Ascension seeks productivity elixir from its joint venture in Cayman Islands

GRAND CAYMAN—Last spring, a 6-foot-4, 250-pound Texan sorely in need of new knees became one of the first medical tourists to this Caribbean island, better known for its tax-dodging opportunities than its healthcare.

Encouraged by his self-insured employer to explore alternatives to a local hospital, Wayne Wright, now 68, spent hours on the phone with an expatriate American nurse at Health City hospital, a joint venture between Ascension and India's Narayana Health. She carefully explained how it would work.

When asked, she gave a simple answer to what it would cost. The all-inclusive bundled price of $22,000 was less than half of what Good Shepherd Medical Center in Marshall charged, which didn't include the surgeon's bill or his immediate post-operative rehabilitation.

Wright then asked to speak with his prospective surgeon. Dr. Alwin Almeida, an Indian expat, gave him a full hour on the phone a few days later.

“I checked out the knees he was going to use on the Internet as we were talking,” Wright recalled. “I suggested a different brand, and he said, 'If you want that knee, someone else will have to do it. That knee is a brand new knee. It doesn't have a track record.' I said, 'You decide. You know what you're doing.'”

Within days, Wright and his wife, Theresa, were greeted at the airport by hospital staffers and whisked by van to an all-expenses paid resort on the less-developed eastern side of the island. After a day of tests, the operation took place at the 104-bed Health City hospital, which rests atop a windswept plateau overlooking the sea.

To local officials and business leaders here, Health City and the government's plan to build an affiliated medical school represent an economic development engine, the island nation's bid to become a healthcare mecca for the Caribbean basin, Latin America and the U.S.

But for Ascension, which last month made the Cayman alternative available to its 1,000 headquarters' employees and any other employee who isn't within a hundred miles of an Ascension-owned facility, the venture represents a learning opportunity. It wants to see if its new partner's lean healthcare model, perfected in India by Dr. Devi Shetty—whom the Wall Street Journal in 2009 dubbed the Henry Ford of heart surgery—can be transferred to its 129 hospitals in the U.S.

This month, top officials from Ascension and local hospital staff will begin rotating through this tropical paradise to observe firsthand the Narayana system. “It has the potential to be a key convening point for innovation in the U.S.,” said Scott Lambert, a vice president at Ascension Holdings in charge of health transformational development. “We're starting to tell the story to our delivery side.”

What the physicians and nurses from Ascension's operating rooms will see is very different from their own experiences. Health City's ORs run 12 to 16 hours a day, not the eight hours that's normal for ORs in the U.S. Its salaried surgeons, all of whom hail from India and are on two-year rotations, are prepared to operate 12 hours a day, six days a week.

While surgeon salaries are only slightly below U.S. levels—the island has both the highest per capita income and highest cost-of-living in the Caribbean—a typical Narayana surgeon performs 10 to 12 surgeries a week compared with two to four by a typical U.S. surgeon, according to a Harvard Business School case study of the facility conducted in 2014.

Surgeries under Shetty's model are broken down into routines and parceled out to staff. Junior surgeons perform the openings and closings while senior surgeons, who are subspecialists and have done hundreds of similar operations, perform the core of the operation.

The outcomes from this specialization and standardization of procedures rival those found in advanced industrial countries. According to the Harvard Business School study, Narayana's main Bangalore hospital, where the system was perfected, had a 1.3% mortality rate and 1% infection rate for coronary artery bypass graft surgeries compared with 1.2% and 1% rates, respectively, in the U.S. The Joint Commission granted certification to Health City after just nine months of operation.

The focus on productivity isn't just in the operating room. Instead of separate intensive-care units and post-anesthesia care units, Health City has a 17-bed open ward ICU that is used for both functions.

Nurses in the combined ICU-PACU perform a number of duties on an as-needed basis. By combining the units, it not only reduces handoffs, which can introduce human error into the system, it reduces total nurse staffing needs.

“The role of nurses here is more universal,” Lambert said during a tour of the facility. “There are no respiratory therapists. Here, the cardiac nurses are training to do all the functions.”

Boosting productivity has become a front-burner issue for American hospitals, especially in their ORs. Hospital systems are under pressure from every payer to cut costs, and reimbursement rates are stagnant.

The prices on the latest cardiovascular and orthopedic implants are surging, wiping out the margins on those once-profitable service lines.

The improved technology is also undermining the traditional fee-for-service hospital revenue model, which was based on keeping “heads in the beds.” Complex surgeries are being replaced with less invasive procedures with shorter hospital stays. Some are being eliminated entirely as surgeries give way to medical management, a technical term for drug therapies, counseling and other interventions delivered in primary-care or other office settings.

Yet hospitals have largely failed to reorganize work inside hospitals to accommodate these changes. As a result, the cost structures at many are way out of whack.

Hospitals added 172,200 jobs last year, bringing the sector total to nearly 5 million. In the past decade, the hospital sector has added more than 600,000 jobs—a boost in total employment of nearly 14% even as classic metrics such as total inpatient days and surgeries fell by close to 10%.

The Bureau of Labor Statistics' first measure of hospital productivity, released last year, found that between 1993 and 2012, productivity in the sector grew at a 0.5% average annual rate. That's well below the national average of 2.2% in the 1990s, 2.6% in the 2000s before the Great Recession, and 1.3% from 2007 to 2014.

The new productivity measure has come under fire from the American Hospital Association and others for failing to take into account the growing severity of illness for patients now admitted to the hospital. It also doesn't capture the improved outcomes that result from the deployment of more and better technologies (CT scans for X-rays, for instance).

Health economists agree adjusting for those factors might close the gap somewhat. But they don't entirely explain the abysmal productivity performance of the past decade.

“Labor costs are 58% of total costs and they're rising again,” said Jonathan Skinner, an economics professor at the Dartmouth Institute of Health Policy and Clinical Practice. “Hospital administrators can't tell their employees what to do. The department chiefs are surgeons, who hold all the power and bring in all the business.”

That's not an issue at Health City, where many of the surgeons and support staff worked together in teams prior to beginning their two-year stint in the Caribbean. Their mission at home is to bring sophisticated healthcare to average Indians, where most people earn less in a lifetime than a lifesaving heart operation costs in the U.S.

“Dr. Shetty's philosophy is that as volumes go up, we have to make prices come down,” said Dr. Chandy Abraham, a veteran Narayana administrator tapped to be CEO of Health City. “In medicine, it's usually the other way around. It forces people to look at process. It forces people to look at their outcomes. If you drive a process down to an optimal use of resources, you actually get higher quality.”

Shetty had launched the first effort to bring his model to the west in Mexico in partnership with Sutter Health. But a restrictive regulatory environment and the reluctance of many Narayana employees to relocate to what they saw as a violence-plagued country doomed the venture.

A local Indian businessman who knew Shetty persuaded him to visit Grand Cayman for three days in the fall of 2009. During that trip, he was introduced to Eugene Thompson, 51, who traces his family roots on the island to the mid-1700s and owns a swath of land on its underutilized eastern half.

Thompson, who had already read the Wall Street Journal article, asked Shetty what he needed. “He gave me a list,” Thompson said. “India is a much more free-flowing regulatory environment.”

Thompson called the governor, who called the 18-member Legislative Assembly into session the next day (the Cayman Islands, population 65,000, is part of the British Commonwealth). They set in motion nine legal and 13 regulatory changes that included tort reform, eliminating immigration limits and relaxing scope-of-practice laws for various physician and nursing specialties. “The government sees us as an economic engine first and a deliverer of healthcare second,” Thompson said.

The required changes could become a major stumbling block for Ascension's effort to transfer the approach to its U.S. facilities. “It will be very tricky to take this model somewhere else,” said Tarun Khanna, a professor at the Harvard Business School who's studied Narayana and the Cayman joint venture.

“When I go to the fancy hospitals in my neighborhoods in Boston, the standard comment is we can never do this here because there's a limited capacity in the U.S. to keep on innovating—patient safety, standards of care, legal concerns, the risk of having something go wrong, the risk is simply too high,” he said.

Yet the economic pressures forcing U.S. hospitals to raise productivity won't go away. Ascension isn't alone in looking for ways to wring inefficiencies out of operations. Many have turned to the Lean process-improvement strategy originated by Toyota in Japan, which is used by Narayana.

“We've look at every process in the operating room to minimize the variability from surgeon to surgeon,” said Dr. Michael Mack, who serves as medical director for the 10 cardiac surgery ORs and 16 catheterization labs belonging to Baylor Scott & White Health. The Dallas-based system joined a consortium with Intermountain Health and an Indian hospital to compare processes, staffing and costs. “We're by far the most expensive,” Mack said.

The system began by standardizing medical-device choices and moving patients into their rooms more quickly, which reduces time in higher-cost recovery units. In the two years since the merger between Baylor and Scott & White, it has also looked at consolidating operations into a hub-and-spoke feeder system, which would send non-emergency patients to its three high-volume centers.

But it's been slow going. “I just can't close smaller programs,” Mack said. “People will just go across the street. Texas is a non-CON (certificate-of-need) state. That's why we have so many to begin with.” States with CON laws require regulatory approval before opening a new healthcare facility.

Phoenix-based Banner Health is three years into its productivity enhancement efforts, which include a major focus on boosting surgeon throughput. By threatening to penalize surgeons who don't show up on time for their scheduled surgeries, they moved from 46% on-time starts to 75% across its 27 facilities in seven states. “For every minute we don't do surgery in our operating room, it's $150 in revenue,” said Karlene Power, perioperative service line administrator for Banner and a nurse by training.

At least one Banner physician involved in the effort saw limits on the applicability of the Ascension-Narayana model in the U.S. “The open ICU is not consistent with an American perspective on infection control,” said Dr. Marjorie Bessel, a hospitalist and vice president for clinical integration who toured the joint venture last year. “We're not going to an open ward approach. We're much more aware of the patient and family experience. We value privacy and space.”

Those weren't issues for Wright in the wake of his double knee implants, however. He has no memory of his brief hours in the ICU-PACU. He woke up in a room big enough for a separate pullout couch for his wife. When released six days after the operation, Health City provided transportation to and from the resort for his two weeks of rehabilitation therapy, which were included in the bundled price.

His self-insured company paid for the family's three-week stay at the resort as well as transportation to and from the island. “It was $300 a night for that resort,” he said. “Add all those monies up and it still saved them a big chunk of money.”

There's a postscript to Wright's story. When he returned to the U.S. with his prescription for rehab, he took it to his local hospital. They said the first opening for his weekly sessions was more than three weeks away and would cost $300 a session.

“That's another $10,000. I just walked away and never went back,” the now cost-conscious consumer said. “I went to the local gym, and the physical therapist said we can do everything here for the $72 monthly membership fee. And she didn't charge me a dime extra for helping me.”

Today he reports his knees are pain-free and he feels only occasional twinges in the muscles around the new joints. “Dr. Almeida said it would take a year for it to completely heal,” he said. “He was a super-talented guy, just like everyone there. You couldn't ask for better service anywhere.”