9 Strategies for Maintaining Profitability in 2011 and Beyond

A multitude of forces — some already in effect and others set to take effect in 2011 and beyond — pose possible threats to hospital profitability. Hospitals have long been faced with the challenge of compensating for reduced Medicare and Medicaid reimbursements and, more recently, for the effects of a slow economic turnaround. Now other forces — such as an increased number of patients covered by government payors, bundled payments, accountable care organizations and healthcare IT pressures — may also compromise hospital profitability in the future.

Looking outside of your organization

1. Focus on physician integration. More hospitals are turning to employment and physician integration as a means of preparing for future reimbursement models. Bob Meyer, president and CEO of Phoenix (Ariz.) Children's Hospital says his organization has aimed to increase physician integration for some time with a focus on the hospital's employed medical group and recruiting specialists without hurting its strong referral base of independent pediatricians. Mr. Meyer says hospitals should market themselves to those physicians who are leaning towards hospital employment and integration as an alternative to private practice.

To increase physician integration, Mr. Meyer hopes to attract a physician leader to Phoenix Children's. "We're in the process of recruiting a national figure to be the physician CEO or leader of our practice management group because what is very important is having a strong physician leader at that high of a level," Mr. Meyer says. "In my opinion, the most successful practice management models are all physician-led."

Mr. Meyer says hospitals need to start including clinicians — physicians and nurses alike — in the strategic development of their organizations. "We have a shared governance model where physicians have a fair amount of input into our overall, long-term strategy, and the ability to recruit and have those physicians aligned with us is the first step in our strategy toward success."

David Pate, MD, JD, president of Boise, Idaho-based St. Luke's Health System, agrees with Mr. Meyer and says hospitals should work toward a goal of increased physician alignment. "How can hospitals work with physicians to get aligned to better manage throughput, length of stay, help minimize hospital-acquired illnesses and prevent avoidable readmissions? Those things are going to help us prepare to be more successful in the direction where healthcare is going under healthcare reform," he says.

2. Affiliate and align with other institutions or healthcare organizations. Mr. Meyer says Phoenix Children's has entered into affiliation agreements with the University of Arizona to expand its relationship with the university's medical school. The incentive of receiving graduate medical education funding from the state in order to provide care to Medicaid beneficiaries also drove the move toward an affiliation. In addition to its educational affiliation, Phoenix Children's has also built a strategic alliance with St. Joseph's Hospital in Phoenix to combine the two organizations' pediatric expertise and offerings, which will allow the two groups to establish a stronger foothold in an intensely competitive healthcare climate.

"There is a tremendous strategic benefit to combining service lines across our two organizations," Mr. Meyer says. "St. Joseph's already has a well-developed pediatric program, and so on a combined basis our volumes put us at No. 1 in the country for pediatric neurosciences, No. 6 for pediatric orthopedics and so on. Those service lines, which are our centers of excellence and strategic focus, will later allow us to recruit leaders in those programs and build upon our reputations."

Gary Weiss, CFO of NorthShore University HealthSystem based in Evanston, Ill., adds that hospitals should consider the benefits of alignment with stronger and more viable health systems. In order to maintain profitability, hospitals and health systems will have to find ways to become more efficient and flexible in an increasingly dynamic healthcare landscape, especially as more Americans become insured as part of healthcare reform. While smaller hospitals could possibly look to merge with larger and more financially stable hospitals, larger hospitals are likely very interested in opportunities to absorb additional revenue streams by acquiring and integrating smaller organizations or group practices. "It will be an increasingly difficult environment for smaller hospitals to make investments in technologies, equipment and uncompensated care in an industry where the competition has certainly heated up. Practice groups might also assess the tradeoffs in finding strength in finances and talent to face this difficult environment," he says.

3. Collaborate closely with private payors. With decreased reimbursements from Medicare and Medicaid, hospitals will have to turn to private payors and explore non-traditional contracts that revolve around quality of care, as opposed to fee-for-service. Dr. Pate says hospitals should consider working with private payors to compensate for the lack of reimbursement from federal healthcare programs. Because private payors oftentimes mirror federal healthcare programs' changes in reimbursement and coverage, hospitals should exert more effort into working collaboratively with private insurers to negotiate reimbursements that are fair and quality-based. Quality-based reimbursement gives insurers an incentive to continue working with a facility that demonstrates a commitment toward excellent clinical outcomes.

"The current reimbursement mechanism encourages utilization of services, so the more you do the more you get paid," says Dr. Pate. "The answer for healthcare organizations is to effectively work and talk with payors on how to change the reimbursement system so that the system rewards behaviors for improving outcomes and quality of care at lower costs."

In order to achieve this goal, hospitals will have to turn away from the long-adopted tradition of fee-for-service payment models and consider alternative payment methodologies, such as a shared savings program where insurers would be able to pocket some of the savings achieved from improved patient care and outcomes. Because many private insurers are skeptical and not ready to take on significant risk, the key is working and collaborating closely and fostering relationships with private insurers, which will help your healthcare organization successfully adopt an alternative payment method, Dr. Pate adds.

Looking within your organization

4. Adopt business and operational models better suited for future changes. Because the healthcare industry is becoming inundated with a number of factors that could — and most likely will — drastically change the way healthcare has traditionally been delivered, hospitals have little choice but to alter their approaches to business and operational models to acclimate to the changes that are likely to occur.

"I view the hospital as an enterprise having three lines of business that are distinctly different, and each need a unique infrastructure in order to continue achieving business success," Mr. Meyer says. "Those three are physician practice management, hospital business and fundraising. Each of these will require unique IT requirements and will be led by individuals with different skill sets."

Reaching out to philanthropic sources as an added source of funding is a nontraditional option more hospitals may need to consider going forward, Mr. Weiss says. Additionally, hospitals will have to consider the slow turnaround of the economy and develop more flexible options for patients who are struggling financially — possibly by offering financial counseling and flexible payment plans for medical services. "Hospitals and health systems need to find ways to obtain payment for services provided to remain viable providers of health care in their communities at a time when the rate of unemployment is lingering at approximately 10 percent," Mr. Weiss says. "The key is thinking of new ways to operate in a difficult economic environment to remain profitable."

5. Denial management should be a focal point. Although many hospitals already have established billing departments, coders and other hospital staff members to assist in maintaining an efficient revenue cycle, it is incumbent upon hospitals now, more than ever, to ensure revenue cycles are efficiently and effectively capturing appropriate payments. Particularly with the upcoming transition from ICD-9 to ICD-10 codes, hospitals will need to take extra precautions to ensure their respective organizations are in-tune with correct coding guidelines. Mr. Meyer says Phoenix Children's, which has historically faced challenges with denials, has a renewed focus on open communication in order to reduce the organization's rate of claims denials.

"Part of our problem with claims denials was the integration of our physician group and hospital because a lot of referrals come from that group. This pushed us to break down the silos between physicians, the hospital and billing department and put more focus on the connect points between all these groups," Mr. Meyer says.

6. Revisit staffing costs at your healthcare organization. Staffing costs are one of the largest expenses for healthcare organizations, so hospitals should revisit them to ensure productivity and efficiency are balanced. If the balance is off-kilter, hospitals will need to find ways to streamline staffing costs or reorganize the hospital structure. Dr. Pate says hospitals should not immediately jump to layoffs, but instead reassess every position and ensure the organization is not under- or overstaffed.

"From my perspective, hospitals often go after layoffs because it's the easiest area to start cutting down costs," Dr. Pate says. "But what can sometimes happen is, if you reduce your work force, you have a lot of unanticipated costs associated with those layoffs, and sometimes organizations that lay off their employees end up hiring those same positions back anyway."

Dr. Pate suggests hospitals look at ways to streamline staffing and reduce overtime pay as an alternative to layoffs. Many healthcare organizations have implemented lean processes that cut out waste and establish more efficient processes and procedures.

7. Set targets to reduce cost per patient day in the hospital. Dr. Pate says hospitals can increase profitability by focusing on areas that cost the organization the most money. Length of patient stay is one of these areas. Hospitals should look very closely at the processes and procedures that may be contributing to increased lengths of stay and make the appropriate changes in policies to reduce that time.

"For example, hospitals may want to assess their emergency departments to make sure their patients are not staying in that department for an inordinate amount of time, which can become more costly and result in poorer clinical outcomes," he says. "If you have that long of a delay in the throughput, the hospital has to start asking itself how to get treatments and patient care delivered in a more timely manner."

In conjunction with looking retrospectively at ways to reduce patient readmissions and prolonged lengths of stay, hospitals should also be proactive in preventing patient admissions in the first place. "There is an additional opportunity for hospitals that focus on improving quality and safety, which leads to avoidance of complications. Better quality is less expensive care if you can deliver it right the first time," Dr. Pate says.

8. Adopt healthcare IT solutions that can help increase profitability. Implementing health IT solutions in your healthcare organization is a two-pronged strategy for increasing profitability going forward into 2011. As the federal government continues to roll out criteria and measurements for meaningful use of electronic medical records in 2011 and beyond, healthcare providers can cash in on incentives to be doled out upon demonstration of meaningful use. Further, it is already widely accepted that cornerstones of health IT solutions, such as computerized physician order entry and EMRs, are proven tools to cut down costs, streamline efficiency and improve clinical outcomes.

In one such example of using health IT to reduce costs, NorthShore, which has been using an EMR since 2003, implemented a web portal for patients called NorthShoreConnect. The portal allows patients to log in and schedule visits to their physicians and view results of tests they underwent along with notes from their physicians. "That's a game changer in the delivery of care. It's giving new tools to patients allowing them to have more control of their healthcare, and on the hospital side, we don't need a staff member to schedule that test or visit or make that follow-up phone call anymore," Mr. Weiss says.

As an early adopter of technology, NorthShore has also invested in sophisticated software that enables the organization to capture data on patient diagnosis, treatments and outcomes and analyze what treatment methods yield the best clinical results, thereby reducing the potential for readmission.

"We have a large research institute that is pursuing informatics on healthcare experiences to understand the quality of the healthcare provided. Our goal is to develop more standardized treatment protocols that will lead to better outcomes. Our industry will be pursuing this more, and those that are able to do this effectively will be in a better position to build the greatest patient loyalty, quality and profit margins," Mr. Weiss says.

9. Prepare for the future. Despite a rather cloudy future — with rules and regulations over ACOs and meaningful use looming on the horizon and a precarious economy still on its way to recovery — healthcare organizations can still do more to prepare for the future. Mr. Weiss says his health system's leaders are working tirelessly to assess every avenue and possible option in the realm of ACOs and creating a work plan ensures success in each of the varying models of care delivery and payment.

"Our management team is dedicating time and resources to take a step back and think about episodes of patient care, shared services models, bundled payments and ACOs. We’ve included administrators and physicians in the discussion of each of those models for the delivery of care and financing mechanisms, whether it be value-based purchasing, episodic payments, capitation, partial capitation and so on. We've been considering each of those payment methodologies and what it will take to be successful in each of those scenarios," Mr. Weiss says.

Copyright © 2022 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars