The transition to valuebased business models in an era of reform requires a framework for delivering higherquality care and service at lower cost.
The healthcare sector's long-discussed shift toward payment based on value rather than volume has begun. But the road to improved value in health care-defined as the relationship between quality and the cost of care to the purchaser-has varied widely for hospitals and health systems.
Changes initiated to improve the value of care have varied as widely as the types of hospitals and health providers across the nation. Providers' actions also are shaped by the ability and desire of their local markets to transition to more value based payment. But a number of innovative approaches have emerged that may help providers develop the right framework for improving value in their organizations, regardless of type or size, in an era of reform.
"A single path will not help eveiyone," says
During HFMA's Thought Leadership Retreat this past October, 100 thought leaders in healthcare finance shared ideas on ways that providers of varying types and sizes can develop a structure for providing enhanced value. Although strategies varied among the organizations, the lessons learned may provide valuable insight to other providers in their quest for value.
New Models of Collaboration
The recent resurgence of hospital and health system mergers and acquisitions is at least partly an outgrowth of the pursuit of value. For example, consolidation can lead to quality and costefficiency gains if organizations are able to reshape their merged assets into a fully integrated system. It can also better enable rural hospitals, stand-alone hospitals, and smaller systems to achieve economies of scale and prepare for a future of population health management.
In an audience poll taken during the Thought Leadership Retreat, 41 percent of attendees stated that they believe the goals of a highervalue healthcare system-better care coordination, higher-quality outcomes, and greater cost efficiencies-can be achieved only through further provider consolidation; 3? percent believe the goals of a higher-value system can be achieved without consolidation, and 27 percent were unsure. When asked to name the biggest driver of acquisition and affiliation activity in their markets, 44 percent cited the desire to sustain or improve market position, while 21 percent cited the need to better align care across the continuum and another 21 percent cited the need to achieve greater cost efficiencies.
Although size does not equal accountability, "some scale" is necessary to perform well under the coming payment models, according to
Recent provider reorganizations generally fall under the categories of member substitutions, sales of assets, or true mergers or consolidations. For-profit systems tend to focus on control of assets, while not-for-profit systems lean toward member substitution. There also has been a recent proliferation of affiliation transactions not involving a change of control, according to Hastings. Systems judge where they want to fall within the spectrum of partnerships and affiliations based at least in part on what components they need for a transition to a value-based payment environment.
"There aren't rigid advantages or disadvantages to specific approaches," Hastings says. "The question is whether the approach that is chosen is the right transaction for the parties involved. For a period of time, most hospitals and health systems will be managing the difficult balance of being paid a mixture of fee-for-service and value-based payments. Their ability to influence the pace of change and stay balanced while investing for the future will determine their success."
Provider alliances that reflect continued ownership independence include the BJC Collaborative in
The BJC Collaborative, which was launched in
"This was not about one or two large players coming to the rescue," says
The separate health systems maintain independent boards and executive leadership teams as well as their unique services, missions, and brands. Members formed a limited liability corporation (LLC) with equal representation on its board and a rotating model of board and committee leadership.
The LLC is helping to facilitate shared savings from several standardization initiatives including supply chain, contracted services, clinical engineering, IT, legal services, and compliance. It is also focused on enabling member organizations to coordinate the development of clinical programs and services to improve access to and the quality of health care provided by the collaborative's members. Early wins for the BJC Collaborative included millions of dollars in savings in the area of clinical engineering, as well as discussions among member organizations to expand pediatric, cardiology, and bariatric services.
Members of the collaborative expect to realize benefits from working with physicians across the collaborative to standardize the vast majority of the hardware. The collaborative has achieved savings in clinical engineering equipment by working with nine common vendors, which have agreed to provide high-quality services while achieving lower prices through the bundled spend. Collaborative members also will share unused server space, eliminating the need to build new data storage capacity.
The health systems also share best practices in benefits management, public policy, compliance, marketing, and other support functions. For example, government-relations staff members across the collaborative have identified common public policy goals they can work on together to advance at the federal and state levels. "It's amazing how people listen a little differently when you're too big to ignore," Van Trease says.
Achieving Scale Through Mergers and Acquisition
Hospitals and health systems continue to use various iterations of the traditional merger-andacquisition model to find more savings and quality improvement and achieve economies of scale.
"It's phenomenal in terms of the kinds of discussions going on at every level," Hastings says.
But some health systems are tweaking the traditional merger-and-acquisition models to increase their value by taking advantage of the positive attributes that newly acquired entities bring.
To determine the ease with which the organizations' cultures would align, an outside firm was hired as part of the
The next phase of savings from the merger of the two large health systems is expected to include up to
"We were in a potential death spiral," says
The merger led to the arrival of experienced CFOs at all Baptist hospitals, an increase in financial discipline, and access to much-needed capital, with Vanguard committing to invest
"It was a successful bottom-line turnaroundeven after adding millions of dollars in sales tax and property taxes as part of the move from notfor-profit to for-profit status," Eppinette says.
But the faith-based not-for-profit's merger with a public, for-profit chain presented some unique challenges. To address concerns that the merger would have an adverse impact on
"We were glad that Vanguard supported our faithbased mission," Eppinette says. "There was never any disparity in what the goal of our efforts should be."
Another type of provider combination was the 2011 merger of
This unique transaction stemmed from the desire of leaders from both organizations to prioritize local control.
"The thought was, 'Let's do this now and still keep our options open to join a larger entity in the future, so that we could do that from a position of strength,"' says
The goals of the merger included attracting more specialists interested in focusing on clinical care to help drive top-decile performance in clinical quality. Health system leaders tracked the effectiveness of the merger through both patient and physician satisfaction as well as through the use of employee satisfaction and retention metrics.
Although all three mergers were unique types of transactions, they shared common priorities designed to improve overall value. For instance, officials from all three organizations agree that cultural fits need to be closely examined before the merger proceeds to help ease the inevitable problems encountered during integration and to accelerate the merger's intended outcomes.
Controlling Cost Growth
The extent to which organizational changes taking place at hospitals and health systems across the country support the structure of value is not yet clear.
"Unlike the 1990s, when provider systems rebelled against the limits imposed by HMOs, providers now are trying to live within less growth," Chernew says.
But it not clear whether the new value-conscious mentality will persist. Future cost growth will be controlled, Chernew says, if both payment systems and benefit design are changed to move away from fee for service, incentivize patients to seek higher-value care, and reward healthcare organizations that provide such care.
"Risks increasingly are being borne not by insurers, but by providers," Chernew says.
Research has indicated that healthcare costs can be reduced and excess spending controlled through various payment and benefit initiatives. But some changes have come with unintended consequences, which shows better approaches are needed. More nuanced approaches, such as reference-based pricing, have produced both savings and quality improvements.
"We're going to have to find some combination of payment and benefit changes to get people to change their behaviors and seek higher-value care," Chernew says.
Additionally, healthcare spending growth will slow down as the healthcare industry changes its own practices and as healthcare organizations are rewarded for providing greater value, Chernew says.
"The pursuit of accountable care has partially driven some of the merger activity throughout the industry," says
During HFMA's Thought Leadership Retreat, hospital leaders cited access to a broader patient population as the biggest benefit that can be realized from increasing the scale of a hospital or health system, with improved operational efficiencies as a close second.
Larger patient populations accumulated through consolidations can conversely support a greater focus on the needs of individual patients. Additionally, a common benefit from provider consolidation is additional resources for IT analytics, which in turn can provide the capability for targeted interventions. For example, through IT analysis of patient data, health systems can identify high-cost patients who refuse to change their behavior in ways that improve their health and focus interventional resources on high-cost patients who are open to change.
In the move toward value-based payment systems, access to claims data, which can drive many patient care improvements, will be critical, HFMA's Fifer says-and so will the ability to analyze these data, which will tell health systems how care is being delivered in their facilities.
"That's why it's an absolute requirement to invest in data analysts in your organizations," Fifer says.
"There is a need for really smart-and, I think, really curious-data analysts in hospitals and health systems today."
Engaging Physicians in the Quest for Value
A key component for increasing healthcare value is ensuring that physicians lead the effort at the patient level.
For instance, research has shown that clinical variation is a major cost driver for many hospitals. And the focus on limiting clinical variation has taken on increased importance as health systems become better able to identify their atrisk patient populations, Morrison says.
A lesser-discussed component of mergers and acquisitions is the challenge of garnering physician support for the change. For instance, 5 percent of the physicians at
Strategies to mitigate physician pushback should include a focus on details, such as ensuring that key physicians are offered the opportunity to participate on various task forces created as part of the merger, Barnett says.
One downside that has emerged in the move toward greater merger-and-acquisition activity is the increasing competition within markets for various specialists. Such competition has driven up the salaries demanded by high-demand specialists in many markets with competing health systems, hospital leaders say.
Value Unknowns Remain
The extent to which market consolidation will continue and whether it will bring overall cost and quality benefits remains to be determined.
Although some industry observers have cautioned that consolidation could lead to higher prices, thought leaders also have said consolidation can enhance value. Benefits of recent mergers identified by Thought Leadership Retreat presenters include economies of scale, technological advancements that allow analytics-driven quality improvement, and an increase in size that better positions organizations to take on risk-based payments.
Whether organizations are able to utilize the various opportunities presented to them through collaboration, affiliation, or mergers will determine the extent to which they are able to improve the value of the care they provide.
"There are some hard decisions you have to make move forward," says Barnett of
AT A GLANCE
Keys to success in developing the right framework for delivering greater value in an era of reform include the following;
* Have a compelling vision.
* In evaluating potential partnerships, carefully consider the extent to which the organizations' cultures are aligned.
* Ensure that initiatives stay on course.
* Develop sustainable energy among leaders and staff through early wins.
* Measure patient, physician, and employee satisfaction before and after initiatives are implemented and respond accordingly.
Some health systems are tweaking the traditional mergerand-acquisition models to increase their value by taking advantage of the positive attributes that newly acquired entities bring.
In a recent HFMApoll, hospital leaders cited access to a broader patient population as the biggest benefit that can be realized from increasing the scale of a hospital or health system, with improved operational efficiencies as a close second.
In the move toward value-based payment systems, access to claims data, which can drive many patient care improvements, will be critical.
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