Research by Lee Ann Jarousse


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H&HN has created this exclusive yearlong series called Fiscal Fitness with the support of the VHA. Finding ways to rein in expenses without sacrificing quality and safety is imperative for hospitals as they struggle to maintain financial viability in a shifting payment system even as their operational costs continue to climb. Over the next several months, we'll look at everything from the supply chain to pharmacy, IT and more. Follow the Fiscal Fitness series in our magazine and in our e-newletter H&HN Daily.

The shift from a volume-driven delivery model to one that largely hinges on value places new demands on hospitals and health systems to curb rising health care costs by providing clinically appropriate, high-quality care. Yet, as changes unfold in reimbursement, hospitals are challenged by the reality of still doing business in a fee-for-service world, all the while trying to figure out how — and when — they'll migrate to value-based payments. Although it is unclear when true payment reform will come into play and how it will take shape, there are steps organizations can take now to participate under new payment structures.

The first step is admitting to being part of the problem. "Hospitals have to be forthcoming and recognize they are a significant driver of health care costs," says Harold Miller, executive director of the Center for Healthcare Quality and Payment Reform. "They need to identify opportunities for savings and make a transition to lower utilization and spending in a viable way." For one thing, Miller asserts, "hospitals need less capacity. They need to ask, ‘How many beds do we need? How many MRIs?'"

The focus should be on providing care at the right time, in the right setting at the least cost. That will require a deep dive into the organization's operations, both administratively and clinically, and will require new delivery systems.

To succeed under payment reform, hospitals must build a strong culture of collaboration and accountability, says Richard Gundling, vice president of health care financial practices for the Healthcare Financial Management Association. This means defining value for and within the organization and ensuring that staff — clinical and nonclinical — grasp the impact their work has on both costs and quality. Another critical component is access to accurate and actionable business intelligence, Gundling says. The data must indicate the cost and quality of care provided.

Providing high-quality, low-cost care requires a collaborative relationship with doctors. "Physicians have a great deal of control over lots of hospital costs, Miller says. "Working with physicians can achieve dramatic savings."

On the quality side, hospitals should strengthen their focus on the 12 clinical process measures and nine patient experience measures set forth by the Centers for Medicare & Medicaid Services' value-based purchasing program. To that end, they should assess their performance as it relates to these process measures, as well as the potential financial risk associated with their performance. Organizations also should focus on identifying and implementing evidence-based practices to improve their performance relative to the quality metrics.

A solid health information technology infrastructure is critically important for payment reform, says Warren Skea, director of PricewaterhouseCoopers' health enterprise growth practice. In the short-term, hospitals should focus on getting the infrastructure in place around care coordination. In the long-term, they should start assembling a more sophisticated population health management infrastructure.

It will be important for organizations to link clinical and financial data to demonstrate the true value of care delivered, Skea says. "We will see changes in payment and delivery models and it will be completely foreign to most hospitals," he adds. "Hospitals should no longer invest in bricks and mortar. Instead, the strategic focus should be on people, new competencies and new technology."

The end result should be a health care delivery system that puts the needs of the patient first. "We need to provide more ways for patients to access the system," says Dom Dera, M.D., medical director of patient centered medical homes for the NewHealth Collaborative for Summa Health System, Akron, Ohio. The NewHealth Collaborative is a Medicare accountable care organization with the patient-centered medical home as a foundation. "We are able to develop a team-based approach to care that is highly coordinated, resulting in high provider and patient satisfaction," says Dera.

The patient-centered medical home enhances communication among providers and a proactive approach of care with patients, enhancing the quality of care in a cost-effective manner.

Starting points: goals of payment reform

Cost-Containment Quality Improvement

  • Eliminate the fee-for-service incentive to provide more services
  • Streamline coordination of care
  • Align payment incentives with quality goals
  • Eliminate unnecessary harm
  • Enhance administrative effectiveness
  • Reduce avoidable readmissions
  • Reduce utilization
  • Enhance patient and family engagement
  • Reduce fixed cost and enhance operational efficiency
  • Improve patient safety

Source: H&HN research, 2012

Case Study

Hillcrest Medical Center

Hillcrest Medical Center participated in the Centers for Medicare & Medicaid Services' Bundled Payment Acute Care Episode Demonstration Project that tested the use of bundled payments for cardiac and joint replacement surgeries. The program, which ended in May 2012, sought to align incentives between hospitals and medical staff through improved care coordination and quality of care. "The biggest achievement is the enhanced collaboration between physicians and the hospital," says Shannon Fiser, vice president of financial services for Ardent Health, Nashville, Tenn., the parent company of Hillcrest HealthCare Services. "Physicians became more focused on the business side, looking for ways to improve efficiency. It forced a close relationship between clinical and financial personnel." The key was involving physicians early in the process, receiving physician input on protocols and procedures, and educating staff on the program. "Clearly, the metrics show that cost can be driven out of the system while maintaining or improving the quality of care," says Fiser. "Our costs declined by 10 percent. We had high quality going in and since have held or slightly improved our measures." The bulk of the savings came through device standardization and renegotiated contracts with supply vendors. It's important for organizations to have the appropriate cost and quality accounting systems in place prior to launching a bundled payment program, Fiser suggests. "The startup costs are not insignificant," he adds. "There will be considerable startup costs from a legal and consultant perspective."

Key principles of care delivery under payment reform

The incremental approach to payment reform creates numerous challenges for organizations. True payment reform may be a decade or more away. However, in the next few years it's clear that reimbursements increasingly will become tied to performance with a focus on clinical outcomes and appropriate utilization. Hospitals should focus on developing patient care models that meet the following principles:

1. Care should be patient-centered and focused on wellness, including primary and secondary prevention. Incentives should encourage patients to be responsible about healthy behaviors. Providers should have adequate funding to help educate individuals on wellness and prevention, appropriate use of services, and self-management of chronic conditions.

2. Care should be quality-focused and reflect available scientific evidence and best practices. Care should promote continuous improvements in the standards of delivery.

3. Care should be guided by collaboration and coordination among the various health care providers, as well as with the patient and
family. Care should be as clinically coordinated as possible given local conditions.

4. Adequate funding for health professions education is essential, including the training of physicians and other health care providers in sufficient numbers to care for everyone and to provide effective education of patients and their families.

Source: American Hospital Association, 2012

Content by Health Forum, Sponsored by: VHA.