Many “experts” are recommending a focus on clinical integration, and we are no different. Much of our work relates to leveraging the expertise of employed physicians concerning care processes, and turning that expertise into better care and more efficient care.
But many executives, focused on balancing the present and future, are questioning the economics of that strategy. “If we are more efficient, will we reduce our profits from private payers?” If your contracts incent more volume, the answer is yes. And then they ask the $64,000 question: “When will the time be right to change our focus?”
Anyone running a hospital knows this is a complex question. Medicare may provide incentives to manage costs for the stay, Medicaid may pay by the day, and private payers may do either, or in rare cases, may still pay a percent of charges.
Faced with this dilemma, it seems reasonable that there is not a one size fits all answer; the answer differs by service. A favorite first area of focus for us is medical cases managed by the hospitalists. These cases are heavily weighted toward Medicare, include a good percentage of any hospital’s indigent inpatients, and are, of course, less profitable on average than surgical cases. The end result is that a focus on efficient best practices may have a big positive benefit.
For services that are profitable and for which incentives still reward volume, you may wish to focus in a different area. In these cases, a focus on quality measures and supply costs may have long term benefits while minimizing damage in the short term. Co-management deals in orthopedics or spine care often follow this model.
A third strategy is to align incentives with your payers, just as you are trying to do with the physicians. Years ago, when I served as VP for Quality and Managed Care for a major system, it was clear that our drive to define and use best practices was going to hurt us financially. All of the benefits were accruing to the insurers, as each efficiency resulted in lower revenue in a discounted fee for service world.
Our response was a strategy to change payer contracts and relationships. The goal was to align those with Medicare, not from a rate perspective, but from a DRG/incentive perspective. We migrated several contracts to that approach, and when the insurer could not do that, we negotiated more favorable discounts. The insurers willingly did that to reward us for making strides toward efficiency.
A systematic strategy that addresses challenges consistently, without getting ahead of the curve of change, will not be easy to do. But with analysis and focus on Medicare losses first, your organization can craft a successful strategy that builds your clinical integration capabilities long-term without bankrupting you in the near-term.
For more information on how to manage your clinical integration strategy in alignment with the market, call us.