Cedars-Sinai chief cites labor shortage as major state challenge

In late 2014, Thomas Priselac, CEO of the 886-bed Cedars-Sinai Hospital in Los Angeles, surprised many observers when he led what some have called Hollywood's glamour hospital into the Vivity alliance, a joint venture between seven healthcare systems and Anthem Blue Cross. California Bureau Chief Beth Kutscher recently asked Priselac for an update on a venture widely interpreted as a challenge to Kaiser Permanente. The conversation quickly swerved to other major issues confronting the prestigious medical center. This is an edited transcript.

Modern Healthcare: In the year since Cedars-Sinai joined Vivity, have you seen growth in terms of patient volume or new revenue streams?

Thomas Priselac: Vivity's progress during the first year was very consistent with the goals that were established. As a new entity, a lot of time was put into initiating the infrastructure and internal systems. Some of the initial capital planning will play out over the next several years. On the enrollment side, the design from the beginning was to grow slowly.

MH: A large part of the effort was building the data warehouse. How close are you to realizing that step?

Priselac: We'll be looking to secure the professional services in the not-too-distant future to put a system in place that will allow all of that to be created.

MH: In September, Cedars-Sinai acquired Marina Del Rey Hospital. What is your acquisition strategy and are you looking for other alliances?

Priselac: We believe that healthcare today and in the future requires the wise use of organizations' resources. Every organization needs to assess where it sits in the marketplace and whether partnerships, organic growth of the organization, or growth of the organization through acquisition works. We believe all three of those are relevant to continue to serve Los Angeles and, for our specialty services, the country.

(Acquiring) Marina Del Rey Hospital was in part a recognition that going forward, healthcare services need to be more accessible and available to the public. Marina Del Rey Hospital is a fine community hospital. We look forward to being able to extend Cedars-Sinai's community hospital services through that acquisition.

On the partnership side, we and UCLA and Select Medical announced in late 2014 the establishment of a joint venture to create the California Rehabilitation Institute. The developmental work related to that effort has been proceeding. Construction is largely completed. We're anticipating licensure approval from the state of California shortly, and will be open before the end of the first quarter of 2016.

MH: How do you see your competitive position in the Southern California marketplace evolving?

Priselac: The competition in Southern California includes both organizations that are typically contracting with traditional commercial insurance companies and Kaiser Permanente. We continue to be the market leader in terms of services here in Los Angeles. The (acquisition and partnership) efforts we've been undertaking, as well as a lot of internal work on matters related to clinical efficiency and resource utilization and operating efficiency, are all part of positioning us for the future.

Cedars-Sinai is a fairly unique combination of both a large community hospital serving the 3 million or so people who are immediately around us and a major academic medical center. We provide more of the most advanced services to the most critically ill patients of any hospital in California. So the marketplace for those services is different than the community hospital portion of Cedars-Sinai.

MH: What are the challenges for healthcare providers in Southern California?

Priselac: The labor shortages for critical positions. We see those shortages only growing. In particular, nursing and nursing specialties, whether that's in the emergency department, the operating room or the more specialized nursing positions, are in short supply.

From an operating standpoint, California, for all the right reasons, has very stringent earthquake requirements. So in terms of facility construction, constructions costs in California are also exceptionally high. The budget numbers for people looking to build hospitals in California range between $3.5 million to $4 million per bed.

MH: Has Cedars-Sinai implemented cost-control plans?

Priselac: Our operating costs are continuing to rise as both labor and supplies continue to go up, so a significant focus has been on what we call clinical transformation—making sure our patients are receiving all the care that is required, that they're not receiving things that are not going to add value, and that we're working as quickly as we can to make sure that people, before they're hospitalized, are kept well and kept healthy.

A significant effort in our physician-delivery network has been to put in place care-management systems that allow us to provide special care for the frail elderly, and those who are suffering from multiple chronic conditions, in order to avoid hospitalization.

For those who do ultimately require hospitalization, we've also put in place diagnostic and treatment processes within the hospital that move along as quickly as possible. We've seen a substantial reduction in our length of stay relative to patient acuity.

MH: How much of your revenue is currently at risk?

Priselac: Probably 60% to 70% of our revenue is in some form of at-risk payment. For the physician delivery network, the at-risk payment is probably substantially higher, more in the order of 80% being at-risk payments of one type or another.

MH: Is there upside potential?

Priselac: Yes, for those patients for whom we are caring on a capitated basis. But part of our clinical transformation work is putting the same systems in place whether the payment model is capitation or fee-for-service. There are obviously negative financial consequences associated with putting those systems in place for the fee-for-service business, but it's the right thing to do.

MH: Are you in a building mode? You did a debt refinancing a few months ago.

Priselac: We have no major capital construction projects on the immediate horizon. Our investments from a capital standpoint will continue to include, first, the substantial continuing investment in information technology, which is central to our ability to deliver high-quality and cost-effective care going forward, whether that's the things we do here at Cedars-Sinai that relate to Vivity, or things that we do here at Cedars-Sinai other than what might relate to Vivity.

We already have a substantial built infrastructure here at Cedars-Sinai consistent with our goal of making sure our facilities are the best they can be for our patients and our employees.

Our capital development expenditures over the next several years will relate to the growth and development of our physician network and other partnership possibilities.