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In 2007, Kalispell Regional Medical Center (KRMC), Kalispell, Mont., launched a pay-for-performance program with Blue Cross Blue Shield of Montana (BCBSMT). The program promised shared cost savings for the hospital and financial incentives to physicians if certain quality and cost goals were met. Built upon a clinical quality improvement project that was already underway at KRMC, the program was so successful that it helped reduce everything from morbidity rates to variance and resource consumption in the hospital's most strategic clinical services.
KRMC had a history of collaborating with physicians since its 2003 creation of a joint venture hospital--60 percent owned by the hospital, 40 percent owned by physicians. Hospital leaders believe the joint venture has helped create the collaborative hospital-physician culture required to engage the medical staff for this one-year pay-for-performance project.
This is a sample article from HFMA's subscription newsletter, Healthcare Cost Containment, which helps healthcare financial leaders identify and implement strategies for reducing costs and improving efficiency without harming quality.Learn more and subscribe to Healthcare Cost Containment.
Launching the pay-for-performance project took several years of prep work. One sticky point was getting the hospital's and BCBSMT's claims data to match, says Charlie Pearce, KRMC's chief financial and information officer. As KRMC was the first hospital in Montana to implement a true cost accounting system, administrators took pride in their data and were frustrated when it didn't sync with BCBSMT's data, Pearce says. "If you want to take full advantage of a pay-for-performance opportunity with carriers, you have to have better data than the carrier does so you understand what is happening to those patients and can change practice patterns to create more efficient patient care," Pearce says.
"Even though we didn't take on risk in that contract with Blue Cross, we needed to be able to validate their data with our system and define the baseline. That is what seemed to take forever during our negotiations," Pearce says.
In some cases, KRMC and the payer looked at data differences patient by patient. "Some of the differences were because their patients were on an older Medicare Grouper than we were on, which made a difference in how DRGs were assigned," he says. This became less of an issue once BCBSMT converted to a new financial system.
Another thorny issue was defining which type of patient would be counted within the pay-for-performance parameters. KRMC initially thought all Blue Cross patients would be considered. But the payer only wanted to include fully insured, in-state, BCBSMT patients-not those for which Blue Cross was just a third-party administrator. "The box we could put around patients to include in the pay-for-performance program was smaller than we thought, and that took some time to understand," Pearce says.
Under the pay-for-performance project, BCBSMT agreed to reward the hospital if its actual costs fell below anticipated costs. The rewards would be based on five key metrics of cost and quality at KRMC:
At the end of the project, resource consumption and variance were reduced in KRMC's top clinical services, including orthopedics, cardiology, and obstetrics. Morbidity improved 26 percent, and the readmissions rate was more than 10 percent lower than the national average. KRMC was also able to curb its 2007 inflation rate to 2.8 percent, down from 14.3 percent just six years earlier.
The initiative also demonstrated the axiom that improving medical quality conserves resources. KRMC's increased efficiencies, when compared with five other acute care hospitals in Montana, saved employers and patients about $4.6 million per year for five years. The hospital also conserved $1 million in Medicaid costs and $4.8 million in Medicare costs each year for five years.
The BCBSMT resources were conserved by the physicians as shared savings, which translated to more than $44,000 in physician bonuses. Qualifying physicians received checks ranging from $505 to more than $4,000 for their efforts, depending on their specialty group and how much they improved.
Hospital leaders largely credit their efforts at reducing variance for the pay-for-performance project's success. Such positive results are why variance continues to be a main focus of the hospital's efforts to improve quality and reduce costs, Pearce says.
In the process to reduce variance, KRMC works with a consultant to extract data from the uniform hospital discharge data set, measure patient severity and risk-adjust the data, and review mortality and morbidity rates of all clinical services. Charges are used as a surrogate for costs, as well as the number of resources used to care for a patient. The variance data are then presented to each clinical group at KRMC.
Three years worth of data is presented in a four-quadrant graph that plots the differences in charges and length of stay between the most and least efficient physicians. For example, for adult pneumonia, it's not uncommon for a typical hospital to report as much as $40,000 variance per patient case. Different prescribing patterns, such as the use of a more expensive brand-name antibiotic, often account for variances. For heart failure and shock patients, the variance at a typical hospital might be as much as $60,000 per patient.
In addition to improving quality, reducing variance can have a significant impact on the bottom line. This savings can add up, particularly as hospitals move to fixed payment strategies, Pearce says.
After identifying problem areas, physicians at KRMC then implemented best practices to reduce variance. To date, KRMC has had the most success with reducing variance in two DRGs: degenerative nervous system disorders and Cesarean sections without complications or comorbidities.
The problem is that when physicians try to develop clinical pathways "in a vacuum," they tend to focus on the sickest patients, which often drives up utilization and makes variances worse, says William Mohlenbrock, MD, FACS, chairman and CMO at Verras, which assists KRMC with this process. Instead, hospitals should develop clinical pathways that concentrate on a homogenous group of patients, rather than the entire DRG.
Hospitals should create two pathways per DRG: one that addresses less sick patients-those on the variance graphs with acuity index method (AIM) scores of 1, 2, and 3-and another for sicker patients-those shown on the graphs with AIM scores of 4 and 5, Mohlenbrock says.
Under the direction of its new chief medical officer, KRMC plans to step up its efforts to reduce variance within physician practices in specific disease states. Some of the DRGs that KRMC will focus on include:
These represent DRGs at KRMC where either variations have not been reduced, variations have increased, or the outcomes have not improved.
Interviewed for this article:
Charlie Pearce is chief financial and information officer, Kalispell Regional Medical Center, Kalispell, Mont. (firstname.lastname@example.org).
William Mohlenbrock, MD, FACS, is chairman and CMO, Verras, Las Vegas (email@example.com).
This article is based in part on a presentation by Velinda Stevens, president and CEO at KRMC; A. Craig Eddy, MD, JD, CMO at KRMC; and William Mohlenbrock, MD, FACS, chairman and CMO at Verras, at the American College of Health Executives' 2011 Congress on Health Leadership, March 22, 2011, www.ache.org.
How to Talk to Physicians Successfully engaging physicians to reduce variance requires:
Publication Date: Thursday, August 04, 2011
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
A leader from McKesson discusses how healthcare reform is forcing hospitals and health systems to take a different approach to capacity management and patient flow.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
Emad Rizk, MD, president and CEO of Accretive Health, discusses the uncertainty facing hospitals and the transitions affecting revenue cycle management.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
Jim Bohnsack, vice president, solution & corporate development for Conifer Health Solutions, explains how the company helps healthcare providers leverage data to deliver better outcomes while optimizing reimbursement for all payment arrangements.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
Steve Scibetta, senior director of channel sales for Ontario Systems' healthcare product line, shares insights into effectively managing receivables.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
Elena White, vice president of risk, quality, and network solutions for Optum, discusses how healthcare providers can leverage data and technology as they enable risk in their organization.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
Somnia President and CEO Marc Koch, MD, MBA, explains how hospitals can drive transformative change in the perioperative experience for outstanding clinical and financial outcomes.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
PMMC President Roger L. Shaul discusses the effects of healthcare reform on revenue cycle management and how PMMC's products help clients adapt to a changing financial environment.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Greg Burgess, Founder and Chief Product Officer at Burgess Group shares insights and opportunities for payment integrity in the rapidly changing healthcare IT landscape.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
Financial services staff are always looking for ways to improve the verification, billing and collections processes, and Munson Healthcare is no different. Read about how they streamlined the billing process to produce cleaner bills on the front end and helped financial services staff collect more than $1 million in additional upfront annual revenue in one year.
Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
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