How Community Hospitals Can Survive and Thrive …...Survive—and Thrive—in Their Markets Seven Tactics for Executives Leading Independent Hospitals Through the Transition to Value

How Community Hospitals Can

Survive—and Thrive—in Their Markets Seven Tactics for Executives Leading Independent Hospitals Through the

Transition to Value

Health Care Advisory Board Community Hospital Initiative

July 13, 2016

Trevor Goldsmith

Consultant

Health Care Advisory Board

[email protected]

©2016 The Advisory Board Company • advisory.com

2

Source: Health Care Advisory Board interviews and analysis.

The Community Hospital Initiative

Executive Working Sessions

Community Hospital-AMC

Partnerships: June 14, 2016

Community Hospitals in Consumer-

Driven Health Care: August 23,

2016

Community Hospital Population

Health Strategies: Fall 2016

Services and Support

On-Demand Experts Peer Networking Quantitative Tools

Community Hospital Quarterly

Community Hospital Benchmark

Series

Case Studies and Research Briefs

Community Hospital Blog Reports


3

Hard Times for Community Hospitals

Basic Economics Threatening Smaller Hospitals and Independents

Source: Moody’s Investor Services, “Preliminary Fiscal Year 2012 Medians for US Not-for-Profit Hospitals

Show Weakened Performance,” May 3, 2013; Health Care Advisory Board data and analysis.

$9,587

$23,194

$6,675

$15,332

Medical Surgical

Over 250 Beds Under 250 Beds

Commercial Reimbursement

Total Margin Scenario Planner Participants

$1.48B

$527M

$402M

$245M

967

414 316

190

Aa A Baa Below Baa

Operating Revenue Bed Size

Hospital Bond Ratings

By Median Operating Revenue and Bed Size

Total Margin Scenario Program

Advisory Board analysis of commercial

reimbursement data from over 800

member hospitals across the country


4

Finding the Community Hospital Advantage

Seven Tactics to Guide Community Hospital Growth in a Changing Market


1 Focus on outpatient growth

2 Embrace principled partnerships

3 Determine your costs and cut waste

4 Prepare for population health with limited investment

5 Creatively engage and enhance physician workforce

6 Reach out to consumers and independent physicians

7 If you need to sell, get ahead of the market


5

119.7

103.7

2000-2014

Shift from Inpatient to Outpatient Likely to Continue

1. Focus on Outpatient Growth

Sources: Trendwatch Chartbook 2016, American Hospital

Association; Health Care Advisory Board interviews and analysis.

Inpatient Admissions per 1,000 vs.

Outpatient Revenue Key Factors Driving

Utilization Changes

Clinical advances leading

to less-invasive treatment

Rising-risk patient

detection reduces

frequency of acute events

High out-of-pocket

obligations lower overall

utilization

35%

46%

Inpatient

admissions

Outpatient

revenue


6

Picking Your Battles

Which Services Will Your Market Support?



Identifying Competitive Services

Payment Transformation Challenge

Patient data fragmented by site of service will hobble effective

population health management.

Battleground

• Cardiology

• Oncology

• Orthopedics

• Pediatrics

• Obstetrics

Baseline

• Emergency department

• Primary care

• General medicine

• General surgery

• Imaging

Advanced

• Cardiac surgery

• Neurosurgery

• Transplants

• Technology-intensive

procedures

Increasing Complexity


7

Leveraging Scale and Location to Compete



Three Steps for a Coherent Community Hospital Service Line Strategy

3 Find Compatible Partners

1 Identify Service Strengths

Key Questions

• Which services ‘don’t

travel well’?

• What is the rate of out-

migration for place-

bound services?

• Does the total business

opportunity justify

investment?

2 Develop Continuum

Key Questions

• How can care-

coordination and local

presence keep patients

loyal?

• Which services do you

have to let go?

Key Questions

• Which tertiary or

quaternary partners can

you work with?

• How can you serve as

the access point for

patients to more

complicated services?

• How can you keep

patients anchored to

your locally available

services?


8

Non-Traditional Partnerships on the Rise

New Models Aim at Integration Without M&A

2. Embrace Principled Partnerships


Seven hospitals

form Value Care

Alliance

Five community

hospitals join Stratus

Health Care

EvergreenHealth

enters 20 year

agreement with

Virginia Mason

Four community

hospitals join

Vanderbilt Health

Affiliate Network

26 rural hospitals

form Western

Healthcare Alliance

26 hospitals join

Mayo Clinic

Care Network

Three community

hospitals join Cleveland

Clinic Affiliate Network

Mid-Columbia Medical

Center aligns with

Oregon Health &

Science University


9

Partnership Realities Often Fall Short of Hopes

Clinical Affiliations and What They Deliver


Source: Health Care Advisory Board interviews and analysis

For Tertiary Centers and Systems:

• Strengthened referral stream

• Extension into local communities

• Insulation in increasingly competitive

environment

• Better primary care and

population health abilities

• Co-branding

• Access to specialists

• Expert consultation

• Filling out service lines

• Potential to engage in shared

risk arrangements

For Community Hospitals: Poll responses to: “Overall, how

successful have your organization’s

affiliations been?

n = 148, 2016

16%

29% 53%

2%

Very

Not at all

My organization

has no clinical

affiliations

The Advantages Seem Obvious Success Is Not Assured

Sometimes


10

How Is the Whole Greater than the Sum of Its Parts?



Consider How Each Partnership Raises Value

Elements of an

Attractive Network

• Geographic coverage that aligns with

purchaser of interest

• Ability to meet convenience demands

of consumers (after-hours, weekend

access; virtual care; etc.)

• Better outcomes than competitors

• Adherence to evidence-based

clinical practices

• High patient satisfaction ratings

• Strong brand reputation

• Low unit prices relative to competitors

• Willingness to further reduce prices in

return for steerage

• Investment in infrastructure that

signals ability to control cost trend

Clinical Quality

Access Cost

Service Experience

Baseline Requirements

Differentiators


11

A Two-Step Strategy for Capitalizing on Efficient Care

3. Determine Your Costs and Cut Waste


Clinical Efficiency a Top Savings Priority

• Per capita cost of care

• Efficiency and quality of care

Criteria for Network Inclusion

Study in Brief: Setting the Standard for Patient Care

Overview for board members and executives about how to advance a clinical standardization

mindset, where organizations can get started, and what they must do to create and sustain a

consistent level of quality across the enterprise

Hidden Opportunities

1. Margin Protection 2. Value-Centric Growth

• Reduced malpractice premiums

• LOS reduction enhances through-put

38%

30%

32%

Obvious Targets

• Avoidable direct costs

• Missed quality bonuses

• Avoidable P4P penalties

Narrow Networks Gaining Traction

20 Urban Markets, December 2013

“Ultra-Narrow”

Excludes 30% of 20

largest hospitals

“Narrow”

Broad

Excludes 70% of

20 largest hospitals


12

Case in Brief: Value Care Alliance

Case in Brief: Britten Healthcare1

Operational Savings Often an Easier Target



1) Pseudonym.

$300K Year-on-year savings

from inventory

restructuring $2M

Savings from joint RFP

for combined reference

lab functions

• Applies LEAN philosophy to

supply chain

• Puts more than 10K bins

into service

• Piloting direct-stocking program to

remove staff from supply chain

• Audits show overstocking and

inefficient use of inventory

Regional partnership of six

Connecticut hospitals

• Early win with cost savings helps

build momentum for long-term

strategic partnership

• Overall goal to form high-value

narrow network to drive volume

100 bed independent

hospital in Midwest

• Planning similar joint cost saving

with malpractice insurance


13

Next Steps and Resources


Data and Analytics Group

Customized Cost Reduction Opportunity Assessment

Revenue Cycle Benchmark Generator

Hospital Benchmark Generator

Customized Episodic Cost Profiler

Research Studies and White Papers

Twelve ‘Must-Do’ Strategies for Protecting Future Margins

The Sustainable Acute Care Enterprise

Bending the Expense Growth Curve

The Medicare Break-Even Project


14

Value Market Challenges for Community Hospitals

CMS’s Historic Commitment Poses Special Burden

4. Prepare for Population Health with Limited Investment

Source: Sylvia Burwell, “Setting Value-Based Payment Goals — HHS Efforts to

Improve U.S. Health Care,” NEJM, 2015; Health Care Advisory Board interviews

and analysis.

$5.3M Estimated start-up

costs for ACO at

200-bed hospital

$6.3M Estimated annual

running costs for ACO

at 200-bed hospital

Significant Resources Needed Our target is to have

30% of Medicare

payments tied to

quality or value

through alternative

payment models by

the end of 2016, and

50% of payments by

the end of 2018.”

Sylvia Burwell

Secretary of HHS


15

Things that Might Be Ought of Reach

Provider-Sponsored Health Plans Not a Sure Bet



12.4 12.7

12.9

13.7

15.3

2010 2011 2012 2013 2014

Growth in PSHP1 Enrollment

Millions

+400K Growth in public

exchange enrollment in

PSHPs, 2010-2014

-10% Aggregate margin for

provider-sponsored health

plans in ACA

marketplace, 20142


16

Focusing on De Facto Risk Bears Fruit

Cheyenne Regional Develops Rural Population Health Strategy



$33M Estimated reduction in

health care costs,

2012-2015

10% Estimated decline in ED

utilization, 2014-2015

Preliminary Results

21% Increase in blood

pressure management,

2012-2014

Case in Brief: Cheyenne Regional Medical Center

• 222-bed safety-net hospital in Cheyenne, Wyoming

• Won $15M CMS grant to fund rural population health

transformation in 2010, program now self-sustaining

• Actively engaged in implementing alternative payment

models with public and commercial payers

Major Program Elements

Patient-Centered

Medical Homes

Predictive

analytics

Care-transitions

program

Community

partnerships


17

Physicians at the Center of Hospital Value Creation

5. Creatively Engage and Enhance Physician Workforce


Care

Planning

Care

Delivery

Care

Coordination

Value-Added Processes


18 5. Creatively Engage and Enhance Physician Workforce

Source: Advisory Board Survey Solutions’ National Physician

Engagement Database, 2014; Health Care Advisory Board interviews

and analysis.

1) Regression model includes 8 of 28 engagement drivers; r2 = 0.665

2) Regression model includes 14 of 28 engagement drivers, r2=0.638

Physicians Relate to Community Hospitals Differently

Top Drivers by Impact on Physician Engagement Determined by Multivariate Regression Analysis of 28 Engagement Drivers1

1

12

5

4

8

11

--

I am interested in physician leadership opportunities at this organization.

The actions of this organization's executive team reflect the goals and

priorities of participating clinicians.

I have good working relationships with clinicians in my principal practice

area.

I would recommend this organization to a friend or relative to receive

care.

This organization provides excellent service to patients.

This organization supports the economic growth and success of

my individual practice.

This organization supports my professional development.

I receive the operational and business support services (IT,

billing, coding, scheduling) to succeed in my practice.

Driver

Rank

All Other

Hospitals2

Rank

Community

Hospitals1

1

2

3

4

5

6

7

8

2


19 5. Creatively Engage and Enhance Physician Workforce

Source: Advisory Board Survey Solutions’ National Physician

Engagement Database, 2014; Health Care Advisory Board interviews

and analysis.

1) Drivers shown in rank order by impact

Physician-Community Hospital Synergies Higher

Top Drivers, Community Hospital Impact Model1 Community

Hospitals

All Other

Hospitals Gap

The actions of this organization's executive team reflect the

goals and priorities of participating clinicians. 46.6% 41.7% 4.9%

I would recommend this organization to a friend or relative to

receive care. 76.6% 80.8% -4.3%

This organization provides excellent service to patients. 72.4% 74.0% -1.6%

This organization supports the economic growth and

success of my individual practice. 56.9% 47.0% 9.9%

I am interested in physician leadership opportunities at this

organization. 47.6% 46.3% 1.2%

This organization supports my professional development. 64.7% 61.2% 3.4%

I have good working relationships with clinicians in my principal

practice area. 89.9% 89.5% 0.4%

I receive the operational and business support services (IT,

billing, coding, scheduling) to succeed in my practice. 57.2% 55.4% 1.8%

Performance Variation on Agreement with Top Impact Drivers Percentage of Respondents Agreeing/Strongly Agreeing


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Three Foundations of Physician Alignment

5. Creatively Engage and Enhance Physician Workforce


“Why should I work for your hospital?”

Strategic Case

“This is how we will win

business together in

the future”

Operational Support

“Here is how we will

help you succeed in

your role”

Quality Case

“This is better for

patients”


21

Not Always Getting Credit

Community Hospitals Crucial for Health Care

6. Reach Out to Consumers and Independent Providers

Source: Ibrahim AM, et al., (2016) “Association of Hospital Critical Access Status

with Surgical Outcomes and Expenditures Among Medicare Beneficiaries,” JAMA,

315(19): 2095-2103; Health Care Advisory Board interviews and analysis.

Data Brief: Smallest Hospitals

Provide High-Value Care

• JAMA (2016) retrospective study of

surgical outcomes at Critical Access

Hospitals

• No difference in 30-day mortality rates

at CAHs vs. others

• Decrease in serious complication rates

• Lower Medicare expenditures

Clinical Quality Not Appreciated

Even though we know our clinical

quality is excellent, the word on

the street is still: ‘If you’re really

sick, bigger is better.’” Community Hospital CEO


22

Admitting There Is Room to Improve

New Leadership at Cheyenne Regional Takes Dramatic Steps


Sources: Health Care Advisory Board interviews and analysis.

Frustrated staff

Poor community image

Uncertain financial future

Cheyenne Regional, circa 2014 “A Year of Turbulence”

22% Of employees “highly

engaged”

ED patient experience 10%

Community and team

orientation has been critical.

Externally, I went on the radio

to learn what the community

didn’t appreciate about us.

Internally, the biggest work has

been having real conversations

with front-line staff around

attitude and skill.” Margo Karsten, CEO

Cheyenne Regional Medical Center

Communication Key to Rebuilding Trust


23

Proactive Leadership Yields Success

Responding Before Market Position Deteriorates Is Critical



1) Pseudonym.

Data shows

outmigration for

cardiovascular

services

50% Reduction in

outmigration,

2010-2013

Net patient service

revenue growth,

2012-2014

21% Case in Brief: Slopehill Health1

• Independent 200-bed hospital in Mid-West

• Competition includes 4 system-affiliated

hospitals totaling more than 1400 beds

• Building identity as local hub of high

quality care

Local residents

believe bigger

hospitals provide

higher quality

Community Disaffection Sparks Big Reaction Elements of Executive Plan

Competitive CV service line 1

National affiliation 3

Data-driven rebranding 4

2 Regionalization CEO rallies board

and independent

physicians

around retaining

independence


24

Independence Is a Means to an End

“What’s the Tipping Point?” Not the Only Question

7. If You Need to Sell, Get Ahead of the Market


Independent Interdependent

Management & Governance Autonomous Integrated

Identity & Culture Local Standardized

Capital Plan Agile Stable

Service Portfolio Tailored and

concentrated

Rationalized and

distributed

The Real Value of Local Control


25

Principled Acquisition Supports Local Mission

ValleyCare Races Against the Clock to Find Best Partner



Scott Gregerson, CEO

An affiliation shouldn’t simply represent an

opportunity to survive, but to improve.”

Case in Brief: ValleyCare Health System

• 241-bed health system in Pleasanton, California

• Acquisition by Stanford Health Care approved by California Attorney

General in April 2015

$50M Committed recapitalization

97% Approval of bid by 2,400-

member corporate board

Lost market share despite

favorable geography

Risked violating bond

covenants

Experienced turnover among

senior leadership

Board of directors proactively

initiated RFP

Board evaluated inquiries

from range of suitors

New partner will maintain

facility, strengthens position

Clear Plan for Partnership Facing Tough Realities


26

Prejudging Partnership Potential Carries Risks



1) Pseudonym.

Complex Competitive Geography

$30M Cash payment by System B for

‘right of first refusal’ to acquire

Colford Health1

System A

System B Colford Health

100-bed independent

hospital in Midwest

Colford and System B have

flourishing cardio partnership

Colford maintains ‘Switzerland’

policy of partnerships with

competitors

Strategic Backdrop to Deal

Systems A and B serious

competitors

Easy Money?


27

Creating Your Own Strategic Roadmap


What is your unique advantage as a community hospital? How can your strengths

deliver tangible value to purchasers, including consumers?

How prepared are you to pursue new opportunities and address areas where you

are falling short today?

Which investments will help you succeed under mandatory public payer risk, but

also help you win in the commercial market?

Do you have the right leadership and governance structures in place to enable

meaningful change?

Of focus areas that cannot be redirected but do not match your market imperatives,

which must be de-prioritized, or ceased altogether?

1

2

3

4

5


28

Further Resources on Community Hospital Strategy


Documents

How Community Hospitals Can Survive and Thrive …...Survive—and Thrive—in Their Markets Seven Tactics for Executives Leading Independent Hospitals Through the Transition to Value