By tapping the experience of others, Voluntary Hospitals of America hopes to equip its members to build integrated delivery systems.
In a series of six meetings beginning Aug. 18 in Atlanta and ending in Dallas in November, top executives of VHA hospitals will be schooled in the pitfalls and profits of looking into the future. It's an unprecedented effort by the nation's largest alliance of not-for-profit hospitals to help their members compete in a buyers' market for healthcare.
The executives will benefit from a major study of integration strategies being conducted by VHA this year. As part of that study, VHA contracted with the national consulting firm of Deloitte & Touche, which analyzed seven VHA integrated systems and other non-VHA systems.
"Integration is such a complex strategy," said John Koster, M.D., VHA's se-Alliances
nior vice president of integration, who is also doing his own research into the subject. "Everyone is looking for the Holy Grail, but there is no one answer. You need to respond to the marketplace."
Although some integration studies have given hospital executives the ingredients for success, VHA's is among the first to show hospitals where they are on the integration scale and where they need to go next.
Becoming accountable. Regardless of where hospitals are now in the market, Dr. Koster estimates that they eventually will end up in an "accountable-care phase." In that phase, he predicts the following:
Buying power will be consolidated.
Per-employee per-month healthcare costs will drop to $2,500.
Inpatient utilization will drop to 300 days per 1,000 population.
More than 50% of physicians will practice in groups of 25 or more.
After researching integrated systems throughout the country, Dr. Koster will lead the VHA briefings on creating such systems. Executives from each of VHA's 1,039 hospitals have been invited to attend one of the free all-day briefings. They also will receive Dr. Koster's 212-page report that includes case studies and conclusions from his nine-month effort..
VHA executives say their members want this type of information. Last year, in a survey of its hospital CEO members, 48.3% said purchasing was the main benefit of belonging to the Irving, Texas-based alliance. However, the CEOs said they believed that in five years, the main benefit of belonging to VHA will be integration and managed care.
Dr. Koster said helping hospital executives focus on their own individual strategy will save them time and money. In April, VHA developed a guide of recommended consultants for hospitals searching for expertise in building integrated delivery systems.
However, Dr. Koster said if hospitals don't know what they need, "you're talking double the cost."
Developing relationships. Dr. Koster defines integration as aligning incentives to develop relationships with physicians and payers to eliminate costs from the system. He stresses that healthcare systems need to respond to their own marketplace when building integrated systems.
For example, most of VHA's hospitals are community hospitals with voluntary medical staffs. Although many of them are buying physician practices, they can't immediately become a Kaiser Permanente-type of system in which all of the physicians are employed.
Some 30% of hospitals own or manage physician practices, Dr. Koster said. "Some have a strategy behind that and some don't," he added.
He also warned that a CEO who is the first in his market to develop an integrated system may be credited with great vision, but he also is taking on greater risks.
Stages of integration. Dr. Koster broke the integration evolution into these stages (See chart):
Market stage one: A fee-for-services and discounted medicine phase, in which convenience and choice are important.
Market stage two: A managed-payment phase in which buyers are consolidating and physician/hospital integration occurs.
Market stage three: The organized-care phase in which the market defines prices and physician/hospital/insurer integration begins. Purchasers begin capitating payments.
Market stage four: The accountable-care phase, in which systems are accountable for quality, service and access, and the incentives are aligned among providers and purchasers. In this phase, virtually all business is capitated.
Still evolving. Dr. Koster said he believes that 95% of the nation's markets are in stages one and two. A few markets, mostly in Minnesota, Oregon and California, are in stage three, and none is in stage four.
However, hospitals need to realize how those stages evolve and what it will take to compete from stage to stage, he said.
For example, in Winston-Salem, N.C., Carolina MediCorp-one of the VHA systems studied by VHA-is in the middle-to-late part of stage two. Some large statewide purchasers are pushing the three-hospital system into the third phase, he said.
"Over the course of eight years, we have found a way to do the thing that terrifies most hospitals-how to split the economic pie with the physicians and still stay friends," said Paul Wiles, chief executive officer of Carolina MediCorp.
The system formed an HMO, which is 55% owned by the physicians' individual practice association. Some 150 physicians put up $6,000 each, and physicians and Carolina MediCorp hospitals gave the HMO discounts. A risk-sharing arrangement was developed so that a profitable hospital pool would fund any shortfalls in the physician pool and vice versa.
Once the HMO became profitable, participating providers were rewarded through higher rates, rather than the payment of dividends.
Such a strategy requires a different perspective, however. Mr. Wiles said he gets daily census reports from the hospitals and has learned to deal with that information differently.
"I look at that and if census is down below where I think it should be, I first have to translate from my old language, which was, `Oh my God, census is going down,' to my new language which says, `That's OK. In a capitated managed-care environment, less census is a good thing.'*"
Unfortunately, the transition from fee-for-service to a capitated environment can be difficult, and many hospitals are going through a transition when most patient revenues continue to be derived from more patient days.
Hospitals ease through that transition by simply deciding what's best for the patient, said Gloria Mayer, president and chief operating officer of Friendly Hills HealthCare Network. La Habra, Calif.-based Friendly Hills is a non-VHA system that was studied as part of Dr. Koster's research.
Dr. Koster noted that executives at Friendly Hills do not use the word "discharge."
"No one is ever discharged," he explained. "They just change the place of care."
In the briefings, Dr. Koster also will advise CEOs on how to meet physician resistance to change, an all-too-common problem.
Experience shows that physician reaction can range from "wildly enthusiastic to `give me a break...1957 was a very good year, and I'd just like to repeat it, thank you,"' said Hank Walker, CEO of Tucson Medical Center, a VHA site analyzed by Dr. Koster's group.
However, he noted that change is inevitable. "This is all about change. This is going out and breaking things that may not be broken because there's a better way to do it."
Dr. Koster stresses that three factors alter markets rapidly: increased HMO penetration, public policy and purchaser concentration.
For example, in the public policy arena, Tennessee's new Medicaid program, TennCare, has resulted in a rapid swing toward managed care in the state.
In the same way, large purchasing groups can have a similar impact. As an example, he notes the Bay Area Business Group on Health, which recently reached an agreement with 17 California HMOs to reduce rates 5% to 10%.
The agreement also calls for the HMOs to be at risk for 2% of the premiums, based on meeting certain quality standards (June 27, p. 17).
Dr. Koster stresses that while marketplace solutions will vary for hospital systems, certain critical success factors won't.
Issues that must be addressed in any successful integration model, he said, are:
Developing a common vision.
Clinical management focus.