Electronic Health Reporter

Guest post by Dr. Andrew Agwunobi, leader of the hospital performance improvement practice at Berkeley Research Group.

Four healthcare reform elements are driving hospital systems to recreate themselves through buying physician groups, attempting to dramatically improve the quality and costs of care, and merging with other hospital systems. These are 1) the new Medicare readmissions payment policy, 2) the Medicare and Medicaid payment bundling pilots, 3) Medicare’s decision to stop paying for hospital acquired conditions, and 4) the American Recovery and Reinvestment Act of 2009 (ARRA). 

In terms of readmissions, starting this year, Medicare will pay less to hospitals with higher than typical readmission rates within 30 days of discharge. This is akin to the government requiring hospitals to provide a 30-day warranty for the care provided during a Medicare patient’s admission. Just like warranties on car repairs, warranties on hospital care save money; in this case, for Medicare, the savings total up to $15 billion per year.

Medicare will also start a national pilot program to “bundle” payments for inpatient hospital, outpatient hospital, physician care and post-hospital care for certain conditions. This bundling is aimed at reducing Medicare’s expenditures and driving better coordination of care.

Medicare also refuses to continue to pay for hospital acquired conditions (HACs) or “Never Events” (so named because “they should never happen”). These include conditions such as pressure ulcers, falls with trauma and certain surgical site infections that cost Medicare up to $29 Billion per year.

Finally, ARRA has driven hospitals and physicians to overcome two decades of inertia toward installing fully functional, integrated electronic health records (EHRs). ARRA used a highly effective combination of a carrot — $17 billion in funding for qualified providers — and a stick — starting in 2015 Medicare will penalize non-compliant hospitals by reducing the Medicare Market Basket Adjustment Percentage and payments.

These four elements of healthcare reform require hospitals and physicians to work together to provide the best care at the best cost. This — combined with hospitals’ fear of losing key physicians to competitors; physicians aggressively seeking employment due to declining reimbursement; boards expecting their CEO’s to take action commensurate to the threats; and hospitals’ need for more inpatient-volume to counteract the volume declines of the recession — has led to a huge number of physician practice acquisitions.

But as the dust has begun to settle what hospitals fear most –a repeat of the 1990s — is emerging. Between 1993 and 1995 there was a 172 percent growth in the number of physician groups employed by hospitals. The rationale at the time was that vertically integrated systems could better implement the primary care gatekeeper model to decrease utilization, control costs, and improve coordination of care. But hospitals were not prepared for the difficulties of creating and managing integrated physician-hospital entities.

Against a back drop of overblown purchase prices, these difficulties left consumers demanding choice, lacking hospital expertise in physician management, a lack of strong productivity incentives for physicians, a lack of cultural fit between physicians and hospitals and a focus on cost-cutting without a commensurate focus on quality improvement. For most hospitals this led to failure of their integration strategy, in some cases with ruinous financial results.

The fourth element — the installation of functional, integrated electronic records — has also been a huge financial drain on hospitals; both in terms of capital capacity and considerable ongoing operational costs.

Hospitals have had to postpone or forego capital investments some of which were necessary to ensure quality care and to keep new physician partners happy. Other hospitals have experienced the much dreaded downgrading of bond ratings. But most noticeably, ARRA together with competitive market pressures has forced many hospitals to merge with other hospitals that have more capital to spend.

Fortunately, as hospitals are re-forged in the crucible of healthcare reform, and struggle mightily to give better care with lower margins, partners emerging to help them. For example, Berkeley Research Group has developed a new, extremely successful methodology called “Clinical Redesign” that starts with the acknowledgement that although labor and non-labor cost management is still essential, the staples of historical hospital performance improvement –namely drastic cutting of FTEs and administration-driven reduction of supply costs — will not be adequate in future and in fact will be harmful.

This movement is about engaging physicians in a data-driven process to reduce costs and improve quality across the clinical enterprise. This, in turn, means giving physicians true leadership of the change process, which is radically different from the historical approach of informing them of decisions, giving them “input” or “seeking their guidance.”

It means giving them granular, comprehensive data-the clinical equivalent of “big data” –providing them with the necessary financial, human and data-analytic resources, surrounding them with a project-management infrastructure, giving them decision-making authority; and, of course, coupling their new-found leadership with accountability.

It is both simple and profound: giving leadership of the clinical mission and changes to those who understand it best.

Dr. Andrew Agwunobi is a leader of the hospital performance improvement practice at Berkeley Research Group. Prior to joining BRG, Dr. Agwunobi served as chief executive of Providence Healthcare, a five-hospital region of Providence Health & Services in Spokane, Washington. He previously held the positions of president and chief executive officer of Grady Health System in Atlanta; president and CEO of Tenet South Fulton Hospital in East Point, Georgia; chief operating officer of 14-hospital St. Joseph Health System in California; and secretary of the Florida Agency for Health Care Administration. Dr. Agwunobi has also served as chief of the Main Pediatric Urgent-Care Department for Harvard Vanguard Medical Associates in Boston.

A board-certified pediatrician, Dr. Agwunobi received a master of business administration from the Stanford Graduate School of Business. In 2003, Tenet Healthcare awarded Dr. Agwunobi its “CEO Circle of Excellence” award. In 2005, Dr. Agwunobi was named one of the “100 Most Influential Georgians” by Georgia Trend Magazine. In 2007, Dr. Agwunobi was named one of the “50 Most Powerful Physician Executives” by Modern Healthcare magazine.