Transformation of US Healthcare

Last week, I received a publication from our external auditors, KPMG.  The publication was entitled, "The Transformation of US Healthcare."  From time to time, it is especially helpful to check how we are doing against others in the industry.  The report identifies six key industry change characteristics that all hospitals should be focusing on and they are as follows: 1) Shifting reimbursement from fee for service to value based; 2) Increasing provider consolidation; 3) Changing sites of service; 4) Enhancing consumer engagement; 5) Transitioning to wellness and prevention; 6) Disrupting new market entrants.

 At WMHS, we have embraced all of these characteristics.  We are now paid under a value-based model as part of the Total Patient Reimbursement (TPR) model and will eventually evolve to a population health model.  We also continue to work with our physicians and advanced practice providers on clinical integration and provider accountability.  We have also embraced a new care continuum whereby we are treating patients in the most appropriate setting; not simply admitting everyone and caring for them in the most expensive setting whether they needed it or not.  Our patients, like patients across the country, have become much more engaged in their care and are fast becoming tech savvy in their interactions with us and their providers.  At WMHS, we have embraced community health and wellness across the system and can see improvements in the health and social needs from last year to this year.  Lastly, we continue to see new entrants into the health care market whether they are surgery centers, urgent care centers, entrepreneurial focused physicians, private companies and the list goes on.  Everyone is trying to find their niche, as well as maximize their income, in an ever changing environment.  The bottom line is that we are very good shape going forward in preparing our health system for tomorrow.

Projected Job Loss in Maryland

Under the current Federal budget projections, Maryland could lose almost 13,000 jobs in health care over the next eight years.  As I wrote in yesterday's blog, there are projections of over three quarters of a million jobs lost nationwide in health care over the same period.   As the Federal and state governments attempt to rein in health care spending, they will reduce payments to hospitals, doctors and other providers.  In our case, those reductions have already started in Maryland and have impacted WMHS.  With job loss numbers of that magnitude projected nationally and in Maryland, it will eventually have a trickle-down effect on other businesses that serve health care, as well.  It looks like we are in for a rough ride unless something miraculous happens.

We're Not Alone

The trade journal for our industry, Modern Healthcare, had a recent article entitled, "Staff Cuts - Industry claims that fed's debt reduction plans will lead to massive layoffs" and it certainly hit home.   After what was announced yesterday at WMHS that we would be separating around 20 employees from the system, but all tolled eliminating 95.1 positions of our 2200 positions, the article was very timely.  For 2013, the job loss numbers are projected to range anywhere from 250,000 to 766,000 with hospitals suffering the greatest loss.  The article noted that hospitals across the US are streamlining operations in preparation for spending cuts in Medicare.  My blog of September 14th, the State of the System, laid out the challenges that we have been experiencing as well as what is on the horizon for WMHS.   The State of the System report served as a backdrop for the actions being taken this week. These are not easy times, but certainly we have an obligation to our community to ensure that we are providing health care in a way that we enhance quality, reduce cost and improve the overall health status of the community.

A Very Challenging Week at WMHS

Today and continuing the rest of this week, we are impacting the lives of a number of people at WMHS as we implement some changes that will result in staffing reductions.  We have worked very hard to minimize the number of employees who will be separated from the organization; however, even if one individual is separated, it is too many. 

In anticipation of these staffing reductions, we have kept vacant positions open to the extent that we could throughout the year in an effort to eliminate as many positions as possible and not affect people.  Fifty-four full and part-time positions have been eliminated, saving the equivalent of full-time 40 jobs.  Another 35 employees will have their hours reduced.  When it's all said and done, around 20 employees will be eligible for other vacant positions that have been held open and another 20 employees will be separated from the organization and offered severance benefits.  This will be a difficult week for our staff as well as our department directors and managers.  

We have been asked why this process took so long.  That is an easy answer.  Our goal from the onset was to minimize the number of employees impacted.  We could have rushed through the review process and affected a lot more individuals, but we chose to be more deliberate.  My apologies to the staff of WMHS for not communicating our staffing changes sooner than this week.  I know the stress that many of our employees have experienced by not knowing what was going to happen.  But, I stand by the process that we used.

These will continue to be challenging times for hospitals.  We were not the first to separate staff and we won't be the last, but I would like to think that we acted in the best interest of our staff, as well as our community, by being as methodical in the process.

State of the System

Each year, just as the President of the United States does a State of the Union, I do a State of the System report for WMHS.  I have attached that report which addresses a very challenging Fiscal Year 2012, our plans for FY 2013, my prediction for the next several years to come and how we are responding to very dramatic changes to the health care industry.  I hope by reading this report, you will get a better understanding of the challenges facing WMHS and our industry as a whole.

I will be taking the next two weeks off from blogging as I will be traveling.  I look forward to resuming The Ronan Report on October 1, 2012.

State of the System

A Summary of Today’s Healthcare Environment

From Barry P. Ronan, President and CEO

September 2012

 

It has become obvious that health care spending is unsustainable at a federal level given record high deficits and at a state level with balanced budget pressures.  The Western Maryland Health System has begun to ensure that we are appropriately prepared for the changes ahead.  We are moving forward to be better positioned under health care reform, placing greater emphasis on integration, accountability, and better coordination of the delivery of care.  For the last year, we have been focusing on the Triple Aim of health care reform: improving quality, reducing cost, and improving the overall health of our community.

During Fiscal Year 2012, we saw an increase in underinsured and uninsured patients, especially those whose insurance coverage has either run out or their employers are increasing their co-pays and deductibles.  This has resulted in record amounts of bad debt and charity care for the Western Maryland Health System.  During the same year, we also saw an increase in supply costs; higher costs for physician recruitment and retention; provider taxes being assessed by the state on hospitals, including the Western Maryland Health System; and a decline in overall reimbursement. 

When these changes were anticipated for FY’12 and FY’13, the Western Maryland Health System took the opportunity offered by the state in 2011 to participate in a ten-hospital demonstration project called Total Patient Revenue (TPR).  TPR provided us the opportunity to work within a global budget to increase the value of the care and services that we provide.  We focused on decreasing the volume of services, tests, and procedures provided while improving quality and efficiency in the delivery of patient care.  At our most recent System Board meeting, we were able to demonstrate that our financial situation for FY’12 would have been far worse under the previous fee-for-service payment model.

In addition to all of these changes occurring, the long-standing rate regulatory system, from which our health system benefits greatly (usually in excess of over $15 million per year) is in jeopardy of being lost in Maryland.  As a result, the Western Maryland Health System experienced only a .21 percent increase in its rates in FY 2013. 

There is also greater risk, as well as reward, through the quality-based reimbursement and potentially preventable complications programs in Maryland. Maryland hospitals that do really well related to core measures, patient satisfaction, and complications avoidance are rewarded, while those that see little to no progress are penalized.  In 2011, the impact was a $1.2 million reduction in our rates.  For fiscal year 2012, we have made considerable progress in each area (patient satisfaction; core measures; and reduced complications, such as falls, pressure ulcers, and infections).  We have improved our position, resulting in a gain of almost $300,000 in rates and a $1.5 million turnaround from last year.

All of the changes facing our industry, as well as those that the Western Maryland Health System has experienced, have had a substantial financial impact.   Our expense for bad debt and charity care increased in excess of $5 million, and there was an unbudgeted Medicaid assessment of $500,000.  Not qualifying for an anticipated Medicare drug program resulted in a $2 million loss for the health system.   The need to expand our primary care practices with physician and advanced practice professionals added cost in excess of $1.5 million.   All of these factors contributed to a double-digit million dollars’ loss from operations for FY 2012 for the health system. 

Some might say that our financial situation is related to building the new hospital, and I can assure you that is not the case.  In fact, our costs, especially for labor, would be significantly higher without the benefit of our advanced technology, the centralization of our services and the state-of-the-art automation system wide on our new hospital campus. We continue to meet all of our required payments as well as bond covenants month after month. 

The failed economy is the direct cause of our financial issues.  The federal government’s commitment to rein in Medicare spending and the state’s balanced budget requirement have impacted our revenue both directly and indirectly.

To ensure that the Western Maryland Health System does not experience a similar loss in FY 2013, the health system has engaged in a significant expense reduction/revenue enhancement initiative through the assistance of two national firms.  The health system continues to focus on expense reduction in areas of labor management and physician preference supply items, such as orthopedic and cardiac implantables, through Premier.  We also engaged the services of Grant Thornton to assist us in physician practice improvements by increasing the number of visits in each practice and clinic and improving our revenue picture for the overall physician practice enterprise.

During Fiscal Year 2013, the health system has projected an admission decrease of almost eight percent due to a change in how we deliver care; again focusing on the value of the patient experience, not the number of days in the hospital or the volume of tests or procedures received.  We have substantially improved quality and successfully reduced readmissions of patients by focusing on a more longitudinal approach to discharge planning, more individualized patient education, and increased referrals to our Care Link and Home Care programs. 

We have also reduced potentially preventable conditions system wide, improved case management of our frequent patients to our ED, opened a heart failure clinic to better treat patients in a clinic setting and prevent admissions, expanded primary care in the region, introduced observation beds to eliminate one-day patient stays, improved reconciling of patient medications, reduced the length of stay for patients, planned for the opening of a new Diabetic Medical Home program in October, and introduced the nursing home transitionist to reduce unnecessary admissions and readmissions from area nursing homes.

We will also continue our commitment to better quality, reduced cost, and doing what is right for our patients in FY’13.  Our goal is to position this health system so we are able to sustain the anticipated financial challenges ahead.  In order to get health care spending in line, we are expecting reductions in our rates of 2 to 3 percent each year over the next 5 years, resulting in a $30 million to $45 million decrease in payments.  We will also work with patients to reduce risk factors associated with poor choices, such as an unhealthy diet, smoking, excessive drinking, and a lack of exercise.  Our focus is a healthier population. 

The time is now for all of our partners to work together to meet the Triple Aim of health care reform and for WMHS to be appropriately positioned to withstand the current and future financial challenges.

Care Wastes $750 Billion Per Year

Last week, there was a story in all of the major media outlets regarding US health care wasting $750 billion per year.  That is approximately 30 cents of every health care dollar.  The culprits are needless care, outdated paperwork, fraud and other waste according to the Institute of Medicine (IOM).  The US has seen a virtual explosion of technical advancements in medicine and yet our outcomes don't reflect it. 

Now for the rest of the story.  What IOM fails to describe is a national payment system that has been driven by volume not value, at least until recently for some of us; the practice of defensive medicine due to little to no protection for physicians in many states including Maryland; outdated paperwork required by our government (in some cases paperwork that can only be completed on a typewriter, talk about byzantine) and a demonstrated lack of guidelines and requirements for the practice of medicine on the part of physician groups and associations, again, at least until recently.  Can the health care industry make a dramatic impact on such "waste?"  Of course, but it takes a village.  At WMHS, we have done some amazing things to improve quality, address over utilization, reduce readmissions, address unnecessary admissions, enhance patient education and the discharge process, case manage high utilizers of our ED and other services and the list goes on.  Our health system is now paid on a value- based payment methodology; however, many of our physicians are still paid on the fee-for-service or volume-based payment system.  We have seen a dramatic turnaround in the last year alone in addressing what the IOM calls waste and poor quality.  There has to be a more dramatic, concerted effort across government and our industry before any substantial savings can result throughout the health care industry.  However, it continues to be extremely satisfying to know that WMHS is so far ahead of the pack in this instance.

Listening to Facilitate Change

I just read an excerpt from Margaret Wheatly's book, "Turning to One Another: Simple Conversations to Restore Hope for the Future."  In it, she describes the need for our willingness to be disturbed.  She writes that we need to have our beliefs and ideas challenged by what others think.  We also have to be able to admit what we don't know although we have never been trained to do so.  Most of us have been trained to state our opinion as if it were true.  To this point, we felt that we haven't had the time or the interest to listen to those who think differently.  Unfortunately, our worlds have become exceedingly complex and it is sometimes very challenging to understand its complexity.  In this day and age, we have to listen to others and listen to what they have to say.   As you enter into a conversation, try to listen for what's new.   Usually, we listen for differences because we don't want to change.  We like our comfort zone; if we have to change, that requires energy.

In order to be successful today, we have to move beyond our comfort zone into what Ms. Wheatly calls that "very uncomfortable place of uncertainty." She continues, "of course it's scary to give up what we know, (but) great ideas and inventions miraculously appear in the space of not knowing."

As health care changes and reform continues to evolve, the last thing that we want to do is to keep struggling through it; we need to listen to what is changing and adapt to how such change can benefit our patients, our physicians and each other.