not going away."
Better clinical documentation can lead to immediate financial returns. Physician buy-in is key, ICD-10 is not.
As hospital and health system finance leaders look for ways to enhance revenue in an era of shrinking margins, many are turning their attention to their organization's case mix index. A higher CMI means more reimbursement dollars for providing care because it indicates that a hospital is treating a sicker patient population.
Increasing the CMI hinges on having clinical documentation that accurately reflects the severity level of patients' conditions. Without thorough records, hospitals can miss out on substantial revenue.
Employing Documentation Specialists
Heritage Valley Health System, a two-hospital, $450 million integrated delivery network based in Beaver, PA, set out about two years ago to improve its CMI, among other metrics.
When HVHS executives began working with a consultant in early 2013, they quickly zeroed in on the idea of rolling out a new clinical documentation improvement program built around CD specialists, says Joann Hatton, director of the utilization management/clinical documentation program.
"The CD specialists are actually out on the patient care units reviewing physician documentation and working closely with the medical staff to enhance the documentation in real time, doing a concurrent review," Hatton says.
"They can have a face-to-face interaction, as well as get clarification on paper, to ask physicians if they were thinking it could be this diagnosis or another and asking the physicians to agree or to provide another explanation. When they are able to get more clarification and specificity, then it helps the coders to code more accurately."
HVHS has hired and trained 11 clinical documentation specialists—four at Heritage Valley Sewickley hospital and seven at Heritage Valley Beaver hospital—and one supervisor to staff the program. Hiring existing employees who were well-respected by physicians gave the initiative immediate credibility, Hatton says.
"We were very fortunate to hire nurses in high-level nursing positions within our organization for a long period of time to be CD specialists. They were faculty in the school of nursing, supervisors in critical care units, and nurses in the cardiovascular labs and had already established good relationships with the physicians and were already held in high esteem."
Immediate Results Above Expectations
By having more complete and accurate information, HVHS is able to create documentation that paints a more precise picture of its patients' health and to get credit for their severity of illness—something it was not previously doing as well as possible, Hatton says.
As a result, the system's CMI has increased at both hospital campuses. In the program's first year, which spanned from October 2013 to October 2014, the system saw a 13.79% increase at Heritage Valley Sewickley and a 6.4% increase at Heritage Valley Beaver.
The results surpassed HVHS's expectations, Hatton says. "We were hoping to get a 5% increase in our case mix index based upon some of our preliminary assessment findings. We are really trying to capture a lot of comorbidities and anything at all that we can use to more accurately reflect the severity of how sick our patients are."
The CD specialists are particularly focused on the documentation for heart failure patients, Hatton adds.
"When we are able to get more detail out of physicians for patients with congestive heart failure, that gives more information to the coders, and we are able to capture a lot of comorbid conditions for the patient. I think our number one area for questions [with our documentation] is still around heart failure."
Creating Physician Buy-in
Hatton also says that by framing the program in the context of how it benefits physicians in their clinical work, she has been able to achieve buy-in.
"I didn't want physicians to say this program was all about the money, but that it was about getting credit for all the work they were doing. We are showing them the clinical attributes of the program, and the financial piece is just an added bonus."
For the most part, Hatton says, clinicians at HVHS have gotten on board with the clinical documentation effort thanks in large part to the strong leadership of the system's chief medical officer.
"We have a very active and engaged CMO, and when we were not able to address or correct a situation with a handful of physicians who I would say were a little skeptical, we took it to the medical staff leadership who were committed to ensuring the success of the program," she says. "But overall, it has been a positive experience."
Succeeding with Computer-Assisted CDI
When Summit Healthcare Regional Medical Center in Show Low, AZ, implemented a computer-assisted CDI tool on July 1, 2014, the hospital's finance leaders were trying to accomplish four goals: to improve revenue cycle workflows, to capture and effectively measure successes, to produce enough quantifiable progress to justify the need for the CDI program, and to find a tool that was compliant with both ICD-9 and ICD-10.
Before installing the CDI software, Summit relied solely on paper records and Excel spreadsheets, which made it nearly impossible to organize workflows and measure success.
"Computer-assisted CDI is somewhat new on the block as far as healthcare is concerned, but there are a lot of advantages to it as reimbursements move from being quantity-based to being value-based. It gives a better story on what physicians are really doing with the treatment of patients, and we've seen our case mix index improve, which is a way of combatting lower reimbursements," says Layne Sherman, Summit's director of charge capture.
"Part of it was a language barrier. Our docs are doing a good job, but we just have to show it in the documentation. CMS is saying, 'This is the wording, and you guys are missing it.' So, the documentation as it was before wasn't correct."
The results to date have been better than expected at the 89-bed hospital, Sherman says. The hospital's case mix index has increased by about 20%, with a financial impact of roughly $558,000. Additionally, the complication and comorbidity capture rate has increased 22.8% and the major complication and comorbidity capture rate has increased 37%.
So far, Summit has been focused on improving documentation for patients with sepsis, Sherman says, noting that he and other leaders have been buoyed by the early success of the CDI program to look at other opportunities for enhancements.
"In the first four months, we captured $500,000 in additional revenue because there's a big difference between sepsis and sepsis with complications, and we are capturing that now," he says.
"It's a progression, and we are now evolving to look for additional opportunities. Next, we may capture an additional $200,000, but it will have a different scope, and it will be in different areas."
Benefiting with or without ICD-10
While there is still doubt about whether or not ICD-10 will go into effect later this year, Sherman says the added specificity that Summit is now capturing in its clinical documentation will benefit the organization regardless.
"I don't think we'll worry about ICD-10 either way," he says. "ICD-10 is wanting more specificity, but right now, working in ICD-9 codes, moving toward more specificity actually increases revenue. Reimbursements are heading that way no matter what."
Healthcare financial leaders say high-deductible health plans, whether pushed by employers or offered through the exchanges, are rapidly expanding the risk of non-payment. Many consumers choose plans with the smallest upfront cost and largest deductibles, and they often lack a thorough understanding of the plans.
This article first appeared in the January/February 2015 issue of HealthLeaders magazine.
Over the last few weeks, I've asked several healthcare executives what they see as the biggest revenue challenge their organization will face in 2015. The response has been unanimous: high-deductible health plans.
As patients become increasingly accountable for paying for their own medical care, hospitals, health systems, and other provider organizations have more dollars at risk for non-payment than ever before because it is generally more difficult to collect from patients than from commercial and government payers.
More self-pay means more risk
The health insurance exchanges pose a big threat to revenue because many consumers are choosing plans with the smallest upfront cost and largest deductibles, says Bill Pack, vice president, finance and hospital operations at Denver-based SCL Health, a $2.4 billion health system with eight hospitals and 2,151 licensed beds in Colorado, Kansas, and Montana.
"This first year of having the exchanges, we've learned a lot, and patients are also learning a lot. Mostly, we think patients go online and shop for a plan, and they pick the bronze plan because that has the lowest premium, although usually also the highest deductibles and lowest benefits. Because of that, we're starting to see a lot more self-pay obligation after insurance."
Pack says SCL Health expects to treat even more patients with high-deductible plans in 2015.
"Are patients going to remain in the same plan now that they are finding out they have a large out-of-pocket expense that they didn't previously truly understand? I'm sure there will be a large percentage of patients who will do that, and I think we'll see more and more of it. People do tend to shop by price. They are buying what turns out to be what we consider catastrophic coverage because they see the lower premium, and then they end up not being able to pay their medical bills."
Nate Hunt, director of operations at University Hospitals Accountable Care Organization—which is part of University Hospitals of Cleveland, a $3.5 billion system with 15 hospitals and 2,414 registered beds—says that high-deductible plans are a major concern in his market.
"Ohio is one of the nation's leaders in employers who offer high-deductible plans, so between that and the insurance exchanges, we are really seeing an impact on collections and billing," Hunt says.
"We are already seeing the effects of the high-deductible plans, and combined with the continual movement toward less reimbursement dollars for the same services from the federal government, we're being challenged financially."
Helping patients comprehend their coverage
Patients often don't have a thorough understanding of their high-deductible plans, which puts a burden on providers to educate them, says Jessica Wright, chief operating officer at Rehab Associates of Central Virginia, which operates 11 physical therapy clinics in and around Lynchburg.
"We have seen a significant shift to high-deductible plans over the past 12 to 18 months, and we have taken some significant strides to work with patients to be as transparent as possible on that side," Wright says.
"We work very hard to help patients understand their insurance benefits. Even though it is their insurance, we've learned they don't really understand it. They may have a co-pay plan, but they may also have co-insurance or a deductible-based component when it comes to physical therapy care. We have to take the initiative to help them understand what their level of responsibility is going to be with their PT treatment."
Rehab Associates recently began using third-party vendor technology to access patients' benefit information to give them an estimate of their total bill.
"We are able to readily access the information and pull it into a report to print for the patient to review, and they can take a copy home at their first visit so they understand what the financial expectations are going to be. … We have seen our upfront collections increase threefold since we implemented this process in October," Wright says, noting that part of the goal is also to maintain a high level of patient satisfaction.
"We'd rather be dealing with a grateful patient on the front end than an upset patient later," she says.
Improving the bottom line
SCL Health is also taking proactive steps to increase its ability to collect from patients in order to protect revenue, Pack says.
"We are looking at ways to come up with payment plans that are workable for people who can't pay their deductible. For example, for the times when a patient owes a $5,000 deductible but doesn't have the cash available to pay," he says. "We are asking ourselves about the ways we can have nonrecourse loans with a bank where we help patients be able to pay when they can't write a check to pay their bill all at once, and we are currently exploring those options."
Pack also notes that SCL Health's revenue cycle has been helped by Medicaid expansion in Colorado. He hopes more low-income patients within the organization's footprint will eventually be covered as well.
"One thing that has been a great opportunity for us in our Colorado markets has been the expansion of Medicaid. It's been a help for us to cover the cost of patients who now qualify for Medicaid that didn't qualify before. We'd sure like to see that happen in Kansas and Montana."
As hospitals and health systems move into value-oriented payer contracts, they will need to be able to determine the actual costs of the care they provide.
This article first appeared in the December 2014 issue of HealthLeaders magazine.
Figuring out how to calculate the true cost of care in relation to patient outcomes will be critical to success for provider organizations as the healthcare industry shifts toward value-based reimbursement models.
To prosper within the new environment of bundled payments, risk-sharing arrangements, and population health management, hospitals and health systems will have to be able to analyze cost by patient, physician, and diagnosis in order to develop cost-effective, evidence-based clinical protocols and to drive as much waste as possible from their care delivery network. Yet, getting a handle on the cost of care has traditionally been very difficult for providers to do.
'Astounding' lack of knowledge
"When you take a step back and look at it, I think it is absolutely astounding that the healthcare industry in general doesn't know the true cost of the care they are giving patients with a given condition," says Robert Pendleton, MD, associate professor of medicine at the University of Utah and chief medical quality officer at University of Utah Hospital and Clinics in Salt Lake City. University of Utah Health Care operates 770 licensed beds and had $1.04 billion in patient revenue in 2013.
As more patients gain insurance coverage through health plans with a significant cost-sharing obligation, hospitals and health systems search for ways to protect revenue.
This article first appeared in the November 2014 issue of HealthLeaders magazine.
The health insurance exchanges are providing more coverage opportunities for consumers, but the high deductibles associated with many of the plans—up to 40% in some cases—are causing new collections hurdles for hospitals and health systems. Additionally, many employer-sponsored health plans are moving to higher deductibles as a way of shifting more financial responsibility to employees. As patients become increasingly accountable for paying for their own healthcare, provider organizations need strategies to ensure that the self-pay portion of a medical bill does not become the no-pay portion.
Medicaid expansion helps, but not enough
Ronald Knaus, senior vice president and chief financial officer at Spectrum Health System based in Grand Rapids, Michigan, says that while charity care costs are down thanks to the state's expanded Medicaid program, the financial boon is not enough to offset the rise in patients with high-deductible health plans. Spectrum Health is a not-for-profit system with 11 hospitals, 1,938 licensed beds, and total annual operating revenues of about $4.1 billion.
"We have had expanded Medicaid now for roughly four months, and we are seeing, at least in west Michigan, more folks that have insurance, mainly in the form of Medicaid, so our self-pay population has declined. Previously, our charity care was about 1.5% of our revenue, but now it is at 0.4%, so it has gone to about one-third of what it had been," Knaus says.
While retail locations and wellness centers may not be big moneymakers in their own right, the return on investment can be considerable if measured through increased market share and reduced government penalties for readmissions.
This article first appeared in the October 2014 issue of HealthLeaders magazine.
As patient volumes continue to shift from the inpatient to the outpatient setting, healthcare organizations are looking for new ways to capture market share and fuel growth outside of the four walls of the hospital.
Some health systems and hospitals are branching into retail medicine and wellness sites as a way of becoming more relevant to their communities, and while there may not be a strong direct ROI for these strategies, the secondary financial benefits can be substantial.
Retail sites drive patient volume
One health system that recently made a foray into retail medicine is Main Line Health, a 1,295-bed organization with $1.5 billion in annual operating revenue based in Bryn Mawr, Pennsylvania. In January 2014, the organization opened its Main Line Health Center at the Exton Square Mall in the Philadelphia suburbs.
Provider organizations are redesigning care models to improve patient outcomes and reduce payer penalties.
This article first appeared in the September 2014 issue of HealthLeaders magazine.
Roughly one in five Medicare patients is readmitted to a hospital less than a month after discharge, with a total price tag reaching well into the billions. Hospital leaders are embracing the need to reduce readmissions, as much to improve the quality of care as to reduce federal penalties.
In an effort to cut costs and improve quality, the Centers for Medicare & Medicaid Services launched its Hospital Readmissions Reductions Program in October 2012 to penalize hospitals by up to 1% of their total Medicare reimbursement for excessive 30-day readmission rates for patients with heart attack, heart failure, and pneumonia. And that was just the beginning. In FY 2015, CMS will expand the program by increasing the maximum penalty to 3% and adding chronic obstructive pulmonary disease and total hip and knee replacements to the list of medical conditions included in the calculation.
As CMS continues to roll out payment structures that reward value over volume, many healthcare leaders are rethinking their traditional care delivery models and searching for strategies to improve quality and reduce readmissions. These efforts tie strongly into strategies for population health management and expanding across the care continuum. But the return on investment can be elusive.
Financial leaders can identify where and how to trim budgets, but it's up to CEOs to get buy-in from an organization's leadership and staff, and to address the cultural, quality, and staffing concerns associated with deep cuts.
As the healthcare industry moves toward value-based reimbursement models, it is becoming increasingly important for hospitals and health systems to find ways to trim as much waste as possible from the cost of doing business.
This reality is reflected in a recent survey from Strata Decision Technology—a Chicago-based healthcare IT company—in which 88% of respondents said their organizations have established cost-reduction targets.
But, while the overwhelming majority of provider organizations are trying to cut cost, according to the survey, not many are achieving their objectives: Only 17% of respondents rated their organization as successful, and 69% said they are just somewhat successful in reaching their goals.
Among the key reasons cited for this shortfall are difficulty tracking results (55%); lack of accountability (44%); inconsistent focus from senior leaders (30%), and lack of clinician engagement (29%).
One of the organizations that participated in the survey is Mission Health System, a six-hospital system based in Asheville, NC.
"We started our budget process several weeks ago and determined we have a $52 million need for improvement for the system, and I would say the majority of that is to come through cost reduction rather than enhanced revenue," says Larry Hill, Mission's vice president of finance. "This is the target we need to get to over the next three years to keep our margin at what I would call a healthy system margin."
To reach this goal, Hill expects Mission will reduce its supply chain spending by $5.3 million this fiscal year and will look at making cuts to its workforce.
"We did not go into the process predisposed as to where the cost would need to come from, but we know that some of it will be labor-driven," he says. "There will be people in positions that will be restructured out of the workforce, and then there will be some taken out through attrition and currently vacant positions."
Mission is also centralizing many of its administrative and support services in areas such as IT and revenue cycle operations in order to "remove all the duplication," Hill says.
"These services are being collapsed and streamlined to a corporate model. We've been consolidating our financial systems and EMRs. What has been more difficult has been on the outpatient side with registration and billing because there are so many billing practices attached to legacy systems. From an IT perspective, we are nowhere near best practices on the number of systems we are supporting, and we know there is quite a bit of waste and redundancy that we can eliminate there."
When I asked Hill about the survey and why he thinks it appears to be so difficult for healthcare organizations to achieve their cost-reduction goals, he said it comes back to communication from the CEO to staff around the reasons for the cuts and what they mean for the long-term health of the organization.
"We started the budget process with a series of mandatory town hall meetings that were conducted by our CEO, and he explained the current state of affairs, how we are going to approach the process, and at the same time, he made a promise that the short-term, one-time measure we took last year of not giving pay increases would not be deployed again. He asked for partnership from the leadership and staff, and we are definitely getting buy-in."
Cost Reductions Shouldn't Threaten Quality
Hill says it is also important to make sure employees understand that cost-containment efforts are not being made at the expense of quality.
"We have invested so much in quality and outcomes, and we cannot regress on that," he says. "Mission set out to put the patient first and to focus on quality and safety, and that will not be compromised by trying to achieve cost-reduction targets."
Michael Sitowitz, controller at Parrish Medical Center, a 210-bed acute care hospital in Titusville, FL, agrees that it's important to be sure that any efforts to reduce spending do not have a negative impact on quality. PMC also participated in the survey.
"You can't just look at cost and say you are going to cut cost out because you have to have a value equation that also looks at quality, safety, and outcomes. It's real easy to say you are going to cut cost, but you have to look at what is potentially going to suffer," Sitowitz says, noting that PMC uses Lean Six Sigma to find process improvements and pull waste out of the system.
PMC has operated for nearly twelve years under what it calls its "strategic game plan"—the guiding principles it uses to ensure it is providing high-quality, low-cost care, Sitowitz says.
"Although it is a small group of people who created this plan, we spoke to a lot of our clinicians and physicians about how making changes in processes would impact care. We asked if these were processes they could adopt. We really took the time to make sure we were not just implementing a strategy the hospital thought was right but that all of our stakeholders could support," he says of how PMC achieved organization-wide buy-in for its game plan from the start.
Providing clinicians with data to help them realize that using a lot of expensive resources does not always equate to better care also goes a long way toward achieving cost-reduction goals, Sitowitz says.
"The best way to talk to them is with evidenced-based information that shows that outcomes are similar or better [with the use of fewer resources], and that is how you can move the conversation along."
Succeeding in a Value-based World
When I asked Sitowitz about the survey results, like Hill at Mission Health, he said he believes successfully rolling out new strategies to cut costs and improve quality begins at the top. He credits PMC's CEO and senior administrators for creating a culture that is able to adapt as needed in the new value-driven healthcare environment and where everyone understands they have a part to play in keeping costs down.
"Our CEO looked at the new building that we built in 2002, and he realized that just because you move into a new building, it doesn't change your culture. So when the new facility opened, he began a two- to three-year journey to really get people to understand what our culture needs to be for us to be successful in the future," he says.
"Now, our leadership group meets every month to go over how people are doing, where people are doing well, and where they are struggling. We talk about strategies to resolve any issues, and we all talk about all areas of the organization, not just our own, because we are all responsible for our overall success."
How can you achieve the deep, sustainable cost reductions required for success in the new era of healthcare? Here are four keys: collect and mine data to alter clinician behavior, reduce variations in care, foster strong physician leadership, and lead by example.
For hospitals and health systems to achieve the kind of deep, sustainable cost reductions that will be required for success in the new era of healthcare, they must collect and mine data to alter clinician behavior, use evidence-based medicine to reduce variations in care, foster strong physician leadership, and establish a senior administration that leads by example.
That was the consensus among the financial leaders who recently participated in three roundtable sessions I moderated on protecting the bottom line at HealthLeaders Media's fourth annual CFO Exchange in San Diego.
Harnessing the data
To create a clinical enterprise built on evidence-based medicine, health systems need to provide data to physicians, says Jerry Arndt, senior vice president at Gundersen Health System, based in La Crosse, WI.
"I think at the heart of this whole question is good data and transparency. The variation that exists around utilization and practice protocols is amazing. To understand why that variation is what it is, you have to have the data, and you have to be willing to talk about it at the individual doctor level," he says.
From his experience, physicians are eager to have data to support their clinical decision-making and are willing to engage in discussions about how to use data to make appropriate changes to their practices.
"We are at the point where some of the users of the data are starting to pull for the data," he says. "They are actually asking for … the information. You get it out there, and it at least triggers some conversation."
Physicians generally respond well to trustworthy data, agrees Dale Maxwell, senior vice president and chief financial officer at Albuquerque, NM-based Presbyterian Healthcare Services. "We have found that physician adoption is relatively quick as long as you can back up the protocol with research and science showing a better outcome for the patient."
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"I've been amazed at what we've been able to do with clinical data," adds Charlie Hall, executive vice president and chief financial officer at Piedmont Healthcare in Atlanta.
"My decision support department used to be eight people and now it's 20. From a CFO standpoint, I think if you are not spending money in this area right now, you really need to invest here because it is just phenomenal when you get a common database with proper support what you can get out of these systems."
Reducing clinical variation
"We feel it's very important to drive evidence-based protocols and are monitoring adherence to them," says Maxwell. "Our expectation is that these protocols will be followed, but we also know that we will experience normal variation in care with different patient situations."
"Lab services is a good example of how evidence-based protocols can drive better results," he adds. "By automating the physician order entry system, we have seen the number of lab tests, and therefore costs, decline. Additionally, we expect evidence-based protocols to improve quality scores throughout our system."
Cultivating physician leaders
Hall says running a successful provider organization depends heavily on having robust physician leadership.
"We've started what we call the Piedmont Leadership Academy, with a focus to train physicians in becoming physician executives," he says. "It's a nine-month curriculum with quarterly meetings of a couple days along with online assignments. We've found that physicians know the clinical side, but they've never really had any formal education on the business side. It's given us an opportunity to talk about data, cost accounting, managing people, and the challenges of managing cost. We are trying to groom them to eventually be executives within the organization."
Piedmont's leadership academy has gone a long way toward helping physicians understand why cost containment is so important and has also helped Hall see things from the clinical angle, he says.
"It's been an interesting approach and a different perspective in beginning to dig down into some of the issues around cost control, and it provides physicians with a new appreciation of financial data and cost accounting. On the other hand, I have gained an appreciation for clinical protocols, the difficulty in trying to design them, gaining consensus, and then incorporating them into our processes and tools."
Patrick McGuire, chief financial officer at St. John Providence Health System and the Michigan Ministries of Ascension Health, based in Warren, MI, says his organization has also rolled out an in-house program to train physician leaders.
"We have been trying to invest in leadership development for physicians each year now for the past couple of years. We have a cohort of physicians that we believe have the capability of taking a leadership role within the system, and we are putting them through a course over the span of a year where they are learning about a full range of financial and strategic issues facing healthcare to become well-rounded leaders."
Creating an integrated culture
Having physician leaders who champion clinical standardization and cost-cutting efforts is important for breaking down the silos that traditionally exist between the finance and clinical departments in many hospitals, says Ted Miller, vice president of finance and chief financial officer at Floyd Memorial Hospital in New Albany, IN.
"I think that having strong physician leaders is one of our biggest opportunities because as CFOs and leaders there is only so much that we can push. When we talk about sharing information, we really need all of the clinicians on the same page with us. … In so many organizations, I continue to see the silo mentality, and that is a huge obstacle for us to really achieve the opportunities that are out there."
Additionally, senior leaders must set the right example when it comes to building a workforce that is willing to adhere to cost-containment strategies, Miller says.
"If you want to know what the culture is of an organization, go observe the senior team, because everybody else looks exactly at what we say or what we don't say. The best way to change the culture is to make sure you have the senior team right and that you are all rowing in the same direction."
Hospital and health system leaders know the reimbursement transformation is coming—even if it hasn't reached them yet—and they are beginning to form alliances with regional providers to find strength in numbers.
This article appears in the May 2014 issue of HealthLeaders magazine.
As the healthcare industry moves toward value-based payment models, many provider organizations are realizing that they need a population health management strategy and that going it alone may not be the best path forward. Forming a partnership with other providers allows institutions to share best practices, combine resources, coordinate IT efforts, strengthen supply chain purchasing power, and reduce the overall cost of providing care to their patient population. Here, we look at the approaches of three organizations.
Stratus Healthcare
Four years ago, William T. Richardson, president and CEO of Tift Regional Health System, a Tifton, Ga.–based institution with 346 staffed beds and $287 million in fiscal year 2013 revenues, realized the need for aligning forces with other providers after his organization underwent a health readiness assessment with an outside consultant.
"This was before all the indications that are in place now showing that change is really going to happen this time," Richardson says. "We felt we needed to begin taking steps to prepare for the changes we thought were coming. We didn't have scale or size as a small system in south central Georgia, and we felt that we needed scale."
Richardson started by reaching out to Central Georgia Health System to propose the idea of a partnership, and in July 2013, Stratus Healthcare was formed to create a regional network of likeminded hospitals and health systems.
Stratus now includes 29 hospitals and 15 health systems, Richardson reports.
"I identified those organizations in our region who we thought were like us and invited them to join us in a larger collaboration," he says. "Everyone is looking for a niche to achieve scale and size by combining strengths and financial resources. It's been more successful than I originally anticipated. The organizations that are with us want to remain independent. At the end of the day, we do feel that healthcare is local."
Richardson adds that an important element to establishing a successful partnership is cultural compatibility between organizations.
"I would double underscore that point," he says. "You need to select partners who view the world the same way you do and who have a patient-centered approach and are willing to test new models."
Stratus consists of four subcommittees that report to the board of directors, Richardson explains. Those subcommittees focus on clinical services and best practices, IT and interconnectedness, shared services such as supply chain purchasing, and strategic initiatives.
"Strategic initiatives could be anything else such as looking for other partners, maybe larger systems to join Stratus to help us achieve our goals," Richardson says.
"The ideas that come out of all four subcommittees will be funneled up to the board, and we will determine what the most important projects will be, and how to capitalize those projects," he says, adding that there will also be work groups focused on these four main areas.
"It's a work in progress," he says. "We don't know exactly where it is going to go. There will be a lot of experimentation and a lot of learning from each other."
While Richardson doesn't know precisely how Stratus will move forward, he does know that as the healthcare industry evolves quickly over the next few years, it will no longer be possible for providers to remain complacent.
"Doing nothing is not an option, and if it is what your organization is doing, you are going to find yourself in trouble," he says. "My energy as CEO is pretty much focused on this transformational journey."
Covenant Health Network
Richard Afable, MD, executive vice president of the Southern California region of Irvine, Calif.–based St. Joseph Health—which has 3,621 licensed beds and $4.4 billion in annual net revenues—says St. Joseph Health affiliated in February 2013 with Newport Beach, Calif.–based Hoag Hospital to provide better care to their collective community. Afable also serves as CEO of the affiliation between St. Joseph Health and Hoag.
While both health systems are based in Orange County and traditionally vie for market share, the need to develop better population health management capabilities trumped concerns over competition, says Afable.
"Both organizations believe in the value of and need for healthy communities, a lower cost of care, and greater quality of care, mostly around reducing variations in outcomes," he says. "Those are the inherent principles in our partnership, so we came together and are building the alignment and coordination necessary to meet those goals."
"We are beginning to work together more collaboratively—and with less of the past expectations of competition and trying to take market share—and win by the old standards of healthcare delivery," he adds. "We believed that this vision of working together was so compelling that we would overcome the challenges around competition."
Like Richardson, Afable believes partnering with an organization that is culturally similar to his own is critical. "What is also important is both organizations are faith-based, not-for-profit, community service organizations that have a very strong commitment to the care of the vulnerable populations within our communities."
The organization is using 2014 as a "ramping-up period" to better determine what the model will look like and how the organization will function, according to Afable.
Although there is still a lot to decide, he says the new care delivery model must be "built more around data analytics and predictive modeling. It used to be about collecting a premium and trying to hold down utilization as much as possible. That is not the model of population health, but it is a cornerstone. Now we have to do very good actuarial and predictive analysis so we can have the best ability to create a budget for caring for individuals and populations. We want to be able to determine what we would expect as far as the resources that are necessary when the best care is provided."
While population health management is a move away from the traditional fee-for-service payment structure, Afable believes provider organizations that figure out how to do it well can still make money.
"Using patient engagement and innovation, we can actually improve the cost to provide care and the outcomes of that care in such a way that we can create a margin," he says. "We believe like most people today that you have to have a model that improves outcomes, creates value, and improves financial results for providers by creating profitability. If better care and better service result in reduced financial viability in the long run, you might as well just roll it up now and be done with it."
AllSpire Health Partners
Another organization that has recently partnered with regional providers to bolster its population health management efforts is Reading (Pa.) Health System, which joined with six other systems that encompass 25 hospitals in New Jersey and Eastern Pennsylvania to form AllSpire Health Partners in September 2013.
Clint Matthews, president and CEO at Reading Health, which had $913 million in total operating revenue in fiscal year 2013 and includes the 735-bed Reading Hospital, sees population health management as a crucial component to handling a new payer environment.
"To me it means moving away from the singular approach of per-episode care to one individual to understanding that we need to care for groups of people for periods of time," says Matthews. "With the provision of care comes the payment for care, and it's moving from volume-based to value-based compensation."
"We foresee population health management as an area we can better manage through AllSpire because we will have a larger universe and be able to share best practices and manage down the overall cost of the infrastructure," he adds. "I anticipate that AllSpire will be very helpful as we are dealing with population health management for the purposes of risk stratification."
AllSpire's board of directors includes board members and the CEOs from all the member organizations and also consists of development committees and a management committee.
"Each organization has contributed executives to help study what impact we can have as well as identify opportunities for improvements in each system and the group as a whole," Matthew says.
Richard W. Jones, CPA, Reading Health's senior vice president, CFO, and treasurer, says that because six of the seven AllSpire members use Epic for their electronic health records and other technologies, the group has "a natural ability to share, to establish protocols, and to learn best practices from each other."
"We believe AllSpire offers opportunities to leverage purchasing power and to leverage our ability to utilize information systems in a way that will provide economic benefits … and best practices in how to use health information for the benefit of our patients. That is a big opportunity in and of itself," Jones says.
Reading Health will initially focus its population health management efforts on its own employees.
"The first thing we are going to do is look at the population of our own employees and use them really as a laboratory to hone our skills at managing populations by engaging primary care physicians more directly and incentivizing patients to participate in their own care," Jones says, noting that employees will receive an inducement to complete a health risk assessment, although it will not be mandatory.
Along with achieving employee buy-in for its new population health management strategy, Reading Health is also seeking to educate its physicians to encourage engagement.
"We have developed a clinically integrated network for the purpose of improving quality of care, managing the cost of care, and improving access to care," Matthews says. "We've integrated our independent physicians with our employed physicians and other ambulatory providers. … Our physicians know there are opportunities to provide better services by cooperating with each other and communicating better. They are on board and are excited by the opportunity."
Measuring success
Although it's too soon for any of these frontrunners to measure results, they all say they will be looking for expanded clinical best practices, enhanced IT capabilities, greater economies of scale, and improved patient outcomes at a lower cost for indications of success.
Jones and Matthews say they are "absolutely optimistic" that Reading Health will achieve its goals as part of AllSpire and expect to see more partnerships of this nature as the healthcare industry moves to more risk-based payment models.
"We think that these types of affiliations will become more commonplace as reimbursement structures change," Jones says.
Reprint HLR0514-7
This article appears in the May 2014 issue of HealthLeaders magazine.
