Having been forced by the Balanced Budget Act of 1997 to make their organizations leaner, a declining number of integrated delivery systems suffered operating losses last year, a new survey shows.
Nearly three-quarters of respondents in the survey of healthcare systems nationwide reported positive operating performance. That's the good news. The bad news is that even though they're in the black, the largest percentage of systems that didn't lose money last year reported operating margins of 0% to 1.9%.
Margins that hover in that range are "hardly enough to support growth and innovation in a technologically intensive industry," concluded the survey, which was the sixth annual study conducted for Modern Healthcare by Arista Associates, a Northbrook, Ill.-based healthcare consulting firm. Decision Support Systems and Services tabulated the survey results.
Moving in the right direction
Some 17% of the survey's 144 respondents reported operating margins of 4% or higher, up from 12% of respondents posting those margins last year. The number of systems reporting that their operating margins fell within the past year has dropped significantly-41% of respondents said their margins fell significantly or modestly in the last fiscal year, compared with 62% in last year's survey.
"It appears that systems with net revenue between $100 million and $500 million seemed to have the most financial success," a report summarizing the Arista survey results said.
As they have in previous years, respondents cited physicians' resistance to change and their distrust of the system as the major obstacles to successfully integrating physicians into the organization.
"In any kind of effort (toward) alignment, physicians have been critical of health systems' approaches, and the typical health system has wanted to control physicians rather than work on a collaborative or shared basis," says Steve Hatch, an Arista director.
Clinical integration, which refers to efforts directed at adhering to standards across multiple care sites, is another problem about which physicians and administrators have trouble reaching a consensus.
Physician support lacking
Although 90% of respondents said they have developed a plan for clinical integration, 73% of those cited a lack of physician support as the main barrier to carrying out the plan. A lack of skilled leaders, time and distance factors, and insufficient technology were also mentioned.
"Oftentimes physicians are caught up in their own practice and specialty and have little ability or willingness to embrace other specialties and other practice sites in trying to improve the continuum of care," Hatch says.
One survey respondent wrote that clinical integration has been "probably the most desirous, least understood and most disappointing systemwide initiative."
The survey also confirms a trend reported in the pages of Modern Healthcare more and more in recent months: Many healthcare systems, the survey found, have sold off physician practices, nursing homes and HMOs to focus on hospital-based care.
In May, General Health System in Baton Rouge, La., closed its 90,000-member health plan, which is now under the supervision of the Louisiana Department of Insurance. It is also seeking a buyer for two nursing homes and a 54-bed psychiatric hospital, hoping to generate about $16 million.
"It was difficult to align incentives to be successful for everyone," says Sandy Deslatte, a General Health spokeswoman. "The integrated delivery system didn't address our needs. We wanted to focus on the core mission of delivering care, which pulls us back into the hospital proper."
General Health is not an anomaly. Echoing the conclusion of earlier surveys, this year's study found that 41% of respondents have recently divested components of their delivery system. Of those that said they had shed ancillary businesses, 46% said they had sold a health plan, 40% had sold a physician group or network, 23% had divested a home healthcare provider and 19% had sold a skilled-nursing facility.
As they work to cut fat from their organizations, system executives are also starting to pay more attention to compliance with the Health Insurance Portability and Accountability Act of 1996, which imposes new data-handling requirements on healthcare organizations.
Some 80% of survey respondents said they have assigned responsibility for HIPAA to an individual, 70% have formed committees, and 26% have hired consultants to assist them. Still, 82% of respondents intend to spend no more than $500,000 on HIPAA this year. Only 7% said they expect to spend more than $1 million.