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During the months since federal health reform regulations set the scene for new models of care delivery and associated payment, Orange City Area Health System redoubled its efforts to contain clinical costs, get its physicians to be team members in those efforts, and rely on computerized information to coordinate and improve care — all building blocks of those new models.

However, the specific reform programs coming out of Washington — accountable care organizations, bundled payments and the like — are barely on the radar at the 25-bed critical access hospital in northwestern Iowa. "We see a lot of problems with ACOs and not a lot of the solutions," says board chair Tim Zeutenhorst.

The new pilot projects are similarly unappealing to San Juan Regional Medical Center, a sole community hospital in northwestern New Mexico. The fundamentals of business evoked by ACOs, though, are paramount. The facility has immersed its workforce in a top-to-bottom campaign to eliminate serious threats to patient safety and elevate the importance of delivering care correctly. Resulting benefits, which include avoiding the extra costs of adverse events and institutionalizing efficiency, will set it up for whatever payment-reform equations eventually are advanced by Medicare and private payers, says CEO Rick Wallace.

Even the well-positioned Fairview Health Services in Minnesota is taking its time to figure out how to move officially into the ACO age. Mark Eustis, president and CEO of the eight-hospital system where hundreds of employed physicians already are paid according to an outcomes-based formula, has this to say: "People talk about ACO reform and the ACO environment; I like to talk not so much about an accountable care organization as I do an organization that's been at this work to improve quality, create a better experience and manage costs historically for some time."

That emphasis on the fundamentals rather than the formalities of health reform is a healthy attitude for the industry, says Joe Albian, a partner in the health advisory practice of PricewaterhouseCoopers. "ACOs right now are getting a lot of attention; it's a nice vehicle from which to talk … but take the acronym away and simply say, 'How are we going to be able to drive value in a much different way?'" Providers need to focus on changes to help them succeed in the broad sense of health reform, Albian says. "These fundamentals are going to happen regardless of who's financing it, what the ultimate system looks like and who the involved parties will be."

Passing on ACOs for Now

Across three very different organizations Trustee surveyed this summer for their reaction to reform, the Affordable Care Act is playing like mood music in the background instead of orchestrating arrangements note by note for senior management and governing boards.

The ACA has signaled a shift in expectations and reimbursement — from how much care is provided to how well it's delivered — in laying out for hospitals and health systems a set of substantial demonstration projects in which to participate, subject to their ability to meet organizational and operational criteria and abide by an array of risks and rewards related to saving Medicare dollars and sharing in those savings.

But for smaller organizations, which need all the capital they can get to revamp their care processes and add sophisticated technology, the initial expense of forming an ACO may have the effect of raiding the coffers.

After months of learning about the ACO as federally defined, the Orange City board concluded that "start-up costs alone are mind-boggling," says Zeutenhorst, citing the $1.8 million estimate of the Centers for Medicare & Medicaid Services and an American Hospital Association estimate 10 times that. "When we're talking cost-containment and then I look at an expenditure that large — on something we don't know will work — it's time to just watch it and see what develops," he says.

The benefit side didn't look too promising either. According to an outside analysis done for the critical access health system, which takes in about $50 million in revenue annually, the five-year net difference between participation in the federal reform program and standing pat was a mere $15,000. In terms of where to invest, "to put it toward something with an impact of less than $15,000 — during a period of time when you generate revenues of $250 million — didn't seem to be a good resource allocation," says Orange City Area Health System CEO Marty Guthmiller.

Likewise, the up-front cost persuaded San Juan Regional that the cash could be put to better use in basic internal improvement, says CEO Wallace. "We had conversations with the local independent physician association that all of our physicians belong to, and with their CEO we've explored what options we need to be looking at — not so much in an offensive mode but in a reactive, defensive mode," says Wallace. The health system already had a relationship with independent and employed physicians that matched what an ACO would be trying to achieve anyway, he adds.

Armed with a strategic plan emphasizing operational improvement and nimble enough to account for sudden change in the industry, San Juan Regional's leadership concluded that it was "in a very comfortable position so that [an ACO] is not really a top priority for us at this time," Wallace explains. "The board has hit the right priorities up front. We've got to become safer, we've got to be information-driven, and we've got to make sure that we optimize our cost-effective service to our patients."

Components First

Delivering on those operational priorities takes resolve to lead the organization away from keeping beds filled and exam rooms occupied and into monitoring patient health status and forging cooperative efforts to keep people in good hands medically, says Albian. That requires a stronger focus on:

  • Integrating physicians and other medical professionals into the plan. "A lot of people talk about it, a lot of people put a lot of airtime behind it, but I'm not so sure clinicians really feel they are true partners, but just kind of a necessary evil," he says.
  • A willingness to spend big on information technology but with fiscal prudence and skill in determining its significance. "Many of these organizations are spending tens if not hundreds of millions of dollars on this, and if you really ask a lot of the trustees, 'Do you think you are getting the value for this or are you simply running to get these requisite systems in place,' I think it's going to be the latter," Albian says.
  • Combining strong cost control with a campaign to increase volume — not of admissions or visits, but covered lives. As indicators of quality care improve, readmissions will drop and occupancy will decline. "We are challenged today to figure out how we reset our fixed costs and our infrastructure to handle at least a fluctuating level of volume," Fairview's Eustis says. On the supply side, Fairview is putting "a lot of concentration on member acquisition, expanding the [covered] population … allaying the impact of reduced utilization."

It helps that Fairview anticipated the evolution toward demonstrating superior outcomes and managing total costs of care years before the ACA became law, says Joanell Dyrstad, secretary of the Fairview system's board. "This transformation and remodeling, so to speak, of how we provide health care fits into the goals of the board in that way," she says. The stated mission long had been improving health, and some trustees were encouraged that Fairview is finally doing more than providing care when people are sick, says Eustis. When an aggressive care delivery about-face was launched three years ago, it was laced with risk. That was by design.

Looking to Shared Savings

Minnesota's quality-improvement efforts over the last decade made health care systems in that state better prepared than most for performance-based payment models. An organization called Minnesota Community Measurement collects standardized data from most of the state's medical groups on a growing set of care measures and reports them publicly.

Fairview has turned that data inward to improve the experience for patients and families and to manage costs, which not only aligns with value-based purchasing goals of reform, but also "helped drive some of the new relationships we have with payers that recognize the value we've created around clinical outcomes and managing total cost of care," says Eustis.

The challenge: convert good outcomes and lower costs into a formula that did not penalize physicians for reducing "production volume" and could be a quantifiable basis for determining shared savings, he says. Fairview has moved all its large local contracts, representing about 70 percent of its nongovernment revenue, to a shared-savings model. "Not all exactly the same," Eustis says, "but it basically says there are dollars available to you if you can demonstrate better clinical outcomes and if you can demonstrate that you're actually improving the total cost of care."

The Fairview board was supportive, understanding that it meant a significant change for the system's 500 employed primary care physicians and nurse practitioners, as well as 1,200 community physicians engaged with Fairview. "There was a financial possibility of gain, so the board was aware of that and … frequently would ask about how that was coming and what the numbers were," Dyrstad says.

Doctors were tasked with coming up with the care model that would deliver the best results under this financial formula. They focused on providing the right care to patients through the most effective means. Among other conclusions, they realized they did not need to see every patient personally; team-based approaches and compensation no longer hinge on production as measured by relative value units. Freed from RVUs as the driver, it allowed for advanced practice nurses to conduct some visits, and use phone or e-visits when appropriate.

The payment model in these contracts preserves the fee-for-service model for the time being, but with an annual update about 5 percent lower than normal. Layered on top of the fees, though, are opportunities for additional revenue by achieving certain clinical outcomes and improving expense management.

Fairview's plunge into an ACO-like arrangement with private payers shows how far even the best-prepared organizations need to go to get shared-savings approaches past the conceptual stage. Chief among the challenges was providing enough of the right data frequently enough to guide behavior and produce timely status reports. That became a cooperative effort between the health system and the health plans, Eustis says. "A lot of this is new for the plans, too. You might think that they have all this data readily available out of their claims base, but we found that's not always the case," he notes. "They do have the data, but it isn't necessarily configured the way that it would be meaningful to a clinician."

Investments include $175 million on a new IT system for the hospitals along with upgrades to its ambulatory clinical systems, which are already on that system. Fairview also is investing heavily in care coordination resources across its settings, working with care teams to identify high-risk patients such as those with multiple chronic conditions. "The numbers we're seeing are 7 percent of those populations produce about 60 percent of the cost," Eustis says. "If you don't actively manage the care by creating the care plan with the primary-care physician and team and the family, it's really hard to manage the cost associated with those conditions."

Basics of Good Care

Other organizations just starting to weigh the emerging transition are concerned less with intricacies of payer contracting and more with the basics of good care. Both San Juan Regional, based in the Four Corners area of Farmington, N.M., and Orange City, a 45-minute drive from Sioux City, Iowa, completed major building projects in 2006, and each is the only game in their respective towns. With new facilities in place, senior executives and board members of the two rural entities have turned to the same priorities: execute relentlessly on quality and safety, and cement their relationships with area clinicians and the community.

In the fall of 2009, as Congress battled over the details of health reform, San Juan trained 100 percent of its physicians and all but a handful of its 1,750 employees on what it means to have a pervasive culture of safety in a "high-reliability organization," including the tools of vigilance and protocols that the hospital would be using, says CEO Wallace. "It was led from the top, from the board, and it was not a punitive design, but it was an expectation that was encouraged throughout the organization." That effort initially led to a spike in reported serious safety events as operations were laid bare to show where safety practices needed improvement. The push soon paid off. Compared with baseline data established at the outset, the hospital's serious events have decreased 73 percent.

That safety emphasis and a focus on operational efficiency were general responses to the climactic changes in health care business that the board was feeling, says San Juan Regional's board chairman Mike Jakino. Reading the legislation for future compensation approaches, "we started really focusing on our safety and our quality, and how to develop those two areas for our hospital," he says. "If you could invoke those two as a corporate culture, the rest kind of falls into place and takes care of itself.

"We're going to have to make sure we do everything properly, everything correctly right up front, because the last thing we want to experience is one of the consequences and reductions in reimbursements from the value-based purchasing component," Wallace says. He considers the 250-bed hospital and its outpatient diagnostic and rehabilitation facilities "a fine-tuned operation" that "operates as efficiently as any hospital that I've seen. However, just like every other hospital in the nation, we're going to have to figure out ways to do things better."

To help foster that, the board in a retreat with physician leadership in early 2011 reached agreement on several critical areas for investment, including a plan to spend about $8 million over the next three years on a new clinical IT system. That meant pulling the plug on an IT investment that had cost $4.5 million to date but was "frustrating to doctors, it was cumbersome, very time-consuming," and did not allow physicians to pull records from the hospital system to the electronic records they were installing in their practices, Wallace says.

"We were throwing money into a pit and [the information system was] not going to meet the IT needs as health reform has defined it," he says. "The board realized that we needed to have an efficient system that was physician-friendly, that provided all the technical, clinical and demographic information that the physician needed to adequately care for the patient."

Helping Physicians Adjust

Orange City's replacement hospital, opened in 2006, was designed for the ultimate implementation of an EHR, says Guthmiller. It not only will improve clinical performance, but also will drive the use of standards that are necessary for physicians to collect, report and use information. An EHR infrastructure installed more than two years ago is operated remotely in Sioux Falls, S.D., by Sanford Health, a rural health care system and management company with which Orange City contracts.

Sanford has a license agreement with Epic, which "is not a platform that a place like Orange City could even touch but through a relationship like Sanford's," Guthmiller adds. "With their system comes standardization. They have a way of doing things with the various elements of the [EHR] that are in essence pushed down through the system. … And that's a wonderful way to promote best practices."

But therein lies one of the bigger balancing acts for CAHs like Orange City, which rely more heavily than urban environments on keeping their doctors, and keeping them happy. "Reducing variation often equates with reducing autonomy," Guthmiller says. "There's an inherent conflict in standardization vs. local autonomy." But to meet requirements of quality indicators, and advance toward health reform models, that's what has to happen. And to get the cooperation of doctors, their concerns will have to be managed closely and sensitively.

"Loss of autonomy leads to frustration; frustration leads to separation. It can be physical separation — the doc gets frustrated and leaves. Worse yet, the doctor emotionally checks out," Guthmiller explains. "You need the one-for-all, all-for-one mentality that we rely on in rural areas, working together with the physicians. When the physician emotionally checks out because of frustration … we lose the greatest strength that we have, and that is working cohesively as a hospital and a clinic for the best provision of care at the most effective price."

To help reduce the complexity of growing performance and reporting requirements, Orange City is considering redesigning the job responsibilities of the rural environment more along the lines of urban operations: having some doctors do rounds on other doctors' inpatients, for example, to take away some of the burden; or fostering specialization of primary care doctors. "It's just more and more difficult for doctors in rural areas to wear multiple hats," says Guthmiller. Adding a "hospitalist-lite" approach, though, means an extra layer of cost, about a million dollars a year to the budget.

Orange City hopes to outweigh those and other reform-related costs through more efficient and higher utilization of the hospital, including a campaign to keep patients in the community when services are offered locally. The new facility now does many procedures it did not perform before, such as knee replacements and cataract surgery, and it has recruited specialists to handle those and other medical needs for which patients formerly had to travel.

"Educating the consumer has been a key component — saying, 'Hey, you can have that care right here, you don't have to drive 50 miles to have your cataract surgery,'" says Zeutenhorst. "The same surgeon who would do it in Sioux City is going to do it for you here, right in your own town."

John Morrissey is a freelance writer in Mount Prospect, Ill.

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