Draft Evolving Rural Healthcare Environment Surviving the Crossing of the Shaky Bridge New Mexico Hospital Association Annual Meeting Albuquerque, NM September 25, 2014 Matt Mendez, MHA 1
About Stroudwater Who we are How we add value Where we serve National healthcare consulting firm founded in 1985 by people with a passion for making a positive difference in healthcare. Our multi-disciplinary team offers deep expertise and perspective across a range of areas including finance, hospital operations, nursing, performance improvement, informatics and business development. Affiliations and partnership planning Capital planning and access Physician-Hospital alignment Strategic Master Facility Planning Population Health Revenue Cycle Management Strategic Planning and Operational Improvement Rural Practice Active projects in all regions of the country serving major academic and tertiary centers, rural providers, physician groups, and government / quasi-government agencies 2
Goals for Today To share a macro, high level strategic perspective on three main imperatives that rural hospitals must pursue to successfully navigate to the new future state Blocking / Tackling is important must be balanced with planning for the future To reinforce the need to challenge the status quo Today s revenue generation playbook will be not be enough to ensure viability new playbooks will need to be imagined to succeed in the future To share lessons from clients across country, as well as time spent at the helm of two hospitals In times of change, the learners will inherit the Earth while the knowers will find themselves beautifully equipped to deal with a world that no longer exists. - Eric Hoffer 3
If you don t know where you are going any road will get you there - Lewis Carroll 4
The Premise Finance System will drive Transition to PBPS Finance (Macro-economic Payment System) Function (Provider Imperatives) Form (Provider Organization) Today (FFS) Government Payers Changing from F-F-S to PBPS Private Payers Follow Government payers Management of costs Independent organizations competing with each other for market share based on volume Future (PBPS) Population Based Payment System (PBPS) Steerage to providers with lower costs and better outcomes Management of care for defined population Providers assume insurance risk Aligned organizations competing with other aligned organizations for covered lives based on quality and value Network and care management organization New competencies required Network development Care management Risk contracting Risk management 5
Navigating the Shaky Bridge 3 Critical Steps 1. Efficiency and Quality Fee for Service Payment System 2. Physician Alignment Population Based Payment System 3. Systems of Care Volume Value Population Market Approach to Payments 6
Lessons from the field 7
Hospital A 17-bed not-for-profit, Critical Access Hospital hospital located in the Midwest Replaced facility in 2004 under HUD 242 program Approximately 90 employees 9 employed PCPs $21M Gross Revenue Independent, loose affiliation with system Approximately 30% of Primary Service Area Market Share Nearest competitor 30 miles Service offerings: General acute care Swing bed services 24 hour Emergency Department Laboratory Imaging (X-ray, CT, MRI, Mammography, U/S, bone densitometry) Surgical Services Respiratory Therapy Speech, Occupational and Physical Therapy Primary care through 4 clinics (1 attached and 3 offsite) 8
Performance Snapshot Hospital A Operational Performance Area Metric Result Operating Margin 5.6% Finance Net Income (Loss) $990K Days Operating Cash 286 Growth IP (4 yr. trend) 21% decline Ancillary Services (4 yr. trend) 27% increase Quality Core Measures Avg. 92% Patient Satisfaction HCAHPS Average 72% HCAHPS Likely to Recommend 74% Transition Readiness Ops Efficiency & Quality Physician Alignment Delivery System 9
Selected Opportunities Hospital A Inpatient Growth (Acute and Swing Bed) 1. Establish frictionless admission process Reduce / eliminate time restrictions on admissions Establish an intake point person to coordinate referrals admissions 2. Commit to growth strategy Hire a dedicated case manager, or discharge planner to promote the swing bed program to orthopedists and the rehabilitation patient population 3. Follow ED transfers to identify those patients with potentials sub acute rehab needs 4. Actively promote the hospitalist and swing bed programs to independent providers 340 B Discount Drug Pricing Program Est. Clinic Visits Medicare and 3 rd Party Payer % 340B Eligible Visits Avg. Rx per Visit Total 340B Rx s Avg. per Rx 340B Increase 340B Incremental Benefit 20k 90% 18k 1.2 11.3k $35 $756k 1. Develop relationship with local retail pharmacy or consider options to operate a hospitalowned retail pharmacy if area pharmacies are not receptive. 2. Incorporate potential 340B benefit in future hospital clinic and primary care network growth planning as program revenue can significantly change clinic profitability projections. 10K visits translates into approximately $350K in incremental revenue 10
Hospital B 56-bed not-for-profit, general acute care hospital located in the south Approximately 192 employees Significant deficit of primary care providers 0 employed providers as of Sept. 14 $38M Gross Revenue Management agreement with area system that expires in Fall 14 Approximately 29% of Primary Service Area Market Share 5 competitors within 30 miles Service offerings: General acute care Swing bed services Geriatric psychiatry services 24 hour Emergency Department Laboratory Imaging (X-ray, CT, MRI, Mammography, U/S, bone densitometry) Surgical Services Respiratory Therapy Speech, Occupational and Physical Therapy Attached wellness center Primary care through 2 clinics PCP exodus 11
Performance Snapshot Hospital B Operational Performance Area Metric Result Operating Margin -18% Finance Net Income (Loss) ($2,545M) Days in Net A/R 12 Growth IP (4 yr. trend) 11% decline Ancillary Services (4 yr. trend) 28% decline Quality Core Measures Avg. 93% Patient Satisfaction HCAHPS Average 76% HCAHPS Likely to Recommend 62% Transition readiness Ops Efficiency & Quality Physician Alignment Delivery System 12
Selected Opportunities Hospital B Physician alignment / recruitment 1. Pursue alignment strategies with employed and independent primary care providers to position for population health Contract (e.g., employ, management agreements) Functional (share medical records, joint development of evidence based protocols) Governance (Board, executive leadership, planning committees, etc.) 2. Target the recruitment of 2 to 4 primary care providers within the next 6 to 12 months Establish a primary care recruitment pipeline in partnership with area teaching program Extend Rural Residency Program to establish clinical rotations that create exposure to new providers Contact the State Office of Rural Health regarding the possibility of attracting J1 Visa physicians Engage system partner in assisting with the development of both short term and long term planning efforts Review profitability of services lines 1. Evaluate based on fit with mission and financial contribution to organization viability 2. Strongly consider immediate strategies to increase volume, or discontinue services that are not cash flow positive and a core competency. 13
Lessons from a prior life 14
Pender Memorial Hospital Founded in 1951 86-bed not-for-profit, Critical Access Hospital hospital located in SE NC Approximately 260 employees 14 active Med staff $39M Gross Revenue Affiliated with Wilmington, NC based health system Southeast North Carolina Service offerings: General acute care (43 licensed / 25 staffed beds) 43-bed Skilled Nursing Facility Home Health 24 hour Emergency Department Laboratory Imaging (X-ray, CT, MRI, Mammography, U/S, bone densitometry) Surgical Services Respiratory Therapy Speech, Occupational and Physical Therapy 15
8 Year Transformation What we found What we fixed Leadership instability 7 CEOs over the previous three years; fragmented leadership team $3M in cumulative losses from prior 9 years Leadership continuity built a talented and capable team Positive operating margin and improved cash flow No TJC accreditation for 14 years TJC accreditation within first 9 months No pay raises / wage adjustments for 6 yrs. Low morale - turnover rate of 46%; unionization attempt within first 90 days Antiquated and inadequate physical plant and technology Medical staff lost confidence, poor relationship with administration Initiated wage adjustments + incentive program Reduced turnover to below 20% / Improved employee satisfaction Renovated ED / OR and constructed a freestanding urgent care / outpatient diagnostic center; imaging upgrades Alignment and improved relations with medical staff Community by-passed hospital for care Utilization and growth of services 16
1. Culture Matters Ability to drive performance is not rate limited by technical aspect of knowing what to do but limited by leadership s capacity and bandwidth to drive change Consciously design your culture don t outsource it, or rely on it to develop organically Critical elements include: Transparency, Clarity of Vision, and Accountability Convert renters into owners and unleash the hidden potential of your associates Go to Gemba (where the work is done) commit to daily patient / associate rounding Connect your stakeholders with the mission Man on the moon talk Eliminate power gradients (e.g. titles Mr/Mrs., administrative parking, etc.) Adopt a servant leadership style show vulnerability / admit mistakes and seek ideas and solutions from associates 17
2. Plan and Execute well Planning ( easy part): Good planning begins with a solid understanding of your current state and a clearly defined problem. Do not get hung up crafting multi-year strategic plans limit focus to 12 18 months Migrate from strategic planning as an annual event to strategic management review of progress on a monthly basis Engage all stakeholders (associates, leadership, Board, medical staff, community) in a collaborative manner Execution ( hard part): Develop a formal method for how the organization executes and drives change Cross functional and interdependent teams / councils (e.g. Quality, Satisfaction, Finance) Action team charters with clearly defined scope and roles Action planning that drives accountability though the establishment of specific, time-phased and measurable tasks with defined responsibilities that is monitored on a monthly basis 18
3. Measure what is actionable Resist temptation to track everything Identify 1-2 key metrics per performance category that trigger action / response Growth ED volume / % admissions / transfers People Turnover, Employee Sat Quality / Safety Core Measures composite score, HAC Finance Operating Margin, Days Cash Patient Sat HCAHPS (Likelihood to recommend) Identify performance metrics on Macro (hospital), departmental, and individual basis to establish alignment of goals Communicate widely / frequently, and hold accountable 19
4. Cultivate pitchers Revenue generation is not just the C-suite s job Develop Pitchers instead of Catchers foster entrepreneurial mindset within your management team Set the expectation to interface regularly with medical community on opportunities to better serve their patients, build awareness of new and existing services, and explore new partnerships Examples: Lab manager sought relationships with area nursing homes and practices, Rehabilitation Services manager developed aqua therapy through a local fitness center 20
5. Seek solutions outside of healthcare We have tendency to believe that the best solutions are those that originate within our walls Example: air traffic control system as model for OR and ED triage flow management Network professionally with area businesses to share ideas and solutions Explore and adopt LEAN as a business model and philosophy that can shift the culture towards a relentless focus on delivering customer value Jeff Spade and the Carolinas Lean Collaborative (e.g. workflow redesign, reducing wait times, process standardization, etc.) 21
It doesn t matter what the environment is doing. It matters what we are doing in the environment. -Paul Wiles, Retired CEO, Novant Health 22
What do we choose to do in this environment? 23
Matt Mendez, MHA mmendez@stroudwater.com (910) 508-7672 www.stroudwater.com 24