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

Modern Healthcare Webinar | 2
© 2013 Huron Consulting Group. All rights reserved. Proprietary and confidential.

Start with An “All In” Transformational Mindset

Ask The Hard
Questions












Cost structure
Revenue sources
Physician network
Governance
Technology infrastructure
Asset/Clinical infrastructure
Market share
Balance sheet
Strategic planning
People & culture


Market Demands 20% to 40% Performance Improvement
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%

HEALTHCARE TRANSFORMATION STRATEGY


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


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


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

INFORMATION TECHNOLOGY
 Establish deep operational and dataenabled 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

Imperatives for Transformation
1.
2.
3.
4.
5.
6.
7.
8.

Strengthen link between strategy and performance improvement to achieve
strategic priorities and drive breakthrough performance gains
Target annual “net new savings” to create focus on both continuous and
breakthrough improvements
Use second curve analytics that drive deeper accountability at every level
Establish new levels of transparency within the operations, across the continuum of
care, and with payers (government, commercial, individuals)
Increase focus, detail, granularity, and discipline around results, especially clinically
Change where and how care is delivered, and who delivers it
Create relentless commitment to improvement through investments in people,
culture, and tools
Maintain sense of urgency with new messages from leadership that place
performance improvement efforts in a strategic framework


GOVERNANCE IMPERATIVES


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

© 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

May 9, 2012

“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...”


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


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

57% of all bankruptcies
57% of all bankruptcies
¾ had health¾ had health insurance
insurance

$4 PMPM

© 2013 Kaufman Strategic Advisors, LLC

Massachusetts: Back to the Future
$500

$468

$450

$54

Payer Retention

$400

$25
$22

Non-Claims
Other

$66

Rx

$20

Other Professional

$350
$300
$250

$113

Physician

$200
$150
$100
$50

$95

Hospital Outpatient

$73

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.

Hospital Inpatient

$0

2011

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


$1x for Population Health Requires $5x on
Cost Reduction, Variation

Source AHD.COM


Physician Employment is Reaching an Inflection Point

$35,000
$30,000

9% EBITDA

$25,000
$20,000
$15,000

Hospital Division
$10,000

Physician Division
Total

$5,000
$0
($5,000)
($10,000)
($15,000)
($20,000)

2011

2012

2013

2014
Budget

2015
Projected


Is the Employed Physician Group a “Group Practice”
or a “Group of Practices?”
CONSOLIDATION

AGGREGATION






Mostly defensive
Transactional, one-off deals
Disparate offices/systems
Total chaos
Escalating investment

“The system’s role is to
support me”










Consolidation of locations
Common name
Central, shared governance
Standard offices/systems
Single blended comp. plan
Budget discipline
Referral management
Investment is stabilized
“My role is to support
the system”

INTEGRATION
Standard clinical work
Common culture/vision
Shared incentives
Team-based care
Commitment to redesign
for better quality and
efficiency
 Investment yields return






“I am the system”


Back to Basics
Market Share and Profitability
NOW

Urgency

Break even
on Medicare
(Ability to
Measure
Cost and its
Correlation
to Outcomes
and Create
Standard
Work)

Optimize
Current and
Future VBP
Performance
e.g.,
Readmits
Patient
Satisfaction,
etc.

Transition
Employed
Physicians
Into an
Integrated
Medical
Group
(Clinic)

Design a
Clinically
Integrated
Network –
Practice on
Employees

Profit from a
Contract or
Joint
Venture with
a Medicare
Advantage
or Private
Plan

R&D

2012-2018

Bundling
(Acute Care
Episode
Demo)

Medicare
ACO
(Population
- based
Payment)

2018+


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 efficientpredictable-evidence-based-coordinated care – start with system employees.

Q&A


Today’s Presenters

Nate Kaufman

James E. Orlikoff

Managing Director
Kaufman Strategic Advisors, LLC
n8@KaufmanSA.com

President
Orlikoff & Associates, Inc.
j.orlikoff@att.net

Gordon Mountford

Curt Whelan

Executive Vice President
Huron Healthcare
gmountford@huronconsultinggroup.com

Managing Director
Huron Healthcare
cwhelan@huronconsultinggroup.com


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

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