Keith D. Moore
Dean C. Coddington
Is your governing board ready for an increasing share of revenues coming from value-based payment? Are board members taking a passive role, or are they "intentional" in their focus on what changes will be required? Are they involved with physicians as well as the hospital part of the organization? Are they demanding financial projections and "what if" scenarios for planning?
CEOs and CFOs of hospitals and health systems, employers, commercial payers, and government payers all share a common view about the general direction of change affecting the nation's healthcare system. They see a movement away from fee-for-service, and a movement toward rewarding health networks of providers for higher quality and lower total costs per capita.
But it should not be a foregone conclusion that boards of U.S. hospitals and health systems always share this perception. When contemplating the role of governance in preparing for value-based payment, healthcare executives should consider three points:a
- Whether the board is aware of the likely changes in the payment environment and the implications of these shifts
- Whether the board requires new areas of focus and new forms of business intelligenceb
- Whether the board is asking the questions it should be asking to reposition the organization
Board Awareness of Value-Based Payment
The CFOs of almost all of the 35 organizations we contacted via telephone during Phase II of HFMA's Value Project said that their management teams had made it a high priority to brief board members about potential changes in the payment environment and the financial impacts of these changes. During site visits, the board members we interviewed were conversant with the concept of value-based payment and had initial thoughts about how it might affect their organizations.
As the board chair of one rural New England hospital expressed it, "We talk about payment reform all the time. We don't do it with a sense of fear; we do so with a sense of opportunity."
But some board members had concerns. The board chair of a southeastern hospital commented: "I worry about things that are out of our control-readmissions, patients not following directions. We could be hurt financially if this happens."
These board chairs did not have much information about care outside of the acute care setting, and they did not have the benefit of financial modeling-scenario planning or pro forma projections-of the impact of changes in payment. They put their confidence in the CEO and members of the management team, as well as the organization's overall ability (based on past experience) to respond to change. And the same observations tended to be true for board members in health systems of all sizes.
In sum, governing boards tend to be aware of the basic concepts of value-based payment, but most lack the business intelligence needed to understand and visualize the extent of the work ahead.
Board Focus on Quality and Total Patient Costs
A Minnesota hospital's strategic planning process starts with the board. Its key strategic goals are organized around the triple aim (i.e., improving quality and outcomes while reducing costs), with an emphasis on patient satisfaction, quality and cost indicators, and community health. To assess quality, the board looks at metrics such as adverse events and various quality rankings. The goal is to be in the top 10 percent of performance on these metrics.
Another hospital with an advanced clinical information system allows the board, physicians, and staff to look at charges per physician and length of stay by physician. The staff member in charge of the clinical side of the hospital said: "We can compare our performance against national averages. We create quarterly scorecards, including scorecards that reflect C-section rates, falls, and babies born before 39 weeks. We can look at triage levels. We can look at any indicator of clinical quality you can think of." She noted that the board receives reports on quality every month, and board members review the data carefully.
These two examples are typical of strong board movements into inpatient quality improvement. However, boards and management teams expect to be increasingly involved in and responsible for ambulatory quality. Today, most lack the integrated clinical and financial data they will need to approach this task.
As expected, we found that board members understand the financial position of their organizations, and they understand that they have to cut inpatient utilization and costs. Most hospital CFOs surveyed describe their cost structure to their boards in terms relative to Medicare payment rates. A typical comment: "Our cost structure is 15 to 20 percent above Medicare payment rates, and we need to bring our cost structure down closer to Medicare rates."
One rural hospital we visited was making money on Medicare, but it was the exception rather than the rule.
Hospital and health system boards are making progress with respect to outpatient costs. Health systems that employ their own physician groups understand the acute care costs of employing physicians. However, most do not have sufficient data on total physician costs (to payers) of their network, the corresponding revenues to the hospital or system, utilization of outpatient services, or the potential for caring for patients in less costly settings. Many board members regarded filling these information gaps as a high priority.
In sum, many boards have added inpatient quality to their knowledge and business intelligence toolkit. However, almost every organization has significant gaps-including a lack of data to manage utilization, quality, and care in the ambulatory and home settings.
Questions for Governing Bodies
Although most boards understand the key concepts, the levers they have to improve performance tend to be rudimentary, at best. Board members can gain a much-needed perspective by asking seven questions in the days ahead:
- Are the economics of the ambulatory side of the business (physician organization, physician and other ambulatory leadership, cost structure, utilization, performance improvement strategy, growth strategy) understood and being improved?
- Are there business intelligence systems in place or under development to support integrated inpatient and ambulatory decision-making, and to manage the total quality and costs of care?
- Are governance changes needed? For many organizations, the overall governance structure may need to be examined. For example, some of these responsibilities should be undertaken by network boards-including physicians and other providers involved in the overall care process.
- Does the organization have the capital structure and capital access needed to weather the transformation from fee for service to value-based payment?
- What are the right contracting and change-management strategies for the organization to learn how to perform under new payment approaches?
- How does the organization's scorecard change when monitoring performance in a value-based payment world?
- Given that many of these activities can benefit from economies of scale, should the organization tackle these issues in its current form, or would there be compelling advantages to developing connections through mergers, partnerships, joint care networks, or other means?
The Road Ahead
Most agree that different forms of value-based payment are here to stay and will be increasingly important. However, most boards do not have the benefit of pro forma financial projections of the impact of these changes, and analysis of what healthcare organizations must do to prepare for them. It is in this area that CFOs and governing boards are most likely to interact in the years ahead.
Keith D. Moore is CEO, McManis Consulting, Denver (firstname.lastname@example.org).
Katie Eyestone is a senior consultant, McManis Consulting, Denver, and a member of HFMA's Colorado Chapter (email@example.com).
Dean C. Coddington is a senior consultant, McManis Consulting, Denver, and a member of HFMA's Colorado Chapter (firstname.lastname@example.org).
a. The viewpoints described here come primarily from results of Phase II of HFMA's Value Project, which included two large surveys of HFMA members, interviews with a dozen payers, telephone interviews with 35 provider organizations, and two-day site visits with 10 organizations.
b. Business intelligence is defined as the ability to collect, analyze, and connect quality and financial data to support organizational decision-making.
Publication Date: Monday, December 03, 2012