Health systems that hope to profit under accountable care or bundled payments will likely fail to do so without plans to sharply cut hospitals' operating costs, said executives in Chicago Monday for a national meeting of healthcare managers.
Changes to incentives or referral patterns are “necessary but not sufficient” to offset pressure on margins that hospital operators face, said Chip Caldwell, chairman of Caldwell Butler & Associates in one of dozens of presentations at the four-day American College of Healthcare Executives' annual Congress on Healthcare Leadership.
Executives must target hospital efficiency, where there is potential for significant results, he said. “Why do bank robbers rob banks? That's there the money is,” he joked.
The University of Mississippi Medical Center began 18 months ago to invest in telehealth and target hospital operating expenses to prepare for expected changes to payment, Kevin Cook, CEO of the state-owned system in Jackson told the audience.
“Our current business model is a bad business model,” he said, with labor and capital costs that are too high.
The system's investment in telehealth and six newly acquired wellness centers will expand the system's ambulatory services and its geographic reach, strategies that offer less-costly and more convenient alternatives to care for patients after they leave the hospital, he said. That would benefit the system under accountable care contacts, he said.
The University of Mississippi Medical Center has no accountable care contracts yet, he said. The system may seek an accountable care contract under Medicare.
The system's efforts to reduce its hospital costs would require two or three years and have so far saved $3 million, Cook said. The system has targeted its labor expenses by asking departments to develop strategies to match departments' own most productive performance. He dismissed layoffs as a strategy.
“I've seen too many layoffs gone wrong,” he said. “It is often unsustainable. It doesn't give the organization the time to adapt.”
Pressure to reduce hospital costs exists regardless of how hospitals are paid, Lynn Torossian, CEO of Henry Ford Health System's West Bloomfield, Mich., hospital, told the attendees.
She projected a 15% decline in commercial health plan revenue—or more, depending on how significantly hospital use declines, Torossian said. Projections took into account potential loss in hospital revenue under accountable care, she said.
That pressure requires a hospital to consider how to overhaul its operations with price-sensitive consumers in mind, she said.
“How do we provide a price to somebody that they'll pay for? They don't care what it costs us.” she said.
Follow Melanie Evans on Twitter: @MHmevans