In­te­grat­ing suc­cess

Top-per­form­ing health net­works of­fer lessons in us­ing ef­fi­cien­cies, ex­per­tise to im­prove pa­tient care

Modern Healthcare - - Special Report - Joe Carl­son

Last year, when St. John’s Mercy Health Care in St. Louis be­came one of the largest sys­tems in the U.S. to go live all at once with one of the ma­jor elec­tronic healthrecord sys­tems, it was easy to hold down all the hourly con­sul­tants’ fees. Easy, that is, be­cause there weren’t any con­sul­tants in­volved.

Ad­min­is­tra­tors de­ployed the EHR sys­tem in four hos­pi­tals and more than 60 clin­i­cal sites us­ing an all-in-house staff that was trained on sim­i­lar roll­outs that took place in the other in­te­grated sys­tems owned by St. John’s Mercy’s spon­sor, the Sis­ters of Mercy Health Sys­tem.

“It was a $450 mil­lion project for us across all mar­kets,” says Sis­ters of Mercy Pres­i­dent and CEO Lynn Brit­ton. “It would have been an $800 mil­lion project if we hadn’t used our re­sources wisely.”

That kind of strat­egy—us­ing the sys­tem’s scale and in­ter­nal knowl­edge base to in­crease ef­fi­ciency while im­ple­ment­ing an ini­tia­tive to im­prove pa­tient safety—was a ma­jor rea­son why the Sis­ters of Mercy sys­tem saw not one but two of its re­gional health sys­tems fin­ish in the elite top three of the 2010 IHN 100 com­piled by health­care data firm SDI.

As new and ex­ist­ing in­te­grated health­care net­works look ahead to the sec­ond ma­jor wave of ex­pan­sion in the past 20 years, many ex­perts will be looking for suc­cess sto­ries, wary to avoid the mis­takes that led to the un­rav­el­ing of so many of the com­plex in­te­grated de­liv­ery schemes that were formed in the early 1990s.

For SDI’s 2010 list of the top 100 best-per­form­ing in­te­grated de­liv­ery net­works, St. John’s Mercy Health Care landed in the sec­ond po­si­tion over­all af­ter rank­ing No. 28 the year be­fore. Mean­while, St. John’s Health Sys­tem, Spring­field, Mo., main­tained its peren­nial po­si­tion in the list’s up­per ech­e­lons for a fourth straight year, land­ing its sec­ond No. 3 rank­ing in that time af­ter com­ing in first in 2007 and 2009.

Sen­tara Health­care, Nor­folk, Va., took top hon­ors in the 2010 list, and has fin­ished in the top five in all of the past five years. Mul­tiCare Health Sys­tem, Ta­coma, Wash., holds the No. 4 spot on the 2010 list af­ter land­ing in the top 10 in 2009 and 2008. In­ter­moun­tain Health­care, Salt Lake City, placed fifth af­ter land­ing in third place last year and sec­ond place for the three years be­fore that.

The an­nual SDI IHN 100 ranks in­te­grated health­care net­works based on eight per­for- mance met­rics us­ing in­for­ma­tion sub­mit­ted vol­un­tar­ily by the sys­tems, in­clud­ing mea­sures of clin­i­cal in­te­gra­tion, tech­nol­ogy in­te­gra­tion, uti­liza­tion and ser­vices of­fered.

How­ever, it was the fi­nan­cial sta­bil­ity met­ric that mat­tered most for this year’s list, the 13th an­nual pro­duced by Ply­mouth Meet­ing, Pa.based SDI. Over­all, per­for­mance scores were lower than in years past be­cause of tepid fi­nan­cial per­for­mance, says Pat Witman, as­so­ciate di­rec­tor of acute care and con­tract ad­min­is­tra­tion pro­files for SDI.

Con­versely, the sys­tems that landed in the top 10 did so pri­mar­ily be­cause of their fi­nan­cial per­for­mance, as mea­sured by op­er­at­ing and profit mar­gins, and by the sys­tems’ ra­tios of long-term debt to capitalization.

“For me, that was the story this year—the fi­nan­cial,” Witman says. “Many of them talked about the fact that they ei­ther have in­vest­ment losses, losses on their swap agree­ments, losses on their cap­i­tal and prop­er­ties, and bad debt. They have a lot more unin­sured peo­ple com­ing through their ER and clin­ics.”

Ahead of the pack

Yet de­spite those chal­lenges, some in­te­grated net­works still out­per­formed their peers. Ob­servers say more in­te­grated de­liv­ery net­works are likely to come into be­ing in the next sev­eral years, and those that al­ready ex­ist are likely to grow as they try to em­u­late the suc­cesses demon­strated by top play­ers on the SDI list.

As is hap­pen­ing to­day, ex­perts say, the last great boom in in­te­grated de­liv­ery cor­re­sponded with the elec­tion of a pres­i­dent fo­cused on health­care re­form.

The years im­me­di­ately be­fore and dur­ing the health­care re­form de­bate dur­ing the Clin­ton ad­min­is­tra­tion saw the rapid for­ma­tion of new in­te­gra­tion mod­els be­tween hos­pi­tals and physi­cians that in­cluded di­ver­si­fi­ca­tion into out­pa­tient and am­bu­la­tory clin­ics, cre­ation of new physi­cian-hospi­tal or­ga­ni­za­tions known as PHOs, en­try into in­sur­ance mar­kets through

HMOs, and rapid growth in the size of chains and not-for-profit hospi­tal sys­tems, aca­demic and in­dus­try ex­perts say.

In pub­lic, the pro­po­nents of such in­te­gra­tion of­ten said their goals were to cre­ate a “con­tin­u­umof care” for pa­tients to im­prove safety, cut costs and in­crease ef­fi­ciency, ob­servers say. In the board­room, how­ever, ex­ec­u­tives talked more about the fi­nan­cial goals of achiev­ing mar­ket dom­i­nance, elim­i­nat­ing com­pe­ti­tion, and gain­ing more lever­age over com­mer­cial pay­ers, ac­cord­ing to in­sid­ers and aca­demics like the au­thors of a 2002 Health Af­fairs ar­ti­cle ti­tled “In­te­grated de­liv­ery net­works: A de­tour on the road to in­te­grated health care?”

While none of those were new goals, many hos­pi­tals found a new ur­gency in achiev­ing them—and physi­cians showed more will­ing­ness to co­op­er­ate, ex­perts say—be­cause of the wide­spread un­cer­tainty in the mar­ket over pro­posed pay­ment re­forms. Sound fa­mil­iar?

“I re­ally think that what’s go­ing on to­day with the Obama ad­min­is­tra­tion is sim­i­lar to that, be­cause they were both serv­ing as the cat­a­lyst for change, and every­one was anx­ious and try­ing to pre­pare for change without re­ally know­ing what the out­come would be,” says Dou­glas Chaet, founder and chair­man emer­i­tus of the Amer­i­can As­so­ci­a­tion of In­te­grated Health­care De­liv­ery Sys­tems, or AAIHDS.

As ev­i­dence, Chaet—who is also a se­nior vice pres­i­dent at In­de­pen­dence Blue Cross in Philadel­phia—noted that last year’s an­nual AAIHDS con­fer­ence at the Bel­la­gio ho­tel in Las Ve­gas at­tracted a near-record num­ber of at­ten­dees. The only other con­fer­ence by the as­so­ci­a­tion that at­tracted more at­ten­dees was in 1993.

Learn­ing from fail­ures

But as is now clear, many of the ex­per­i­ments in in­te­gra­tion from the 1990s were fail­ures. The 2002 Health Af­fairs ar­ti­cle of­fered this blunt cri­tique: “While the forms of in­te­gra­tion var­ied across hos­pi­tals and mar­kets, their eco­nomic per­for­mance, af­ter a decade of ex­pe­ri­ence, was gen­er­ally uni­form: Noth­ing worked.”

While some sys­tems worked to undo their in­te­gra­tion strate­gies when things didn’t work out as was hoped, oth­ers stayed loyal to the con­cept and con­tin­ued to ex­per­i­ment, and many have found suc­cess, judg­ing by the re­sults of the IHN 100 rank­ings.

“When ev­ery­body else was di­vest­ing those things be­cause they couldn’t dom­i­nate the mar­ket, we stuck with it,” Brit­ton says of Sis­ters of Mercy’s physi­cian-align­ment in­te­gra­tion strate­gies. “We made some mis­takes; we didn’t do it all right the first time. But to­day we are very fo­cused on it. If it’s all about mar­ket dom­i­nance, then I think your pri­or­ity is mis­placed,” he says.

At Ban­ner Health, op­er­at­ing ef­fi­cien­cies have been the goal.

When the two-hospi­tal Sun Health sys­tem was bought by Phoenix-based Ban­ner Health for $316 mil­lion in 2008, Ban­ner took $20 mil­lion of an­nual over­head ex­pense off the Sun City hos­pi­tals’ books, which was equiv­a­lent to about 4% of the for­mer sys­tem’s op­er­at­ing rev­enue, says Den­nis Dahlen, Ban­ner’s se­nior vice pres­i­dent and chief fi­nan­cial of­fi­cer.

The sav­ings were ac­com­plished by cen­tral­iz­ing com­mon func­tions into the cor­po­rate offices, in­clud­ing de­part­ments like fi­nan­cial ac­count­ing, ac­counts payable and re­ceiv­able, le­gal, hu­man re­sources, strate­gic plan­ning and in­for­ma­tion tech­nol­ogy.

“My gen­eral sense is that we are bet­ter-po­si­tioned to do th­ese kinds of things be­cause we can do them across the board,” Dahlen says, echo­ing the clas­sic def­i­ni­tion of hor­i­zon­tal in­te­gra­tion.

Ban­ner, which owns or leases 21 hos­pi­tals, placed 10th in this year’s SDI IHN 100, af­ter plac­ing No. 22 last year and No. 54 the pre­vi­ous year. It was an in­ter­est­ing turn for a sys­tem that faced steep-enough fi­nan­cial dif­fi­cul­ties that in ad­di­tion to staff cuts and other cost-sav­ing steps, the sys­tem de­layed open­ing a newly built hospi­tal— Ban­ner Iron­wood, which was fea­tured on the cover of Mod­ern Health­care on Nov. 24, 2008, as an ex­am­ple of how the fi­nan­cial down­turn was halt­ing build­ing projects across the coun­try.

Peter Fine, Ban­ner’s pres­i­dent and CEO, says the fi­nan­cial re­sults that landed the sys­tem in the top 10 of the SDI list prove that in­te­gra­tion can pro­vide real value in ex­change for the ad­di­tional lay­ers of cor­po­rate struc­ture that hos­pi­tals and physi­cians must help sup­port. For ex­am­ple, Fine says, Ban­ner op­er­ated its de­liv­ery sys­tem with an over­head equal to 7% of rev­enue.

“I would chal­lenge a lot of or­ga­ni­za­tions to tell me they can op­er­ate their de­liv­ery sys­tem with an over­head cost of 7%,” Fine says. “We think we bring real value be­cause we bring fi­nan­cial sta­bil­ity and we man­age our over­head.”

Fine says Ban­ner’s suc­cess rests partly on its abil­ity to fo­cus on “the small de­tails” as it has grown larger. Many large net­works strug­gle for re­sults be­cause they cre­ate huge bu­reau­cra­cies that can’t re­spond to small de­tails at the lo­cal level. “Fi­nan­cial sta­bil­ity is driven by fo­cus­ing on the small things, not the large things,” he says.

Ban­ner also lacks one of the key vertical-in­te­gra­tion com­po­nents that dragged down many of the net­works formed in the 1990s—an own­er­ship stake in a health plan. The 2002 Health Af­fairs ar­ti­cle noted that a great many of the hospi­tal-based provider net­works that gam­bled in the in­sur­ance world by own­ing an HMO did poorly be­cause they didn’t un­der­stand the fun­da­men­tals of mar­ket­ing and risk ac­count­ing. An­other realm where vertical in­te­gra­tion bogged down many providers in the 1990s was physi­cian align­ment— an­other area that is ex­pected to grow rapidly in the next sev­eral years.

“If you can’t re­ally bring the physi­cians into it, it can hardly be called an in­te­grated de­liv­ery sys­tem,” says Eric Can­ter, se­nior con­sult­ing man­ager with IMA Con­sult­ing. “There’s more push on the physi­cians with re­im­burse­ments, and more of them are seek­ing to be em­ployed, whether they want to or not.”

Al­though hos­pi­tals have been will­ing to em­ploy doc­tors, physi­cians have re­sisted the idea be­cause of re­im­burse­ment is­sues. How­ever as hap­pened in the early 1990s, some physi­cians are warm­ing to idea again.

St. John’s Mercy Health Care in St. Louis found or­ga­ni­za­tional and fi­nan­cial suc­cess in em­ploy­ing physi­cians by mak­ing it clear at the out­set that the hospi­tal does not di­rectly em­ploy the doc­tors. Rather, the physi­cians work for one of the sys­tem’s two med­i­cal groups, who have seats at the ad­min­is­tra­tion ta­ble along with hospi­tal ex­ec­u­tives.

“We cer­tainly feel that the in­te­grated model will en­able us to deal with the re­al­i­ties of the fu­ture,” says Keith Starke, a physi­cian and chair­man of the depart­ment of medicine at 915-bed St. John’s Mercy Med­i­cal Cen­ter in St. Louis.

St. John’s Mercy Health Care, par­ent of 915-bed St. John’s Mercy Med­i­cal Cen­ter in St. Louis, above, holds the No. 2 spot in SDI’s IHN 100 rank­ing for 2010.

Brit­ton: “We didn’t do it all right the first time.”

Fine: Fi­nan­cial re­sults prove that in­te­gra­tion can pro­vide value.

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