As large health systems grow and facilities across the country invest in service line improvement, IT capabilities and physician recruitment, hospitals must stay sharp to maintain a competitive edge. Wayne Keathley, president and COO of Mount Sinai Hospital in New York City, discusses how competition is changing for his academic medical center and the strategies Mount Sinai uses to stay on top.
Q: How has competition changed for your hospital over the last 10 years? Do you feel the market has become more competitive or less competitive for Mount Sinai?
Wayne Keathley: New York is a uniquely competitive market. Mount Sinai is literally surrounded by several other academic medical centers, community hospitals and free-standing surgical and ambulatory care centers. Although New York obviously has a very large population — 20 million people live within easy access to us — all of the academic medical centers in our community hope to draw the same types of clinically complex patients who require the most sophisticated care. We're competing for the same relatively specific group of patients who need exactly what we offer in specialized clinical care. New York is such a high-profile market that we are also seeing increasing competition from academic medical centers in other parts of the country.
Several years ago, there was an attitude that, "We are the best, we have the best doctors and the best programs, and patients will naturally come to us because we provide better care." One of the lessons learned over the past decade has been that we do have great doctors and world-class clinical programs, but we still have to compete aggressively to maintain and advance our position in the healthcare market.
Q: What do you feel is driving that increased competition?
WK: There are many factors in play that have created an unprecedented intensity in competition for patients, physicians and expansion of market presence. First and most importantly, the average revenue for clinical care is declining both as a function of changes in reimbursement and patterns of payment, rising costs, shifts from inpatient to ambulatory care and other factors. In order to maintain the necessary size and complexity of a sophisticated medical center, a decline in average contribution margins ultimately requires an increase in volume. We're always at risk of becoming the old retail joke —trying to make up in volume for a loss on every case — but the truth is much of what we do in medicine is now subject to "commodity pricing." We are simply paid less and make less on the things we do for patients, and our only logical recourse presently is to drive greater efficiencies and to expand our market share and volume of patients. Otherwise, the alternative is to downsize programs, facilities and clinical infrastructure. We remain very much fixed in an environment that requires growth to survive.
I believe one of the most interesting challenges we face is our eventual transition from a long history of fee-for-service payment to an accountable care environment in which illness prevention, chronic disease management and total cost of care will change the rules, incentives, and structures required of hospitals and health care entities. We have the intellectual capital and increasingly the information systems and tools to do this, but the journey from here to there will be tough. It's very difficult to stand with one leg planted in fee-for-service medicine and the other stepping into an accountable care environment. Obviously, this is a challenge we'll all face — not just academic medical centers.
Q: Which surgical procedures have you seen decrease in complexity and hospital length of stay?
WK: It's really less of a decrease in complexity than a shift in care from inpatient to ambulatory care. In many ways, care has become more complex — though less burdensome — for patients. Many tests and procedures that required inpatient stay are now routinely performed in a sophisticated ambulatory setting … A more sophisticated clinical environment is good for patients but is ultimately a bad business trend for hospitals. Health policy and reimbursement have not kept pace with advances in medicine and clinical care. An excellent example is the transition of percutaneous cardiac intervention from a fully inpatient care model to one that now treats roughly 30-40 percent as ambulatory. The sophistication of our interventional cardiology program now permits almost half of patients to be treated, recovered in the hospital for a more limited period and then discharged home. Is it good medicine? Absolutely. Unfortunately, the infrastructure and resources required to care for these patients is roughly equivalent to [the infrastructure and resources] required for inpatients undergoing the same procedure — yet the reimbursement is dramatically reduced.
As we push technology and clinical care to provide better care for patients in a more convenient and comfortable environment, we are simultaneously eroding our already-thin operating margins. The same is true for a wide and increasing range of ambulatory surgery, sophisticated diagnostic tests and new therapeutic options. We push to do the right thing, but unless health policy catches up to advances in clinical science, we can't financially sustain it. We are a fixed-cost industry, and program costs for 100 percent inpatients are not much different than for half that number. The reimbursement, however, is substantially less.
Q: Do you expect to see this flurry of healthcare mergers and acquisitions increase, or is this just a knee-jerk reaction to the current changes in the industry?
WK: Well, it's been happening for awhile in both the for-profit and non-profit sector, but if you think about it from an economic standpoint, it only works if you rationalize the infrastructure and use of physical assets. If you take a reasonably well-performing large hospital that has full clinical services and a pretty good financial record of performance, and you simply add to it a lower-performing or challenged institution, you're just averaging down. There's no value to it unless you spread the fixed costs across the system, identify and leverage synergy between the organizations and remain sensitive to the temptation (and tradition) of adding corporate overhead, structures and redundancy. Health care institutions are really good at adding costs but not so good at vigilance in reducing them and driving efficiency unless they're forced to do so. That’s a bad habit to have in the new world of health care.
Q: Do you feel that the movement of cases into ambulatory settings will damage your competitive edge?
WK: Well, no — in fact, it is an essential component of our strategy. As I mentioned previously, advances in medical technology and clinical practice has created very sophisticated ambulatory platforms for care. Most of the care an average patient will receive over their lifetime will be delivered in this setting. Much of what they would have received in a hospital just a generation — or less — ago will now be provided in this environment. Many aspects of care, though a declining range, will require hospitalization or institution-based care.
In order to maintain a full service institutional platform to serve those patients when they need that level of service, we need a broader and broader platform and network of ambulatory care to support it. It is fairly easy to imagine a future model of care in which several sophisticated ambulatory care centers are connected to an academic medical center for the select number of patients who require that level of care. What is harder to imagine is the [ultimate] role of less-sophisticated hospitals that must compete with more convenient ambulatory alternatives for patients and that can't compete with sophisticated medical centers. They're trapped in the middle, with lower cost [and] more convenience on one side and unaffordable and unattainable sophistication and complexity on the other.
Beyond a limited number of clinical events, I don't fully appreciate what role they'll play in the future of medicine. They will certainly require some fairly dramatic change in health payment policy to survive. There is little margin left for hospitals at the lower end of the spectrum, and the investments required to compete at the top end are rarely attainable for single hospitals or even systems of non-medical center hospitals.
Q: Obviously a loyal physician population is essential to maintain profitability —how do you attract and keep those providers?
WK: Physician supply is perhaps the single most critical issue we face. The entire premise of health reform rests on a platform of primary care physicians that really doesn't exist — at least not in sufficient numbers to provide the care model that is described. And although there is a more generous supply of specialists in many areas, there are shortages of top-notch physician specialists in areas that are most important to our population — endocrinologists and diabetologists, for example. Academic medical centers supply our country with physicians, but we've not always done a great job recruiting and retaining the ones we need most. I believe we've done a fairly good job more recently in creating practice and compensation models that more closely match their interests not only in clinical medicine but involvement in academics and research.
We believe that one "size" does not fit all physicians and there must be a place in academic medicine for pure clinicians, those with an interest in research, those who want to teach, those who want to practice only in an academic environment and physicians who prefer an ambulatory care environment that is off-campus and embedded in the social fabric of a community. In other words, we believe there are outstanding doctors in each of these categories, and we want them all because there are unique and important roles to play for each of them. Also, recruitment is important, but retention more so. I learned long ago that the successful recruitment of a physician — or anyone, really — is only the beginning, not the conclusion of the process. One must pay attention long-term to the professional and career needs of those you've recruited. Your incumbent may well be another institution's recruitment target.
Learn more about Mount Sinai Medical Center.
Related Articles About Hospital Management:
When to Keep Bond Ratings Private
5 Ways Hospitals Can Lower Their Employee Healthcare Costs
4 Key Steps for Hospitals to Meet Challenges of 2011
Q: How has competition changed for your hospital over the last 10 years? Do you feel the market has become more competitive or less competitive for Mount Sinai?
Wayne Keathley: New York is a uniquely competitive market. Mount Sinai is literally surrounded by several other academic medical centers, community hospitals and free-standing surgical and ambulatory care centers. Although New York obviously has a very large population — 20 million people live within easy access to us — all of the academic medical centers in our community hope to draw the same types of clinically complex patients who require the most sophisticated care. We're competing for the same relatively specific group of patients who need exactly what we offer in specialized clinical care. New York is such a high-profile market that we are also seeing increasing competition from academic medical centers in other parts of the country.
Several years ago, there was an attitude that, "We are the best, we have the best doctors and the best programs, and patients will naturally come to us because we provide better care." One of the lessons learned over the past decade has been that we do have great doctors and world-class clinical programs, but we still have to compete aggressively to maintain and advance our position in the healthcare market.
Q: What do you feel is driving that increased competition?
WK: There are many factors in play that have created an unprecedented intensity in competition for patients, physicians and expansion of market presence. First and most importantly, the average revenue for clinical care is declining both as a function of changes in reimbursement and patterns of payment, rising costs, shifts from inpatient to ambulatory care and other factors. In order to maintain the necessary size and complexity of a sophisticated medical center, a decline in average contribution margins ultimately requires an increase in volume. We're always at risk of becoming the old retail joke —trying to make up in volume for a loss on every case — but the truth is much of what we do in medicine is now subject to "commodity pricing." We are simply paid less and make less on the things we do for patients, and our only logical recourse presently is to drive greater efficiencies and to expand our market share and volume of patients. Otherwise, the alternative is to downsize programs, facilities and clinical infrastructure. We remain very much fixed in an environment that requires growth to survive.
I believe one of the most interesting challenges we face is our eventual transition from a long history of fee-for-service payment to an accountable care environment in which illness prevention, chronic disease management and total cost of care will change the rules, incentives, and structures required of hospitals and health care entities. We have the intellectual capital and increasingly the information systems and tools to do this, but the journey from here to there will be tough. It's very difficult to stand with one leg planted in fee-for-service medicine and the other stepping into an accountable care environment. Obviously, this is a challenge we'll all face — not just academic medical centers.
Q: Which surgical procedures have you seen decrease in complexity and hospital length of stay?
WK: It's really less of a decrease in complexity than a shift in care from inpatient to ambulatory care. In many ways, care has become more complex — though less burdensome — for patients. Many tests and procedures that required inpatient stay are now routinely performed in a sophisticated ambulatory setting … A more sophisticated clinical environment is good for patients but is ultimately a bad business trend for hospitals. Health policy and reimbursement have not kept pace with advances in medicine and clinical care. An excellent example is the transition of percutaneous cardiac intervention from a fully inpatient care model to one that now treats roughly 30-40 percent as ambulatory. The sophistication of our interventional cardiology program now permits almost half of patients to be treated, recovered in the hospital for a more limited period and then discharged home. Is it good medicine? Absolutely. Unfortunately, the infrastructure and resources required to care for these patients is roughly equivalent to [the infrastructure and resources] required for inpatients undergoing the same procedure — yet the reimbursement is dramatically reduced.
As we push technology and clinical care to provide better care for patients in a more convenient and comfortable environment, we are simultaneously eroding our already-thin operating margins. The same is true for a wide and increasing range of ambulatory surgery, sophisticated diagnostic tests and new therapeutic options. We push to do the right thing, but unless health policy catches up to advances in clinical science, we can't financially sustain it. We are a fixed-cost industry, and program costs for 100 percent inpatients are not much different than for half that number. The reimbursement, however, is substantially less.
Q: Do you expect to see this flurry of healthcare mergers and acquisitions increase, or is this just a knee-jerk reaction to the current changes in the industry?
WK: Well, it's been happening for awhile in both the for-profit and non-profit sector, but if you think about it from an economic standpoint, it only works if you rationalize the infrastructure and use of physical assets. If you take a reasonably well-performing large hospital that has full clinical services and a pretty good financial record of performance, and you simply add to it a lower-performing or challenged institution, you're just averaging down. There's no value to it unless you spread the fixed costs across the system, identify and leverage synergy between the organizations and remain sensitive to the temptation (and tradition) of adding corporate overhead, structures and redundancy. Health care institutions are really good at adding costs but not so good at vigilance in reducing them and driving efficiency unless they're forced to do so. That’s a bad habit to have in the new world of health care.
Q: Do you feel that the movement of cases into ambulatory settings will damage your competitive edge?
WK: Well, no — in fact, it is an essential component of our strategy. As I mentioned previously, advances in medical technology and clinical practice has created very sophisticated ambulatory platforms for care. Most of the care an average patient will receive over their lifetime will be delivered in this setting. Much of what they would have received in a hospital just a generation — or less — ago will now be provided in this environment. Many aspects of care, though a declining range, will require hospitalization or institution-based care.
In order to maintain a full service institutional platform to serve those patients when they need that level of service, we need a broader and broader platform and network of ambulatory care to support it. It is fairly easy to imagine a future model of care in which several sophisticated ambulatory care centers are connected to an academic medical center for the select number of patients who require that level of care. What is harder to imagine is the [ultimate] role of less-sophisticated hospitals that must compete with more convenient ambulatory alternatives for patients and that can't compete with sophisticated medical centers. They're trapped in the middle, with lower cost [and] more convenience on one side and unaffordable and unattainable sophistication and complexity on the other.
Beyond a limited number of clinical events, I don't fully appreciate what role they'll play in the future of medicine. They will certainly require some fairly dramatic change in health payment policy to survive. There is little margin left for hospitals at the lower end of the spectrum, and the investments required to compete at the top end are rarely attainable for single hospitals or even systems of non-medical center hospitals.
Q: Obviously a loyal physician population is essential to maintain profitability —how do you attract and keep those providers?
WK: Physician supply is perhaps the single most critical issue we face. The entire premise of health reform rests on a platform of primary care physicians that really doesn't exist — at least not in sufficient numbers to provide the care model that is described. And although there is a more generous supply of specialists in many areas, there are shortages of top-notch physician specialists in areas that are most important to our population — endocrinologists and diabetologists, for example. Academic medical centers supply our country with physicians, but we've not always done a great job recruiting and retaining the ones we need most. I believe we've done a fairly good job more recently in creating practice and compensation models that more closely match their interests not only in clinical medicine but involvement in academics and research.
We believe that one "size" does not fit all physicians and there must be a place in academic medicine for pure clinicians, those with an interest in research, those who want to teach, those who want to practice only in an academic environment and physicians who prefer an ambulatory care environment that is off-campus and embedded in the social fabric of a community. In other words, we believe there are outstanding doctors in each of these categories, and we want them all because there are unique and important roles to play for each of them. Also, recruitment is important, but retention more so. I learned long ago that the successful recruitment of a physician — or anyone, really — is only the beginning, not the conclusion of the process. One must pay attention long-term to the professional and career needs of those you've recruited. Your incumbent may well be another institution's recruitment target.
Learn more about Mount Sinai Medical Center.
Related Articles About Hospital Management:
When to Keep Bond Ratings Private
5 Ways Hospitals Can Lower Their Employee Healthcare Costs
4 Key Steps for Hospitals to Meet Challenges of 2011