Hospital consolidators need to take accountability for results

As hospital consolidation increases and health systems grow, some researchers and policy makers are airing concerns that hospital mergers actually increase healthcare prices and don’t deliver promised savings to their communities.  As an article co-published by Kaiser Health News and The Washington Post, “As Hospitals Consolidate, They Get Pricier” put it, “The Federal Trade Commission found rapidly rising prices in some markets after hospitals joined.”  The Federal Trade Commission’s view is that “the increasing consolidation of hospital markets (is) of national concern. “

My view: Big health insurers have gotten a bye on anti-competitive consolidation, and they have the upper hand negotiating with independent hospitals and small systems, which have have no pricing power for the bulk of their other business with Medicare and Medicaid.  So hospital consolidation and physician integration merely level a presently unequal playing field.

That said, resistance to mergers from insurers and skeptical regulators will grow. Hospitals that seek to merge need to do more than make the legal case to regulators that consolidation isn’t anticompetitive. They will have to take a value proposition, not merely market clout, to payers at the bargaining table.  They will need to take a community benefit case to the public and also be willing to accept accountability for merger results.  To be precise, merging hospitals will need to demonstrate they are successful in delivering on their promises to increase efficiency and improve the quality and value of their care.

One model: The “certificate of public advantage (COPA)” issued by the State of North Carolina to the Mission Health System in Asheville, NC.  The COPA requires the health system to file financial reports with the state every year showing its keeping costs in line. Mission has done a good job and is ready with the facts to prove it. Others will have to do the same.

Hospitals in Distress Find Success

Hospitals that have a challenging payer mix can in fact achieve profitability.  That’s the finding of a new study done by the University of California, Berkeley and funded by the California HealthCare Foundation.  Leadership teams at five such California hospitals identified five key, interdependent factors as the primary contributors to their financial success:

  • Quality: strengthening the hospital’s negotiating position with payers
  • Strategic Growth: increasing the volume of patient services
  • Management discipline: intense monitoring and control over expenditures and efficiency of operations
  • Culture: establishing organizational values and beliefs supportive of collaboration, trust, achievement and accountability
  • Relationships: developing strong, positive hospital-employee and hospital-physician relationships

My view: These strategies apply in any market, they’re just more important with a poor payer mix.  Although healthcare reform promises broader coverage for the uninsured, if that happens, reimbursement rates are likely to be insufficient to sustain safety net providers.  That’s already happening in Massachusetts, according to an outstanding analysis by the Center for Studying Health System Change.  Low state rates are jeopardizing safety net providers like Boston Medical Center.  So these case studies are compelling, but for many hospitals serving poor communities, strategic partnerships and improved relationships with state Medicaid officials will be equally critical.  Directors can help build both of these bridges.

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.

Spring Issue of Great Boards is Available

The spring issue of the Great Boards newsletter is available on the Great Boards website.  Here’s a summary:

The Board’s Role in Compensation Oversight for Employed Physicians

In August, 2009, Covenant Medical Center of Waterloo, Iowa, agreed to pay $4.5 million to settle allegations of healthcare fraud arising from its financial relationships with five employed physicians.  The Covenant case has drawn increasing attention to how hospitals should determine appropriate compensation for employed physicians, and how hospital boards should oversee physician compensation.  We consulted an expert, Dan Grauman, president & CEO of DGA Partners of Philadelphia.  DGA’s consultants help healthcare organizations and their legal counsel to document and determine fair market value of physician compensation, and to structure equitable compensation for employed physicians.

“Boards should consider forming Physician Compensation Committees,” says Grauman. “They need to develop a physician compensation policy, including specific guidelines on the process of determining appropriate compensation for each and every physician.  The committee should also set policies pertaining to the actual physician compensation models, in terms of mechanisms used to compute compensation. Once the board committee has developed guidelines and standards, they should be reviewed annually for consistency with fair market value.  If certain physicians appear to be paid more than fair market value, the committee should ask whether there are reasons that explain these anomalies, or else require plans to correct the situation.”

Applying Sarbanes Oxley to the Board’s Quality Oversight Role

Could applying key elements of Sarbanes-Oxley to hospital boards’ responsibility for oversight of clinical quality improve the board’s effectiveness? The idea has merit, argues David B. Nash, MD, MD, Dean, Jefferson School of Population Health and an expert on quality who has chaired a large health system’s board quality committee.

In this commentary, Barry Bader draws on Nash’s suggestion and offers eight SOX-styled practices that could enhance board oversight of quality.  Food for thought.

Focusing Boards on the Right Quality Measures

Hospital and health system boards are being overwhelmed by a multitude of quality indicators.  Some liken the situation to the biblical Tower of Babel.

Great Boards editor Elaine Zablocki interviews leaders about how they are rethinking the most important quality measures for boards to review.  Among the major themes she’s hearing are these:

  1. Boards are replacing narrow measures with indexes and “big dots,” such as severity-adjusted system-wide mortality, designed to capture a great deal of information in a single number.
  2. Measures are more specifically linked to the strategic plan. The largest health systems are defining system-wide areas of quality focus, while also encouraging regions and hospitals to develop independent plans and metrics for specific improvements within those areas.
  3. Increased emphasis is being placed on reducing preventable injuries and deaths.
  4. Boards are asking for quality measures to be displayed in more powerful dashboard formats that combine increased information with a simpler graphic format.

Download the new issue of Great Boards now.


The fall issue of Great Boards includes articles on public transparency and problem prevention techniques.

First, we look at how charitable organizations are responding to outside pressures for greater transparency by providing more and more information to the public on their executive pay, community benefits, quality, prices and governance practices. More important we asked hospitals and health system leaders if all the exposure made any difference? Surprisingly, it does. We heard stories of better media relations, increased trust from business and government leaders, and increased public use of hospital websites. As Joel Wernick, President and CEO of Phoebe Putney Health System in Albany, Georgia, said: “You can put a lot of criticism to rest pretty darn quickly if you just make information easily available.”

Next, I interview Michael A. Roberto, author of a fascinating and practical new book called, “Know What You Don’t Know: How Great Leaders Prevent Problems Before They Happen.” Roberto applies his seven techniques to governance and suggests some ways boards can work creatively and proactively to support management.

Read both stories on the Great Boards website at