Healthcare CEOs Look at Healthcare Transformation

A lot of articles are appearing that assess the likely impact of the Patient Protection and Affordable Patient Care Act. One of the better ones is “Clinical Integration: The Key to Real Reform,” published by the American Hospital Association back in February. It makes good reading for a board strategic planning retreat. (Members of The Governance Institute can get its excellent new DVD series, “Delivery System Reform.“)

An article that caught my eye with a different twist is a conversation with two visionary CEOs, Chris Van Gorder of Scripps Health in San Diego, CA and Jim Hinton of Presbyterian Healthcare Services in Albuquerque, NM, moderated by Jim Gauss, President and CEO of Witt Kieffer, the executive search firm.

Asked what will be the most critical challenges over the next several years, Van Gorder cut to the core: “We will have to become much more integrated and eliminate system fragmentation among doctors, medical groups, outpatient centers and hospitals. And if what we are reading is true, reimbursement will be significantly reduced over the next decade to pay for health reform, so we will need to take cost out of the system.”

Hinton echoed the integration vision: “We anticipate caring for many more people in our systems with essentially the same level of net revenue we have today. That’s put a premium on consistency, reliability and eliminating rework. Our vision is that the only way to succeed in this new world is through a much more tightly integrated model with more coordination of everything that goes on in the system. We are all about integration. We are transforming systems of care through innovation, work redesign and automation. That is what really is driving us today.”

Bundled payments, accountable care organizations, medical homes and so on may turn out to be sustainable or famous flops, but the idea of payments based on value rather than volume is, I believe, here to stay.  A value-based payment environment will require greater focus on integration through alignment with physicians, information technology, and standardization around best practices, administratively and clinically.

Among my clients, the executive suite and corporate board understands the vital importance of integration, but is having a harder time convincing independent physicians (and even employed doctors) and the trustees of subsidiary hospitals that integration — being able to act as one to deliver quality and value to the patient and community — requires changing business as usual. Van Gorder’s and Hinton’s message is one they would be wise to hear — and heed.

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Annual Executive Compensation Survey Is Out

Hospital CEO compensation is moderating, as a result of a tough economy, increased transparency and closer public scrutiny, according to the annual survey published by Modern Healthcare and Sullivan, Cotter and Associates. Median total compensation of CEOs of health systems rose just 2.6% in 2010, and 0.2% last year — way down from 9.7% in 2008.

But that hardly means boards can breath easy thinking regulators will be satiated.

To the contrary, attorneys general in New Hampshire and Massachusetts are looking at CEO pay. The revised IRS Form 990 (see Sullivan Cotter’s summary) will provide new fuel for tax examiners to assess not-for-profit hospitals’ compliance with tax exemption requirements.

Many observers believe that as the health care reform law kicks in and hospitals receive millions of dollars in revenues from previously uninsured patients, regulators will scrutinize and even try to cap hospital CEO pay. Don’t believe it could happen? Think about federal bailouts of financial institutions and subsequent targeting of executive pay.

The lesson for boards: Be sure you’re doing a thorough, objective job overseeing executive compensation and community benefit. Past issues of the Great Boards newsletter include articles on best practices to oversee executive compensation and community benefit, respectively, plus a summary of changes in the IRS Form 990. If your board hasn’t checked its policies and practices in these areas lately, or asked your general counsel or compensation advisor for an independent assessment, now would be a good time.