Webinar: Improving Hospital and Health System Performance by 20% to 40%

Improving Hospital and Health System

Performance by 20% to 40%

Modern Healthcare Webinar

Nate Kaufman, Managing Director, Kaufman Strategic Advisors, LLC

Gordon Mountford, Managing Director, Huron Healthcare

James E. Orlikoff, President, Orlikoff & Associates, Inc.

Curt Whelan, Managing Director, Huron Healthcare

November 14, 2013

Business Imperative: Growing Profits in a Market of Declining Revenue

“…Revenue growth will remain positive, but will continue to

decelerate as a result of federal cuts to healthcare

spending, limited reimbursement increases from

commercial healthcare insurers, and a tepid economy

that dampens demand for healthcare services…”

Moody’s “US Not-for-Profit Healthcare Outlook Remains Negative for 2013:

Ongoing Challenges Outweigh Stable Operating Performance”

- January 22, 2013

© 2013 Huron Consulting Group. All rights reserved. Proprietary and confidential.

2 Modern Healthcare Webinar |

Start with An “All In” Transformational Mindset

Cost structure

Revenue sources

Physician network

Governance

Technology infrastructure

Asset/Clinical infrastructure

Market share

Balance sheet

Strategic planning

People & culture

Ask The Hard Questions



HEALTHCARE TRANSFORMATION STRATEGY

Establish a strategy that leverages

organizational strengths and local market

dynamics, and delivers measurable value

Use the healthcare transformation strategy to

inform and integrate change across the

enterprise

Continuously evaluate organizational and

market factors to calibrate the priorities and

timing of the strategy

Target annual improvement of 6% to 10%


Market Demands 20% to 40% Performance Improvement


HEALTHCARE TRANSFORMATION STRATEGY

5


Modern Healthcare Webinar |



Strategic Change | Market Demands 20% to 40% Improvement

REVENUE TRANSITION: 5% to 8%

Proactively manage transition of top-line revenue sources – from fee-for-service to value-based

Increase market reach to grow patients in traditional and emerging payment models

Implement strategies to manage evolving payer mix – high deductible, underinsured, uninsured


OPERATIONAL EXCELLENCE: 7% to 10%

Create an organization structure aligned with the strategy, and place the right people with the right skills in the right roles

Continuously improve the quality and efficiency of current operations, while executing longer-term transformative change

Establish a culture of data-driven decision making and accountability

7




CLINICAL TRANSFORMATION: 8% to 14%

Increase quality and reduce costs using

evidence-based standards of care

Integrate the management of care and

patient flow across the organization and with

key partners

Create strong patient engagement in clinical

decision making and affinity to the enterprise

8




SCALE AND INTEGRATION: 5% to 8%

Establish deep operational and data

integration to improve quality, efficiency, and

coordination

Optimize assets – people and facilities – to

align with the revenue transition and clinical

transformation

Align incentives within the enterprise and

with key partners to remove barriers and

sustain improvements

9




INFORMATION TECHNOLOGY

Establish deep operational and data-enabled revenue transition, clinical transformation, scale and integration, and operational excellence through the effective use of information and technology

Use “small data” to support care delivery and integration while using “big data” to understand broader opportunities and risks

Optimize the use and ROI on current systems – EHR and other – and implement analytic tools that leverage data

10



Imperatives for Transformation

1. Strengthen link between strategy and performance improvement to achieve

strategic priorities and drive breakthrough performance gains

2. Target annual “net new savings” to create focus on both continuous and

breakthrough improvements

3. Use second curve analytics that drive deeper accountability at every level

4. Establish new levels of transparency within the operations, across the continuum of

care, and with payers (government, commercial, individuals)

5. Increase focus, detail, granularity, and discipline around results, especially clinically

6. Change where and how care is delivered, and who delivers it

7. Create relentless commitment to improvement through investments in people,

culture, and tools

8. Maintain sense of urgency with new messages from leadership that place

performance improvement efforts in a strategic framework

11



GOVERNANCE IMPERATIVES

12



Unprecedented Governance Complexity

“Even small healthcare institutions are complex, barely

manageable places…large healthcare institutions may be

the most complex organizations in human history.”

- Peter Drucker

13

© 2013 Orlikoff & Associates


Governance Transformation Required

The quality of governance that was sufficient to get

your organization where it is today

will be insufficient to get it

where it needs to be tomorrow.



Moody’s Investors Service Special Comment

“The most meaningful cost reduction strategies will involve

standardization of clinical care and elimination of variation in

patient procedures.

This will be a multi-year, ambitious journey requiring strong

physician, management and board leadership...”



May 9, 2012

Leadership Imperative

A leader is a

person or group

that people will

follow to places

where they would

not otherwise go

by themselves.



What is Disruptive Governance?

Innovations and practices that…

Change culture, behavior, and the organization

Create a collective body of knowledge and a new set of habits



Effective System Governance

Effective system governance is based on explicit principles such as:

1. Minimalism: Fewer governance entities are better.

2. Consistency: Governance structures are consistent throughout the

system. All leadership structures are consistent throughout the system.

3. Authority: Centralize authority and decentralize decision-making. Clarity

via authority matrix.

4. Leadership: The purpose of governance is to lead the system, not to

create slots for representation of constituencies and stakeholders.

5. Intentionality: Governance structures and functions are based on

conscious choices and explicit principles, not on history or happenstance.



Practical Steps Needed To Evolve Outmoded Models

of Governance and Clinical Leadership To New Models

1. Assess the structures, dynamics, and cultures of current governance and leadership

models to identify vestiges of old models and necessary attributes to succeed in the new model.

2. Develop a set of conceptual principles to guide the practical re-structuring of governance and

leadership. Examples: Non-representational governance at system/parent board, but some

representational governance at subsidiary boards.

3. Develop clear delineation of relative roles, responsibility, and authority of different boards and clinical

leadership groups. Codify this with Authority Matrices, and then use them!

4. Centralize authority, decentralize decision-making. Ensure ultimate responsibility and accountability for

system rests clearly with the system/parent board. Subsidiary and physician boards are provided specific,

accountable goals for clinical transformation that focus on clinical quality, cost, and population health

metrics. Each subsidiary board and clinical leadership group is held accountable to specific metrics.

5. Nimbleness is key! Governance and leadership structures cannot be set in stone. Leaders must be able

to change and adapt as circumstances warrant.

6. The evolving role of physician leadership will require the most “care and feeding.”



PHYSICIAN AND PAYER ALIGNMENT IMPERATIVES

20



Measuring Our Collective Performance

Commercial profit margins are capped by rate regulation and limits on medical loss

Moving from defined benefit to defined contribution

Plan design changes & delivery innovations in self funded plans

$4 PMPM

57% of all bankruptcies

¾ had health insurance

© 2013 Kaufman Strategic Advisors, LLC


57% of all bankruptcies

¾ had health insurance

Massachusetts: Back to the Future

Source: Annual Report Massachusetts Healthcare Market, August 2013 & KSA Calculations



$73

$95

$113

$20

$66

$22 $25

$54

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500 $468

2011

Payer Retention

Non-Claims

Other

Rx

Other Professional

Physician

Hospital Outpatient

Hospital Inpatient

WHERE ARE THE POST-REFORM SAVINGS?

Division of Insurance Financial Summary

Reports Show Retention Trends

Administrative Expenses increased by $110

million (10%) from 2010 to 2012, while payers’

Incurred Claims remained steady at $9 billion.

Net income for payers grew from $20 million in

2010 to $160 million in 2011 to $210 million in

2012.

Source AHD.COM

$1x for Population Health Requires $5x on

Cost Reduction, Variation



($20,000)

($15,000)

($10,000)

($5,000)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Hospital Division

Physician Division

Total

Physician Employment is Reaching an Inflection Point

9% EBITDA



2011 2012 2013 2014

Budget

2015

Projected

AGGREGATION Mostly defensive

Transactional, one-off deals

Disparate offices/systems

Total chaos

Escalating investment

“The system’s role is to

support me”



Is the Employed Physician Group a “Group Practice”

or a “Group of Practices?”

CONSOLIDATION Consolidation of locations

Common name

Central, shared governance

Standard offices/systems

Single blended comp. plan

Budget discipline

Referral management

Investment is stabilized

INTEGRATION Standard clinical work

Common culture/vision

Shared incentives

Team-based care

Commitment to redesign

for better quality and

efficiency

Investment yields return

“My role is to support

the system” “I am the system”

Break even on Medicare

(Ability to Measure

Cost and its Correlation

to Outcomes and Create Standard

Work) Medicare

ACO (Population

- based Payment)

Bundling (Acute Care

Episode Demo)

Optimize Current and Future VBP

Performance e.g.,

Readmits Patient

Satisfaction, etc.

2012-2018

Urgency

Profit from a Contract or

Joint Venture with a Medicare Advantage or Private

Plan

2018+

R&D

Transition Employed Physicians

Into an Integrated

Medical Group (Clinic)

NOW

Design a Clinically Integrated Network –

Practice on Employees



Back to Basics

Market Share and Profitability

Imperatives for Physician Alignment

1. Select a cost target and a systematic approach to measuring cost and eliminating waste through redesign and stick to it! (Expect resistance.)

2. Establish a “physician cabinet” of medical directors, MEC, and “care-line” leaders to be ‘partners’ in guiding the system (radical transparency).

3. Assign accountability for managing and optimizing the performance of hospital-based physician services and medical directors.

4. Establish a performance culture: routinely measure and report critical performance metrics (focusing on costs and outcomes) and demand action plans when targets are missed.

5. Have a third party conduct an objective performance assessment and develop implementation plans to optimize all critical functions: e.g., revenue cycle, documentation, IT, cost accounting, reporting on quality/outcomes, patient flow, capital allocation, employed physician practices, etc.

6. Develop a digitally connected network of physicians committed to delivering efficient-predictable-evidence-based-coordinated care – start with system employees.



Q & A

28



Nate Kaufman Managing Director

Kaufman Strategic Advisors, LLC

[email protected]

Today’s Presenters

29

Gordon Mountford Executive Vice President

Huron Healthcare

[email protected]



Curt Whelan Managing Director

Huron Healthcare

[email protected]

James E. Orlikoff President

Orlikoff & Associates, Inc.

[email protected]

Webinar: Improving Hospital and Health System Performance by 20% to 40%

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