HFMA VIEWS

Scott MacStravic, PhD

Employee turnover is known to cost employers, including healthcare organizations, huge sums in replacement costs, to say nothing of creating difficulties with current staff, due to involuntary overtime, overwork, quality problems, and similar effects of not having a full complement of employees available. But one of the more serious problems it creates is its weakening of the potential for return on investments in employee health and competency development.

While it is gradually becoming recognized that healthier employees can be significantly more valuable to their employers, and that staff development in terms of education, training, mentoring, etc. has the same effects, both these forms of development depend on retaining employees long enough for the investments to pay off. If employees stay with the same employers for only a year or two, there is little reason to improve either their health or competencies.

And experts persist in predicting that employees will have dozens of different employers in their lifetimes, rather than sticking long with any one. If people truly work for even two dozen employers in even a fifty-year employment lifetime, this means that their average tenure at each one will be only two years. A recent report indicates that the US Department of Labor estimates that someone entering the job market today will have had 10-14 jobs – by the time they are 38! [K. Fisch & S. McCleod “Did You Know?” Real Player (didyouknow.wmv) Mar 4, 2007]

It also indicates that one-quarter of all workers have been with their current employer for less than one year, while half have been with theirs for less than five years. On the other hand, the latest Bureau of Labor Statistics report indicates that the average voluntary turnover rates vary widely by industry, with low-skilled, low-paid workers averaging over 50% turnover per year, while high-skilled, high-paid workers tend more toward 10-20%. [“Latest BLS Turnover Rates for Year Ending Aug 2006” Nobscot Corp. Oct 11. 2006 (www.nobscot.com)

My own career, thankfully over now that I am retired, included working for roughly twenty different employers, and being laid off or fired an even dozen times. On the other hand, the older I got and the more highly paid, the longer I stayed. I averaged only months and never more than two years at any of my first dozen or so jobs, but slowed down mightily in my last four, with tenure of four, five, six and eight years.

Before employers tremble at their risks of losing employees in whom they invest significant sums in competency or health development, they should first determine whether they intend to pursue significant financial returns and performance improvements thereby, or belong in the replaceable-cog category, and need only minimize costs. If they pursue returns, the first thing they must do is to devise or hire methods to evaluate the full range of payoffs available in both kinds of investments, which range over pretty near the entire gamut of performance criteria that any balanced scorecard contains.

Next, they should identify precisely which employees they intend to invest in, those with true potential for better than average, even delightful levels of ROW (Return on Workforce). Unless they see at least the potential for achieving significant ROI on their investments, they need not include everybody, but should certainly include those who promise to both improve enough and remain long enough to deliver such an ROI.

When it comes to competency development, investments tend to be greatest among younger workers, since they have more to learn in most cases, though many with high-tech backgrounds and jobs may be already ahead of their older peers. When it comes to health development, the more expensive types of investments tend to be needed with older workers, where risk conditions and chronic conditions are more common, while younger workers may need less investment in risk behavior prevention/reform and basic health promotion and traditional prevention.

The key to successful competency and health development is to be selective with respect to who and how many to invest in, as well as how much to invest in each. And fortunately, investing in employee competency and health development are among the most effective ways to promote longer employee tenure, so that the investments, themselves, can help make the likelihood of positive ROI greater. Investing in employees, whether health, competency, or both, represents one of the surest and most impressive ways to demonstrate that the organization values them, which has long been one of the major discriminators between those who leave their employer and those who remain loyal.

Gary Chew
Healthcare financial analyst, Tulsa, OK

As debate rages over solutions to America’s healthcare insurance challenges, some promoting privatization, some promoting government controlled healthcare, and some simply criticizing one or the other without offering any solution at all, let’s relax for a moment and not forget what we all have in common: we all want great health at a price that we can all live with. Part of achieving that goal begins of course with healthy personal lifestyle choices: eating right, exercising regularly, restraint & discipline regarding things that we know can harm us, choices that promote emotional wellbeing, etc. 

Concerning health insurance for when one needs attention for other health concerns and problems beyond what we can control, and how to best provide that insurance, it is an interesting question that has arisen  regarding even if we have the best possible solution to our healthcare woes out on the table for consideration, would we accept it?  In a recent article entitled “Get Same Tax Break as Your Boss” by Thomas C. Patterson in the East Valley Tribune, concerning President Bush’s healthcare plan, Mr. Patterson writes, “the plan’s main defect is probably its sponsor. To partisanship blinded politicians, it seems unthinkable the president could have a sound idea and it panics them to think he may get credit for it. For those with a more pragmatic bent, the plan is worth a hard look.” 

This is a great point that deserve consideration if the healthcare debate is going to have maximum usefulness. What is more important: healthcare, or who decides which solution is adopted?  Debate can be healthy if in unity it is used as a tool to get to the best possible solution. Debate is unhealthy if used simply to manipulate, gain control for control sake, and divide Americans in the process.

Regardless of our personal view of a healthcare solution, perhaps the first thing needing treatment is not our health, but our honesty with ourselves.

Scott Johnson, FHFMA
Vice President, Finance, Legacy Health System, Portland, Ore.
 
I was just reading Joseph Fifer's column in hfm magazine on courage in leadership and wanted to offer an idea that I believe truly embodies this concept.
 
One of the most costly things we do in healthcare is bill and collect. There are entire industries built around helping insurance companies and providers deal with the myriad payment structures we have allowed to develop over the years. In my opinion, most of this is waste. Computer systems have advanced to the point where we could probably automate countless manual processes and eliminate countless "bolt on" programs designed to deal with exceptions. Payers believe they need their unique payment structures to provide contract cost control or "predictability." Hospitals accept these required structures more often than not and then just deal with the problems they create. Certainly there is no coordinated effort to standardize these payment structures, even by the hospitals that pride themselves the most on good contracting and insistence on reasonable payment structures. And in the end, most hospitals and health plans are evaluating the performance of a contract in total anyway, and less concerned about the details of how one piece or another of it performs. As a result, there appears to be little value added relative to the vast expense created to maintain these systems.
 
I believe HFMA could and should take a leadership role in standardizing the payment structures used to pay hospitals. I don't necessarily like Medicare's payment methodology, and I really don't like the complexities in the APC formulas. But I would advocate for making Medicare payment methodology the standard, or something similar to it that is more simple, then advocate for CMS to simplify the Medicare methodology to match.  Countless billions of dollars could probably be saved with such a change to a common payment structure. Payers and providers would still negotiate rates within the common structure, to achieve the results they need by service and in total. The savings would come in being able to automate billing and collections. Everything could be done electronically. I also don't believe this is something individual state chapters can take on individually. The major payers that would need to be engaged are national and regional. This would need to be a national effort with buy-in from the majority of HFMA members, and discussion with all the major health plans. In the end, it may mean hospitals stand united to force a change that will not be welcomed by the insurance carriers. 
 
One of the major benefits of this for the healthcare industry and consumers would be the ability to more quickly advance the cause of transparency in pricing. Under a common payment structure, the ability to compare prices by service becomes instantly available. Differences in outlier methodologies and other nuances may complicate things, but the advancement of common definitions and terms would be a major step forward.
 
The downside of this idea is that many of our HFMA members and supporters (custom program developers, claims recovery companies, etc.) might be negatively affected. But that is not a good reason for HFMA not to take the lead on this. 
 
You want to talk about Courage in Leadership?  Here's a good one for us to consider!

Dan DeLay
Senior Vice President, VHA Inc.

Spend $1.20, save your health care organization $4 million. Most management decisions don’t present themselves as simply as this. However, that’s actually a decision that materials managers and purchasing directors at hospitals make every day. Consider this… Regular hospital slippers cost about 60 cents a pair. No-slip slippers cost nearly twice that. As a former practicing trial lawyer now health supply chain expert, I can tell you which pair I’d recommend--purchase the more expensive no-slip slippers in order to avoid serious health consequences and potential litigation from a patient fall.

Even the most common products used in health care are subject to scrutiny these days, and not just because it could result in lawsuit if someone perceives you were doing things on the cheap. The real reason for knowing and understanding what your organization is purchasing is because supplies represent between 25 percent and 50 percent of the costs hospitals incur when providing care, depending upon where they’re located.  The slipper example seems ludicrous because the cost is minimal, but when you think about the domino effect, even the most inexpensive items become essential to examine. From a financial perspective though, minimizing supply costs--especially for big-ticket items--is essential for hospitals.   

I can hear you thinking…. How in the world can a hospital examine the millions of items it purchases every month, especially the rogue items that don’t go through purchasing? The answer is simple--put one person in charge of purchasing everything. No one buys anything without that person’s rubber stamp of approval. Well okay, that won’t work. A better solution is to connect all those disparate purchasing activities to one IT system that will manage the flow of data and enable you to analyze purchases and look for trends in purchasing patterns that could signal spikes in costs or potential risk management issues. Unfortunately, we're not quite there yet in health care, but we are getting close. In the meantime, at least once each year, pull a list of the top 100 items your organization purchases, order a couple of pizzas and invite your in-house or external risk management team over for the afternoon to review your organization’s purchasing behavior. It doesn't cover everything, but it's a start.

The best health care organizations will look at purchasing not just from “a penny saved is a penny earned” perspective, but also with a view that “an extra penny invested is a wise penny spent.” In this case, 60 cents buys you priceless peace of mind.

Scott MacStravic, PhD

Back in the late 1960s, when I worked at the American Rehabilitation Foundation, its prime mover and medical director, Paul Ellwood, was already forging the foundation for what became the “Health Maintenance Organization” model, which received federal government approval and support by the Nixon administration in the early 1970s. The “HMO” originally meant “Health Management Organization,” but this sounded a bit too controlling to some, and it was changed to “maintenance” at the last minute.

The original idea really meant that the health of populations should be managed as well as maintained, with major savings to third-party payors coming from reductions in the incidence and prevalence of disease and injury. Instead, when HMOs got going, they ended up mainly looking for savings through the far simpler device of paying providers less for treating the disease and injury already available. Lip service was paid to prevention and wellness, but even this became less of a focus over time, presumably because its payoff was both uncertain an in the future, where HMOs wanted certain savings right now.

But here we are in the 21st century, forty years later, and revisiting the “health management” idea once again. Actually the idea has been used in practice by many employers, in the form of “worksite wellness” programs addressing overall health and disease/injury prevention since for at least a few decades. And it has been used by insurers, mainly in the form of chronic disease management, since this proactive approach pays off fairly quickly and often in dramatic terms, such as the often 30-50% reduction in medical care costs among well-managed CHF patients.

Gradually, these two ends of the health management continuum are moving toward each other, as employers recognize the full benefits of addressing the “total health” of their employees, and insurers, even CMS’s Medicare and Medicaid programs, recognize the same benefits with respect to their beneficiaries. Commercial insurers are joining in as their employer clients demand it, or when the insurers see competitive advantages in including employee health management in their health plans, or offering it as a separate source of revenue.

Healthcare organizations, after devoting almost all their efforts and gaining almost all their revenue from sickness care have also begun looking at health management, as both a mission and a margin investment. Many offer modest prevention efforts as “community benefit” proof of their worthiness for charitable tax exemptions. Others operate programs of proactive management of frail populations to deliver a combination of patient benefits and financial performance improvements by reducing the numbers of unprofitable patients they serve. And others operate disease management programs as mission investments, despite not being able to generate enough revenue to make them self-sustaining.

But in an interesting example of going back to the past for a new idea, Gilliard Health Services, a two-facility rural hospital system headquartered in Montgomery, Alabama, is pursuing the development of a “Rural Health Improvement Model” (RHIM) that envisions precisely what HMOs were originally intended to be. It calls for operation under a “pay-for-performance” arrangement, where “performance” means measurably improving the health of the population served and reducing the costs of sickness care for that population. [G. McKenzie “The Rural Health Improvement Model (RHIM): A Prescription for Pay for Performance (Version 5)” Gilliard Health Services June 2006 (gmckenzie@medicalpropertiestrust.com)]

The RHIM is based on its author’s conclusion: “…that if hospitals want to be successful over the long-term they need to expand their mission to become responsible for the health status of their service area population…,” and that: “Taking responsibility for and being successful at health status maintenance and improvement appears to be a more timeless reason for existence…” It anticipates taking on; “…the proactive responsibility for taking care of healthy people and the intervention in an individual’s health management and improvement…”.

The model proposes the merger of three or four of the hospitals currently serving a rural population of 35-40,000 people in a large area about one hour’s drive from Mobile, Alabama, and working with local Federally Qualified Health Clinics, as well as the private physician community. Its major innovation would be the formation and operation of a Health Improvement Department, staffed by enough Health Improvement Professionals to serve the population, with a preliminary estimate of roughly 500 people per professional. These professionals would be personal health manager/coaches for their charges, and work on whatever mix of diseases, risks, and other health challenges each presents.

Clearly, any attempt at significant healthcare reform will have to engage all the stakeholders in the “system” in order to work. The RHIM approach at least does that, and thanks to a relatively small number of stakeholders, may represent a “natural experiment” that the rest of the country can look at for ideas on what does and doesn’t work. At a minimum, it should be interesting to watch a small rural area test a “solution” that could not possibly be agreed to and implemented so easily in the major urban areas to which we normally look for solutions to major problems.

Dan DeLay
VHA Senior Vice President, Supply Chain Analytics
 
When Toyota or Ford tells its engineers that consumers want a car that costs $19,999, not $20,999, their engineers can look at materials costs, labor costs and process costs and typically find ways to squeeze costs out of the car.  In health care, when administrators tell managers that a payor wants all hip and knee [replacements] done for $4,000, it's a challenge for staff to find ways to produce the desired result.  For one thing, the processes used in health care are much more fluid and obtuse than those used in assembly lines. The few tangible parts of the process are the supplies used by caregivers. That being true, it's more easily said than done to reduce product costs. Products also carry delivery, storage, usage and disposal costs, and outsiders, like physicians, influence purchasing patterns. This differs from other manufacturing environments. Ford doesn't allow drivers to step into the process and suggest more expensive seats while the inside team is redesigning the car.     

Nevertheless, health care needs to catch up with other industries and apply the science of analytics to help reduce costs. We can't afford the type of health care system we have in America, where everyone wants it, everyone buys it differently, and no one is accountable for fixing it.

We need to acknowledge and address a few things:

First, the cost management aspect of health care purchasing lags behind those used in other industries.

Second, hospitals need to have insight into what they are spending in order to effectively control supply costs. 

Third, hospitals need access to detailed purchasing information, not just whether they are buying on contract. They need information - down to the purchase order and the item level  - so they really know how they are spending their money.

It is difficult for hospitals to track expenses because items are paid for differently (i.e. purchase order, credit card, etc.) and because check requests are not always entered into the hospital’s IT system. We need to do more than simply acknowledge that hospital expenses are hard to track. I know that if I spend $4 per day on latte at Starbucks, these purchases will add up ($20 per week or more than $1,000 per year). I can stop drinking lattes, but health care never stops - but it can become more efficient at monitoring the money it spends.

We'll never fix health care until we do.