Kadlec Health System is getting ready for risk-based payments by forging stronger connections between its primary care physicians, specialists, and hospital service lines.


Kadlec Health System, a locally owned, locally governed, not-for-profit health system serving southeast Washington state, has a lot going for it. It is home to a growing open heart surgery and interventional cardiology program, it has a strong neuroscience center, and it boasts the region’s only neonatal intensive care unit. In addition, the system’s hospital, Kadlec Regional Medical Center, has earned the coveted Planetree designation for patient-centered care and was rated No. 5 in the country for patient safety by Consumer Reports in 2012.

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But as an independent health system, Kadlec faces some significant challenges, according to Rand Wortman, the system’s president and CEO. “As a stand-alone entity, Kadlec probably doesn’t obtain the highest reimbursement from the insurers. We lack the negotiating leverage of a larger network,” Wortman said during a November 2012 teleseminar. Another challenge is that Kadlec continues to compete with larger health networks for referrals. As payments across the country become more risk-based, the system will face even greater pressure to coordinate care among providers for better quality and cost control.

To meet these problems head on, leaders at Kadlec have taken steps to better attract referrals into the system—and keep revenue from leaving the network. At the same time, they have started to move from a structurally integrated system to a functionally integrated system. This involves several strategies, including building better bridges between primary care physicians, specialists, service lines, and the hospital.

Here are four actions they have taken along the way.

Engaging Physician Leaders as Partners

According to Wortman, physician leadership is critical to promoting functional integration, which relies on a common vision and shared trust between the medical staff and administration. Currently, Kadlec’s system board includes five physicians who help guide the organization’s vision. In addition, Kadlec’s employed physician network, Kadlec Clinic, is governed by a partnership of nine members, six of whom are physicians.

Over the past several years, Kadlec has actively recruited and developed physician leaders by specialty. “Those employed clinical leaders have become champions on our medical staff,” Wortman said in a follow-up interview via email. In addition to defining clinical quality metrics throughout the organization, these physician leaders have actually helped the health system reduce friction between physicians and executives, which can stall integration efforts.

While Wortman concedes that it’s more challenging for executives to have physicians as partners in governance at the board level and operational level, the result is a better organization and fewer operational silos. “Physicians can be your best ally when you’re in a tough spot, and at the same time, they keep you honest.”

Today, most Kadlec physicians realize that their success depends on the success of the healthcare system, Wortman said. “In a functionally integrated system, it becomes more and more difficult to tell whether you’re in a medical executive committee meeting or whether you’re in a system business meeting because many of the issues begin to overlap,” Wortman said. “The physicians aren’t just practicing at the hospital—they are the hospital. You can’t tell where the hospital starts and stops and where the practice starts and stops.”

Employing Specialists of Choice

In addition to putting more physician leaders in place, Kadlec executives have added more physicians to the payroll. “About eight or 10 years ago, it became obvious—certainly here at Kadlec—that if we didn’t have an employment model or an employment option for physicians who were looking for a position—that we weren’t going to be able to recruit and we couldn’t compete,” Wortman said.

Over the past five years, the system has acquired five existing practices and recruited new physicians into the community. Today, primary care providers represent about 56 percent of employed physicians in the Kadlec Clinic, which has 15 sites in the region. As a result, specialty dollars are staying in the system, Wortman said. “Having a strong primary care network has allowed Kadlec Clinic to attract top-notch specialists who want to be busy and to attract that market share,” he said. “We have also made a conscious capital investment in the specialty practices themselves, allowing subspecialty physicians to enhance their service offerings.”

This summer, the health system will open a new $19.2 million, three-story building dedicated to outpatient specialty care. It will offer neurosurgery and neurology, endocrinology, gastroenterology, cardiothoracic surgery, and other specialty services. Hospital leaders expect the new building will lead to more collaboration and coordination between providers. In addition, Kadlec leaders plan to recruit more specialists in cardiology, pulmonology, and urology.

Through these efforts, leaders at Kadlec are helping manage the referral path that runs from the primary care physician to the subspecialist to the hospital. “Managing that referral path becomes absolutely critical whether a system is in a discounted fee-for-service model or, more importantly, in some type of global capitation or risk model,” said Marc D. Halley, president and CEO of The Halley Consulting Group. In fact, measuring referrals in and out of the system can indicate whether or not a system is actually working as it should, he added. “PCPs [primary care providers] will become increasingly directive as we share additional financial risk. Referral patterns will change based on things like cost and utilization as well as service quality.”

Improving Care Coordination

Accountable care organizations (ACOs) and other risk-based systems tie payment to measurable outcomes. To succeed in a future dominated by these evolving payment structures, Kadlec leaders are improving care coordination, which requires better communication among providers.

“The organizations that learn to integrate properly and pull all the pieces together—the organizations that have single medical records to allow all the system pieces to see as much of the patient care as possible, the systems that learn how to relate to the patient and make the patient experience better, the systems that become more efficient—those systems are the ones that are going to be the most competitive and lead in their markets,” Wortman said.

To improve care coordination in the Kadlec Health System, executives have implemented a central medical record. In addition, physician network leaders have been working with the hospital’s service line managers to improve care coordination across the continuum, particularly for heart, lung, vascular, and other surgical patients. “We have hospitalists, intensivists, and pediatric hospitalists who meet with the leadership of Kadlec Clinic frequently,” Wortman said. “Communication between these hospital-based specialists and our ambulatory specialists is critical to our continued process improvement.”

Kadlec executives are also looking to improve communication and care coordination with physicians outside of the system. Last year, the system entered into a strategic alliance with a public hospital, PMH Medical Center, Prosser, Wash. The agreement included a plan to bring PMH physicians and PMH Medical Center online with Kadlec’s new electronic health record, so that it would be easier for them to coordinate care with specialists in the Kadlec system.

Measuring the Results

In addition to measuring revenue and quality metrics, leaders at Kadlec are developing numerous performance measures to track their progress toward functional integration, Wortman said. These include:


  • Viability of primary care practices in key markets: Ensuring the success of certain physician practices can help sustain the system over time.
  • Time to access care: In a functionally integrated system, patients should not have to wait weeks to be seen by a specialist, Wortman said.
  • Physician engagement: While difficult to quantify, having an engaged medical staff helps support integration efforts.
  • Lower cost per unit of service: Like an HMO, Kadlec is exploring how to track how much they spend per patient per month so they are ready for risk-based payments, Wortman said.

Laura Ramos Hegwer is a freelance writer and editor based north of Chicago (laurahegwer@comcast.net).


Access Halley’s and Wortman’s slides from their November 2012 webinar,From Structural to Functional Integration, organized by The Halley Consulting Group. 

Interviewed for this article:
Marc D. Halley is president and CEO, The Halley Consulting Group, Westerville, Ohio (mhalley@halleyconsulting.com). 

Rand Wortman is president and CEO, Kadlec Health System, Richland, Wash. (rand.wortman@kadlecmed.org).

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