Some hospitals are figuring out the potential behind this continuum of care that everyone talks about.
And that has meant getting beyond the administrative objectives that were pivotal just a year or two ago-managing which patients are put where and for how long.
The best-performing hospitals are shortening patients' stays, but not much more so than all hospitals in general. They are moving patient care to outpatient or home settings at a brisk pace, but not much more briskly than all U.S. hospitals.
The nation's top 100 hospitals, as determined by two healthcare management and consulting firms, are doing all that but less expensively, more profitably and with a better return on assets.
Besides caring more economically, they are doing it with fewer clinical complications. That achievement not only bodes well for a hospital's central purpose-to heal the sick-but also improves profitability by canceling more of the cost of medical problems originating in the hospital.
The formula for effective management is working the best in the South, especially in Florida, Tennessee and Texas. And for-profit hospitals are a disproportionate force behind the South's domination of the 100 Top Hospitals: Benchmarks for Success.
The list is based on an analysis of 1996 Medicare cost and discharge data on 3,136 acute-care hospitals. The annual study, now in its fifth year, is conducted by HCIA, a Baltimore-based healthcare information company, and the healthcare provider consulting practice of William M. Mercer, a New York-based human resources management consulting firm.
The analysis reviewed nine measures of clinical, operational and financial performance to rate hospitals grouped into five categories of similar characteristics. A certain number of hospitals were allotted to each category to arrive at the final tally:
20 from a group of 1,305 hospitals of fewer than 100 beds.
20 from a group of 1,162 hospitals of 100 to 249 beds.
20 from a list of 270 nonteaching hospitals of 250 or more beds.
15 from a group of 99 teaching hospitals of 400 or more beds at major academic medical centers.
25 from a group of 300 less-intensive teaching hospitals of 250 or more beds.
Hospitals were not ranked in any order within each category.
However, a statistical tie for 15th in the major teaching hospitals group prompted analysts to make room for 16 in that category, resulting in a list of 101 top performers this year.
Performances of the top hospitals on all nine measures were used to establish "benchmarks" in each of the five categories of hospitals. The performances also were combined for a national set of benchmarks to compare against the median performance of all U.S. hospitals.
This year's analysis incorporated an additional measure to gauge success at managing inpatient occupancy in the face of pressures to reduce hospitalizations and move patients to less-intensive care settings.
The selection of smaller hospitals also changed. In previous years, the study split small hospitals into two categories of fewer than 250 beds along urban and rural lines. This year the split was by size of hospital-small and smaller-without regard for location.
Margins run deep. This year's top crop demonstrated a capacity to amass margins and improve underlying financial strength that can't be attributed to merely managing patient stays.
In fact, a five-year trend analysis shows that all U.S. hospitals have significantly shortened inpatient stays, increased annual outpatient revenues and kept expenses from going overboard (See chart, p. 47).
There's something deeper going on at the top hospitals, says John Kralovec, M.D., senior principal with the Philadelphia-based healthcare provider consulting group of Mercer.
Research by Mercer shows benchmark hospitals are building strong alliances with physicians as they position themselves aggressively for managed care, Kralovec says. The top hospitals also are chasing market share for incremental gains in revenues that produce dividends from fixed costs, he says.
Executives of these hospitals "understand the dynamics of a managed-care environment," and their physicians also get it, leading to a "unity of purpose," Kralovec says.
The South rises. There's no better place than the South to find the formula in action. The region had 50 benchmark hospitals, better than its list-leading 42 of last year. Of the 50, 17 were in Florida, 10 in Tennessee and eight in Texas.
In 1994 the South had 24 benchmark hospitals and trailed the West-the epicenter of cost-cutting arising from managed-care tremors.
But the South has led the West the past three years on the list of 100, which means the performance is no statistical fluke, says Jean Chenoweth, vice president of HCIA. "Change is taking place there faster than any other place in the country. And it has to be happening at whiplash speed."
In the latest study, the South's performance was not remarkable when measured by traditional indicators such as length of stay or newer considerations such as the percentage of total annual revenues attributable to outpatient activity.
Inpatient stays at the region's benchmark hospitals were just over four days, mirroring the overall U.S. benchmark and trailing the 3.5 days of benchmark hospitals in the West. For all hospitals included in the study, the South also mirrored the nation at about 4.5 days while the West held the line at just under four days.
Outpatient revenues for the South's benchmark group were 34% of total net patient revenues for the year, about the same as the composite for all 101 benchmark hospitals and slightly trailing the 36% for all hospitals in the West. Benchmark hospitals in the West were even better at 38%.
Expenses per adjusted discharge also were lowest in the West. For all hospitals included in the study, the West averaged $3,810, the South $4,007 and the nation $4,012. The West's benchmark hospitals got it down to $2,869, eclipsing their own peer group of all West hospitals by almost $1,000 per discharge.
But when it came to financial results, the South was supreme. Its benchmark for cash-flow margin, a measure of profitability, stood at 23%, well ahead of the 19% margin for both West and all U.S. benchmark hospitals. The South overall registered 13%, just ahead of the West and a tick better than the U.S. average of 12%.
The same held for growth in equity, which measures the ability to accumulate reserves to withstand market turbulence. The South's benchmark of 36% annual growth from 1994 to 1996 outpaced the West's 31% and the U.S. benchmark of 28%.
The South's benchmark hospitals recorded net revenues 1.38 times their assets, just topping the 1.35 of their counterparts in the West despite the difference in length of stay and percentage of outpatient business. Both regions far exceeded the asset turnover ratio of 1.14 for all U.S. benchmark hospitals.
Their docs in a row. Look to hand-in-glove relationships with physicians for a clue about how it's done, says Kralovec of Mercer.
For example, the management of Fentress County General Hospital in Jamestown, Tenn., assigns one nurse case manager to each doctor on staff, says Patrick Gray, who recently became administrator of the 60-bed facility. The nurses keep track of a physician's orders and can step in to hasten a patient's treatment or shorten the stay by "actively keeping the process moving forward," Gray says.
Case managers call doctors as soon as test results come in to ask what the next course of treatment should be instead of waiting around for the physician. "Our environment doesn't allow for that anymore," he says.
The facility's owner, for-profit Paracelsus Healthcare Corp., has resource utilization targets "that are aggressive but certainly allow us the staffing we need to take very good care of our patients," Gray says.
Fentress has expanded its outpatient business to the point that it represented 61% of net patient revenues in 1996. Gray says the single biggest factor is a growing home healthcare business, which now exceeds 1,000 visits a month and accounts for half of annual net patient revenues.
But the hospital has worked to keep up the inpatient side of operations. According to HCIA, facility occupancy was 60% in 1996, far above the standard of 38% for hospitals its size.
As a rural sole community hospital, Fentress' biggest competition was "outmigration" of patients to larger but far-off hospitals, Gray says. To gain local respect and physician loyalty, the facility recruited home-grown doctors. Two of nine active staff members were born and raised in Jamestown, while the others are from Tennessee or married to someone from the area.
Through its policies of targeted recruitment and physician-centered management, "we earned the respect of the medical staff, and the medical staff is respected locally," Gray says.
Besides adding Fentress, a three-time benchmark hospital, to his duties, Gray will continue to head another Paracelsus facility that made the list for the first time this year: 63-bed Cumberland River Hospital in Celina, Tenn.
Gray joined Paracelsus 18 months ago from Columbia/HCA Healthcare Corp., where he had managed another benchmark facility (Nov. 14, 1994, p. 84). That hospital, 278-bed North Florida Regional Medical Center in Gainesville, returned to the list this year after a one-year absence.
Columbia's physician focus. At another of Columbia's 12 benchmark hospitals in Florida-Aventura Hospital and Medical Center in Miami-longstanding physician-directed utilization management has helped keep the facility on the list three years in a row, says David Carbone, Aventura's president and chief executive officer.
The culture started before the 407-bed facility became part of Columbia, Carbone says. "This facility aggressively understood what prospective payment was going to mean, what managed care was going to mean." Early on, he says, during Aventura's days as a Humana-owned facility, clinicians were trained to ask, "Is it time to make a decision on this and not waste another day?"
In a competitive market where the managed-care climate is as hot as the Florida sun, the case managers and techniques long employed at the hospital "are going to become more critical" to staying on top, he says.
Aventura's utilization management has been used as a "best-practices" model for other Columbia hospitals, and Aventura also adopted practices studied at other facilities and shared with Aventura. "We have the ability to learn a little faster from our sister hospitals," Carbone says.
Columbia always has been known for forging shared financial interest with physicians. That's included pushing the limits, according to some critics, by giving doctors equity interests in a Columbia facility or region. The company decided last year to unravel physician equity interests in an attempt to blunt some of the controversy over allegations of fraud that have dogged the company.
Columbia made a comeback of sorts on the 100 Top Hospitals this year with 28 representatives. The Nashville-based company had 29 on the 1995 list but tapered off to 17 in 1996. Overall, hospitals owned or managed by a for-profit company accounted for 40 of this year's top hospitals, of which 31 were in the South.
Not-for-profits get savvy. Business acumen is not just the province of the for-profits, however, Kralovec says. "We're seeing a sophistication and level of commitment from not-for-profits that we hadn't seen before," he says.
Operational priorities such as clinical case management have powered a strategy of market-share development every bit as focused as those of investor-owned companies, he says.
A good relationship with doctors helped Methodist Health Systems increase its contracted coverage to 500,000 lives in 1997, more than double the 230,000 its physician-hospital organization was responsible for in 1994, says Gary Shorb, president of the system's flagship Methodist Hospitals of Memphis, a five-hospital subsidiary.
According to HCIA, the 1,265-bed hospital subsidiary had equity growth of 56% a year between 1994 and 1996, during which it boosted inpatient occupancy an average of 4% a year to 68% in 1996. At the same time it improved outpatient business 9% a year to 27% of net patient revenues in 1996.
Utilization management has been in the hands of a chief medical officer for seven years, before data collection and care management caught on big and before physicians were being routinely tapped for such a pivotal administrative role, Shorb says.
Methodist Hospitals began to add services five years ago, offering obstetrics in its four adult hospitals instead of two and putting a heart program in two hospitals instead of one. The additional regional access was instrumental in attracting managed-care contracts, Shorb says.
The payoff came last year when it wrested a 90,000-enrollee Cigna contract from competitor Baptist Memorial Health Care Corp. of Memphis. It was "probably the single biggest movement of patients from one provider to another," Shorb says, adding that it made Methodist No. 1 in market share for the first time.
"With the incremental increase in volume came a tremendously disproportionate increase in profitability," he says, setting the volume increase at about 12% with a 40% improvement in profits.
Shorb says the equity growth and occupancy figures probably reflect the market-share gain: After fixed costs are established, every contract-whether for 2,000 enrollees or many times that-means the hospital is getting inpatient and outpatient business that had gone elsewhere.
The leading edge. A long-developing network in Pennsylvania's midsection is reaping the result of physician control, coordination of care sites and pursuit of market share. Geisinger Medical Center, a major teaching hospital in Danville and the flagship of Geisinger Health System, made the HCIA/Mercer list for the first time on the strength of outpatient growth and top clinical marks.
The 548-bed medical center is part of a specialty physician practice on the Danville campus. Both are connected with 75 primary-care sites in 40 counties-a third of the state, says Robert Haddad, M.D., a practicing internist and senior vice president for clinical operations.
Another centerpiece is a provider-sponsored HMO that now has 226,000 enrollees and until recently had an exclusive relationship with the Geisinger provider network, says Nancy Rizzo, the medical center's senior vice president for operations.
Geisinger recently merged with Pennsylvania State University Hospital-Milton S. Hershey Medical Center, which had contracted with other HMOs in the state. The new Penn State Geisinger Health System is evolving to bring on health plans, but the bulk of its managed-care revenues comes from its own HMO, Rizzo says.
With a salaried group practice at the core of the system, Geisinger always had a large outpatient population, and it is paying off with managed care as physicians work with established paths of care across clinical and geographic boundaries, Haddad says.
Computers tie together much of the scattered information on patients, and a tight relationship is in place between inpatient and outpatient sites. Doctors are responsible for using all system sites to best advantage, and because of the clinical coordination, they "can weave back and forth between sites without bumping into economics," Haddad says. "We're not so caught up in the boxes."
According to HCIA figures, Geisinger is moving more rapidly away from inpatient care than most major teaching hospitals. Outpatient activity represented 38% of net patient revenues in 1996 on the strength of a 9% rise during each of the previous two years. Inpatient occupancy stood at 60% after dropping 6% a year over that same period.
By comparison, benchmark major teaching hospitals as a group earned about 25% of net patient revenues from outpatient activity and had a 70% occupancy on average.
The right fit. The groundwork at Penn State Geisinger will come in handy as it positions itself for a surge in managed care. Pennsylvania is one of the fastest-growing states for HMO penetration, Haddad says.
But unlike the typical embryonic provider system snapping up physician practices, Penn State Geisinger has a mature primary-care network with doctors "brought up in the tradition" of the system instead of being acquired, Haddad says.
At the other end of the spectrum, a few of the right physicians in a rural area can make all the difference, says H.D. Cannington, CEO of 28-bed Doctor's Memorial Hospital in Perry, Fla.
The hospital has a large market area to itself in the Big Bend area east of Tallahassee, but patients in the town of 9,000 and county of 17,000 were going to other hospitals up to 60 miles away because they couldn't get care locally, Cannington says. Only two doctors were on staff in 1992.
Today, the hospital has 12 physicians, all very busy, who were selected for the likelihood they'll stick around, he says.
Before, the hospital determined it had to draw doctors away from urban areas, where most physicians flock. But administrators learned they "have to be very patient and wait for the right physicians to come along," Cannington says. "There needs to be a realization that there are physicians who work real well in a rural area."
Doctor's still has only a 20% occupancy, but it has been growing 35% a year since 1994 to supplement an outpatient business that represents two-thirds of net patient revenues. Equity growth between 1994 and 1996 has averaged 42% a year, with an asset turnover ratio of 2.67 in 1996. Meanwhile, the complication rate is half that of hospitals its size.
With much the same overhead capacity it had to keep at the ready when only a couple of doctors were in town, the hospital is benefiting from sudden economies of scale and using existing certified staff to its full capacity, Cannington says.
Preparations. In some areas, administrators are faced with cutting back and adding on at the same time, trying to get the right mix for service demand while listening for the footsteps of managed care.
For Cape Cod Health Care in Hyannis, Mass., a surge in retirees and other year-round population at the vacation mecca has prompted a physician-directed plan to target new services such as orthopedics for the changing needs of Cape Cod, says Gail Frieswick, CEO of the two-campus hospital.
At the same time, the facility is midway through a plan to trim its budget 5% to 10%, or about $9 million, through 1998. About half of all surgery now is done on an outpatient basis, and the fledgling healthcare network has added two nursing homes and a home healthcare agency, Frieswick says.
The hospital has gradually reduced its number of full-time-equivalent employees, creating more per-diem positions to better manage peaks and valleys in acute-care demand. Care maps focus on length of stay for specific diagnoses to match staffing with current need.
With few large employers in the area, Cape Cod is an anomaly in the HMO hotspot of Massachusetts with managed-care penetration of only about 20%. But health plans are running out of new territory, especially in Boston.
And Medicare HMOs also are growing. Frieswick says that with the cape's Medicare population, it will have to be ready for efficient managed care soon enough.