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Many healthcare organizations are transforming their traditional, insular operating structures to become more nimble and future-focused. What's more, their leadership and governance also are changing.
"The provider organizations experiencing the most substantial restructuring are those that are coming to market with some type of insurance product, because they are essentially creating a new, stand-alone business," says John Matthews, principal and U.S. healthcare and life sciences leader, KPMG Strategy, Chicago. Partially in response to the emphasis on accountable care and the shifting of financial risk to providers, several health systems have introduced health plans in recent years.
Even provider organizations without a health plan are restructuring in an effort to develop more regionally focused care teams or enhance their consumer engagement capabilities, Matthews says. "Many progressive healthcare organizations are starting to create nascent consumer insight capabilities, like what you might find in a consumer packaged goods company," he says. Unlike patient experience departments—which are also becoming more common in the industry—these functions are focused on understanding consumer behavior and motivation.
Changes in organizational structure are manifesting in various ways, including two of particular note.
Centralizing and professionalizing the board. Governance is evolving. "Today, boards in large health systems are starting to look more like corporate boards in other industries, comprised of senior business leaders who can help guide the organization on how to make investments and where to allocate capital," Matthews says.
Terri Welter, principal, ECG Management Consultants, Arlington, Va., agrees. "Increasingly, boards are looking at their composition and realizing they may need to add niche expertise," she says. "They know they need someone on the board who understands insurance and risk management. They also are looking for executives with IT and consumer engagement expertise."
At the same time, many community boards of smaller health systems are being subsumed into larger entities, which Matthews says is a consequence of transactions in which a larger health system acquires a hospital or smaller system. "Some organizations are developing transition plans in which community boards gradually cede their authority to a central board that is responsible for the overall enterprise," Matthews says. "This allows them to make decisions about where to shift capacity, which is difficult if you have many smaller boards. A centralized board also can determine whether to focus on developing certain service lines in particular areas, and whether to invest in physician practices and integrate."
Establishing physicians in leadership roles. The makeup of the C-suite also is evolving. "The most material leadership change I see is that more organizations are putting clinicians in senior executive positions," Welter says. "In particular, physicians are being asked to lead care model transformation, clinical informatics, and population health management initiatives."
The traditional CMO role is morphing into that of a chief transformation officer or chief clinical transformation officer, Welter says.
In contrast, Matthews believes the role of chief transformation officer could shift away from the clinical realm and into more of a human resources or change management function. "Eventually, the role could be more about how we drive the right incentives in the organization to create culture change," he says.
Philadelphia-based Jefferson, which includes Thomas Jefferson University and Jefferson Health, has restructured to support what its leaders call a more optimistic and entrepreneurial approach to academic medicine.
"The main reason why many in academic medicine are not as optimistic about the future is that they are relying on the old math—NIH [National Institutes of Health] funding, inpatient revenue, and tuition—for their success," says Stephen Klasko, MD, MBA, president and CEO, Thomas Jefferson University and Jefferson Health. "We believe success in the future requires new math, which focuses on academics, clinical care, innovation, and philanthropy."
In fact, Jefferson has restructured its organization along those four pillars, each led by a COO who reports directly to Klasko. The COOs meet regularly and explore opportunities to work together. For example, they might discuss how a large philanthropic gift could be used to purchase new equipment for academic research and to enhance clinical care, while at the same time spurring an innovative partnership with a technology company. "That would have never happened in a traditional academic medical center," Klasko says. "If a gift went to one area, like research, the other areas—clinical and innovation—would have never known about it."
Only 50 to 60 percent of each COO's compensation is based directly on the performance of his or her pillar, with the remaining compensation based on the performance of the three other pillars.
Klasko believes such incentives are key to fostering teamwork across the enterprise. "If you want to predict a hospital's performance in the future, look at the C-suite's incentives," he says.
Jefferson's restructuring is seen in other areas as well.
Hiring leaders to support innovation and transformation. As part of its restructuring, Jefferson has hired a new chief innovation officer who is committed to commercializing products and services and to establishing joint ventures with other organizations. The chief innovation officer also works with leaders in the academic pillar to create an appointments, promotions, and tenure committee based on entrepreneurship, which will provide a new career track for entrepreneurial faculty. (In most academic medical entities, if a faculty member chooses to build his or her career around inventions and innovations, advancing up the professorial ranks is difficult because the promotions committee has traditionally looked only at NIH funding, education, and traditional scientific achievements. At Jefferson, leaders are creating a track where one can advance to "professor of entrepreneur and innovation" via a different promotions pathway.)
Leaders at Jefferson also have hired new vice presidents for decision analytics and for telehealth and urgent care, along with adding the role of chief patient experience officer.
Building and reassessing partnerships. In the past two years, Jefferson has grown from a $1.5 billion, three-hospital academic medical center to a $4 billion, eight-hospital system, largely due to a merger with Abington Jefferson Health, Abington, Pa. Jefferson also has signed definitive agreements to merge with Philadelphia-based Aria Health and with Kennedy Health, based in Cherry Hill, N.J. "We have abandoned the traditional hub-and-spoke model of care delivery because nobody really wants to be a spoke," Klasko says. "Instead, we have adopted a 'hub-and-hub' model, in which most care is delivered out in the communities."
In 2014, Jefferson financially decoupled from Main Line Health, a four-hospital system based in Bryn Mawr, Pa. "We were very different organizations, and we couldn't go on pretending we were merged," Klasko says. But all was not lost. Instead, Jefferson chose to focus on growing its accountable care organization (ACO) with Main Line Health. The Delaware Valley ACO, which manages nearly 100,000 Medicare lives, was one of the 10 most successful ACOs in the Medicare Shared Savings Program in 2014, earning $6.57 million in shared savings.
In 2015, NewYork-Presbyterian, New York City, reorganized into four major divisions. These include the main academic medical center, with six campuses that operate under a single provider number and board; a regional hospital network including three community health systems under active management; a physician services group; and a division focused on community and population health, which includes the organization's new ACO.
Phyllis Lantos, executive vice president, CFO, and treasurer, NewYork-Presbyterian, New York City, says her organization’s new regional hospital network division will help its community hospitals becomes best-in-class in each geography.
Moving to an "active parent" model. Previously, NewYork-Presbyterian managed its relationships with community hospitals as a "passive parent." The community hospitals operated fairly independently, although the boards included staff from NewYork-Presbyterian, says Phyllis Lantos, executive vice president, CFO, and treasurer, NewYork-Presbyterian.
However, leaders at "the parent" hospital soon realized they were not getting the benefits of consolidation that would ensure the long-term viability and ability of these arrangements to continue to meet the needs of the community. "We felt as board members we had responsibility for financial performance, but lacked control to effect timely change in the passive parent model," Lantos says.
Recognizing that the passive parent model was not working, NewYork-Presbyterian has since moved to an "active parent" model in which the community hospitals operate under a consolidated financial statement, Lantos says. Lawrence Hospital, now NewYork-Presbyterian/Lawrence in Bronxville, N.Y., became the first hospital to enter the NewYork-Presbyterian Regional Hospital Network under the active parent model in 2014. The organization since has moved two other community hospitals to the active parent model.
Strengthening integration. Under the new active parent model, several executives from NewYork-Presbyterian have moved into president or COO roles at the community hospitals. "It's not that we want to impose everything that we do on the hospital—that's not how integration works," Lantos says. "But it is about creating complementary cultures and becoming best-in-class in each geography."
Still, Lantos recognizes that moving to an active parent role means walking a fine line. "You're stepping gingerly to keep people engaged and enthusiastic about their institution while asking them to change," Lantos says. "You don't want to disenfranchise your community, so you need to maintain the integrity of a community hospital while collaborating on best practices that can improve quality and reduce costs. Furthermore, through integration, we have the opportunity to spread best-practice learnings between the academic medical center and the regional hospital network, with each able to bring their unique ideas to the table."
Organizing physicians. NewYork-Presbyterian created its new physician services division as a way to provide centralized billing, credentialing, and other support to physician groups in Westchester, Queens, and Brooklyn. Other goals were to provide an umbrella organization for integrating full-time faculty with independent community physicians and to improve access to specialists in the community. A new chief integration and network development officer leads the division.
University of Alabama at Birmingham (UAB) Medicine, Birmingham, Ala., restructured to emphasize a culture of safety and align goals and behaviors to enhance quality outcomes. Additionally, this approach supported enterprisewide initiatives focused on reducing costly practice variations and improving financial performance. A critical organizational care improvement initiative— "UAB Care"—engages clinical faculty in the redesign of care processes across the continuum and measures the subsequent impacts on clinical quality, patient satisfaction, and financial outcomes.
"In an environment predicated on transparency, quality outcomes are paramount," says Mary Beth Briscoe, CFO, UAB Hospital and UAB Medicine Clinical Operations.
Retooling infrastructure to focus on quality. UAB Medicine recently appointed its first chief medical officer, who leads the system's quality, patient safety, and clinical effectiveness activities. According to Loring Rue, MD, his role as CMO is "to better align our quality and patient safety efforts across the health system, and to promote value in our clinical practices." To this end, Rue seeks to establish synergies among existing resources, leverage technology to support clinical operations, and create joint accountability and buy-in among stakeholders. These activities are pursued through the UAB Medicine Program for Clinical and Operational Effectiveness, which was formed as part of the restructuring, and are supported by a newly established advanced enterprise analytics program.
"The demand for improved quality and enhanced operational efficiency was one of the key drivers for reorganizing our quality structure and approach at UAB Medicine," says Briscoe, who is also the former Chair of HFMA's Board of Directors. "As with most institutions, we had previously addressed traditional areas of organizational improvement. Effective organizational alignment coupled with our mandate for improved quality created a pathway for our clinical and administrative leadership to partner at a higher level. Collaboratively, key leadership actively pursued the reduction of practice variation and refinement of care processes, and facilitated organizational adoption."
For those care processes redesigned thus far, UAB Medicine experienced a reduction in length of stay, mortality, and variable cost per surgical case (see the exhibit below).
Impact of Care Process Redesign at UAB Medicine
Focusing on funds flow alignment. In 2014, UAB Medicine implemented a funds flow model that redefined the methodology by which dollars are invested in the departments of the School of Medicine to support the tripartite mission. To reinforce the advantages of physician and hospital alignment, UAB Medicine's funds flow model includes a value-based component. This component cascades from organizational pillar goals and emphasizes collaboration to attain quality, financial, and patient satisfaction goals. Additionally, the model is administered under a shared governance structure where revenue from the practice and the hospital are combined. An example of the shared governance structure is included in the exhibit below.
Funds Flow is Shared Governance
Creating alignment through organizational restructuring. To further organizational alignment, UAB Medicine also operationally restructured administrative responsibilities. Clinical operations were consolidated under the health system's COO, with senior vice presidents for inpatient care and ambulatory care responsible for day-to-day operations and coordination between the hospital and ambulatory clinics.
The objective was to create greater coordination of goals across the enterprise and to foster a culture focused on value-based medicine, Briscoe says. "It is evident in a reimbursement environment that rewards quality and efficiency that we are dependent on one another for success," she says.
What does it take for an organization focused on treating acute, episodic illnesses to transform into a true healthcare delivery company? Leaders at SSM Health, St. Louis, believe such a transformation starts with properly aligning the health system's resources, including in two key ways.
Building a cohesive physician and ambulatory services unit. As part of a 2013 restructuring, SSM Health created a physician and ambulatory services business unit that includes the health system's six employed medical groups in four states.
"What we have lacked is a way to see our assets, including our ambulatory assets, as part of a coordinated, reliable system of care," says Shane Peng, MD, president of physician and ambulatory services. Peng's role involves building the health system's capabilities to manage population health in the ambulatory setting and to reduce preventable healthcare costs, typically in the inpatient environment.
Creating a value-based care and payment task force. SSM Health has approximately 500,000 lives under some form of value-based contract, from fully capitated to shared savings to pay for performance. Peng leads a new task force focused on driving performance in the organization's shared savings and risk-based contracts. "The new task force allows us to reverse-engineer what we need to do to improve performance and realize opportunities from our existing contracts," Peng says. The task force includes senior executives such as the CFO, CIO, president of hospital operations, and senior regional leaders, who work together to assess opportunities in each contract.
"This initiative has already quantified existing value- based contracts to be worth millions of dollars, if SSM can achieve the optimal performance in these contracts," Peng says. "If achieved, the amount will flow into the bottom line of the organization.
"Once we understand the infrastructure necessary to perform well in these contracts, we will transition this task force into a more permanent infrastructure that will support value-based contracts moving forward," Peng adds.
Hospitals and health systems likely will add new talent and test new organizational structures as trends such as consumerism and risk sharing gain more momentum. Healthcare leaders who are restructuring proactively suggest the following strategies.
Stop making incremental changes. Jefferson's Klasko believes healthcare organizations need to quit focusing on the past and start asking, "What if?" At his organization, leaders model out various scenarios, such as what could happen if joint replacements become an outpatient procedure. "We need to be ready for a world that will need less inpatient beds," Klasko says. "In other words, we need to stop acting like Blockbuster did when the world was moving to Netflix."
Tread lightly. When restructuring involves changing the parent model of regional hospitals, Lantos, of NewYork-Presbyterian, stresses the importance of emotional intelligence. "You want to be sensitive and deliberate so you don't damage the relationship," Lantos says. "You also want to be humble and recognize that as the parent, you do not have all of the answers."
Reach across the aisle. UAB Medicine's Briscoe urges finance leaders to proactively approach collaboration with clinical leaders, particularly efforts focused on patient outcomes and clinical quality. "Our current and future roles in finance depend on strategic partnerships and teamwork with our clinical partners," Briscoe says. "Quality can be a strategic advantage for our organizations and is critical to our future financial and reputational success. Most importantly, quality care is what we owe the patients and communities we serve."
Use a dyad model to elevate physician leaders. In each of SSM Health's regions, the president of the hospital division is matched with the president of the physician division. SSM Health also uses a dyad model at the national health system level. "We operate as a singular unit to make sure what we do is balanced and puts the needs of patients at the forefront," says Peng, whose dyad partner is the health system's president of hospital operations.
As the healthcare industry becomes more consumer- focused, KPMG's Matthews believes many provider organizations will need to recruit talent from outside of health care.
"When life science companies were interested in becoming more retail-oriented in the 1990s, they imported talent from consumer goods companies," Matthews says. "I believe this will also happen in health care, with organizations hiring from consumer goods, retail, or even technology if they want innovation to occur," Matthews says.
In the future, providers could even test whether new leaders and structures can support a sales function. Such sales teams could be used to persuade payers to enter risk-sharing arrangements, sell health plans to the market, or directly contract with employers. As Matthews says, "For the first time, providers will need to know how to construct and communicate a value proposition for what they have to offer."
Laura Ramos Hegwer is a freelance writer and editor based in Lake Bluff, Ill.
Interviewed for this article: John Matthews, principal and U.S. healthcare and life sciences leader, KPMG Strategy, Chicago.
Terri Welter, principal, ECG Management Consultants, Arlington, Va.
Stephen Klasko, MD, MBA, president and CEO, Thomas Jefferson University and Jefferson Health, Philadelphia.
Phyllis Lantos, executive vice president, CFO, and treasurer, NewYork-Presbyterian, New York City.
Mary Beth Briscoe, CFO, UAB Hospital and UAB Medicine Clinical Operations, Birmingham, Ala.
Loring Rue, MD, chief medical officer, UAB Medicine.
Shane Peng, MD, president of physician and ambulatory services, SSM Health, St. Louis.
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