Higher quality, healthier finances
Analysis shows 15 Top Health Systems outperform their peers on clinical and financial measures
Even as hospitals face issues of declining reimbursements and increasing costs, regulatory compliance and pay-for-performance programs, some health systems have found a way to balance and excel at two fundamental goals—financial success and quality improvement. “Anytime you have a very disciplined approach to all that you do, whether it’s management of your finances or your approach to offering quality services to patients, it will lead to a better product,” said Jeff Taylor, senior vice president and chief financial officer of St. Luke’s Health System, a six-hospital system based in Boise, Idaho.
That disciplined approach helped St. Luke’s land on Truven Health Analytics’ list of the 15 Top Health Systems for the first time this year as one of the top medium-size health systems in the nation, based on clinical perfor-
mance, efficiency and patient satisfaction. The sixth annual list includes each of the top five large, medium and small health systems categorized by their total operating expenses.
Truven evaluated the systems based on eight quality metrics from publicly available government data adjusted for the illness severity of the systems’ patient populations. The data include death rates, complications, 30-day readmissions, lengths of stay, a patient-safety index and Hospital Consumer Assessment of Healthcare Providers and Systems scores.
On average, the top health systems performed better than their peers on all measures. The 15 Top systems had fewer adverse patient-safety events, complications and deaths. And the average length of a patient’s stay in a top system’s hospital was 10% shorter than that in one of its peer systems not on the list.
Stronger margins
But what Truven also found is that those organizations that were top performers for quality of patient care also tended to have the strongest financial position compared with systems in their peer groups. Though financial measures are not an official part of the annual assessment of health systems, this year Truven went beyond its quality and safety analysis to further investigate and compare associated financial performance.
Using the systems’ audited financial statements, Truven calculated three key financial measures—operating margin, days of cash on hand and long-term debt to capitalization ratio—for the 15 Top systems and their peers.
“Even though the 15 Top health systems were chosen based on quality and patient perception of care, the 15 systems also outperformed their peers financially on all three metrics,” said Jean Chenoweth, senior vice president of performance improvement for Truven.
For medium-size systems—those with between $750 million and $1.5 billion in operating expenses, the category that includes St. Luke’s—that meant an average operating margin percentage that was 1.4% higher than their peer group. The percentage was calculated as the difference between operating revenue and operating expenses, divided by operating revenue. The winning large and small systems also had higher operating margins compared with their peers.
“The organizations that have the greater financial resources—with income coming from their operating margins and cash coming from their ability to borrow—are able to make broader investments in improving quality,” said Jeff Jones, managing director at consultancy Huron Healthcare. “We’re starting to see those investments returned as we’re measuring quality more regularly.”
In 2011, St. Luke’s started a program to improve care and lower costs by reducing surgical-site infections. Known as Project Zero, the team— which included physicians, representatives from public health and equipment processing, operating room nursing staff and surgical technologists—established a goal to cut in half St. Luke’s ortho/neuro service line infection rate of 1.1% by the end of 2012. By researching and adopting best practices, the system was able to sustain infection rates at or below 0.5% as they continue working to cut rates even further.
That positive effect has been felt by patients and the system’s bottom line. During the first 18 months, Project Zero prevented approximately 28 infections for total joint and spine fusion procedures and saved about $2.8 million, according to St. Luke’s.
“Better quality actually does result in lower costs because you do things right the first time,” said Dr. David Pate, president and CEO of St. Luke’s.
Employing best practices
That philosophy is echoed at Asante in Medford, Ore., a three-hospital system that made Truven’s list for the second time in the small heath system category—those with less than $750 million in operating expenses.
“Consistently utilizing best practices and protocols, helpful reminders and consistent order sets for specific diseases leads to better outcomes for patients,” said Roy Vinyard, Asante’s president and CEO. “You tend to be a more efficient provider of care, and that goes directly to the cost of providing that care.”
Using a balanced scorecard approach, Asante has set targets for quality of care, employee engagement and productivity, and financial accountability that Vinyard says are all highly correlated and interconnected.
For example, for the quarter ended in March, Asante established a target of 1.14 for the rate of healthcare-acquired conditions, but reported that it beat the
target with a rate of 0.31. Meanwhile, Asante also set a goal for its operating EBIDA—earnings before interest, depreciation and amortization—margin of 10.5%. The actual operating EBIDA margin for the quarter was also better than the target at 12.3%.
“If you’re using quality metrics to measure the care that you provide, your rates of mortality, healthcare-acquired conditions and readmissions are all going to be much improved, and those are the things that add to the cost of healthcare,” Vinyard said. “It follows that your financial results will be stronger.”
That’s also been true at Illinois hospital system Advocate Health Care, which made Truven’s 15 Top list for the fifth time in the large health system category. Despite rising expenses, Advocate’s 2013 operating surplus topped $300 million, up slightly from $298 million in the previous year. Revenue rose 7.4% to $4.94 billion, giving the system an operating margin of 6.1%.
For the same year, Advocate also reported that six of its 11 facilities had no cases of central line-associated infections. Executives credit that success to the application of best practices across the system. After noticing that
After noticing that the intensive-care unit at Advocate BroMenn Medical Center in Normal, Ill., had gone more than six years without a central line-associated blood stream infection, leaders took practices from that hospital and put them into effect at their other facilities.
the intensive-care unit at Advocate BroMenn Medical Center in Normal, Ill., had gone more than six years without a central line-associated blood stream infection, leaders took practices from that hospital and put them into effect at their other facilities.
Such systemwide sharing has also been a recent key to success at Asante, where Vinyard says they try to apply studies of their practices, including their look at wait times in the emer- gency department, from one location to the others. “That’s beginning to pay big dividends because it’s much better to look at a process one time than three times,” he said.
Though it’s an important lesson for systems of all sizes, it could be especially important in the case of a small system such as Asante. Truven’s analysis showed that small systems are, in general, weaker financially than larger systems—not surprising given their more limited resources. The operating margins of the winning small systems were slimmer than those of the winning large systems. Smaller systems were also more leveraged than the group of large systems, those reporting more than $1.5 billion in operating expenses.
But finding the right balance between long-term debt and capital can be a balancing act for a system, no matter the size, executives said.
“When we are planning new facilities, programs, services or capital purchases, we really have to look both at what the patient-care implications are and what the financial implications are,” Vinyard said. “But generally speaking, if it’s the right thing to do in terms of patient care, then I think there’s a tendency to be able to make it work.”