“If you’re looking to merge or to be acquired, you should do it to address the deficiencies that you see in your future ability to thrive,” said Ingalls Health System’s CFO Andrew Stefo. “You shouldn’t do it just because you think it’s a neat idea.”
Ingalls Health System, serving Chicago’s south suburbs, is a one-hospital system with annual revenues of more than $300 million. Ingalls just opened its fifth outpatient clinic, and about 55 percent of revenues now come from outpatient services.
That means Ingalls is well-positioned for the future, said Andrew Stefo, senior vice president and CFO. “We think ambulatory is where the profitability lies, and it dovetails very well with the accountable care philosophy, which includes moving to a more cost-effective model,” he said.
He and other Ingalls leaders believe that a health system’s size should be measured not by its inpatient capacity but by the number of lives managed and the effectiveness of that management. They used that perspective to consider how to grow—and decided that merging with another organization held little appeal.
A Thoughtful Analysis
Ingalls’ analysis considered these factors:
- The health system does not have daunting capital needs in the foreseeable future.
- It has already invested heavily in the IT needed to support population health management; Ingalls Memorial Hospital is on Hospitals & Health Networks’ Most Wired 2013 list.
- It has adopted Lean performance improvement to make Ingalls more flexible and adaptive.
Thus, for the foreseeable future, Ingalls’ board has chosen to remain independent. But that does not mean maintaining the status quo. “If you are going to remain independent, you are going to have to be more innovative than larger organizations,” Stefo said. “You cannot mirror someone who is bigger than you are and hope to survive that type of competitive landscape.”
The Power of Relationships
To address marketplace challenges, Ingalls has developed strategic relationships with other organizations. For example, Ingalls serves low-income neighborhoods that are associated with high 30-day readmission rates, leading to a nearly 1 percent penalty on Medicare revenues. Most of its local competitors have the same problem, which is exacerbated by the fact that patients bounce from one hospital to the next, making it difficult to track readmissions, let alone manage those patients’ care.
To address these issues, Ingalls teamed with four competing hospitals in one of the Community Care Transitions programs supported by the Centers for Medicare & Medicaid Services. Staff was hired by Catholic Charities to connect with recently discharged patients from all five hospitals to help avoid readmissions. At this early stage, the program looks to be effective, Stefo said.
In a bid to achieve scale without merging, Ingalls is also working with other independent systems across the Chicago market to build the Founders Network. Still under development, the network’s goal is to create a vehicle in which several health systems can jointly enter into shared-savings contracts with commercial payers without violating antitrust laws.
Ingalls also recently became an affiliate member of Catholic Contracting Group (CCG), an alliance of six Catholic health systems that combine their purchasing power to get the best prices from their group purchasing organization. In addition to lower supply prices, CCG also helps its affiliates narrow the range of orthopedic implants and other physician preference items they purchase. The CCG relationship helps Ingalls communicate with its physicians about how the standardization of devices and implants both improves quality and reduces costs. In the first year, Ingalls saved more than $800,000 on physician preference items.
A Future Vision
As the healthcare industry restructures itself, the forces encouraging consolidation are not likely to dissipate soon, and every organization’s board should analyze the options and set the strategic direction. A wait-and-see approach may allow competitors to decide an organization’s fate.
“As I have told our board, if you want me to sell the hospital, I could write a work plan for that. If you want me to merge, I could write a work plan for that. If you want me to acquire another provider, I could write you a work plan for that,” Stefo said. “And if you want to remain independent, there is a work plan for that, and we have to be very realistic about what that means.”
Even as Ingalls leadership works its stay-independent plan, Stefo constantly monitors the competitive landscape, prepared to pivot if changes occur that jeopardize it. “We are very sensitive to the fact that the local marketplace is very fluid,” he said. “You have to continually reassess what’s going on and whether the tactics that you had adopted 18 months ago are still appropriate.”
Lola Butcher is a freelance writer and editor based in Missouri and a regular contributing writer to Leadership.
Quoted in this article: Andrew Stefo is senior vice president and CFO, Ingalls Health System, Harvey, Ill., and a member of HFMA’s First Illinois Chapter.
This article is an excerpt from a longer feature on mergers and affiliations that will appear in the forthcoming Fall 2013 Leadership magazine.
Publication Date: Thursday, October 17, 2013