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How Serious Is Medicare About “Preventable” Sickness Care?

by Scott MacStravic

When I wrote the blog piece posted on Aug 15 about “non-payment for non-performance”, little did I realize how prophetic it was.  In yesterday’s Times appeared an article - “Medicare Says It Won’t Cover Hospital Errors” - announcing that it will no longer treat the costs of preventable errors, injuries and infections that occur in hospitals.  This is expected to save the federal government millions of dollars, while also saving many lives as hospitals have that much more motivation to prevent such errors.

Imagine what could happen if Medicare, Medicaid, commercial insurers and consumers got together and decided not to pay for preventable sickness!  It has been estimated that roughly 75% of all sickness care could have been prevented by effective health management, immunizations, and other forms of proactive health care.  There has long been a category of “avoidable” hospital admissions and treatments, regularly estimated as a large portion of all such treatments, based on best practices in ambulatory care.

This could easily become a “blame game” of course.  Insurers, employers, and governments could blame either consumers for not adhering to healthy behaviors, or complying with medical recommendations and prescriptions, for example.  Or they could penalize providers for not following best practices in managing their patients’ health, or not getting their patients to behave better.

Patients could blame insurers and their employers for not offering proactive health management programs they could enroll in (unless, of course, they did so), or not covering preventive and proactive services (unless they do).  Providers could blame payors for not paying them enough or otherwise supporting them in proactive health care, e.g. not covering the amount of time and effort it takes in terms of “cognitive services” to get patients to behave themselves.  And providers could easily blame their patients for not following their advice, once it has been given.

Payors would clearly have the upper hand in the blame game if they denied all payment for preventable sickness, not merely preventable errors, nosocomial infections, etc.  They have a lot of practice in denying, or certainly dictating lower payment levels when they feel such is appropriate, as Medicare recently did in decreeing that ambulatory surgery centers should only get paid 65% as much as do hospitals for comparable procedures. [”Doc Group Says New ASC Rate Would be ‘Death Blow’” ModernHealthcare.com Aug 20, 2007]

Consumers, when they are payors for some or all the sickness care involved could also exert extreme pressure on providers, by denying them full payment of their charges for sickness care if they deem the sickness something their provider should have prevented.  Providers could be caught somewhere between the impossibility of surviving on payment only for non-preventable sickness, and what they could legally command, or negotiate as their share of the blame for preventable sickness.

Given the widespread number of examples of in-fighting among healthcare stakeholders, there may be some movement toward such a policy and practice combination.  After all, few insurers, employers, consumers, or governments have espoused a sense of responsibility for keeping the current sickness care system alive.  And denying payment, in whole or even in part, for sickness that a given payor deems to be preventable, would threaten the existence of almost all providers.

Wouldn’t it be far better for providers, payors, consumers, etc. to get together and set annual goals for reductions in preventable sickness, involving all of their efforts, with all sharing in accountability for preventable sickness that doesn’t get prevented.  Negotiating the relative share of accountability, in the form of lower payments by payors to providers, would be an interesting process to watch.  On the other hand, if a cooperative approach to common problem solving were tried, where providers and consumers, as well as payors defined and treated preventable sickness as a common problem, that might end up moving the current sickness-focused “healthcare system” in the right direction

Optimizing the Value of Healthcare Workforces

by Scott MacStravic

Given the constant warring challenges of having enough of the right people in their workforces despite severe labor shortages, and keeping costs within the limits set by miserly payment for patient care, healthcare organizations (HCOs) have no choice but to ensure they get the most value possible from their existing workforce.  While concepts such as “return on employee” (ROE) and “employee performance optimization” may not be commonplace, they are increasingly essential, as is equally true for “customers”.

While there have been many examples of re-labeling employees as “associates” or even “cast members”, what is really needed is the combination of thinking about and treating them, as well as motivating and enabling them to act as “partners”.  This may well require revolutionary changes in how employees are managed, and how managers function in healthcare.  And it will certainly require a revolution in the feedback systems that HCOs use in their employee relationship management (ERM) strategies.

When I began my career as a healthcare marketing executive, after teaching the idea for ten years, one of the practices I introduced in the two multi-hospital systems where I worked was a system-wide customer feedback mechanism, including patients, physicians and employees as “customers”.  But this was generally limited to measures of the satisfaction and suggestions for improvement of each of these customers, with “marketing” implications in terms of recruitment and retention of all three categories, with only physicians monitored, managed and marketed to in terms of the value they delivered to the system.

In the current competitive and “reimbursement” climate, seeking ways to optimize both patient and employee contributions are just as essential, and employee contributions include their impacts on both physician and patient value.  And the first, most essential requirement for optimizing employee value is to measure their performance and contributions, in order to manage them.  In many cases, this can only be accomplished on a team, categorical, or unit basis, but without measures of current employee value, and ways to monitor changes therein, there is little hope for increasing it.

Fortunately, the growing practice of pay-for-performance (P4P) measurement and bonus payments for HCOs provides yet another motivation and mechanism for measuring employee performance and value.  At a minimum, the contributions that employees make to P4P bonuses should be measured using the same metrics that determine the amount of added revenue their performance on such criteria delivers.  This can then be used as the foundation for a wider system of measurement of total performance and value based on the HCO’s “balanced scorecard” of performance measures.

An added source of ROE should be actionable feedback and input into HCO operations and their improvement, in quality, customer satisfaction, and efficiency.  The value of employee feedback can then be evaluated in the same performance dimensions as their overall worth is calculated. [“Designing Enterprise-Wide Real-Time Feedback Systems” CustomerSat, Inc. Aug 10, 2007 (www.mycustomer.com)]  This will require system-wide collaboration across the HCO’s “silos” and systems, along with increased development and empowerment of employees.

When and if HCOs master the art and science of employee performance measurement and management, they may be able to offer their mastery as part of services and relationships offered to local businesses.  This should help with employer relationship management and the public relations as well as marketing advantages improved relationships in that market deliver. And it would certainly be a great advantage for HCOs that venture into the employee health and performance market as a revenue-generating service to such employers.

To the extent that HCOs can achieve an integrated approach to employee performance optimization, for external ell as internal use, they may find a significant new source of revenue from employers, in addition to the added cost savings and revenue enhancement value of their own workforce optimization.  In any case, it is an opportunity that few HCOs can afford to ignore.

Healthcare Providers as Health Managers – Counting Issues

by Scott MacStravic

The three earlier challenges for traditional healthcare providers in health management (HM) pale beside the greatest challenge facing both providers and customers thereof, namely counting the benefits, as well as the costs of HM investments.  While sickness care has devised thousands of metrics for what is accepted as good practice and outcomes for its efforts, the same is nowhere near the case for HM.  Its history has included a lot of over-counting and under-counting of benefits, in particular, though costs are occasionally overlooked as well, particularly costs to HM participants.

The challenge is greatly complicated by the sheer number of consequences that HM can have, the complex “causal chain between particular HM interventions and such effects, and the difficulties in measuring many of these effects, particularly the beneficial ones.  It is no wonder that early HM efforts focused almost entirely on reducing sickness care costs, since these were readily measured, and it seemed thoroughly logical and credible to attribute reductions therein to HM interventions.

But while sickness care, along with workers compensation and disability costs of “unhealth” for insurers and employers have long been counted, even the simple out-of-pocket financial cost savings that HM participants gain have more often been overlooked.  Smokers who quit can save as much as a thousand dollars a year by not purchasing tobacco products, for example, to say nothing of the out-of-pocket savings for those able to overcome substance abuse problems.

Since the first objective of all HM initiatives is to change the current behavior of individuals and families, the first counting problem arises because there are few reliable, simple, and inexpensive ways of monitoring such changes.  When participants have financial incentives to make such changes, there is usually the risk that they will report them as made, rather than make them, or al least exaggerate the extent of the changes they make.  Aside from some chemical checks on behaviors such as alcohol, drug and tobacco use, all of which cost money for testing, there are few objective measures of behavior changes.

Monitoring objective health status changes are also likely to require testing, though this may involve no more than simple monitoring devices, from scales to check weight to simple blood pressure monitors, blood sugar meters, etc.  Many other metrics are routinely part of annual lab tests that measure twenty or more indicators at relatively low costs, but still add to overall intervention costs.  At the other extreme, some continuous monitoring devices can add hundreds of dollars a year to HM efforts dealing with chronic diseases, though such frequent monitoring is also good for managing and evaluating results.

It is when counting attempts to include workplace productivity and performance effects that it becomes really challenging.  Except for a minority of industries and jobs where individual employee output quantity and quality are routinely measured as part of management and compensation, most counting of these effects involves estimation.  Estimates may be based on team objective measures, or individual self-reports, but both are suspect.  Team measures may accurately reflect total output, while missing the contributions of individuals outrageously.  Self-reports, of either current health-related impairment or improvement may be “honestly” biased by low levels of self-awareness, or by the desire to look good, get rewards, etc.

When workers in jobs where their output could be objectively measured, in one example, they reported themselves as having been impaired by an average of 20% due to migraine headaches, far greater than the objectively measured effect, which was only 8%. [G. Pransky, et al. “Performance Decrements Resulting from Illness in the Workplace” JOEM 47:1 Jan 2005 34-40]  In any case, it would be a strange coincidence if self-reported impairment levels were identical with actual objective measures.

This means that self-reported declines in individual productivity or performance have to be converted from their estimates to whatever objective checking shows corresponded to self-reports. For the call center representatives in the preceding example, the “conversion ratio”, from self-reported to actual impairment is 0.40 to 1.00.  Unfortunately, while the average conversion ration works well, once it is determined, for each employer or team where such a conversion is used, for individuals in pay-for-performance (P4P) situations, an individual conversion rate would be needed to apply in individual-based P4P compensation.

Fortunately, healthcare providers already have a strong motivation to develop the best gauges for individual, or at least team productivity and performance, thanks to the growing number of P4P systems that apply to them, and the growing amount of bonus or other performance-based revenue to which they are subject.  Since performance has to be measured in order to be managed, the measurement system that is used for management should be applicable to monitoring and evaluating HM interventions, as well as other efforts intended to improve workforce performance.

In fact, once healthcare providers master performance measurement for P4P reasons, they will be in an excellent position to integrate all employee-focused investments, including all benefits, aimed at improving their performance.  This should make HM efforts more efficient and effective, when they are combined with employee training and development, EAP programs, and other efforts aimed at improving the performance and retention of employees.

Moreover, healthcare providers may be able to become leaders in performance measurement, management, and integrated benefits strategies, which could be added to their HM expertise as a competitive distinction relative to specialized HM suppliers.   In most cases, such suppliers have to rely on either HM participant self-reporting, or on their employer clients’ own systems for measuring performance, while healthcare providers can afford to develop their own affordable and effective measurement systems.

We are only at the beginning of addressing the counting challenge, particularly when it comes to positive market and revenue impacts, such as improved product and service quality, customer satisfaction and loyalty, new business and similar effects that have been traced to HM efforts by at least some employers.  And if healthcare providers master the art and science of counting the full range of HM effects, they will not only be able to rise to the top in terms of their own internal HM applications, but in their marketing of HM programs to other employers, as well.

Evaluating Savings from Employee Health Management: Side-by-Side vs. Before/After Comparisons

by Scott MacStravic

The two most common approaches to evaluating EHM interventions, which are becoming increasingly popular among employers in general, and healthcare organizations (HCOs), since they are both employers and providers of EHM services in many cases, are:

  • Side-by-side comparisons of employees (plus dependents, retirees, when applicable) who are participating in the EHM intervention compared to those not participating
  •  Comparisons of participants in a period during which they participated in an EHM intervention, compared to a similar period prior to such participation

While common, neither is, by itself, an adequate approach to discovering both what kinds of changes have occurred with the implementation of an EHM program, and whether or not such changes can logically and credibly be attributed to the program.  Unfortunately, when one of these is used alone, or even when both are used, but not completely, the findings of evaluations can either exaggerate or understate EHM results, or give far too much credit to EHM for changes that occur due to other factors.

Side-by-Side Comparisons 

While it may seem the most logical thing in the world to do, comparing participants in EHM to non-participants is not enough to detect changes, or to ascribe them to the EHM intervention.  This is because people who choose to participate in an EHM program are, by definition, different from those who chose not to participate.  They may, for example, be younger, more or less healthy, more heavily female than male, or vice versa, etc.

Whenever there are significant differences between participants and non-participants, side-by-side comparisons may reflect no more than differences between these two groups that have nothing to do with their participation.  Moreover, when the comparisons cover the same period for both participants and non-participants, they cannot indicate any change in healthcare costs, absences, productivity, performance or value to the organization – only differences between groups.

Before/After Comparisons

If participants in an EHM intervention turn out to have significantly lower healthcare costs, absences, turnover, error rates, etc. compared to these dimensions before they enrolled, there is at least a demonstrated change.  But is that change because of the intervention, or was it due to something(s) entirely unrelated to the intervention, even to employee health at all?

The best way to have even an idea as to causality for the change is to make before/after comparisons for participants, and then look at whether these changes were different from what happened among non-participants.  By comparing two different groups, participants vs. non-participants over two different periods, before vs. after the EHM intervention, there should be at least enough information to make a logical decision as to whether any differences and changes were “real”, i.e. related directly to the intervention.

I recently read an analysis of the results of a vendor’s program, unfortunately limited to a focus on changes in healthcare costs, rather than the full array of value that employers can obtain from EHM.  It reported on side-by-side differences, and concluded that the EHM investment had saved the employer money, and realized a positive ROI after taking into account the costs of the intervention.  It used the results to calculate the “breakeven” level of participation, i.e. how many employees would have to participate in order to at least achieve an ROI of $1:1, a dollar saved for every dollar spent.

It added the step of checking on “self-selection bias”, the chance that participants were inherently different from non-participants in a significant way even before the EHM intervention.  This involved merely looking at the healthcare costs of participants before the EHM intervention compared to after.  And it was found that participants had significantly higher healthcare costs before the EHM program began, hence there really was a change in such costs.

But the analysis lacked the “rest of the story” – it did not compare the before vs. after healthcare costs of non-participants.  It is entirely possible that the before/after costs for non-participants dropped as much as such costs did among participants, perhaps even more.  If there was a significant drop in the healthcare costs of non-participants, then clearly there was something at work besides the EHM intervention.  If so, then the EHM intervention can hardly be given full credit for any apparent change realized among participants.

The use of a complete set of side-by-side comparisons of both participants and non-participants, for periods both before and after the initiation of an EHM program is essential to even basis validity for evaluations. It is by no means the “gold standard” for rigorous scientific evaluation – random assignment of individuals to participation vs. not, and control against external factors would both be needed to achieve such a standard.  But with both side-by-side and before/after comparisons –for both participants and non-participants — there is at least some security in avoiding the two most common and serious hazards in evaluation of results.

After “Boutique” Medical Care, can “Boutique” Hospitals Be Far Behind?

by Scott MacStravic

The model of medical practice called by various names, such as “boutique”, “concierge”, “membership”, “patient-paid”, and “retainer” began in Seattle in the mid 1990s with a practice called “MD2” (MD-squared), where patients now pay over $10,000 per year for luxury-level access, amenities and services.  Hospitals have offered “boutique” levels of care in two different ways so far, as “VIP” units, wings, pavilions in larger general hospitals, and as specialty hospitals that emphasize hotel/resort-style facilities and amenities.

In many cases, specialty hospitals have been labeled as “boutique hospitals, when they are suburban-located, free of Emergency Room, and aim for resort-hotel-type amenities to attract as many affluent and well-insured patients as possible, while avoiding as many poor and poorly- or uninsured patients as possible.  Many hospitals and physician practices also offer preventive health diagnostics, consultations, and even coaching as executive health programs for those able to afford a few thousand dollars, or whose employer foots the bill.

Recently a “chain” of eight hospitals in California has been described as operating under a similar approach, involving the cancellation of insurance contracts and avoidance of serving Medicare or Medicaid patients, wherever possible.  The owner and operator is Prime Healthcare Services, owned by the family of Dr. Prem Reddy, described as one of the wealthiest physicians around, with two multi-million-dollar mansions and his own helicopter.

Rather than accept as little as 30% of charges from insurance payers, the hospitals do not contract with such payers, and collect about $10,000 per patient day at one of their facilities, desert Valley Hospital in Victorville.  The company’s total revenue, according to newspaper reports, is over $500 million a year, with profit at around 15% at several of its facilities, quoting Dr. Reddy.  The company has acquired seven hospitals since 2004, including four last year, with a total of 1256 beds overall, and has announced another “major acquisition” coming this year. [D. Costello “Hospital Group Rejects System and Cashes In” Los Angeles Times July 8, 2007 (www.latimes.com)]

While specialty hospitals have avoided ERs in order to avoid having to accept all patients regardless of insurance, the Prime Health Services hospitals take advantage of their ERs as a major source of patients.  When patients are emergencies, they cannot be denied coverage by insurance, and since Prime does not contract with insurers, it can charge them their normal charges and expect to get paid.  I recall in my last job as Chief Marketing/Strategy Officer for a multi-hospital system in Denver, one insurer with whom we did not contract approached us with a request for discount prices when patients were admitted through our ERs, but offered nothing in return, so we kept charging and getting full-charge payment.

The doctor who created the business and his hospitals have been investigated, charged, and sued for various personal and business practices, though most seem to have been settled out of court.  Insurers have criticized the company as a threat to bankrupt the medical care system because of its high charges and avoidance of serving uninsured and government-insured patients.  The company has denied such charges, and countered that it provides superior care, noting that its original facility, Desert Valley Hospital, scored 98% on its most recent accreditation survey.

To a great extent, this chain of hospitals is doing nothing much different from the many specialty hospitals and general, full-service hospitals that have located or re-located to the suburbs in an effort to reduce the amount of unpaid care and Medicare/Medicaid patients they serve, since non-paying and uninsured patients, as well as government-paid patients typically pay less than the costs of serving them.  As insurance firms keep resisting paying the difference, hospitals in many cases have to look elsewhere.  By avoiding discount contracts, Prime Medical Services may have found yet another way to survive and prosper in the increasingly difficult healthcare market.


by Nick Jacobs

The book, Eat the Rich, by P.J. O’Rourke, is a funny tale of money. Well, it makes money both interesting and funny. Mr. O’Rourke is a witty story teller who makes learning fun. One interesting chapter in the book explains Hong Kong. He states: “The British Colonial government turned Hong Kong into an economic miracle by doing nothing. Hong Kong is the best contemporary example of laissez-faire. The economic theory of “allow to do” holds that all sorts of doings ought, indeed, to be allowed, and that government should interfere only to keep the peace, ensure legal rights and protect property.”

While recently pouring through numerous professional journals this week-end, the memory of this paragraph struck me during my reading as one continuous theme continued to emerge, the need to align physician-hospital relations. What this phrase really means is that the physicians want to find more and better ways to make more and better money, and the hospital CEO’s are trying to avoid having their hospitals eviscerated from the exodus of these medical entrepreneurs.

Many of the O’s are desperately trying to control these situations completely in what is most assuredly not a laissez-faire manner. The primary concern of some of our peers seems to be that these creative docs, like the ophthalmologists, plastic surgeons, and heart teams have already done, will skim the cream payers off the top and leave the hospitals with the critically sick and underinsured.” Surely, this could happen and has happened, but the innovators in our field have found completely different paths to successful partnerships.

As some of our peers run in small circles chasing the future through the past, it is clear that there is a need to look at this challenge in a much different manner. It is our belief that innovation will always win. Innovation, co-operation, patience, courtesy and open discussions are the keys to physician-hospital relationships. It is not the use of raw power, control, bullying, and vindictiveness that will create the necessary results. As this new movement morphs more quickly and creatively, those of us in hospital administration need to be there supporting, suggesting and sharing our ideas, strengths and weaknesses. The deals should always be based on a formula that one plus one equals three. What was is no longer, and what will be is yet to be seen.

How do you stop physicians from being entrepreneurial? You don’t. You encourage them, work with them, and explore their propositions. Yes, it may sometimes be trying as they attempt to learn about the pitfalls of what seem like certain “no brainer” business decisions that are unmanageable or just not feasible in the current health care environment, but these are gifted individuals with a lot at stake.

Look into your crystal ball and realize that whatever was is no more. Whatever is, will not be, and only partners can make a future that is sustainable for both.

What Is the “Core Business” of Hospitals?

by Scott MacStravic

I can remember when hospitals were clearly in the hospital business, and other HCOs declared their core business as part of their name.  But in recent decades, the generic “healthcare” has become used more often, even for organizations that are clearly hospitals, as well as for publications aimed at managers and other professionals working therein.  The one advantage of “healthcare” was that by making two words into one, the former initials of associations and other organizations that basically served hospitals could retain the same initials.

But there have been many times in the past, and more times coming in the future, when hospitals might choose to really get into the health care business, rather than the almost exclusively “sickness care” business they are in now.  In the 1980s, with the end of cost-based “reimbursement” and the switch to increasingly stingy “payment”, many hospitals tried “diversification” into lines of business, from laundry to food services, in order to supplement their core business revenue.

More recently, many hospitals have invested in “retail”, offering goods and services to patients and visitors far beyond the traditional gift shop items.  Many host fast food outlets, though the bloom is off that rose as hospitals recognize how unhealthy is the food such outlets serve.  Others offer goods related to maternity, such as breast pumps, or wigs for cancer patients who have lost hair.  Travel services for people adventuring overseas, even full service “spas” are offered  as well.

One of the more obvious and clearly “healthcare” possibilities has always been in wellness, health promotion, risk and disease management.  Of course, the drawback to this business is that it tends to reduce the incidence and prevalence of disease and injury, with the exception of possibly increasing exercise-related injury and long-term joint damage.  Since hospitals depend so completely on sickness care volume and revenue, the wellness business is not only not their core business, but a threat to “cannibalize” that core business.

Despite this obvious conflict of interests, most hospitals have ventured into the wellness arena, at least in a modest way.  Most engage in “community benefit” free immunizations or screenings, to protect their tax-exemption if they have one, promote good PR, or perhaps find more sick patients.  Hundreds offer executive health programs aimed at improving the health of local business leaders, or fitness centers to the general public, both as revenue-generating as well as PR investments.

Recently, a few hospitals have created partnerships with the rapidly spreading “retail clinics”, though this may be mainly an effort aimed at promoting referrals of patients therefrom.  And another few have joined in the “concierge medicine” trend, by sponsoring their own retainer practices.  These usually serve “high-end” patients, and charge $2-3,000 per member, using the profits therefrom to subsidize money-losing service lines.

St. Luke’s Episcopal Health System (note the “health” in the name of this hospital system) recently announced: “…plans to launch a string of upscale concierge medical clinics.” in the Houston area. [A. Wollam “St. Luke’s Eyes Concierge Clinics” Houston Business Journal Apr 20, 2007 (houston.bizjournas.com)]  It would join at least one other hospital I know of, the Virginia Mason Medical Center in Seattle, as sponsor of multiple retainer practices, since VM began its venture in 2000, and already operates at a number of locations in the Seattle area.

One issue that St. Luke’s must face is the extent to which it will market and operate these clinics as sickness-focused or wellness-focused practices.  When Virginia Mason initiated its Dare Center practices, it cited personalized wellness assessments and plans for patients, with “customized lifestyle planning, preventive care and coaching”. [A. Neghabat “Private Matters” Marketing Health Services Winter 2002 pp. 25-27] As late as early 2004, its website marketed the fact that: “Your Dare Center physician has the time to work with you to design a personal health plan, enabling you to achieve and maintain a healthier life.” [(www.virginiamason.org/dbDareCenter/default.htm) Jan 2004]

But today, its website lacks any mention of preventive or lifestyle services, emphasizing entirely the 24/7 availability of its physicians, their ability to accompany patients on visits to specialists if requested, e-mail consults and prompt appointments for care, and fee parking.  It does offer an optional fitness evaluation, and invitations to health-related presentations by Dare Center physicians. [“Patient Benefits”]

Whether this indicates a decline of its interest in wellness, or merely a decision to reduce emphasis thereon, I do not know, but clearly the hospital and its sickness care business could suffer if a major wellness element reduced patients’ need for sickness care.  The MDVIP retainer practices, for example, proudly tout the fact that their 150 or so physicians have promoted patient wellness enough to reduce their use of inpatient and ER care by 50% or more in most cases.

Hospitals have, on occasion, ventured into the occupational health arena, as an added revenue source, plus a potential driver of new patients to their facilities when employees need sickness care.  But the number of hospitals in that business has also declined, perhaps because employers are expanding their view of occupational health to include proactive health management of employees, rather than merely onsite sickness care.

While “corporate clinics” have recently enjoyed a resurgence, as employers strive to both reduce their healthcare costs and improve employee productivity, hospitals have had opportunities to be operators of such clinics.    When Florida Power & Light initiated its first onsite clinic, it was operated by a local hospital, but later switched to a specialist supplier of occupational health services, hole Health Management (Cleveland, OH).  When it opened a second site, it approached four or five hospitals in the Miami area, but all felt that this was not their “core business”, so declined involvement.

By contrast, Wheaton Franciscan Healthcare (Milwaukee, WI) is involved in a joint venture with QuadMed and its owner Quad/Graphics, a local employer that not only had its own onsite clinic, but offers services to other employers.  WHF staffed a Quad/Graphics clinic when it opened in 1996, but QuadMed took over in 2000, and now managed eight clinics in the U.S.  WFH enjoys a position as “preferred hospital” for employees in its market that are served by the QuadMed clinics, and operates its own onsite centers for other employers. [D. Borfitz “Corporate Clinics: Grounds for Collaboration” Strategic Health Care Marketing 24:6 June 2007 1-5]

As employers and consumers are increasingly motivated by desires to maintain or improve health, rather than pay the ever-increasing costs of sickness care, hospitals that do not see wellness services as part of their core business may find themselves losing not merely the wellness revenue possible, but even the sickness care of patients who would prefer partnering with a hospital that helped them protect their health and wealth assets, rather than only treat expensive failures of such protection.

Some hospitals are happily in the wellness business.  The Pratt Diagnostic Center, part of the Tufts-New England Medical Center in Boston, operates its own MDVIP practice with a full complement of wellness care.  A number of hospitals operate disease management centers, with diabetes a particularly popular target for such operations, though most may not be making any money thereby.

Moreover, many hospitals operate their own employee health management programs, in order to gain the same reductions in sickness care costs and improvements in employee recruitment, performance and retention that their fellow employers are achieving.  Clearly, the question of what is the core business of hospitals, whether and how it includes wellness, risk and disease management, despite the built-in conflicts with sickness care business, will be faced by many, perhaps all hospitals in the near future.

The Growth of Super-Systems in Healthcare

by Scott MacStravic

Just as retail stores have been developing into “super-stores”, such as Target and Wal-Mart — combining a wide range of retail clothing, sporting goods, toys, etc. along with groceries, pharmacies and retail clinics – so “super-systems” are developing in healthcare.  First hospitals merged with each other, and physician groups grew larger by acquiring each other.  Now the multi-provider systems created thereby are merging with each other to create massive super-systems combining both elements of healthcare.

In Milwaukee, Wisconsin, for example, Advanced Healthcare, Inc., a 250-physician medical group is discussing a merger with Aurora HealthCare, the area’s largest multi-hospital system.  In Waukesha County, Wisconsin, Medical Associates Health Centers is discussing the idea of joining with ProHealth Care, a two-hospital system.  Similar activity is growing in major metropolitan areas, while many super-systems already exist, such as Mayo Clinic, in Rochester, Minnesota, with “outposts” in Florida and Arizona.

There is certainly a lot of potential for economies and qualities of scale in local super-systems, which need not duplicate increasingly expensive high-tech equipment, and can share medical records to avoid duplicating diagnostic tests and scans, for example.  These super-systems can share best practices to achieve competitive quality and cost levels for all participants, as more third-party payors and consumers make provider choices based on published performance data.

For physicians, joining groups in the first place promises to relieve the stress of being personally available to patients 24/7, along with creating qualities and economies of scale.  As physicians increasingly demand or strive for work-life balance, being part of a group is usually the best way to meet patient demands while enabling a normal home life.  Independence has given way to the desire for a more normal life.

Not to be overlooked, of course, is the advantage of being part of a large super-system when it comes to negotiating with insurers, which are themselves busily merging to create super-payer-systems.  Local business leaders often support provider consolidation, to create both qualities and economies of scale and the ability to cover their entire workforce when negotiating with or selecting provider networks.

There is a downside to such consolidation, however.  One may be a decline in the effective availability of physicians, who often shoot for reducing their workweek from 60 to 40 hours in pursuit of a normal life.  If the super-system fails to improve physician productivity through better technological and ancillary staff support, this could effectively reduce the physician manpower available to serve the local community by one-third at a time when physician shortages are common.

Super-systems also reduce competition for consumers, and may tend to increase local prices as a result.  After all, that is what providers hope for from consolidation when it comes to negotiating with payers.  But the coordination of care and medical records across super-systems may make up for this, since it should reduce duplication of expensive testing and scans when patients seek care in an emergency, for example.  Plus, Medicare and Medicaid do not “negotiate” with local providers anyway, and their payment systems greatly influence local payment levels as well.

One of the major issues that super-systems will have to deal with is the growing demand among all third-party payers for proactive health management (PHM) as a way of controlling the unaffordable growth in reactive sickness care costs.  Super-systems typically have far more “procedure-focused” specialists, as compared to primary specialists in their medical staffs.  And while payment for primary physicians is already changing to make primary care more profitable, when it includes and focuses on managing patient health as opposed to merely diagnosing and treating sickness, this takes money away from most specialists.

After all, PHM is deliberately aimed at reducing the incidence and prevalence of acute, and especially chronic disease.  This means reducing the volumes of sickness care business and revenue for both hospitals and specialists, though this will happen only gradually even if PHM is widely successful.  While orthopedists are probably guaranteed plenty of joint replacements from damage already done, and even growth in such damage if everyone adopts a more physically active life, other specialties would lose volume of other chronic conditions decline.

There may be some serious conflicts when other super-systems consider joining with current PHM providers such as Mayo Clinic and Northwestern Memorial in Chicago.  Both are among systems that are at least “hedging their bets” by seeking added “wellness” revenue as the stinginess of third-party payers for sickness care makes total reliance on such care for survival increasingly dangerous.   While the primary physicians in super-systems may support such a balancing of proactive and reactive care, specialists may have quite another view.

The risk in the creation of super-systems is that they may overburden these large providers with capital facility and equipment investments that can only be supported through continuing emphasis on reactive sickness care and revenue.  While these are arguably “sunk costs”, they already represent roughly 95% of total healthcare revenue, while prevention and wellness only represent 5%.  On the other hand, it has been predicted that wellness/healthy living services are well on their way to being a $1 trillion market, which will at least represent a major potential for super-systems, which currently operate almost completely in the $2+ trillion sickness care market.

It could turn out, of course, that the desires of physicians, including specialists, to enjoy a more normal life by reducing their hours, will fit right into a decline in at least the growth of, and even in the absolute size of the reactive sickness care market.  PHM will certainly increase the market for primary physicians and ancillary staff willing and able to “coach” patients in health rather than just treat their illness.  Many specialists, who already depend on the crises, complications and worsening of chronic illness for increasing demand, may find they can live quite will while reducing this demand while managing the disease already existing.

At a minimum, the creation of super-systems will change the dynamics of thinking about PHM investments, and create the infrastructures that will be better able to deliver competitively-priced, as well as competitively-successful PHM results.  It would be a shame if these new structures complicated discussions of PHM strategies so much that they led to super-systems missing out completely on PHM opportunities, and left the field to the non-traditional “vendors” already doing quite well in this market.

Out of the Box

by Nick Jacobs

One of health care’s greatest challenges has been our inability to embrace outsiders. We speak both openly and under our breath about how specialized and complex our work world is, and then we overlook or outright reject assistance from others who, many times have very interesting viewpoints. This occurs mainly because they are not necessarily validated with the designated degrees or obligatory academic background that represents our secret entrance code. Of course we don’t want botanists doing brain surgery, but much of what we do is not rocket science.

After suffering through a series of wretched experiences at a previous health system meted out by nationally celebrated consultants, many of whom are still making a handsome living from doling out the same inaccurate information, one of our board members, a former CEO of a multi-billion dollar automobile plant, turned to me and said, “It’s too bad our businesses are so insulated.” He went on to say that, “The consultants from another division of this same firm ran rampant through our company ten years ago espousing a parallel solution. Then, once the for profit, Fortune 500 world realized that the consultant’s tactics were not viable and fired them, those same firms reinvented themselves and escaped to the non-profit world where they continue their hourly billing from an already botched logic.” “If I had been here sooner and had more influence, maybe I could have saved you millions.”

Upon assuming the leadership position at my first hospital, I looked around the halls, the rooms, the cafeteria and the parking lots, and said, “We need a hotel manager.” I’m sure that this was not the first time this thought ever crossed the mind of a Hospital CEO before, but I acted upon the thought and hired one. He brought hospitality, dedication to a sparkling appearance, room service, fresh flowers, chefs, and a relaxed yet spotless ambiance to our hospital where the brass was shined and the floors sparkled. It’s what he did for a living during the previous 20 years. Why not in a hospital?

When it came time to design a research institute, we found an architectural firm that had previously designed beautiful, landmark buildings, suggested that they add a lab consultant to their team, and ended up with a phenomenal, functional, showplace building that creates an environment that any scientist would immediately embrace.

As we looked at the local neighborhood’s four star spa, it struck us that our patients might like that treatment as well. So we added therapists and specialists in hospitality spas to bring us the expertise to which we then added the health care essentials.

As we began to look at specific research projects, we always tried to find the lead scientists who were NOT bound by their very targeted skill but rather had an appreciation for outer space, or music, or the arts that was well developed. That way they could appreciate better the connectivity of every aspect of the universe rather than be consumed by the minutia of detail that would lead them away from the larger picture, big science.

Many years ago, I began my career as a professional musician and teacher. We played for the Ice Capades, Walt Disney, and the Ice Follies. We also played for Barnum and Bailey and numerous headliners. What we learned from that experience was that the rigid approach to a project that someone with a PhD in clarinet might embrace can be fraught with visionless detail, but the view from the top that the musical director can bring to the score may be immeasurable in comparison.

Maybe it’s time to reach out to our world in new ways, to embrace knowledge learned in interaction with our society and fellow man rather than exclusively in classrooms and residencies. Then maybe, just maybe, we can find a way to have our physicians take care of themselves physically as well as our airline pilots do. Maybe we will find a way to service our patients as well as Hertz or Southwest Airlines, and maybe it will allow us to begin to fix this bubbling stew of chaos that we lovingly refer to as our health care system.