Patrick Reilly

Three healthcare finance leaders discuss why they have embarked on organizational restructuring and how they have accomplished their objectives as the reform era has begun to take root.


At a Glance  

In starting the planning process for an organization's transformation or restructuring, healthcare finance leaders should:

  • Identify strategic imperatives for the organization and physicians
  • Remember the organization's core area of business
  • Define the starting point and create clear objectives
  • Develop a strategy that engages front-line employees to change the culture of the organization

As healthcare organizations begin making the transition to the new value-based business model-driven by market forces and the Affordable Care Act-finance executives are taking a big-picture view of how to position their organizations for future success in a way that reduces costs and improves quality outcomes.

Their viewfinder focuses on transformational planning and a shift away from the traditional volume-based payment to a new value-based model that emphasizes physician alignment, care coordination, and operational efficiency. For many healthcare executives, accomplishing that shift will require a significant restructuring of their organizations.

"We began by asking ourselves a question. How could we and our affiliates continue to thrive in a postreform environment, given our current operational structure, reporting relationships, size, and incentives?" says Duane Erwin, president and CEO at Aspirus Inc. "That was our starting point."

Healthcare executives are asking similar questions about restructuring their organizations and the strategies needed to offset declining payment and to meet more quality requirements under the new post-reform business model. The end goal is to operate more efficiently.

"The reimbursement increases are going to be about 2 percent, and the expense due to inflation is going to be 3 to 4 percent," says Samantha Platzke, senior vice president, operations and system effectiveness, at Catholic Health Partners. "We could just tweak the same operating model and keep on pushing it, but at some point, the system breaks. We had to think about our operations model in a totally different way that could improve value and improve our expense base."

Erwin and Platzke are two of three healthcare finance executives who talked with HFMA recently about the transformations their organizations are undertaking to meet strategic goals. Here, the executives offer insights as to why their organizations are restructuring, the details of their restructuring model, how they are accomplishing their transformation, and the lessons they are learning during the process.

Restructuring the Traditional Business Model

Declining margins, a slow economic recovery, and the forecast of lower Medicare payments are prompting hospitals to adopt new business models that connect quality to financial success.

The road to transformation at Aspirus Health, Catholic Health Partners, and Northwestern Memorial Hospital began long before federal healthcare reform became a reality in 2010. Healthcare finance executives leading the transformation efforts at these organizations point to the need to become more efficient and integrated as reasons behind adopting restructuring efforts.

"Healthcare reform is an additional variable that has entered the equation, because our planning process began long before reform," says Peter McCanna, executive vice president, administration, and CFO, Northwestern Memorial HealthCare, Chicago, the corporate parent of the 894-bed academic medical center Northwestern Memorial Hospital, philanthropic support provider Northwestern Memorial Foundation, and the 215-bed community hospital Northwestern Lake Forest Hospital. "We had to become more efficient and integrated. The original driving forces were quality and efficiency, not health reform."

At Northwestern, restructuring means the advancement of Northwestern Medicine-a shared vision, strategic plan, and annual goals among the hospital, Northwestern's Feinberg School of Medicine, and its largest physician group, Northwestern Medical Faculty Foundation. Integrating support activities and coordinating care with the physicians will result in higher quality care and lower costs, McCanna says.

At Aspirus, a system of six community hospitals, clinics, and physician networks based in Wausau, Wis., serving Wisconsin and the Upper Peninsula of Michigan, leadership undertook a reorganization plan as a way to become more efficient after embarking on a path of tremendous growth. In the late 2000s, the system grew from two to six hospitals, including three in Michigan's Upper Peninsula, doubled the number of physician clinics, and expanded home care services. Although the system became a dominant player in the region, system leaders realized they needed to restructure the care model to improve efficiency, reduce costs, and improve quality.

"We had grown so quickly, and we needed to look at governance efficiencies," Erwin says. "How do we reduce our costs, increase our alignment across the system, and position ourselves better for what ultimately became accountable care organizations? We had become this large regional system that needed to take a close look at its position."

The road to transformation at Cincinnati-based Catholic Health Partners-one of the largest not-for-profit health systems in the United States, with more than 100 organizations, including 24 hospitals-began in 2007 when executives decided the traditional business model was not on a long-term path to improve value at a lower cost. With a goal to deliver high quality at 40 percent less cost, Catholic Health Partners decided to scrap the old business model and start with a clean slate.

"We didn't want to use the same old thinking in health care," Platzke says. "How do you wipe the slate clean and build an operations model that delivers experience and quality 40 percent better at 40 percent lower cost? That's how we started our journey.

"We brought in experts in systems redesign who had never worked in the healthcare industry. We call it jumping the S curve and learning how to take that business cycle model and reinvent your organization to flourish in that future state," she says.

A Shared Strategic Plan

At Northwestern, the goal of transformation is to progressively align hundreds of physicians under the new Northwestern Medicine shared strategic plan and annual goals, McCanna says.

"The most fundamental piece of integration is that we have a shared strategic plan and a certain number of shared goals that all of these organizations are working toward," McCanna says. "We have a shared vision."

The strategic plan outlines goals in delivering exceptional care, advancing medical science and knowledge, and developing people, culture, and resources. The overall plan includes goals to perform in the top decile of publicly available quality and patient satisfaction metrics, improve measurable quality indicators, and expand the scope and prominence of research while achieving exceptional financial performance that funds the strategic plan. Although the Northwestern entities have not made any structural changes, each group has appointed representatives to an ad hoc governing body, which monitors the progress made on the shared strategic plan, McCanna says.

"At present, we are collaborating, integrating, and creating a virtual organization where we will operate effectively together within existing legal boundaries. We are open to change the existing structures if we conclude it is necessary to achieve our strategic vision and advance our shared goals," McCanna says. "The magnitude of the change requires a forward-looking vision because many of these things cannot be done overnight."

Redesigning quality and setting standards requires aligning players and teams to get everyone on the same page. The Northwestern strategic plan calls for the organization to maintain its current bond ratings in accomplishing the restructuring process, he says. Creating value is the result of optimized utilization and reduced costs per patient visit.

"When it comes to quality, if we have more integrated information, the clinicians will have full access to all of the patient's information and presumably it will reduce the number of duplicate tests, for example, that a patient receives," McCanna says.

The restructuring involves benchmarking to the top decile performance and creating transparency with consumers. Improved care coordination also plays a role as Northwestern reduces readmissions through expanding access to a post-discharge follow-up clinic, which helps influence patients' behavior in managing their care, McCanna says. "As you move to much higher quality, you have a lot more opportunities to reduce cost."

Aspirus's Erwin notes that, due to rapid growth, the system swelled to 20 corporate entities. It has started the process of consolidating into nine corporations to create better efficiency. The system also consolidated five separate physician corporations into one unit. When determining reorganization strategies, Aspirus focused on physician strategy, the organization of the structure, and the size and scale of its system structure. Developing an infrastructure within the system, such as electronic health records, ultimately has led to better coordinated care and improved value.

"It sounds fairly easy, but you have different compensation models, different board structures and commitments," Erwin says. "We were able to get that done in six months. It's very easy to go into your silo and say 'I'm going to take care of it myself.' But you have to engage everyone to support the big picture of taking care of patients, providing quality, and making it affordable."

With the new model, employed physicians are aligned into one corporate entity that addresses incentives, bundled payments, and managed care payer opportunities. Working with one board on incentive agreements ultimately helps clinical integration activities, Erwin says.

A Model of Organizational Efficiency

Strategic discussions about transforming an organization nearly always point in one direction: finding a more efficient way to deliver patient care. The longtime vertical structures of most hospitals tend to mask operational deficiencies that could be more apparent if hospitals did not function in silos, leaders say.

Restructuring clinical operations to better manage costs, building an aligned delivery system with shared accountability between hospitals and physicians, and changing physician contracts from cost-based to value-based are some strategies to transform organizations.

Catholic Health Partners' organizational transformation began at Mercy St. Vincent Medical Center, Toledo, which had seen a 44 percent increase in uncompensated care in just one year, with forecasts calling for similar increases at the hospital.

With a dire financial picture, the system's leaders set out to build a new business model that would focus on improving patient flow, an area that Platzke says lacked critical data. "There was no consistency or predictability to help us understand the flow," she says.

At Mercy St. Vincent, the average time from patient admission to discharge for all patients was 5.2 days, above the national average of 4.9 days. Platzke and her team studied the "white space," or non-value-added milestones, to improve the value provided in care and shorten the length of stay for patients.

"We found that departments can't operate in silos anymore," Platzke says. "We needed to shorten the white space and optimize value."

With help from outside consultants, the hospital developed a future state of the patient flow process and began the transition to a new way of doing business. The new model stressed coordination in delivering care and the need for change at every level, from administrators and physician leaders to clinical and nonclinical staff. More important, the system built operating models that provided visibility from one department to the next on patient flow, Platzke says.

"This model is very supportive of the shift to improving the flow for the physician, the patient, and the employee," she says. "We're just now giving physicians a predictable operation framework. They can plan their work accordingly. They know how long it will take from the time they order an admission to the time their patient is in bed. The physician feedback is phenomenal."

With new job roles created and standard procedures established for a more predictable patient flow, Mercy St. Vincent reported a 30 percent drop in length of stay, from 5.2 days to 3.9 days, results that affect all aspects of the hospital, Platzke says. With patients spending 30 percent less time in the hospital, all aspects of patient care have become more efficient, as nurses and physicians spend more time with more patients in improving their care, experience, and flow through the hospital.

"In a hospital the size of St. Vincent, with an average daily census of 350 patients, improving your length of stay by 30 percent means you have just reduced your daily census of patients occupying beds in your hospital by 105 patients, on average," Platzke says.

Eliminating the waste in the patient flow process is ultimately leading to reduced costs. With improved inpatient flow in place, Platzke is working on improving logistics for all of the other services provided at Catholic Health Partners, such as improving turnaround time for diagnostic tests.

Implementing the Plan

Leaders at Northwestern are evaluating dozens of initiatives to improve patient throughput, a top priority in the restructuring process, McCanna says. Among the efforts to streamline throughput are creating shared registration and scheduling portals and expanding post-acute care treatment options.

"Higher quality generally will reduce steps in care and their corresponding delays, which will result in faster throughput," McCanna says. "Faster throughput results in more capacity and lower capital expenditures. As you move to higher quality, you have a lot more opportunities to reduce cost."

In a capital-intensive industry, improving patient throughput can have a significant impact on a system's operating costs and capital spending, he says. "If you can reduce length of stay by 10 percent and you have 1,000 beds, you just created the equivalent of 100 beds every day," McCanna says. "Improving throughput has massive benefits."

Erwin says that aligning physicians at Aspirus was the top priority in restructuring the organization. Plans are moving forward to establish a new physician partnership council, consisting of physicians from Aspirus clinics, independent clinics, and regional clinics, and creating a clinical integration agenda.

At the top of the new council's agenda will be efforts to improve efficiencies in care, compliance with protocols, and the overall quality of care, while creating structure that brings physicians together, Erwin says.

The new structure was accomplished by taking a transparent and open approach with physicians, he says. "We developed a charter and reviewed that with the various board and physicians who would be involved in this process," Erwin says. "We said we weren't going behind closed doors to design this structure. We were going to involve people as decisions needed to be made."

Leaders at Catholic Health Partners watched the restructuring efforts and improvements in patient flow at Mercy St. Vincent and began replicating the new business model at seven hospitals. The model employs a management operating system that weaves senior leaders with frontline managers to ensure patient flow process are improved and key strategic goals are met.

The system is building a prototype based on the redesigned processes at Mercy St. Vincent, from revenue cycle and supply chain to quality initiatives and patient safety. "Transformation is moving from one fundamental state to another fundamental state," Platzke says. "We are going to have a collaborative build of our operating system that is built to drive all of these transformative processes that we are creating."

Learning Along the Way

Creating a clear point of view and taking a slow and transparent approach are important during the transformation process, Erwin says. Designing the process to include all entities and physician groups is the best approach at the beginning. An organization's leaders also should realize that any transformation efforts will face change during the process.

"When you think you've communicated enough, you haven't because you have to be transparent when going through a cultural transformation," Erwin says. "You have to continuously communicate, communicate, and communicate even more."

Systems also should realize they can work together on accountable care strategies, says Erwin, who points to Aspirus's decision to join Quality Health Solutions, a virtual healthcare network that represents 28 hospitals and 4,000 physicians. "It's providing us with a larger infrastructure to focus on clinical integration, collaborating to standardize quality, and driving down healthcare costs."

Platzke says building a culture of learning is a key principle when undergoing a restructuring process. Encouraging staff members to learn about problems in the care process will encourage open discussion and foster creativity in tackling issues. Catholic Health Partners also adopted a culture of encouraging staff to not give up on a new process if it doesn't work at the beginning. The "adjust seven times" principle encourages staff to continue tweaking changes in the new model.

"It's really about creating that learning and innovation," Platzke says. "Our framework is to unveil and learn from your problems because then you can improve. We celebrate learning."

When approaching a restructuring, finance executives should be aware that the existing business is the economic engine that funds the transformation, McCanna says. Management also should take a deliberate approach at the beginning when determining what aspects of the organization to restructure. "If you stretch the managerial team too thin, it creates risk to the organization," he says. "There's a tendency sometimes to do everything at once. You have got to be disciplined and not lose sight of the core operations as you are trying to grow and change."


Patrick Reilly is a senior writer, HFMA's Westchester, Ill., office.

Publication Date: Friday, June 01, 2012

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