June 17—Moody’s Investors Service is seeing 5 to 10 percent declines in volumes in various markets in the country, Lisa Goldstein Moody'swith some areas experiencing 12 percent declines—unlike anything Moody’s has seen before. In a fee-for-service world, the downward trend is putting increased pressure on hospitals and health systems, which are already investing resources in the transition to a more value-based payment system. 

Moody’s has added new indicators looking at how hospitals are being paid (e.g., capitation, per diem, risk-based) as well as number of covered lives, readmission rates, physician employment—indicators that will help track the transition to value-based payment, Lisa Goldstein, associate managing director for Moody’s, told healthcare finance professionals during a featured speaker session Monday at ANI: The HFMA National Institute. 

Creating value—the focus of a new report from Moody’s, published in May—outlined four management objectives that Moody’s is seeing emerge in hospitals around the country as hospitals work to create value and prepare for the new healthcare environment. 

Achieve breakeven performance with Medicare rates. Action steps include the following:

  • Compute the financial “gap” that would exist if all patients were paid on Medicare rates.
  • Develop multi-year cost reduction strategies that go beyond low-hanging fruit and challenge historical business models based on volume.
  • Open lower-cost clinical decision units for observation-stay patients.
  • Coordinate better discharge planning with patient and family members.

Build scale through nontraditional methods. Considerations include the following:

  • Optimal size can be different depending on location, services and mission
  • The rating impact of nontraditional consolidations will vary based on capital needs and impact on performance.
  • What efficiencies and economies of scale can be gained through nontraditional methods?

Initiative examples of nontraditional methods highlighted included Walmart’s designation of six centers of excellence for associates; the BJC Collaborative, which brings together four sizable healthcare systems for shared savings through group purchasing and shared best practices; Aspen Valley Hospital’s participation in the Western Health Alliance, a network of rural hospitals to achieve savings (again, through group purchasing); and Novant Health’s shared savings and services model with community hospitals. 

  Improve the patient experience. Action steps include the following:

  • Expand the care team with physicians, physician assistants, and nurses, especially for chronic condition patients.
  • Open urgent care access points and expand hours.
  • Establish “care navigators” to ensure patients get post-acute care.
  • Execute service contracts with physicians to ensure service standards are met.
  • Partner with local employers to manage utilization in lower-cost settings (sometimes in the plant or on the corporate campus). Today, the corner drug store down the street is the new competition.

Cultivate informed leadership. This indicator is harder to measure, but perhaps the most important to consider, Goldstein says. Five factors looked at in all cases are the following:

  • Market position (45 percent)
  • Legal security and debt structure
  • Operating performance/P&L performance (30 percent)
  • Balance sheet and capital management (25 percent)
  • Management and governance

The three factors above with percentages make a balanced scorecard, as they total 100 percent; the two other factors are hard to measure when they come into play, and they can drive a rating higher or lower. In terms of governance, it’s a whole new day for hospitals and health systems: Individuals with process engineering, manufacturing, and consolidation experience are now being added to hospital boards of trustees. Moody’s also looks at the extent to which leaders are evaluating all services and facilities for repurposing, the extent to which they are considering potential partners, and the degree to which they are assessing the business model for the organization.

Publication Date: Monday, June 17, 2013