Healthcare providers stand at a cost-cutting crossroads. Rising labor, technology, drug and compliance costs, coupled with diminishing reimbursement put an ever-tightening squeeze on finances. Some pursue a merger or partnership path, while others tackle complex supply chains, employee overlap or unnecessary clinical processes internally. Many providers aim to grow their revenue through consulting or building additional access points as they grapple with what strategies will deliver the most value. Modern Healthcare hospital operations reporter Alex Kacik gathered a diverse trio of COOs for a roundtable discussion on how they are trying to deliver value both in the short and long term.
Modern Healthcare: How do you balance cutting costs versus trying to grow other revenue streams?
Paulette Davidson: We are doing a deep dive; that's our vocabulary. Looking at our pharmacy areas, we've probably identified about $2 million in various pharmaceutical products and how we're purchasing them. We also did a deep dive in our supply chain. We probably found about $9 million there. And so to do the deep-dive work, we're bringing in experts from outside the organization. You're paying some consulting fees to do the work, but we're finding we have basically a 10-to-1 ratio. For every dollar we're spending on consulting fees, we're finding $10 in savings. So we've been strategic about where we're doing that consulting work to find the savings.
And then we're benchmarking labor. We're comparing ourselves to other organizations in the country and determining who's doing it well and then reaching out to learn from those organizations. We have around 5,000 caregiver employees. We've reduced around 319 positions through attrition and redeployment without going into what you would call layoff mode just by doing that benchmarking work.
MH: What are some of the most pressing factors affecting your financial condition?
Mark Solazzo: I'll raise it up just one level. It's what I would call a trend gap. Every year, as we look at our revenue and expenses, there is a trend gap. A difference between the revenue trend and the expense trend. On the revenue side, more and more governmental payers make up the bulk of our business given the demographic trends. And those payers typically have a 0 to 1% effective trend on revenue. So the majority of your business, your revenue, is only going up less than 1%. Meanwhile, your expenses are going up because of contracted union payments, benefit payments, pharmaceuticals and technology. So at its base, we have to figure out how to make up that trend gap every year.
We're also seeing much more activity from commercial payers with regard to denials and pushing back on a whole host of different factors on our payments. On the positive side, we're also in a significant growth curve for this organization. We're growing at a rate of about $1 billion a year, or about 10%. And so, to fund that growth curve puts very significant demands on the operations to produce the cash to fund that.
Davidson: Similar to Mark's environment, 83% of our payer mix is government and about 17% is commercial. We have Tricare; we have an Air Force base nearby. And we have several Native American reservations. The Indian Health Service is a very complicated payer to work with. Although we're located in western South Dakota, we care for a five-state area that is less populated than the eastern side of the country.
When you look at our financial condition, I think it's the pressure of those government payers and the regulatory burden that we face. There's probably a surveyor on one of our campuses any one week of the month.
Lisa Marsilio: The lack of standards and regulations in addiction treatment and the influx of private equity in our treatment field are really pushing the envelope. Not having those standards and outcomes really put some bad players in the market. One in three family members could be affected by the crisis—not only opioids, but alcohol and many other drugs; it is a disease that needs management and treatment because it's chronic.
The Affordable Care Act and mental health parity laws increased funding, which is a good thing. But on the flip side, it put in a lot of competition from private equity and unqualified providers. There's not enough regulation or enough transparency. Some of them don't even have a bill of rights or a compliance department. So it's very hard for the consumer to discern which treatment center to go to.
MH: How do you prioritize cost-cutting strategies?
Solazzo: We are creating an internal agency to be able to float people across the organization to try to maintain the highest level of efficiency on labor. On supply chain, we've created value analysis teams across the health system to make decisions on product and utilization, and then we contract centrally. We've taken out 10% of our supply chain spending overall. We're somewhere around $200 million in savings over the past seven years.
Davidson: We are working to ensure our staff are practicing to the top of their license. In our ambulatory clinics, we have RNs not working to the top of their license. So we're piloting different care-team models where maybe the primary-care physician could benefit from three certified health coaches versus a licensed practical nurse or a medical assistant. We're starting to pilot different projects in various specialty and primary-care practices to see what model of care is efficient, sustainable, and really creates an environment where we provide a great service for patients and a better experience.
MH: How do you ensure that everyone's on the same page on a clinical level? And do you have the infrastructure in place to repeat best practices?
Solazzo: This work is the hardest to accomplish.
We have forums at each of our hospitals where the leadership—the medical, the administrative, the nursing—get together and talk about what's working and what's not. We share best practices. We also share incidents that we need to learn from and improve from. There's a culture of transparency and we really like people to steal best practices shamelessly.
We've set up a service line infrastructure led by a clinical leader and an administrative leader across many disciplines. So we have somewhere between 13 and 20 service lines. The role of those two leaders is to standardize quality and best practice across the organization. And we have also organized the work that they're doing within the rubric of the CMS star ratings where the focus is on quality, access and experience.
Davidson: We developed a clinical practice committee that reports directly to our system board. And similar to what Mark described, we identified community medical directors who sit on that committee. I'm there. Our chief medical officer is there for the system. And we've identified metrics in quality and safety that are important and that we can all work on together. An example would be sepsis. Our physician leaders basically worked across the system, and developed a single protocol for sepsis that was introduced to every emergency department, urgent-care center, primary-care clinic, inpatient facility. And then, by standardizing that clinical practice across the system, we've been able to see our sepsis mortality rate improve. We're just below the top quartile in the nation.
MH: Lisa, how has dealing with the opioid crisis changed your operations?
Marsilio: First and foremost, education is key.
Last year alone, there were over 67,000 deaths from overdoses and about 88,000 from alcohol. Working with acute-care providers—because of what I saw when I looked at some of the costs associated with putting a patient through the ED—we've worked to help get patients through the detox phase and into treatment.
Caron is currently in the developmental stages of a hub-and-spoke model that is very similar to what some acute-care providers had done many years ago.
We're a little bit behind, but I think we definitely can catch up. We need to be very nimble in our operations and able to expand and contract when the big need comes, because we'll have seasonal dips just like the acute-care providers do.
Solazzo: We have two of the hot spots in the country in our market—Suffolk County and Staten Island.
We serve about 150,000 behavioral health participants each year, and about 150,000 substance abuse patients each year. And we have about 600 patients in our care at any given day.
We're trying to change the language with regard to behavioral health services and addiction. More and more, we're seeing a neurobiology basis for many of the disorders we're encountering. We really need to treat this as a disease. In our own medical school, we saw a significant increase in our medical students going in residency programs in psychiatry because of the neurobiological basis of diseases these days. We also spent a whole week of our curriculum in our medical school on only the opioid crisis, given how prevalent it is in our marketplace. Finally, we want to try to change how we label this disease. Even the nomenclature that we use with regard to it. So we're looking at that as a way to reach out to our marketplace, to reach out to our community, to reduce the stigma, to enable treatment at an earlier stage when people suffer from these diseases.
Marsilio: Mark, I have to congratulate you on that. That's a phenomenal approach to physician education. And I applaud you for the neuro. We're doing neuro feedback here. It does work. And embracing it as a disease, we love partnering with our acute-care providers. So I just want to say congratulations on doing that because the more we can educate our physician community, the better the outcomes for our patients.
Solazzo: I agree, Lisa. Thank you.
MH: When there's so much activity from partnerships, mergers, acquisitions and divestitures, how do you adapt?
Solazzo: I arrived at this system in 1995 and we had three hospitals. Ever since then, we've been adding assets constantly every year. So the only constant is change. You have to continue to grow. In a consolidating marketplace, you grow or you die.
We're going to continue to grow rapidly at least for the next couple of years. At the same time, you've got to worry about maintaining that core culture of what you're trying to provide—a core set of values, a continuous focus on patient care, reminding people that we are in a person business, and what we're here for is patient care. The thing that keeps me up at night is the pace of growth. I want to make certain as we continue to grow and become this large corporation, that we don't lose the focus at the bedside.
Davidson: It's been a challenge for us. I report to the CEO of the health system. He's been here three years and I've been here 2 ½ years. Together, we've probably created 20 years of change in the past three years. So the question is, how do we make our decisions. But the other question is, how do we get out and share the information and be transparent on why we're building a $250 million addition, or building a new orthopedic hospital, or changing the admission process. It's communication with our civic leaders, our county leaders, our city leaders, our state leaders, sitting down and having conversations.
I have caregiver forums every other month with my markets. I ask my leadership team, "What do we need to keep our ear to the ground on? Let's talk about why we're doing this strategy or why we're merging with this other organization."
We want to be as transparent as possible, so when they're at their dinner tables, they can speak to it. When they're in their church groups, they can speak to it. It's change management every single day. And its keeping the lid on the rumors and correcting the impressions so we can maintain our reputation, and also keep our caregivers engaged so our patients get the best possible service.
Marsilio: We view it from a patient-centric approach to care because we're developing the chronic disease model. We have lots of opportunities for joint ventures and acquisitions and sustainable growth. But at the same time, we're building the infrastructure and keeping our clinical competencies and core competencies in line to support the disease model and the chronic approach to this model. It's very, very challenging because as everyone knows, there are bad players out there.