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.

Webinar, Resources on Accountable Care Organizations

The Governance Institute has announced a new webinar on “Accountable Care Organizations: The Challenge of Setting Strategy amid Uncertainty.” The webinar will be broadcast Wednesday, September 22, 2010, from 2 pm – 3 pm Eastern time. The 60-minute program will include a live question and answer session. 

Registration is free to members of The Governance Institute and $295 for non-members. To register or for more information click here.

The presenters will be two highly experienced healthcare strategy  consultants: Don Seymour, president of Don Seymour & Associates and Governance Advisor, and John Harris, Principal, DGA Partners.

What’s an ACO? Accountable care organizations (ACOs) are networks of physicians, hospitals and other providers that work together to improve the quality of health care services and reduce costs for a defined patient population.

What’s new? The health reform law establishes a “Medicare shared savings program” for ACOs, to begin no later than January 2012. The law says ACOs are not just a demonstration or pilot project; contracting with ACOs will be a permanent option under Medicare. If they take off, ACOs could accelerate the trend of Medicare paying providers based on value rather than volume. Private payers might take similar approaches. However, Medicare has yet to define many specifics of the program, leaving providers unsure how to proceed. And some integrated delivery models, such as the Greater Rochester Independent Practice Association (GRIPA) have invested in developing clinical integration but found few private health plans would contract with them.

How to respond? Highly integrated providers such as Kaiser, Geisinger, Mayo, and Advocate are already well-positioned to respond when the Medicare program begins.

Most hospitals and physician groups, however, are at an earlier stage of integration and must evaluate what the ACO program means for them. Put bluntly, will Medicare’s shared savings program offer providers sufficient benefits for improved quality and efficiency to justify their investment in the infrastructure needed for integration, from information technology to physician alignment? A pilot group involving ten medical groups had mixed results, but a final report has yet to be released.

For more information on ACOs, check out these resources:

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.

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.

Is the Board Increasing the Organization’s Risk of Criminal and Civil Penalties?

That’s the provocative title of the Health Care Compliance Association’s Audit & Compliance Committee Conference, scheduled for May 20–21, 2010 in New York City.

According to HCCA, “in the current enhanced enforcement environment, a board member’s responsibilities don’t end with due care.  If a compliance failure occurs, the organization’s penalties could be substantially higher if the board can’t demonstrate that it is knowledgeable about the content and operation of the compliance and ethics program.”

Conference topics include:

  • The fundamentals of healthcare accounting and compliance
  • Key healthcare compliance risk areas
  • Tax exemption challenges
  • Building an effective relationship with internal audits
  • Compliance risk assessments
  • Crisis management

For information, go the Great Boards website or to or call 888-580-8373.

You can also find summary of new compliance requirements for tax-exempt hospitals, prepared by the law firm of Hogan & Hartson, on the firm’s website.

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.

New Issue of Great Boards Newsletter Addresses Clinically Integrated PHOs and Board Portals

The winter issue of the Great Boards newsletter is available now at The issue features two articles:

  • Clinically Integrated Physician-Hospital Organizations (PHOs). PHOs are getting a fresh look as a vehicle to integrate hospitals, employed physicians and independent practices around quality and financial goals. Great Boards chronicles two clinically integrated PHOs—one of the longest running, Advocate Physician Partners (APP) in Chicago, and one of the newest, TriState Health Partners (THP) in Hagerstown, Maryland.

APP is a success story. It has contracts with 10 health plans and paid out more than $28 million in incentives last year to physicians who achieved quality goals in more than 30 improvement initiatives.

THP recently received a favorable ruling from the Federal Trade Commission as it launches a similar effort to unite the local hospital, employed physicians and independent docs in a clinical integration program.  THP hopes to sign contracts with local health plans that will reward providers for providing better care.

With payment reforms from Congress on the horizon, PHOs are coming back from the dead as a mechanism to align hospitals and physicians into accountable care organizations.

  • Using E-Governance to Make Board Work Easier. More and more boards are getting computer-savvy. They’re adopting so-called “board portals” to deliver materials to directors electronically and thereby expedite information flow between the hospital and its board, between subsidiaries and their corporate parents, and among board members themselves.

What is a board portal? It’s a Web-based, online workspace devoted exclusively to the board. It offers directors confidential access to board materials, past and present, and provides tools that make it easier to prepare for board meetings. In this article and an accompanying Buyers Guide (under “Current Issue”), my colleague and governance consultant Linda Battaglini talks to users, describes the 10 essential features of board portals, and compares four commercially available products. Don’t buy or build a board portal unless you read this!

Read and download the winter issue now.