3-4 page paper reproducing your understanding and capability
develop a 3-4 page paper reproducing your understanding and
capability to apply the readings to your Health Care organization and finance.
Each paper must be typewritten with 12-point font and double-spaced with
standard margins.
1. Introduction (25%) Provide a
brief synopsis of the meaning (not a description) of each Chapter and articles
you read, in your own words that will apply to the case study presented.
2. Your Critique (50%): Case Study
To say hospital and
health system operating margins are different today than they were a decade ago
may be an understatement. Medicare reimbursement reductions, cuts to state
Medicaid programs and rising tides of uncompensated care have created an
atmosphere where some hospitals, particularly smaller, community hospitals, are
simply happy with a break-even balance sheet.
The environment is
unlikely to change in the short term. The supercommittee was unable to reach a
bipartisan agreement to cut $1.2 trillion over 10 years, and it will cause
sequestration cuts of 2 percent to Medicare starting in 2013.
While 2012 may appear
to be a grim time for hospitals to keep their finances positive, there are
several things hospitals can do to go beyond just maintaining solvency.
Hospitals and health systems essentially have two options: They can either cut
costs or create new revenue streams. Here, several healthcare leaders share
their thoughts on how this can be done and offer one recurring theme: Hospital
and healthcare leadership needs to evaluate a multitude of planes rather than
relying only on across-the-board savings cuts.
1. Focus on the
continuum of care. One of the biggest changes occurring in healthcare is the
full-scale shift away from fee-for-service and volume-based measures toward
accountable care organizations and quality-based measures. Ann Pumpian, CFO of
Sharp Healthcare in San Diego, says hospitals will need to look at the entire
continuum of care, regardless if they join an ACO, if they plan to stay
profitable in 2012 and beyond. She says the continuum of care hospitals need to
focus on includes the initial admission, how services are provided within that
admission to create the most efficient process for a quick yet appropriate
discharge, a discharge to the appropriate post-acute setting and follow-ups
with that discharge.
Pearson Talbert,
president of Aegis Health Group, says hospitals can take it one step further by
fostering stronger, mutually beneficial relationships with physicians —
especially primary care physicians. In addition to quality- and value-based
principles, healthcare reform is also centered on preventive care, managing
chronic illnesses and keeping people healthy before a hospital trip is
required. To do that while staying profitable, Mr. Talbert says hospitals must
focus on physician alignment and actively engage with the primary care physicians
in their communities. "The primary care physician is the air traffic
controller for the patient," he says.
Ms. Pumpian also
emphasizes the hospital-physician relationship. Although some states prohibit
hospitals from employing physicians, she says hospital efficiency and solvency
hinges on a hospital's affiliation and collaboration with physicians.
Physicians facilitate patients through the continuum of care, and next year, it
will be paramount for hospitals to keep and recruit high-quality physicians who
increase a hospital's referral base, have high ratings of patient satisfaction
and have the highest commitment to quality patient care. "What is key is
to make certain that these physicians and institutions are going in the same
direction," Ms. Pumpian says. "Both need to be incented to do the
same thing, which is what's best for patient care."
2. Design models to
reduce readmissions. Hospitals that realign their goals toward the entire
continuum of care can then focus on one of the more pertinent aspects: reducing
readmissions. Readmissions negatively impact a hospital's bottom line in
several ways, such as the high costs associated with them and scrutiny from
private health insurers and patients. Now part of President Barack Obama's
healthcare reform, hospitals with high levels of preventable readmissions face
the potential of losing a portion of their Medicare, Medicaid or other
governmental reimbursements. "If [other hospitals] are not gearing up for
that now, they are really behind the eight-ball," Ms. Pumpian says.
"They should've been doing this years ago."
She says there are
several ways hospitals and their physicians can effectively reduce their
readmissions, such as ensuring patients attend post-acute office visits
routinely after discharge and overall providing resources to people to ensure
they are taking the proper post-discharge steps. "This has proven to be a
key indicator to keep readmissions from occurring," Ms. Pumpian adds.
Scott Downing,
executive vice president and chief sales and marketing officer at VHA, says a
hospital's preparation for the readmission risk is "absolutely
critical," and much of the responsibility will fall on a hospital's case
management and preventive care staff, who will need to be properly trained and
managed to ensure overall readmission rates go down. "A hospital's case
management [staff] has to engage in conversations with the patients to help
them be compliant with that care path," Mr. Downing said. "There's a
wealth of effort and resources that hospitals apply, but they're going to have
to become even better at that."
3. Have a good
relationship with payors, and renegotiate managed care contracts. While
hospitals cannot control the underpayments from Medicare, Medicaid and other
governmental payors, they have a semblance of control over one major outlet:
commercial and employer-based payors. Mr. Talbert says private insurance
carriers comprise, on average, 35 percent of a hospital's revenue.
According to Kyle Kobe,
principal at healthcare consulting firm Equation, hospitals must take the time
to understand existing contracts, benchmark managed care contracts against each
other, conduct research to know what percentage of the insurer's business comes
from the hospital, routinely update stagnant and evergreen contracts and look
for carve-out opportunities. Hospitals and their managed care departments must
be prepared when renegotiating contracts, but at the same time, a level of
respectful dialogue must exist — otherwise, fallouts will occur, leading to
costly periods of no reimbursement and a public relations nightmare.
"Often times, people don't think about the fact there is a mutual respect
that needs to occur with the payor and institution," Ms. Pumpian says.
"That is earned over time in a manner that allows you to help collaborate,
design and develop the care delivery models and product designs that those
payors will ultimately use."
4. Manage new service
lines to increase market share. When it comes to "creating new streams of
revenue" for hospitals, this most commonly refers to adding new service
lines. Larry Moore, CFO of Cumberland Medical Center in Crossville, Tenn.,
agrees increasing market share through new services is the most effective way
to deal with any reduction in net payments.
Hospitals should not
merely add any service line — for example, orthopedics — because it is
historically profitable. Mr. Moore says hospitals need to conduct research and
look at the demographics of their locale to determine which service lines are
needed, what competitors in the area offer and what services stand to gain the
most referrals. For example, roughly 10,000 baby boomers are becoming eligible
for Medicare every day, and Mr. Moore says Cumberland, which has a high
Medicare population, has been focusing on cardiovascular services.
Additionally, he says the surrounding population tends to have a higher
concentration of obese patients, and therefore Cumberland is also focusing on
enhancing its orthopedic service line.
Conversely, if
hospitals want to become or remain profitable next year, they will have to
monitor their service lines to see if any are hemorrhaging money. Jack
Lahidjani, president of Mission Community Hospital in Panorama City, Calif.,
says this is especially important for community hospitals, as community
hospitals can't be the healthcare provider for all. "Most community
hospitals don't create a differentiation between themselves and a tertiary
facility or a teaching facility," Mr. Lahidjani says. "We can't have
the same number of programs as a Cedars-Sinai. They can afford to lose money on
10 to 15 programs because they are making money on the other 80. We need to
evaluate every program on a quarterly basis and make adjustments accordingly.
Hospitals need to be aware of community needs and cater to those needs."
5. Control labor costs
with meticulous data collecting. At most hospitals, more than 50 percent of
expenses are related to labor costs or labor-related costs, and Mr. Lahidjani
says "if you can't control your labor costs, working on anything else
almost becomes immaterial."
Mr. Lahidjani, who also
used to be CEO of the physician-owned and Los Angeles-based Miracle Mile
Medical Center and CFO of Los Angeles-based Alta Healthcare System, says his
hospitals hold daily "labor control meetings" for 10 minutes. Every
department shows up, goes over their respective staffing metrics and manages
their labor on a dollar-per-patient-day level. "If we are overstaffed by
one nurse in surgery and understaffed by one nurse in the emergency room, can
we move the surgical nurse to the ER?" Mr. Lahidjani says. "This type
of communication where every manager and operator in the hospital gets on the
same page also creates awareness of what's going on in the other parts of the
hospital."
If hospitals do not
manage their labor costs or have staff meetings on their labor rolls every day,
then he says hospitals should, at the very least, be data-driven on this front
on a bi-weekly, monthly, quarterly and annual basis.
6. Reduce supply costs
by working with vendors and physicians. After labor costs, supply costs are the
second-largest money eater of a hospital's operating budget. Clark Lagemann,
vice president of Health Options Worldwide, says hospital leaders can reduce
supply costs through two main ways: working with vendors to improve contracts
and encouraging physicians to make fiscally responsible supply decisions.
"A hospital should not shy away from approaching vendors for
discounts," Mr. Lagemann says. "This may help alleviate costs on the
purchase product, and in my experience, most vendors are willing to negotiate
if the volume of product allows for it." Additionally, approaching
physicians and working together to create a more cost-conscious supply plan for
every department can help foster a better working relationship with physicians
in addition to supply savings.
7. Improve deficiencies
in the emergency room and operating room. Many hospitals consider their ERs and
ORs to be two of the most important areas of a hospital because they represent
a traditional "money loser" and a traditional "money winner."
ERs and trauma areas
are vital to any community health system, but hospitals have been facing
growing numbers of uninsured patients walking into their ERs. This is leading
to high amounts of uncompensated care. However, there are ways hospitals can
reduce the large costs and pressures associated with the ER and its high volume
of uncompensated care. Phil Lebherz, executive director of the non-profit
Foundation for Health Coverage Education, says hospitals must actively use the
ER to their advantage, as roughly 80 percent of the uninsured patients who come
into the ER are eligible for some type of publically funded program. He says
hospitals should make it a priority to help ER patients complete applications
for publicly funded health coverage like Medicaid. This could make patients
more willing to seek preventive care instead of resorting to last-minute,
much-needed and highly expensive ER treatment, and it will also directly reduce
a hospital's uncompensated care and bad debt.
A hospital's OR is
typically one of the most profitable areas of a hospital due to the type of
surgeries performed, and Mr. Lagemann says improvements in the OR can help a
hospital maintain its levels of profitability. For example, he says future
profits lie in new equipment, such as smart ORs and hybrid ORs. Mr. Lagemann
adds that new technology, although an investment at first, can eventually lead
to higher market share and patient volume, and it can also lower reoperation
rates, which could improve reimbursements.
8. Create population
health management programs to gather health data analytics on chronic
illnesses. The ACO model, or at least its population-health emphasis, is
shifting hospitals' thinking of how to be profitable. Mr. Talbert says
hospitals are asking themselves if they are in the "healthcare"
business or the "sick-care" business, and more often than not, he
says they find they are in the "sick-care" business as they wait for
patients to become sick before addressing health issues.
To counter this, Mr.
Talbert says hospitals will need to create formal population health management
programs through which the hospital can reach out and gather health data
analytics on its local patients as a way to address potential health problems
before they become costly, chronic issues. "If we are going to control
costs of healthcare and start bending the curve downward, we have to start
looking at things from the perspective of population health management,"
he adds. If hospitals are able to see data and cost figures associated with chronic
diseases — such as diabetes, cardiovascular disease, asthma, hypertension and
others — they can reach out to their communities to start chronic care programs
to mitigate costly, long-term health problems.
9. Consider outsourcing
some services. Outsourcing services at hospitals is nothing new, but Mr.
Lahidjani says eliminating the administrative overheard and farming out
functions that are better handled on an independent contractor basis will
directly result in bottom line savings. Laundry services, housekeeping, food
services, facility maintenance and some biomedical and clinical departments are
commonly outsourced services. Mr. Lahidjani says his hospital has also
experimented with outsourcing its nurse education. Mission Community Hospital
did not want to end its nurse education program, but it also did not know if it
could continue to incur the program's operating costs. Currently, the
outsourced company has individuals that show up two or three times a month to
hold its nursing educational seminars. Mr. Lahidjani says their nurses are
still getting quality "know-how," but their expenses have since been
lowered.
A hospital must be
prudent when it decides to outsource a service, though, and it must have a
contingency plan if the proposal does not work out. "Whenever you
outsource a service, you need to be prepared to bring it back in case the
relationship disintegrates or if the third party is not able to provide the
level of service we expected or anticipated," Ms. Pumpian says.
10. Revamp the energy
cost strategy. "Going green" could be more than just a strategy that
positively impacts the environment and reduces reliance on fossil fuels — it
could also save on a hospital's bottom line.
Dennis Olson, vice
president of facilities at Mayo Clinic Health System in Eau Claire, Wis., says
the hospital system has been actively revamping its sustainability and energy
cost strategies, and it's led to significant results. One of the larger
projects involves the use of geothermal energy at a one of the health system's
dialysis centers under construction. Various pieces of equipment run through
the ground and can extract heat or cooling from the natural ground water, which
is typically around 45 to 50 degrees Fahrenheit. This extracted heating or
cooling can be diverted to warm up the building in the winter and cool the
building in the summer. He says a geothermal energy project is fairly expensive
up front, but the benefits are in the long-term. Hospitals can expect a payback
on its investment within seven to eight years, all while the hospital provides
its own, truly natural energy. "You're not burning any fuel to get heating
and cooling sources such as natural gas or oil, and instead, you're letting the
Earth's resources handle that," Mr. Olson said.
CASE STUDY CHALLENGE
1.
Do you believe a computerized program are better, if so why?
2.
Does the concept of revenue less expense equaling an
increase in equity or found balance make sense to you? If not, Why?
3.
Can you think of good outside source that could be used to
obtain ratios for comparative purposes?
3. Conclusion (15%)
Briefly summarize your thoughts &
conclusion to your critique of the case study and provide a possible outcome
for the Health Care Center. How did
these articles and Chapters influence your opinions about Health Care law and
Finance?
Evaluation
will be based on how clearly you respond to the above, in particular:
a) The
clarity with which you critique the case study;
b) The
depth, scope, and organization of your paper; and,
c)
Your conclusions, including a description of the impact of these Case study on
any Health Care Setting, and finance.