Health care organizations are bracing for a maelstrom of change. The transition from a fee-for-service, volume-based model to one based on value requires them to reinvent what they do strategically, operationally and financially. Revenue from traditional sources will decline. Risks will rise. Financial sustainability may be threatened.
Yet, perhaps the toughest challenge of all is in not knowing how fast the transition to a new era will occur or what it will look like.
Hospitals and health systems are busy rethinking how they provide services and how they need to transform. But the uncertainty is weighing on their preparations. In sports par-lance, they are under pressure to switch to a new playbook without abandoning the old one — and no one knows the new rules or when the next season starts.
Many are paralyzed by indecision or a perceived lack of resources. Such inaction may be the biggest misstep they could make, according to health care insiders. They say it's time to follow the lead of organizations that are placing their bets — as industry expert and former hospital chief executive officer Jeff Selberg puts it — on improving value. Those that wait until the business model changes, he maintains, will not succeed.
"Over the long term, it's absolutely clear that the organizations that provide higher value are going to win, competitively," says Selberg, executive vice president and chief operating officer of the Institute for Healthcare Improvement. "Waiting is very short-term thinking."
Ralph Lawson, chief financial officer of Baptist Health South Florida, travels a lot as national chairman-elect of the Healthcare Financial Management Association. Most of the organizations he visits are talking about change, improvement and the need to reform. "The really good thing about what's going on in health care today is a genuine focus by most providers on quality and patient safety," he says.
But few, he notes, are actually making tangible changes to help them navigate the transition to the future. Indeed, an HFMA survey last year found that while more than half of respondents had begun measuring the costs of adverse events and the margin impact of readmissions, only 20 percent were using the data to drive actions that reduce costs or improve margin.
The hesitancy is understandable, as even the most ardent proponents of change acknowledge. "If you move really aggressively toward the fee-for-value support system, it's apparent you would leave a certain amount of revenue on the table," says Ken Kaufman, CEO of health care consultancy Kaufman, Hall & Associates.
Revenue declines are drawing nearer even for those that stand pat, however, and more farsighted organizations are exploring alternative solutions now. Hospital revenues are in "critical condition" after growth dropped to 4 percent in 2010, according to Moody's Investors Service — barely half the rate of a decade earlier and the lowest since at least 1990. There are ways to mitigate the downsides of reduced hospital admissions, average length of stay and outpatient fees, Selberg emphasizes, starting with eliminating variation and lowering cost. "In refining your clinical model, your profitability will grow as the costs decrease," he says. And health systems that are refining their operations to achieve improvements are seeing encouraging signs.
A number of forward-thinking systems are being lauded for pursuing the transformation intensively but wisely, despite the short-term risks. Aside from those addressed in this article, industry experts single out pioneers such as Intermountain Healthcare of Salt Lake City, a model for Medicare's accountable care organization program, and Geisinger Health System of Danville, Pa., the physician-led system that has cut costs with its bundled-payment system and set up an advanced medical home for chronic disease.
Among others, Advocate Health Care of Oak Brook, Ill., signed a landmark accountable care agreement with an insurer; AtlantiCare of Egg Harbor Township, N.J., created its own successful medical home, a special care clinic for casino workers; Fairview Health Services of Minneapolis has switched much of its revenue to fee-for-value; and the Cleveland Clinic created institutes focused on the full cycle of care.
These "first movers" are pushing ahead with physician alignment, cost control and care reorganization. They all have what Selberg describes as "an absolutely maniacal focus on improvement." And they share the willingness to experiment, confident that the long-term payoff justifies the near-term revenue risks.
"The transition from volume to value is challenging, especially when utilization and performance risks are being shifted to providers. Because of this, many organizations begin by shifting the care and payment models for their own employees, where they own the risk already," says Richard Clarke, president and CEO of HFMA. Others look for opportunities to experiment.
Baptist Health South Florida is experimenting with its insurers, its doctors and its payment model. It's working with commercial payers on different payment methodologies, trying new risk-based contracts focused on wellness with Caribbean island nations, and preparing a bundled-payment model for urgent care.
The Miami-based organization is fully aware that some trials may not work, CFO Lawson says. But value to the customer will be increased, developing technology to handle bundled payments will help in the future, costs will be reduced and the organization should be better positioned for the years ahead.
"We'll probably lose money in the short term on many of these initiatives, but we'll get valuable experience," he says. "We're not betting the farm, we're experimenting. If it does lower our revenues, so be it."
Getting physicians on board is a key focus for transitioning organizations. The new era requires an entirely different level of cooperation between doctors and hospitals, Kaufman says. The two sides must be in sync on their goals before signing new risk contracts based on the fee-for-value model.
The best hospitals and systems also are changing their cultures to become more transparent and collaborative. An AHA report last September stressed that before any specific strategies are implemented, organizations must develop a culture that enables performance improvement, high reliability and accountability. That's what is happening at those that are not just waiting for the future and hoping for the best.
"Health care is moving hard from that concept of individual accountability to one of team accountability — appreciation for a system," says Selberg. "That's the culture we need to build in every organization, whether they're concerned with reducing ventilator-associated pneumonia or they are in an environment where they're trying to develop a full cycle of care for a diabetic over a two-year period of time."
The model organizations are moving forward on multiple fronts. A look at four of them follows.
The Henry Ford Health System has earned recognition for successfully navigating industry changes in recent years, winning a Malcolm Baldrige National Quality Award in 2011 and posting nine consecutive years of financial growth. The Detroit-based organization has managed to increase hospital admissions steadily at a time when the area it serves has been devastated by the automakers' slump. Yet, Robert Riney, president and chief operating officer, says health systems can make a mistake by focusing on hospitals at the expense of other areas.
"Most organizations are hospital-dependent — they depend on them as a revenue source and a source of growth," he says. "While hospitals will continue to be an important part of the industry, the continued move toward doing more in an ambulatory and home-based environment will accelerate."
Focusing on that diversification is at the heart of the Henry Ford strategy. That means "working the intersections" between hospitals, ambulatory and home-based services, Riney says, and ensuring smooth, well-communicated handoffs from one to the other to create a seamless experience for the patient and family. The organization seeks to play an active role in every part of the total health experience, from wellness education to products and retail services related to its core competencies — pharmaceutical and wellness products, durable medical equipment, retail eye care and more.
The five-hospital system last October opened a new think tank for creating medical products. The Innovation Institute at Henry Ford unites medical and biotechnology researchers with engineers and design experts from the universities and elsewhere to look for commercially viable products and push for medical advances. Among the early items on the drawing board: a miniature wireless pump to help a failing heart and a bra with ultrasound that can detect breast cancer.
"It's a way to not only advance the industry but create a nontraditional revenue source," Riney says.
The system also is looking at different ways of using technology to provide better alternatives to facility visits, satisfying demand from patients who crave such services and broadening the care experience while also saving money. The goal is electronic visits to the patient with all the capabilities of home monitoring.
It established five leadership and development academies for its employees, reducing turnover and improving performance. Greater collaboration with physicians is another priority. Henry Ford's physician network brings together its 1,200-strong medical group with private doctors into a clinically integrated network of more than 1,800 physicians.
The initiatives testify to why the organization is considered a model for overcoming the fragmentation in health care systems — by using clinical integration to improve collaboration and care coordination and foster innovation.
Novant Health isn't waiting to see what a world of no cost shifting will do to its bottom line. The 13-hospital system, based in Charlotte and Winston-Salem, N.C., projected itself forward into that financial reality by transferring to a payer-neutral revenue system.
The system considers all payers as if they were Medicare, with its substantially smaller payments than private payers, by evaluating claims submitted to other health plans through a payment algorithm based on Medicare reimbursement rules and rates.
It's much more than a financial fire drill. Novant is using the resulting data at the core of efforts to reduce cost and unnecessary health care utilization. Pro forma financial statements prepared with the data show which service lines would be profitable if all health plans paid as Medicare does. Physician councils established at 14 clinical sites help analyze the data to figure out how to root out variation and establish new best practices. The clinical staff have made improvements in care that Novant says also have cut costs, improved operating margins and saved millions of dollars systemwide.
"We've had lots of success with this, but what it did was fully integrate Novant as an organization," CEO Carl Armato says. "We're looking at it not in one market, but across our four-state system."
In the first round of analysis alone, Novant identified 12 opportunities to trim more than $24 million in variations — everything from differences in labor costs at imaging facilities to a 25 percent cost differential between joint replacement surgeries. After using the tool for two years to identify and address variation, the organization is going all in this year. By June, 44 of Novant's hospital patient units will have transformed their models of care.
The transformation touches on most elements of Novant's six-point strategic plan, says Armato: safety, quality, affordability, accessibility, patient choice and personalized relationships.
When it comes to affordability, the switch to payer-neutral revenue clearly benefits the organization as well as patients and payers. "It makes us better able to navigate the changes as health care reforms are implemented and state budgets are cut," says Sallye Liner, R.N., chief clinical officer.
Quality and Value
Amir Dan Rubin, president and CEO of Stanford Hospital & Clinics, is as worried about the coming reimbursement decline and related financial pressures as any other chief executive. But he is determined that the Palo Alto, Calif.-based academic medical center not stray from its overall vision and strategies to improve the bottom line. A relentless focus on improving patient care, he says, will be the biggest difference-maker not only for the patient, but also the organization. "Every organization has to have some viewpoint or strategy about where it wants to fit in in the health care world, as opposed to changing particular concepts," Rubin says. "If we're focused too much on reimbursements or structures or systems, there's a risk in getting lost in the charts rather than [putting] the patient [first]."
Indeed, he says, Stanford is finding that when it improves quality, it improves the cost side of the equation. It went a year and a half without a central line infection, for example, saving considerable money. Likewise, coordinating care better by having teams of diagnosticians has paid off for patients and the organization alike.
The academic center is making other moves with a close eye on the financial benefits. It is working to standardize its supply chain. It's using more Lean techniques adopted from Toyota, streamlining processes by eliminating steps that add no value. Getting patients through the care process more quickly serves everyone better. "We're focused on delivering value," Rubin says.
Stanford also is a poster child for using science and technology to benefit patients and ensure future success, translating medical breakthroughs into better care. Rubin says it sees tremendous potential in a new world of targeted and molecular medicine, genomics and a more digitized anatomy. And it is a leader in the movement toward more connected care. The organization is one of just a handful to receive the highest-level designation, Stage 7, for its electronic medical records system from the HIMSS Analytics Database. Patients are logging into their charts and emailing with their physicians. It's an approach that works for an IT and medical research powerhouse, al-though Rubin emphasizes that it may not be the best model for every organization to transform to the future. "I don't think one answer fits all," he says. "And that's good. We'll serve our communities better by having a variety of approaches."
Collaboration and Cooperation
Small, rural organizations can follow many of the same strategies as those with the resources to fund multimillion-dollar technology initiatives. For Glendive (Mont.) Medical Center, transformation means an intensified effort on patient-centered care, with wellness as the focus. "Working to not have anybody in the hospital — now, there's value," says CEO Scott A. Duke, a member of the American Hospital Association board of trustees.
Leadership, strengthened collaboration with medical providers and closer cooperation with patients all are being used to lay the groundwork for change at the 25-bed acute care hospital.
- Launched a new customer service initiative focused on exhaustive communication, sharing information before patients come to the hospital, and helping them navigate the health system.
- Established a leadership institute under the auspices of its board of directors. Duke says he often hears from peers at small hospitals who claim to be too busy just keeping their organizations running to get their boards talking about better collaboration, to which he responds: "That's where it takes leadership and vision. The quintessential difference is leadership."
- Made working with physicians and other medical providers a top priority.
- Created patient-family advisory councils, involving people in the community to share insights that can help its 475 employees improve the overall patient experience.
Notwithstanding the urgency for hospitals to change their business models, it's still about the patient, Duke stresses. "The emphasis on patient-centered care cannot be overstated," he says.
Dave Carpenter is a freelance writer based in Chicago.
Sidebar - Nonprofits Face Difficult Future