What makes a top 100 hospital? In this--the eighth year of the annual list of the country's premier acute-care hospitals--knowing the reasons these organizations are at the top, and why some stay at the top, is valuable.
In the midst of Medicare payment cuts and dwindling managed-care payments, the median top 100--or benchmark--hospital posted an 8.7% total profit margin. Other hospitals in the study--or peer hospitals--squeaked by with a 1.9% margin.
The 100 Top Hospitals financially outperformed their peers this year by the widest margin ever, according to the annual study by HCIA-Sachs, an Evanston, Ill.-based healthcare information company.
(Though this story refers to HCIA-Sachs, the company merged last week with HBS International to form a new company, Solucient.)
"It is very clear that the management teams at the 100 Top Hospitals shine above all the others when times are the toughest," says Jean Chenoweth, executive director of the HCIA-Sachs Institute, the research and education division of the parent company.
Learning the secrets of the top 100 could translate into a national windfall. If all hospitals in the country performed at their level, hospital expenses nationwide would decline by $12 billion a year, HCIA-Sachs found.
The 100 Top Hospitals also outstrip the rest of the pack in clinical quality measures, such as mortality and complications. If all U.S. hospitals were to operate like the top 100, the number of deaths would be reduced by nearly 87,000 and complications would be cut by 57,000, the company found.
The 100 Top Hospitals form an elite club and one that appears easier to enter when you've been there before. Some 63 of the hospitals on this year's list have been a top 100 performer at least once before since the study began eight years ago. In all, 615 hospitals have earned the top 100 designation in the eight years of the study.
HCIA-Sachs used 1999 Medicare cost report data from 3,092 acute-care hospitals to set the 100 Top Hospitals and their peer groups. Hospitals are placed in one of five categories, depending on the number of beds and teaching status, and ranked on seven measures of clinical, operational and financial performance. The five categories are: small hospitals, medium hospitals, large community hospitals, teaching hospitals and major teaching hospitals.
But what are the secrets of the top 100? What management strategies and organizational characteristics make those hospitals different from the nearly 3,000 also-rans? The following trends were identified through interviews with chief executive officers of some longtime winners.
Physician leadership. The granddaddy of the list is Boston's 650-bed Brigham and Women's Hospital, the only hospital to have made the list all eight years. President and CEO Jeff Otten says physician involvement in management has been critical to his hospital's success.
"We probably employ more part-time physicians in management than any other organization I know," Otten says.
Physician leadership is among the strategies he attributes to helping the 100 Top Hospitals excel on clinical measures. The top hospitals have a risk-adjusted mortality index that is 14% lower than the peer group's.
Brigham and Women's is one of 15 hospitals on the list included in the major teaching hospital comparison group. This includes organizations with more than 400 beds and an intern/resident-to-bed ratio of at least .25 to 1.
Patients at top hospitals also have fewer complications during their stay. The median 100 Top Hospitals' complication index was 13.6% below the median for the peer group.
Otten has paid for about a dozen physicians to attend Harvard Business School during his eight-year tenure as CEO. The doctors become effective in "bridging the clinical enterprise with the administrative enterprise," Otten says, and they assume nontraditional administrative roles. For example, one Harvard Business School-trained physician on Otten's staff is leading an effort to reduce pharmacy costs in the hospital.
"I think it is the linkages with our physicians that helps differentiate our hospital from being just another good hospital to being a `real fighting unit,' " says Evanston (Ill.) Northwestern Healthcare President and CEO Mark Neaman. The 618-bed Evanston Northwestern Healthcare, another in the major teaching group, is on the list for the seventh consecutive year.
Employees. The 100 Top Hospitals pay employees more but have fewer employees.
The top 100 hospitals pay an average of $41,963 for employee salary and benefit expense, compared with $39,078 for peer hospitals. Yet, the benchmark hospitals have only 4.9 adjusted full-time-equivalent employees per adjusted average daily census as opposed to 5.2 for peer hospitals.
Many CEOs lauded their staffs when asked to identify why they were consistently on the top 100 list.
"It goes back to your employees, your physicians and your administration--everyone working together as a team," says Jacquelyn Harms, CEO of six-time designee Medical Center of Southeastern Oklahoma, Durant. The 103-bed hospital is one of 20 on the list in the medium hospital group, which includes those with 100 to 249 acute-care beds in service.
Southeastern Oklahoma, part of the Health Management Associates chain, also is one of 26 investor-owned hospitals making the list this year. Fourteen are owned by national for-profit system, HCA-The Healthcare Co., Nashville.
Many of the winners spoke of the value of long tenures among the administrative and physician leadership.
"Staff and physician experience has provided a leadership edge in adapting to market pressures for greater efficiency while maintaining high quality," says Jeff Frandsen, CEO of 60-bed Castleview Hospital in Price, Utah, part of investor-owned hospital chain LifePoint Hospitals, Nashville. Castleview, another six-time designee, is among the 20 hospitals in the small hospital category--facilities with 25 to 99 acute-care beds in service.
Continuous improvement. The list
encourages awareness of industrywide benchmarks and
measuring performance against peers.
"I think that there are some systems that have taken the leadership in focusing on performance systemwide and using benchmarks and continuous performance improvement to address cost and quality simultaneously," Chenoweth says.
The top hospitals have taken median average length of stay to a five-year low of 4.1 days this year. This mark is 7% lower than the peer group median of 4.4 days.
Some organizations use the list's indicators as benchmarks to help set direction. "We have tried to look at the (100 Top Hospitals') criteria--the indicators that are used . . . as we look at our performance standards," says John Meehan of 874-bed Hartford (Conn.) Hospital. Hartford and 510-bed Saint Francis Hospital and Medical Center, the only two adult acute-care hospitals in Hartford, both were named to the list in the large teaching hospital category.
"We monitor all of our (data) systems all the time," says Steve Brown, administrator of 656-bed Inova Fairfax Hospital, Falls Church, Va., which has been on the list six times.
Inova Fairfax is one of 37 in the 100 Top Hospitals from the south. The south leads the three other regions in the number of hospitals on the list, but it trails the north central region in the percentage of hospitals on the list. The north central region has 34 hospitals on the list, or 3.9% of all hospitals in the region. The list includes 3.2% of hospitals from the south.
The northeast region has 15 hospitals on the list, 2.9% of hospitals in the region. The west has 14 hospitals on the list, amounting to 2.5% of its hospitals.
Growth. An effective counter to falling reimbursement levels is simply to earn more.
"From the systems that have an almost dogmatic insistence on growth and performance improvement, we have seen the winners appear from the past eight years," Chenoweth says.
In another measure of profitability--cash-flow margin--the 100 Top Hospitals' median is 16.4%, or 7% above that of the peers.
CEOs such as Evanston Northwestern's Neaman say system revenue growth is what has allowed their organizations to invest in the physicians and information systems that make outstanding clinical outcomes possible. Evanston Northwestern has maintained a 15% compounded annual revenue growth rate for the past decade.
Providence Health System's 442-bed St. Vincent Medical Center, in Portland, Ore., and 380-bed Portland Medical Center, which share nine top 100 appointments between them, have increased market share by securing new managed-care contracts. "I think what has really helped us is the growth in revenue," says John Lee, chief executive of Providence's Portland region.
Both St. Vincent and Portland are among the 25 hospitals on the list in the teaching hospital comparison group, including facilities with 250 or more acute-care beds in service and at least five interns/residents or an intern/resident-per-bed ratio between .01 and .24.
Within the small hospital, medium hospital and teaching hospital categories, the median benchmark hospital had a higher percentage of total revenue coming from outpatient services than the median peer hospital. However, the trend was reversed in the large community hospital and major teaching hospital categories, where the median peer hospital in these categories had a higher percentage of revenue coming from outpatient services than did the median benchmark hospital.
System integration. Despite an emerging national trend of multihospital systems breaking up, nearly all winning CEOs interviewed by MODERN HEALTHCARE said integration of administrative functions was key to keeping costs down. Winners on this year's list included hospitals from such notable regional and national health systems as Intermountain Health Care, Salt Lake City; Sentara HealthCare, Norfolk, Va.; Partners Healthcare System, Boston; and Cleveland Clinic Health System. Low-cost structure was a priority mentioned frequently by CEOs, with many seeking to maintain the lowest costs of any hospitals in their service area.
The 100 Top Hospitals managed to keep operating expenses in check despite rapidly rising labor and supply costs. The median average discharge operating expense for benchmark hospitals rose only 1.7% in 1999, to $3,509. The peer hospitals' 1999 median per discharge operating expense was $4,365, or 24% higher, the widest margin since 1995.
Lee and others said their multihospital systems had successfully centralized at the regional level many "backroom" administrative services such as patient accounting, materials management, information services, human resources, marketing and public relations, and strategic planning.
The median benchmark hospital had a total asset turnover ratio--a measure of productivity--18.5% higher than that of the median peer hospital.
Brigham and Women's Otten says that the nine-hospital Partners HealthCare system was able to eliminate $200 million in costs between 1994 and 1998 through centralization of administrative services.
Whether it's new ways of leveraging system assets, maximizing the role of physicians or rigorous dedication to achieving organizational performance measures, the management of the top 100 hospitals has discovered ways of thinking beyond the rest of the industry.
HCIA-Sachs' Chenoweth agrees: "These are organizations that are innovative, and the financial results this year are exactly what one would expect from the 100 Top Hospitals."