In early October, HFMA hosted its seventh annual Thought Leadership Retreat just outside Washington, D.C. 

 

The focus of this year’s retreat was the structure of value. Sessions examined how hospitals, health systems, and other providers across the care continuum are coming together in ways both old and new to achieve better value through improved administrative efficiencies and more cost-effective, better-coordinated care delivery networks. Although participants agreed there is no single path to value, the innovative approaches that were shared provide insight into how organizations of various types and sizes can establish a framework for delivering higher-quality care and service at lower cost.

Multiple Frameworks

Two of the retreat’s sessions featured speakers from hospitals and health systems that have engaged in a range of partnerships and affiliations to build a foundation that will support the transition to a value-based payment environment. 

In the first, Sandra Van Trease, a group president for BJC HealthCare in St. Louis, discussed the formation and early outcomes of the BJC Collaborative. The collaborative comprises four founding systems (and two recent additions) that together cover almost all of the Missouri market, the Illinois market south of Peoria, and parts of Kansas and Arkansas, with a combined population of approximately 12 million individuals.

The BJC Collaborative was among the first of a number of recently announced collaborations and alliances (including the Stratus Healthcare collaborative partnership of 14 health systems in central and southern Georgia and the AllSpire Health Partners alliance of seven systems in New Jersey and Pennsylvania). Initial objectives of the BJC Collaborative include:

  • Aggregating efforts to achieve savings
  • Coordinating the deployment of clinical programs and services to improve access to and the quality of health care provided by the collaborative members
  • Achieving lower healthcare costs
  • Identifying and achieving other operating efficiencies

Alliances such as the BJC Collaborative differ from traditional mergers in several respects. Most important, there is no change of control: Participating systems maintain independent boards and executive leadership teams, as well as their unique services, missions, and brands. In the case of the BJC Collaborative, a limited liability corporation was formed by the four founding systems, with equal representation on the corporation’s board and a rotating model of board and committee leadership.

In a discussion of keys to success in building a multisystem collaboration, Van Trease emphasized the importance of structure: specifically, the need for a formal structure of committees and working groups that have both the support and participation of board and executive leadership and clearly defined objectives and work plans to keep initiatives on track to realize the collaborative’s goals. The BJC Collaborative has already realized millions of dollars in cost savings and cost avoidance for its members and looks forward to building on the success of its first year as it expands into clinical initiatives.

In a second session, representatives of three organizations that have undergone full mergers participated in a panel exploring what drove their organizations’ decisions to merge, goals for the mergers, and outcomes to date. Jenny Barnett, executive vice president and interim CFO and treasurer of CHE Trinity, discussed the recent merger of Trinity Health and Catholic Health East (CHE). Jeff Eppinette, former CFO for Northeast Baptist Hospital in San Antonio (and now CFO of Remington Medical Resorts), discussed Baptist Health System’s 2003 merger with Vanguard Health System (now part of Tenet Healthcare Corporation). And John Orsini, executive vice president and CFO of Cadence Health in west-suburban Chicago, discussed the 2011 merger of two hospitals—Central DuPage Hospital and Delnor Hospital—that formed the new two-hospital Cadence system.

Although all three mergers represented change-of-control transactions, each of the three represented a unique kind of transaction. The CHE/Trinity merger brought together two already large healthcare systems to form one of the largest systems in the nation, spanning 21 states nationwide. Baptist’s merger with Vanguard involved a for-profit acquisition of a not-for-profit system with a strong faith-based mission. Cadence Health brought together two independent hospitals within the competitive Chicago market to better serve the city’s western suburbs, with a specific focus on improving access to high-end, clinically integrated care in an area that can be 40 miles or more from tertiary or quaternary care. 

And just as each merger took a unique shape, each of the organizational structures formed by the merger has unique opportunities to enhance its value proposition. CHE Trinity has already identified hundreds of millions of dollars in cost savings resulting from shared services and is now turning to clinical excellence and quality initiatives. Baptist Health System gained access to much-needed capital, but also saw significant investment in its ministry and mission through employment of a new vice president of mission and ministry and a guaranteed increase in charity care proportionate to growth. Cadence Health is targeting—and, in many instances, is already achieving—top-decile performance in the areas of service (including both patient and physician satisfaction), people (focused on employee satisfaction and retention metrics), and clinical quality.

Given the differences among these mergers, the newly formed organizations have faced very different challenges. But when forming a new organizational structure from formerly independent parts, all three panelists agreed on the importance of closely examining cultural fit before the merger proceeds. The careful examination of culture by the organizations represented on the panel has helped ease the inevitable bumps encountered in integrating organizations and has accelerated the pace of achieving the outcomes the mergers were designed to secure.

Remaining Questions

The new structures represented in the provider sessions were also discussed by presenters who brought legal, economic, and policy perspectives to bear on the affiliations, acquisitions, and collaborations that have been transforming many healthcare markets across the country. As noted by all of these presenters, similar efforts were tried before during the push for managed care in the 1980s and 1990s. Whether better results can be achieved today will depend on the answers to a number of outstanding questions.

How much will markets be able to consolidate? Hospitals need to build new infrastructures to succeed under future population-based payment systems and should offset margin pressures through efficiencies in performance, noted Doug Hastings, chair of the board of directors for the Washington, D.C.-based Epstein Becker Green law firm. To do so, they also will need to achieve greater economies of scale. But this need is in conflict with antitrust and fraud-and-abuse laws that can create regulatory obstacles to horizontal mergers between hospitals or health systems or vertical integration between hospitals and other provider groups (including physician practices). 

If consolidation continues, will rising prices erode potential value improvements? Economist William Vogt, an associate professor in the Terry College of Business at the University of Georgia, noted that historically, consolidation appears to have produced higher prices for health care. At the same time, potentially negative effects of consolidation (including the risk of higher prices) might be balanced by potential value-enhancing effects, including scale economies, consolidation of volume at organizations that in turn produce better outcomes, and the ability of provider organizations to assume risk for population health. 

Will payment systems and benefit design change to support the structure of value? Commenting on the recent slowdown in national healthcare expenditures, Michael Chernew, professor of healthcare policy at the Harvard Medical School, expressed his belief that important changes in the culture of provider organizations are driving structural changes that, at least temporarily, are bringing down the rate of increase in spending. For these changes to become permanent, however, both payment systems and benefit design will need to change to move away from fee for service, give patients incentives to seek higher-value care, and reward healthcare organizations that provide such care.

The structure of value, in other words, is just beginning to take shape. Its stability will depend greatly on the ability of organizations like those represented at the retreat to achieve their goals and to see their efforts rewarded appropriately. 


James H. Landman, JD, PhD, is director, thought leadership initiatives, HFMA, Westchester, Ill..

Publication Date: Friday, November 01, 2013

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