Although King Arthur's Knights of the Round Table can take on several meanings, one of the most common is the idea of a group of equal leadership figures sitting down to present new and actionable discourse. This concept is very much alive today, especially in the healthcare sector, as hospital and healthcare executives must be able to sit down together and map out strategies to keep their operations sustainable in the face of a changing healthcare landscape.
Organizational strategies are not always easy to pin down, but here, three healthcare executives — Chris Karam, president and CEO of CHRISTUS St. Michael Health System in Texarkana, Texas; Tom Mallon, CEO of Westchester, Ill.-based Regent Surgical Health, which develops and manages ambulatory surgery centers; and Marcia Manker, CEO of Orange Coast Memorial Medical Center in Fountain Valley, Calif. — give their take on what it will take for 2012 to be successful for their organizations and healthcare at-large.
Question: 2012 is going to be a big year for the healthcare sector, the second year of healthcare reform. What are some of the main organizational strategies you will focus on this year?
Chris Karam: There is considerable anticipation of exactly what the changes will be, but if you look at the federal and state deficits, we know we have to reduce our costs in healthcare. Our strategy is to get our costs as low as possible while we continue to elevate our quality and services. We will look at productivity management, supply costs and general operating expenses.
Creating significant cost savings in healthcare in the hospital setting will also require support of our medical staff. We need to help physicians think about how we can deliver healthcare in a different way. One of the major components is assisting our medical staff with optimal utilization of resources while still providing high-quality care. We know from our experience that the variation of resource usage among medical staff is dramatic, and quality doesn't always correlate to utilization. It's all about how we can narrow utilization and decrease costs while increasing quality. Of course, this is easier said than done.
Tom Mallon: As surgery center managers and developers, our primary strategy we are pursuing is hospital joint ventures. We are working with community and not-for-profit hospital systems to buy or develop ambulatory surgery centers in their markets. Hospitals bring their contracting power to bear to make ASC joint ventures successful. We expect in three to five years from now, we may convert some of those ASCs to hospital outpatient departments and have physician management companies as the management agent for the hospital.
As long as Medicare continues to pay ASCs so much less than HOPDs, the trend will eventually be to move to an HOPD environment. The hospitals have competitive issues. They have competition for doctor attention and want their practices to serve more of their patients versus the competing hospital; they also have problems with operating room utilization — there are too many small cases utilizing the ORs. Those are the two primary drivers of our current strategy.
Marcia Manker: We continue to build on strategies that focus on growth at all levels of care across the continuum at Orange Coast Memorial and with our five sister hospitals in Orange and Los Angeles counties, as well as strengthening and adding to our medical group model and ambulatory offerings. First and foremost, therefore, is growth and identifying new partners. So while we are responsible for our own growth strategies at Orange Coast, each one of us in the MemorialCare family participates in strategizing and coordinating programs and services across the health system. With healthcare reform and advances in technology, more care is moving toward the outpatient setting. Expanding ambulatory care, broadening all outpatient options and always looking for new physicians are part of that growth.
Other major areas of continued focus are community health and disease management, as well as developing and enhancing service lines in a seamless fashion with our operations and our business development teams. Our challenge isto deliver the very best value consistently while continuing to improve quality and service and lower costs.
Another important initiative is continuing to build our culture of encouraging optimal health and wellness among our employees through programming, incentives and communication. We're leading that effort through our Good Life program. Education is important. We want employees to be aware of factors that affect how they can influence, improve and manage their health. You may think in healthcare we're all aware of this. But we're like the rest of the community: We need to be reminded. Our hospitals have a number of health improvement opportunities like gyms on site, walking treadmills workstations, healthy choices in cafeterias, weight loss programs, walking trails around our campuses and a smoke-free environment — we bring healthy options to each site.
We're also reinvesting in our hospital. While we recently opened a new outpatient pavilion, our hospital is undergoing significant environmental enhancements. A major complaint faced by hospitals is noise. We are addressing this with frequent rounding with nurses so they stay ahead of patients needs. We also have quiet times on all units in the hospital, and that's a challenge when there's construction and enhancements going on.
Q: What new care model strategies, such as accountable care organizations or bundled payments, do you think will be a part of your organization in the future?
Chris Karam: As a safety-net hospital, we provide care for a significant number of Medicaid and self-pay patients. In the last two years, we've experienced $20 million in costs annually for charity care alone at CHRISTUS St. Michael. That's a major factor for our operations.
From a medical home standpoint, we feel it's critical for us to facilitate placing our patients in the most appropriate setting so they get the best care in the most cost-effective venue. In the long-run, patients will benefit from having a medical home rather than receiving episodic care in the emergency department setting. That's one key piece for us.
Physicians always strive to create the best quality — and we need to continue to work with them to continually elevate that quality. We are in the process of more fully embracing evidence-based medicine and computerized patient order management. Evidence-based protocols and order sets decrease variation and have the most current thinking in medicine, and hopefully, that will lead to lower costs.
We want to continue to work with our medical staff in adopting best practices for quality. We're probably not moving to ACOs, and we're looking at bundled payments on a limited basis in areas such as orthopedics right now.
Tom Mallon: We have nothing to do with ACOs yet. ACOs, the way I understand them, have five major strategies to lower Medicare costs — and converting HOPD outpatient surgeries to an ASC is one of the five [CMS] has identified as a cost-savings strategy. So, ASCs don't have to be part of an ACO; they just have to be a part of the market. They can contribute to the ACO's success. We are not really pursuing participation in any ACO yet.
Marcia Manker: Our care model strategies revolve around patient- and family-centered care, and we will continue to develop those areas thanks to the engagement of our staff and physicians, as well as the guidance of our Patient and Family Advisory Council. Our aim is always to provide high-quality, high-value services.
Q: Reimbursements and payor mix are especially going to be at the forefront of any healthcare organization. What are some of the ways you plan to navigate around decreased governmental reimbursements and a shifting payor model?
Chris Karam: That's why we talk about getting our costs down. Regardless of what happens on healthcare reform or the [presidential] election, we're going to have less money in healthcare. We have to figure out how to operate in the most cost-effective manner, and we just need to think beyond standard practices since the changes will be more dramatic. My best guess is that health insurance and private payors are going to drop their coverage as businesses gravitate toward the health insurance exchanges. We have an ethical and moral responsibility to offer healthcare, and in a decreased reimbursement environment, we have to make sure we operate appropriately in our new reality.
Tom Mallon: Medicare [cuts] went where the money was. The highest-performed surgeries are ophthalmology and gastrointestinal scopes. If you look at the two specialties that had the biggest reduction in the Medicare reset for ASCs, it was ophthalmology and GI. The specialties that got the biggest increases were the specialties that were severely underpaid under the old model: orthopedics, spine, ENT. Those have been net winners.
Basically, we've been able to change the case mix to higher acuity patients and higher acuity specialties, and I would put general surgery and gynecology in that mix, too. These all experienced huge increases in the Medicare reimbursement model. Trying to attract a commercial population and specialties that pay better for Medicare are strategies that we've used and will continue to pursue.
There are some commercial payors that aren't traditional. For example, we work with attorneys and people who have had a trauma injury, worker's comp patients — and these pay much higher than Medicare and commercial patients, but you have to wait longer for reimbursement. Those are big emphases today. It's better to get paid well and hold accounts receivable longer than to take [lower] Medicare reimbursement and get paid in two weeks.
Commercial payors are a little friendlier to ASCs today. As hospitals get stronger, payors have lost a little pricing power in the market, so they have been less aggressive with independent ASCs because they are paid so far below hospital equivalents. Payors are willing to give ASCs a little better increase and a substantially better increase if it's part of a hospital system. It's better to have a hospital who is a majority partner.
Marcia Manker: It's not just government reimbursement; all the health plans are following suit. The traditional plan is quickly disappearing. We have to be as fiscally fit as we are in other areas. We have many initiatives working to help us improve the margins and manage costs. Our cost reduction strategy revolves around what we call PLUC: productivity, lean, utilization management and care model redesign. We started this several ago realizing reimbursements weren't going to cover cost increases, so we really had to learn to live with less.
We use a lot of the lean principles and processes to monitor the flow of care at the bedside, and it's really transforming our organization. We also have strong data capabilities and metrics to guide disease management in the outpatient setting. Data is critical because when you're looking to initiate new care model strategies, you have to be able to measure the efficacy of those strategies. When you're investing precious capital into new resources and equipment, there has to be a best outcome for the organization.
Q: How do you see the healthcare transaction market playing out this year, both in general and within your organization?
Chris Karam: In a very conservative, somewhat removed metro area, we're not at the cutting edge of healthcare reform. People are typically more conservative in what they do in business transactions. Even in that setting, physicians are asking about employment. We haven't employed many, but several are asking. It's a game changer when their income drops; they'll say they are ready to be employed or be in some other model.
We just signed a letter of intent to acquire Atlanta (Texas) Memorial Hospital. Smaller communities need their hospitals, but not all of them can sustain their operations. You'll see more of these inquiries in the future, not only in our market but in other markets as well.
Tom Mallon: Hospitals are at the center of the universe for healthcare reform. Most deals will be driven by hospitals' desires to drive market share in their community, better utilization of inpatient ORs and the ability to recruit additional doctors to the community — those are the three things that will drive acquisition strategies. There are fewer and fewer groups and independent doctors who will buy and build an ASC without a hospital.
Marcia Manker: Our region here in Southern California has been hot. There have been a number of acquisitions both among hospitals and physician groups, and if you're a primary care medical group, you're happy right now. Everyone is focused on building their primary care model so we can provide patients with a medical home. As we move into population health management instead of episodic care, you really need an integrated ambulatory and primary care network. In addition to many independent hospitals seeking partners, I think you're going to see more acquisitions and mergers around primary care physician groups.
Q: If you had to give one piece of advice to another hospital executive — a piece of advice that is both practical but also provides hope for the future — what would it be?
Chris Karam: Absolutely, you have to decrease your operating costs. Regardless of what happens in healthcare reform and the Supreme Court, keep your costs as low as possible. If you break even or achieve a positive margin on Medicare, you'll be in a much more sustainable position. Keep labor and supply costs down and monitor physicians' utilization. Also, become more informed, and ask the right questions in regards to quality and service so you're performing at a high level. But again, this is easier said than done.
Tom Mallon: I give this advice as a future patient and not as a participant in the healthcare delivery chain: Work with the medical staff to empower them so they give more consistent, efficient and evidence-based care to patients. Investing in technology and tools for decision support at the point of care is critical. At every point of care, make sure the appropriate provider is there to deliver that care. Lower-cost venues will determine the winners in the long run and will determine the costs of overall healthcare in the United States.
Marcia Manker: Number one is focus on physicians. Our future is dependent on our physician leadership and the hospital-physician partnership that allows us to manage care across a variety of settings. With our medical foundation, we have a fully integrated option, yet we have many physicians who wish to remain independent — and they are very important partners to us, too.
Another [piece of advice] is to keep employees engaged and healthy. We emphasize our partnership with physicians, yet it is our employees that make it a great place to work for our physician partners. It translates into the best possible patient care and patient service, and that results in higher patient satisfaction. Our challenge as healthcare leaders is always, "What value do we bring to our community? How do we balance our strategies and initiatives with a dynamic market where the path isn't certain and where there are a lot of varying priorities?"
Organizational strategies are not always easy to pin down, but here, three healthcare executives — Chris Karam, president and CEO of CHRISTUS St. Michael Health System in Texarkana, Texas; Tom Mallon, CEO of Westchester, Ill.-based Regent Surgical Health, which develops and manages ambulatory surgery centers; and Marcia Manker, CEO of Orange Coast Memorial Medical Center in Fountain Valley, Calif. — give their take on what it will take for 2012 to be successful for their organizations and healthcare at-large.
Question: 2012 is going to be a big year for the healthcare sector, the second year of healthcare reform. What are some of the main organizational strategies you will focus on this year?
Chris Karam: There is considerable anticipation of exactly what the changes will be, but if you look at the federal and state deficits, we know we have to reduce our costs in healthcare. Our strategy is to get our costs as low as possible while we continue to elevate our quality and services. We will look at productivity management, supply costs and general operating expenses.
Creating significant cost savings in healthcare in the hospital setting will also require support of our medical staff. We need to help physicians think about how we can deliver healthcare in a different way. One of the major components is assisting our medical staff with optimal utilization of resources while still providing high-quality care. We know from our experience that the variation of resource usage among medical staff is dramatic, and quality doesn't always correlate to utilization. It's all about how we can narrow utilization and decrease costs while increasing quality. Of course, this is easier said than done.
Tom Mallon: As surgery center managers and developers, our primary strategy we are pursuing is hospital joint ventures. We are working with community and not-for-profit hospital systems to buy or develop ambulatory surgery centers in their markets. Hospitals bring their contracting power to bear to make ASC joint ventures successful. We expect in three to five years from now, we may convert some of those ASCs to hospital outpatient departments and have physician management companies as the management agent for the hospital.
As long as Medicare continues to pay ASCs so much less than HOPDs, the trend will eventually be to move to an HOPD environment. The hospitals have competitive issues. They have competition for doctor attention and want their practices to serve more of their patients versus the competing hospital; they also have problems with operating room utilization — there are too many small cases utilizing the ORs. Those are the two primary drivers of our current strategy.
Marcia Manker: We continue to build on strategies that focus on growth at all levels of care across the continuum at Orange Coast Memorial and with our five sister hospitals in Orange and Los Angeles counties, as well as strengthening and adding to our medical group model and ambulatory offerings. First and foremost, therefore, is growth and identifying new partners. So while we are responsible for our own growth strategies at Orange Coast, each one of us in the MemorialCare family participates in strategizing and coordinating programs and services across the health system. With healthcare reform and advances in technology, more care is moving toward the outpatient setting. Expanding ambulatory care, broadening all outpatient options and always looking for new physicians are part of that growth. Other major areas of continued focus are community health and disease management, as well as developing and enhancing service lines in a seamless fashion with our operations and our business development teams. Our challenge isto deliver the very best value consistently while continuing to improve quality and service and lower costs.
Another important initiative is continuing to build our culture of encouraging optimal health and wellness among our employees through programming, incentives and communication. We're leading that effort through our Good Life program. Education is important. We want employees to be aware of factors that affect how they can influence, improve and manage their health. You may think in healthcare we're all aware of this. But we're like the rest of the community: We need to be reminded. Our hospitals have a number of health improvement opportunities like gyms on site, walking treadmills workstations, healthy choices in cafeterias, weight loss programs, walking trails around our campuses and a smoke-free environment — we bring healthy options to each site.
We're also reinvesting in our hospital. While we recently opened a new outpatient pavilion, our hospital is undergoing significant environmental enhancements. A major complaint faced by hospitals is noise. We are addressing this with frequent rounding with nurses so they stay ahead of patients needs. We also have quiet times on all units in the hospital, and that's a challenge when there's construction and enhancements going on.
Q: What new care model strategies, such as accountable care organizations or bundled payments, do you think will be a part of your organization in the future?
Chris Karam: As a safety-net hospital, we provide care for a significant number of Medicaid and self-pay patients. In the last two years, we've experienced $20 million in costs annually for charity care alone at CHRISTUS St. Michael. That's a major factor for our operations.
From a medical home standpoint, we feel it's critical for us to facilitate placing our patients in the most appropriate setting so they get the best care in the most cost-effective venue. In the long-run, patients will benefit from having a medical home rather than receiving episodic care in the emergency department setting. That's one key piece for us.
Physicians always strive to create the best quality — and we need to continue to work with them to continually elevate that quality. We are in the process of more fully embracing evidence-based medicine and computerized patient order management. Evidence-based protocols and order sets decrease variation and have the most current thinking in medicine, and hopefully, that will lead to lower costs.
We want to continue to work with our medical staff in adopting best practices for quality. We're probably not moving to ACOs, and we're looking at bundled payments on a limited basis in areas such as orthopedics right now.
Tom Mallon: We have nothing to do with ACOs yet. ACOs, the way I understand them, have five major strategies to lower Medicare costs — and converting HOPD outpatient surgeries to an ASC is one of the five [CMS] has identified as a cost-savings strategy. So, ASCs don't have to be part of an ACO; they just have to be a part of the market. They can contribute to the ACO's success. We are not really pursuing participation in any ACO yet.
Marcia Manker: Our care model strategies revolve around patient- and family-centered care, and we will continue to develop those areas thanks to the engagement of our staff and physicians, as well as the guidance of our Patient and Family Advisory Council. Our aim is always to provide high-quality, high-value services.
Q: Reimbursements and payor mix are especially going to be at the forefront of any healthcare organization. What are some of the ways you plan to navigate around decreased governmental reimbursements and a shifting payor model?
Chris Karam: That's why we talk about getting our costs down. Regardless of what happens on healthcare reform or the [presidential] election, we're going to have less money in healthcare. We have to figure out how to operate in the most cost-effective manner, and we just need to think beyond standard practices since the changes will be more dramatic. My best guess is that health insurance and private payors are going to drop their coverage as businesses gravitate toward the health insurance exchanges. We have an ethical and moral responsibility to offer healthcare, and in a decreased reimbursement environment, we have to make sure we operate appropriately in our new reality.
Tom Mallon: Medicare [cuts] went where the money was. The highest-performed surgeries are ophthalmology and gastrointestinal scopes. If you look at the two specialties that had the biggest reduction in the Medicare reset for ASCs, it was ophthalmology and GI. The specialties that got the biggest increases were the specialties that were severely underpaid under the old model: orthopedics, spine, ENT. Those have been net winners. Basically, we've been able to change the case mix to higher acuity patients and higher acuity specialties, and I would put general surgery and gynecology in that mix, too. These all experienced huge increases in the Medicare reimbursement model. Trying to attract a commercial population and specialties that pay better for Medicare are strategies that we've used and will continue to pursue.
There are some commercial payors that aren't traditional. For example, we work with attorneys and people who have had a trauma injury, worker's comp patients — and these pay much higher than Medicare and commercial patients, but you have to wait longer for reimbursement. Those are big emphases today. It's better to get paid well and hold accounts receivable longer than to take [lower] Medicare reimbursement and get paid in two weeks.
Commercial payors are a little friendlier to ASCs today. As hospitals get stronger, payors have lost a little pricing power in the market, so they have been less aggressive with independent ASCs because they are paid so far below hospital equivalents. Payors are willing to give ASCs a little better increase and a substantially better increase if it's part of a hospital system. It's better to have a hospital who is a majority partner.
Marcia Manker: It's not just government reimbursement; all the health plans are following suit. The traditional plan is quickly disappearing. We have to be as fiscally fit as we are in other areas. We have many initiatives working to help us improve the margins and manage costs. Our cost reduction strategy revolves around what we call PLUC: productivity, lean, utilization management and care model redesign. We started this several ago realizing reimbursements weren't going to cover cost increases, so we really had to learn to live with less.
We use a lot of the lean principles and processes to monitor the flow of care at the bedside, and it's really transforming our organization. We also have strong data capabilities and metrics to guide disease management in the outpatient setting. Data is critical because when you're looking to initiate new care model strategies, you have to be able to measure the efficacy of those strategies. When you're investing precious capital into new resources and equipment, there has to be a best outcome for the organization.
Q: How do you see the healthcare transaction market playing out this year, both in general and within your organization?
Chris Karam: In a very conservative, somewhat removed metro area, we're not at the cutting edge of healthcare reform. People are typically more conservative in what they do in business transactions. Even in that setting, physicians are asking about employment. We haven't employed many, but several are asking. It's a game changer when their income drops; they'll say they are ready to be employed or be in some other model.
We just signed a letter of intent to acquire Atlanta (Texas) Memorial Hospital. Smaller communities need their hospitals, but not all of them can sustain their operations. You'll see more of these inquiries in the future, not only in our market but in other markets as well.
Tom Mallon: Hospitals are at the center of the universe for healthcare reform. Most deals will be driven by hospitals' desires to drive market share in their community, better utilization of inpatient ORs and the ability to recruit additional doctors to the community — those are the three things that will drive acquisition strategies. There are fewer and fewer groups and independent doctors who will buy and build an ASC without a hospital.
Marcia Manker: Our region here in Southern California has been hot. There have been a number of acquisitions both among hospitals and physician groups, and if you're a primary care medical group, you're happy right now. Everyone is focused on building their primary care model so we can provide patients with a medical home. As we move into population health management instead of episodic care, you really need an integrated ambulatory and primary care network. In addition to many independent hospitals seeking partners, I think you're going to see more acquisitions and mergers around primary care physician groups.
Q: If you had to give one piece of advice to another hospital executive — a piece of advice that is both practical but also provides hope for the future — what would it be?
Chris Karam: Absolutely, you have to decrease your operating costs. Regardless of what happens in healthcare reform and the Supreme Court, keep your costs as low as possible. If you break even or achieve a positive margin on Medicare, you'll be in a much more sustainable position. Keep labor and supply costs down and monitor physicians' utilization. Also, become more informed, and ask the right questions in regards to quality and service so you're performing at a high level. But again, this is easier said than done. Tom Mallon: I give this advice as a future patient and not as a participant in the healthcare delivery chain: Work with the medical staff to empower them so they give more consistent, efficient and evidence-based care to patients. Investing in technology and tools for decision support at the point of care is critical. At every point of care, make sure the appropriate provider is there to deliver that care. Lower-cost venues will determine the winners in the long run and will determine the costs of overall healthcare in the United States.
Marcia Manker: Number one is focus on physicians. Our future is dependent on our physician leadership and the hospital-physician partnership that allows us to manage care across a variety of settings. With our medical foundation, we have a fully integrated option, yet we have many physicians who wish to remain independent — and they are very important partners to us, too.
Another [piece of advice] is to keep employees engaged and healthy. We emphasize our partnership with physicians, yet it is our employees that make it a great place to work for our physician partners. It translates into the best possible patient care and patient service, and that results in higher patient satisfaction. Our challenge as healthcare leaders is always, "What value do we bring to our community? How do we balance our strategies and initiatives with a dynamic market where the path isn't certain and where there are a lot of varying priorities?"
Related Articles on Hospital Management Strategies:
A CEO Energized by Change, Even After 35 Years: Q&A With Rick Linneweh of Yakima Valley Memorial
The Future of Healthcare: 9 Capabilities for Post-Reform Success
How Would You Fix Medicare and Medicaid? 6 Hospital Leaders Respond