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Managing for better health

Fewer patients in hospital beds does not have to be a recipe for disaster

By Michael T. Rowan
Posted: August 17, 2013 - 12:01 am ET

Not too long ago, the undisputed formula for success as a hospital administrator was simple: Keep the beds filled with paying patients. Now, as the tide of reform sweeps across the landscape, that equation quickly is being turned on its head as healthcare enters the new world of value over volume.

It may seem counterintuitive, but most of the leaders in this nation's dysfunctional system of healthcare now agree that a reliance on in-patient admissions and revenue is a thing of the past—a relic of the (soon-to-be) bygone era when volume, high-margin procedures and fee-for-service ruled the C-suite and guided almost every strategic decision.

As we all move quickly and irrevocably toward a system where pay-for-performance trumps fee-for-service, administrators recognize that fewer patients in hospital beds is not a recipe for disaster. In fact, this seismic shift to non-acute-care services is a clear signal that we are doing our jobs more effectively by focusing not on sickness—but on health.

The healthcare system still has a long way to go to measure up to the Triple Aim of better health, higher quality and lower costs. But we will not succeed in these lofty yet attainable goals unless we significantly reduce traditional hospital admissions.

At Catholic Health Initiatives, we think we could likely discharge about half the patients now occupying beds in our 87 hospitals if we had better-developed alternative delivery models, including hospitals-at-home; outpatient surgery centers with the capability of overnight observation; high-intensity ambulatory-care services; and an even more robust and effective telemedicine infrastructure.

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Under ideal circumstances, we could potentially shift 30% of current inpatient services to outpatient units with a lower cost structure and the same quality of care—or better. Take, for instance, companies that provide dialysis services, managing relatively high-acuity patients in an ambulatory setting. Hospital outpatient units, operating under this same model, could re-purpose physical plants to manage a higher-acuity patient population across a broader set of diagnoses.

Moving these patients out of hospital beds through these innovative models represents an entirely new way of doing business. It also underscores the very definition of Catholic Health Initiatives' mission as a faith-based health system, which is to create and sustain healthy communities and to serve those at the margins of society, including the poor and the vulnerable.

In our home state of Colorado, for instance, one highly functioning, independent practice association with a clear focus on primary care has registered a nearly 20% decrease in hospital admissions over just the last year after taking responsibility—and risk—for defined populations.

Recently, Dr. Donald Berwick, one of the most respected leaders in healthcare, discussed the Alaska-based NUKA system of health delivery at the American Hospital Association's annual leadership conference. He said that this team-oriented, prevention-based system can reduce admissions by as much as 65%—and simultaneously improve the health of the population it serves. “We want a health system that keeps people out of the hospital,” Berwick declared.

For Catholic Health Initiatives and other health systems, establishing a goal of a 50% reduction in admissions might not be aggressive enough as we face a challenging future fraught with market consolidations, lower reimbursements and value-based payments (and penalties).

In a first step toward this eventuality, Catholic Health Initiatives created a goal in 2009 to increase total annual revenue from non-acute-care services to 65% or more as a core component of the organization's 2012-16 long-term strategic plan. At the time, outpatient services represented less than 50% of total revenue; today, that percentage has increased to almost 55%.

Michael T. Rowan,executive vice president and chief operating office Catholic Health Initiatives
The logical question is: “How does this make sense financially?”

As hospitals begin to take on more risk under population health management, we naturally are moving away from a business model where increased inpatient volume is advantageous.

Picture this analogy: Under our current payment system, patients figuratively drop money into a basket at the hospital door whenever they are admitted or have a procedure.

Looking to the future, hospitals that accept financial risk will start the year with a basket-ful of money after contracting to care for the comprehensive health needs of a defined population. Each time a patient comes in for a test or an admission or a visit to the emergency department, they in effect are taking money out of that basket. The objective: Provide the highest-quality care in the most cost-effective way, so that we will have some money in that basket at the end of the year to continue our mission and reinvest retained earnings in our services, facilities and personnel.

So, in a transition to a truly patient-centric system, the last thing we want is to admit a patient to the hospital—it's a costly signal that we are failing to maintain the health, and wellness, of that individual.

There's no turning back from this scenario as we continue to juggle a frenetic pace of change. We have a sacred trust to be person-centered and patient-focused, serving our communities by providing care at the right time, the right price—and the right place.

Michael T. Rowan is executive vice president and chief operating office of Catholic Health Initiatives, Englewood, Colo.

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