Although more and more healthcare organizations have begun to view their patients as customers, none has gone so far as to tie payments for services to the outcome of procedures. But at a recent Tiber Group conference, Maureen Reed, M.D., announced that Minneapolis-based HealthPartners plans to launch a payment-for-results pilot program in late 1996 or early 1997.
"If we don't feel better, then why should we have to pay for it?" asks Reed, medical director of the contracted-care division of HealthPartners. "If someone goes to a fertility clinic, they shouldn't have to pay $14,000 if they don't walk out with a baby."
HealthPartners runs a health plan for 680,000 enrollees, owns 25 primary-care clinics and contracts with hundreds of other clinics throughout Minnesota. The pilot program will affect the payments made by its health plan to various specialists for certain surgical procedures.
Reed said procedures with clearly measurable outcomes are the most likely to be included in the study. For example, improvement in vision can be accurately judged after cataract surgery. Procedures that wouldn't require major administrative changes, that wouldn't vary widely from clinic to clinic and that aren't the result of an emergency also would be appropriate, she said.
In addition to selecting the procedures, Reed said, the group of administrators and doctors developing the program must determine how the specialists would be paid. Possibilities include withholding payments until the procedure has been proved effective or paying for the procedure up front and then settling later based on the results. Under another scenario, the health plan would, for example, pay 60% of the costs of a procedure that is effective 60% of the time and then charge debits and credits against this amount. The effects on consumer copayments also must be considered.
Growth spurt.When Steve Volla, chief executive officer of Primary Health Systems, completes the purchase of Mount Sinai Health Care System in Cleveland, his company will become the same size as the one he left just two years earlier.
That company was American Healthcare Management, a Dallas-based chain that went through bankruptcy reorganization in the late 1980s before Volla was hired to turn it around. In April 1994 Volla helped engineer the merger of American Healthcare with OrNda HealthCorp, a Nashville, Tenn.-based company that is now the nation's third-largest investor-owned hospital chain.
It sure didn't take Volla long to get back in the saddle. Wayne, Pa.-based Primary announced a deal to buy Mount Sinai last month (Dec. 18, 1995, p. 24). That will make Primary about the same size in annual revenues-$340 million-as American Healthcare was in 1993.
American Healthcare had 16 hospitals in nine states, but many of them were small, which explains how Primary can achieve the same revenue level with just five Cleveland-area hospitals.
Asked whether he has plans to take Primary public soon, Volla said, "I'm enjoying the privileges of being (with) a private company."
Bucking the trend.Teaching hospitals get a bad rap for having higher costs and operating less efficiently. So why would a long-term-care management company in the throes of a turnaround try to align itself with major teaching institutions?
Iatros Health Network chalks it up to good business sense. As the company sees it, the best of the nation's teaching hospitals supply higher-acuity patients, strong quality-assurance systems and rich opportunities for capturing market share.
That's why the Malvern, Pa.-based provider of long-term-care management and ancillary services is negotiating with Loma Linda (Calif.) University Community Medical Center to establish a long-term acute-care hospital. The company also hopes to enter partnerships with premier teaching institutions in Baltimore, Boston, Philadelphia and West Los Angeles.
Iatros, formerly GraceCare Health Systems, shed its old name in the summer of 1994 in a settlement agreement with W.R. Grace & Co. A new management team led by Robert T. Eramian, a former banker at Bear Stearns & Co., also was announced that summer. And a $2 million private placement by an affiliate of Philadelphia-based Presbyterian Medical Center brought in much-needed capital.
The company also appears to have shed some of its business woes. For the nine months ended Sept. 30, 1995, Iatros reported net income of $3.2 million, or 38 cents per share, on revenues of $10.8 million. That's compared with a net loss of $1.4 million, or 23 cents per share, on revenues of just $2 million in the year-ago period.
The company currently manages 3,500 long-term-care beds, and Eramian, who also serves as chairman of the National Conference for the Senior Living and Long Term Care Industries, hopes to double that by the end of March.
Working partnerships.Supply firms and their hospital customers are sounding like a Rodgers and Hammerstein song with their talk of strategic partnerships. (Go ahead, sing it: "Getting to know you, getting to know all about you...")
Most relationships haven't achieved full disclosure yet, said David Jensen, a Los Angeles consultant and former hospital executive. But he has found that supplier executives say sharing information-such as exactly how much providers earn on services and suppliers net on product sales-is key to building trust and designing utilization programs from which both parties profit.
Jensen is writing a book with the working title of Science of Selling in the Changing Healthcare Environment. From interviews with about 20 supplier executives, he culled these five principles of practical and profitable partnerships: Get the right people involved early; meet the specific needs of each partner; ensure that common goals are of strategic importance to each partner; align incentives so each partner wins; and share the information required to build trust and provide feedback. Easier said than done.