Reform Update: ACA partly to blame for KentuckyOne job cuts, CEO says

KentuckyOne Health, formed two years ago by the merger of 14 Kentucky hospitals, announced it would slash 700 jobs last week as fewer patients fill its beds. Many of those eliminated jobs were inside hospitals, the system's CEO says, and the cuts are partially in response to the Affordable Care Act.

Indeed, KentuckyOne is emblematic of the volume issues many hospitals face. The slowdown—and in some areas, decline—in hospital admissions has been attributed to a number of factors, such as the economy, the growth of health plans with large deductibles, and new technology that facilitates more outpatient care. But other contributing factors are new delivery models and penalties under the Affordable Care Act that seek to prevent costly hospital admissions through better care coordination, health promotion and more preventive care.

The health system's job cuts included a hiring freeze for 200 vacant positions that amount to 5% of KentuckyOne's workforce, which CEO Ruth Brinkley said will help to erase a shortfall of $220 million over the next 16 months.

“We have a fundamental shift in how care is organized and delivered, moving more from an inpatient model to an outpatient and wellness model,” Brinkley said. The Affordable Care Act's emphasis on wellness, prevention and outpatient care is contributing to that shift. “I do think the ACA is driving a lot of it,” she said.

In fact, KentuckyOne opened its newest ambulatory location this week and continues to invest in retail clinics and telehealth to expand beyond the hospital and increase its outpatient reach, she said.

The system is testing new payment models that do not rely as much on volume, such as accountable care, among its employees and under the Patient Protection and Affordable Care Act. KentuckyOne is under contract with Medicare as an accountable care organization. It's all part of adapting to the new environment that will stress health promotion and quality of care over fee for service models.

“We are moving in that direction,” Brinkley said. “I won't even imply to you we have figured it all out.”

The regional system's distress also underscores the volatility that hospital operators face as some of the industry's largest players try to adapt to the changing marketplace and health policy. KentuckyOne is a subsidiary of Catholic Health Initiatives, Englewood, Colo. With more than $2 billion in annual revenue, KentuckyOne is one of CHI's largest hospital systems. CHI has been an aggressive dealmaker since the 2010 health reform law, with acquisitions that have expanded its geographic reach and diversified into health insurance and consolidated markets, as was the case in Kentucky. Executives say these strategies will prepare the system for new payment and delivery models.

Bundled payments are among the new financial incentives for greater efficiency to be tested under the ACA. The CMS Innovation Center launched a bundled payment pilot more than a year ago as one of several small-scale attempts to overhaul healthcare financing and remove incentives for overuse. Bundled payments are also increasingly popular in the private market, with deals between employers and health systems such as the Cleveland Clinic. These payment arrangements heighten the focus on operating costs, because hospitals must absorb any expenses that exceed the bundled payment. Modern Healthcare's Jaimy Lee looks this week at what that focus on costs means for purchasing surgical supplies, such as hip and knee implants.

The Affordable Care Act gives employers more leverage when using financial incentives in health benefits to encourage healthy behavior. But employers may meet with challenges to adopting those incentives, researchers wrote in the Journal of the American Medical Association. Authors Kevin Volpp, of the University of Pennsylvania's Center for Health Incentives and Behavioral Economics, and Robert Gavin of the Yale University School of Medicine, chronicle an employer's attempt to adopt incentives for smoking cessation. The incentive was a $625 penalty “that could differ greatly in effectiveness from the reward-based approach that was originally tested,” the authors said, referring to prior research that found an award of $725 for quitters produced a notable and lasting drop in smoking. The upfront cost and the protest of non-smokers convinced the company to switch to a penalty, they wrote, raising questions about whether it would work.

Follow Melanie Evans on Twitter: @MHmevans