Week 6 - Assignment: Explore Methods to Meet Public Demands for Quality Services and Week 7 - Assignment: Compare Statewide Programs for Efficiency

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L e a r n i n g O b j e c t i v e s

C H A P T E R 7

S T R AT E G I C P L A N N I N G A N D T H E H E A LT H C A R E B U S I N E S S P L A N

After you have studied this chapter, you should be able to

➤➤ analyze➤and➤address➤challenges➤in➤strategic➤planning➤for➤healthcare➤organizations➤through➤

the➤use➤of➤financial➤information;

➤➤ create➤a➤business➤plan➤for➤a➤new➤service➤line➤in➤a➤healthcare➤organization;

➤➤ assess➤the➤appropriate➤organizational➤structure➤for➤a➤new➤business➤initiative,➤including➤

corporate➤structure➤and➤scope➤of➤leadership;➤

➤➤ understand➤the➤management➤of➤costs,➤quality,➤and➤access;➤and

➤➤ demonstrate➤the➤ability➤to➤make➤financial➤decisions➤and➤develop➤a➤strategy➤for➤change.

The way to get started is to quit talking and begin doing.

—Walt Disney

Think ahead. Don’t let day-to-day operations drive out planning.

—Donald Rumsfeld

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C o p y r i g h t 2 0 1 6 . H e a l t h A d m i n i s t r a t i o n P r e s s .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

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In t r o d u c t I o n As healthcare moves into an age of reform, accountable care, and bundling, the question of how to align physicians with the goals and priorities of the hospital is even more important. The healthcare business plan serves an important role in successfully aligning hospitals and physicians through financial integration and by incorporating joint incentives for profit- ability, quality, and clinical productivity (Levin and Gustave 2013).

Effective business planning is a formal, measurable process that evaluates resource allocation, performance, and the current business environment and forecasts potential demand for new services. Business planning will become increasingly important as traditional federal healthcare policies change and move toward bundled payments and population health–based outcomes as a reimbursement strategy. Consistent with the overall strategic plan, the completion of a comprehensive business plan will evaluate new business initia- tives and ensure the initiatives meet a demonstrated community need and are the most appropriate use of the organization’s scarce resources.

de f I n I t I o n A healthcare business plan is a method by which a healthcare organization evaluates future investment in a new business initiative. To create a comprehensive business plan, the organization must gather a wide range of information and forecast future demand. A sample business plan outline appears in Exhibit 7.1. The website of the US Small Business Administration offers a number of additional resources, including

◆ an outline for writing a business plan (www.sba.gov/writing-business-plan);

◆ an electronic form for creating a written business plan (www.sba.gov/sites/ default/files/SBA%201010C.pdf ); and

Healthcare business

plan

Method➤by➤which➤a➤

healthcare➤organization➤

evaluates➤future➤

investment➤in➤a➤new➤

business➤initiative.

K e y t e r m s a n d c o n c e p t s

➤➤ Cost➤of➤capital

➤➤ Financial➤plan

➤➤ Healthcare➤business➤plan

➤➤ Horizontal➤integration

➤➤ Income➤statement

➤➤ Internal➤rate➤of➤return

➤➤ Net➤present➤value

➤➤ Payback➤period

➤➤ Pro➤forma➤financial➤statement

➤➤ Regression➤analysis

➤➤ Vertical➤integration

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◆ the SBA Business Planner, with a wide range of information and data sources useful in the business planning process (www.sba.gov/sites/default/files/ SBA%20Export%20Business%20Planner.pdf ).

He a lt H c a r e bu s I n e s s pl a n An organization’s healthcare business plan should be consistent with its overall mission and vision and should consider the competitive market. While the business plan is a written document, it is subject to change. Factors such as a shift in community demographics or competitors’ actions will require an organization to revisit its plan and revise it as necessary.

The typical business plan includes a detailed discussion of the proposed healthcare service, the identification of target markets, and financial projections. After the new service has been implemented, planners evaluate it over a multiyear period, usually three years. The initiative’s development can be monitored by setting targets and seeing whether those targets are met in that three-year time frame. Periodic evaluation over multiple years will return a fair, realistic assessment of the initiative’s progress.

H e a lt H c a r e b u s I n e s s p l a n n I n g w o r K f l o w

While the business plan outline provides the components of the company’s workflow, Exhibit 7.2 illustrates how data are gathered for the plan. The following sections provide additional explanations for these steps in the process.

exHIbIt 7.1 Sample Business Plan Outline I. Executive Summary

II. Statement of Purpose

III. Description of the Business

A. Competition/market

B. Operating procedures

C. Personnel

D. Facilities

E. Strategic capital allocation

IV. Financial Data

A. Pro forma financial statement

1. Income statement

2. Balance sheet

B. Capital funding

C. Break-even analysis

D. Three-year summary

E. Internal rate of return

V. Alternatives

VI. Recommendation

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Business Purpose

The statement of purpose should define the company’s core goals and purpose and form the basis for the company brand and promises to consumers. A statement of purpose focuses primarily on the short message that will guide the company in formulating its business practices and strategy. It should also contain consumer needs and attainable goals (Lister 2015). A corporate strategy that includes business expansion should be grounded in a business plan. For example, organizations can expand their current lines of business into new geographic areas through mergers with other organizations (a strategy of horizontal integration), or they can choose to expand into new lines of business somewhere along the continuum of care—such as outpatient clinics, ambulatory surgery centers, or skilled nursing facilities—or to acquire and integrate physician group practices (a strategy of ver- tical integration). Vertically integrated businesses leverage mass-production principles of efficiency and dominated the corporate world until the later part of the twentieth century. However, in the 1990s, businesses started to consider why they needed to own the whole process and how to collaborate with others for some of the components and processes needed to create, produce, distribute, sell, and support their product. By 2012, both strategies were being used, depending on the model that yielded the best product, experience, availability, price, service, and support for consumers (Taylor 2012).

Horizontal integration

Expansion➤along➤

current➤lines➤of➤

business➤into➤new➤

geographic➤areas,➤often➤

through➤mergers➤with➤

other➤organizations,➤for➤

purposes➤of➤increasing➤

market➤share.

Vertical integration

Expansion➤to➤a➤new➤line➤

of➤business➤located➤

somewhere➤along➤the➤

continuum➤of➤care➤

(e.g.,➤a➤hospital➤that➤

normally➤provides➤

acute➤care➤opening➤

a➤primary➤care➤clinic➤

or➤acquiring➤a➤skilled➤

nursing➤facility).

exHIbIt 7.2 Healthcare

Business Planning Workflow

Business Purpose

Human Resources Medical Staff

Clinical Support

Administrative Support

Staff Diversity

Environmental Analysis External Factors

Economic Factors

Analysis of Competitors

Regulatory Factors

Internal Factors

Patient Demographics

Projected Workload

Cost of Capital

Physical Plant Age of Facility

Size

Location

Information Technology

Marketing Plan Product

Place

Price

Promotion

Patient Population

People

Financial Plan Capital Funding

Start-up Costs

Operating Expenses

Pro Forma Financial Statements

Income Statements

Break-Even Analysis

Payback Period

Net Present Value

Internal Rate of Return

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Environmental Analysis

Historically, healthcare has been less affected by economic factors than other industries have been. However, sound business decision making is necessary in the healthcare field to ensure future success because the business climate is changing. External factors to consider in the course of writing a business plan include the current economy, regulatory law, and the results of competitor analysis. The federal government is extending its influence on healthcare through legislation on healthcare delivery processes and reimbursement for care. In addi- tion, the Medicare and Medicaid programs continue to focus on healthcare compliance, evidence-based clinical care, and Health Insurance Portability and Accountability Act privacy statutes in support of the patient population. As healthcare providers struggle to meet these requirements, hospital–physician partnerships can be mutually beneficial in providing patient care in adherence to current healthcare policy legislation (Kauk, Hill, and Althausen 2014).

Healthcare is delivered in local communities and is affected by market competi- tion, making an evaluation of current and potential competitors essential to the business planning process. A highly competitive market increases the vulnerability of a healthcare organization’s strategic position by lowering profit margins and reducing operating capital. As market competition increases, healthcare organizations often consider mergers, acquisi- tions, or joint ventures in an attempt to reduce costs, share risks, and enhance reputations. Research suggests that consolidation can create economies of scale, help organizations maximize their use of resources in the local market, reduce administrative overhead costs, and lower the cost of capital—the opportunity cost of making a specific investment, or alternately stated, the rate of return an organization must achieve to make a capital invest- ment worthwhile (see Highlight 7.1). The cost of capital reflects what could have been earned by putting the same money into a different investment with equal risk. However, if successful, the increased market share from a new initiative may also reduce operating costs and improve patients’ awareness of the services an organization offers. Cost of capi- tal is one of the internal factors to consider during strategic planning, along with patient demographics and projected workload.

An analysis of a for-profit, publicly traded healthcare competitor can be completed online using the competitor’s name or stock symbol. On Yahoo! Finance (http://finance. yahoo.com), for example, analysts can enter the company’s name or stock symbol and then select “profile” for a description of that company. Selection of other subheadings on the company’s page will reveal stock price fluctuations based on corporate performance and other useful information.

Regulatory Factors

When exploring new business initiatives, organizations must be mindful of government regulations pertaining to healthcare development, including the Stark laws, which regulate

Cost of capital

Opportunity➤cost➤of➤

making➤a➤specific➤

investment;➤that➤is,➤

the➤rate➤of➤return➤an➤

organization➤must➤

achieve➤to➤make➤a➤

capital➤investment➤

worthwhile.

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hospital partnerships with physicians (see Highlight 7.2). Some states are subject to certif- icate-of-need regulations, which require health services planners to obtain approval from state officials to build a new healthcare facility (see Chapter 1, Highlight 1.13). The intent of these regulations is to limit the duplication of services in a geographic area.

Human Resources

Human resources are a critical factor in healthcare business planning and may determine the success of new business initiatives. Because of the increasing complexity of healthcare services, the inclusion of clinicians on teams working to develop business plans is important, including physicians, nurses, and allied health professionals. Effective planning aligns human resources with organizational strategy and measures the status of human resources as part of the organization’s balanced scorecard (see Chapter 3). For example, human resources could be measured according to the number and specialties of physicians and medical staff members, the level of certification held by clinical support personnel, and the overall diversity of the organization’s staff.

HIGHLIGHT 7.1 Cost of Capital

When➤an➤organization➤has➤two➤investment➤opportunities➤of➤equal➤risk➤and➤must➤choose➤

one,➤it➤hopes➤that➤the➤one➤it➤chooses➤will➤yield➤a➤greater➤rate➤of➤return.➤Say➤Hospital➤X➤

can➤either➤open➤a➤new➤outpatient➤clinic➤or➤build➤a➤new➤parking➤lot.➤The➤hospital➤fore-

casts➤that➤it➤will➤earn➤a➤7➤percent➤return➤if➤it➤invests➤in➤a➤clinic➤and➤a➤5➤percent➤return➤if➤

it➤invests➤in➤a➤parking➤lot,➤so➤it➤chooses➤to➤invest➤in➤a➤clinic.➤The➤5➤percent➤return➤the➤

hospital➤“gave➤up”➤by➤choosing➤to➤invest➤in➤the➤clinic➤instead➤of➤the➤parking➤lot➤is➤part➤

of➤the➤cost➤of➤capital.

The➤interest➤on➤the➤funds➤used➤to➤make➤the➤investment➤also➤figures➤into➤the➤cost➤

of➤ capital.➤When➤ an➤ organization➤ borrows➤ money,➤ it➤ must➤ pay➤ back➤ that➤ money➤ plus➤

interest.➤Interest➤is➤a➤consideration➤even➤for➤organizations➤wealthy➤enough➤not➤to➤have➤

to➤borrow➤money.➤The➤money➤that➤organization➤has➤in➤the➤bank➤is➤earning➤interest—for➤

example,➤Hospital➤X’s➤savings➤earn➤3➤percent.➤If➤it➤withdraws➤that➤money➤to➤make➤an➤

investment,➤the➤hospital➤will➤stop➤earning➤that➤3➤percent➤interest.➤In➤both➤cases,➤the➤

interest➤is➤part➤of➤the➤cost➤of➤capital,➤and➤the➤organization➤hopes➤that➤the➤return➤it➤will➤

make➤on➤its➤investment➤will➤be➤greater➤than➤the➤interest➤it➤is➤paying➤(in➤the➤case➤of➤the➤

organization➤that➤has➤to➤borrow➤money)➤or➤not➤earning➤(in➤the➤case➤of➤the➤wealthy➤orga-

nization➤that➤is➤withdrawing➤money➤from➤its➤bank➤account).

*

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In one important human resources trend, physicians are being hired by hospitals or joining group practices. In 2000, 53 percent of physicians were independent from their hospitals; in 2012, that number dropped to 23 percent. With the advent of accountable care organizations (ACOs) and the expansion of Medicare, health systems have sought greater efficiency through integration of care. These changes have shifted the market from single physicians or group practices to healthcare institutions (Moses et al. 2013).

Because of this changing healthcare environment, effective leaders who wish to maximize organizational performance focus their efforts on recruiting the best individu- als available. Organizations start by identifying individuals who have a track record of success and who reflect the changing demographics of the population they serve. Once these individuals are on board and have demonstrated their knowledge and outstanding

HIGHLIGHT 7.2 Stark Laws

The➤original➤Stark➤legislation—the➤Ethics➤in➤Patient➤Referral➤Act—took➤effect➤in➤1992.➤

The➤intent➤of➤this➤federal➤legislation➤was➤to➤reduce➤conflicts➤of➤interest➤regarding➤phy-

sician➤ referrals➤ and➤ to➤ limit➤ overutilization➤ of➤ healthcare➤ services.➤ The➤ statute➤ was➤

expanded➤in➤1995➤under➤Stark➤II➤to➤prohibit➤physicians➤or➤their➤family➤members➤from➤

referring➤Medicare➤patients➤to➤healthcare➤organizations➤in➤which➤they➤have➤a➤financial➤

interest,➤including➤clinical➤laboratories➤and➤organizations➤that➤provide➤physical➤therapy,➤

occupational➤ therapy,➤ radiology➤ services,➤ radiation➤ therapy,➤ durable➤ medical➤ equip-

ment,➤home➤health➤services,➤and➤hospital➤services.

Stark➤III➤regulations➤went➤into➤effect➤on➤December➤4,➤2007,➤to➤institute➤exceptions➤

to➤Stark➤II.➤These➤exceptions,➤called➤safe harbors,➤were➤designed➤to➤provide➤clear➤guid-

ance➤in➤support➤of➤governmental➤healthcare➤policy.➤Under➤this➤revised➤legislation,➤for➤

example,➤these➤safe➤harbors➤allow➤for➤ownership,➤investment,➤and➤compensation➤for➤

intrafamily➤referrals➤in➤rural➤areas.➤This➤safe➤harbor➤was➤designed➤to➤protect➤the➤health-

care➤infrastructure➤of➤rural➤communities➤and➤to➤encourage➤healthcare➤providers➤to➤prac-

tice➤in➤rural➤areas.➤Stark➤III➤also➤allows➤employed➤physicians➤to➤refer➤to➤other➤providers➤

in➤ their➤ healthcare➤ system.➤This➤ modification➤ helps➤ bond➤ independent➤ physicians➤ in➤

the➤community➤to➤the➤healthcare➤system,➤which,➤theoretically,➤should➤promote➤better➤

continuity➤of➤care.

Violations➤of➤the➤Stark➤statutes➤are➤punishable➤by➤a➤$15,000➤civil➤penalty,➤and➤any➤

claim➤paid➤as➤the➤result➤of➤an➤improper➤referral➤is➤considered➤an➤overpayment,➤which➤

the➤provider➤must➤pay➤back.➤Organized➤schemes➤to➤evade➤the➤statutes➤can➤be➤punished➤

by➤a➤$100,000➤civil➤penalty➤(Stark➤Law➤2015).➤

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performance, they should be rewarded with appropriate financial compensation and other organizational recognition. Such recognition helps retain those who will lead the organiza- tion to future success.

A management style that values employee contributions and supports team decision making will result in lower employee turnover. Organizations that exhibit an organizational culture of trust, respect, and employee recognition have the lowest turnover rates (Levin and Gustave 2013).

Physical Plant

Many health systems are deferring routine maintenance and other capital expenditures on aging facilities (Wong-Hammond and Damon 2013). Unfortunately, these capital expenditures cannot be delayed indefinitely. As a result, health systems should develop a capital allocation plan that aligns funding sources with mission-driven growth initiatives. In this context, many health systems face operating environments of declining demand for inpatient services and limited growth in inpatient revenue. Further declines in hospital operating margins are possible because of the shift away from hospital inpatient care toward ambulatory care provided in outpatient settings.

Communities’ evolving healthcare needs require investments in new facilities. Suc- cessful organizations develop a facility master plan that incorporates high-performance work processes and the latest technology. Development of new processes is even more critical for organizations with old facilities because their existing processes may be inappropriate for new facilities. Organizations planning for replacement facilities should consult process improvement experts to maximize organizational efficiency.

Under certain capital market conditions, highly rated health systems can take advan- tage of lower interest rates. For example, in 2013, an investment-grade not-for-profit health system was able to issue $300 million in new 30-year tax-exempt bonds at 4.5 percent interest, a low rate for that period. This advantage provides a low-cost source of capital that many strong health systems can use in their business planning process (Wong-Hammond and Damon 2013).

The first step in facility planning is a community needs assessment to identify cur- rent and future healthcare needs. Using this information, hospital leaders can create a plan that adds facilities as they are required by the community. Many hospitals create master campus plans, which include facilities inside and outside the main hospital. The plans also sometimes incorporate smaller new initiatives, such as expanded outpatient services, that do not require major facility expenditures. A master facility plan can improve patient care, enhance community health status, and have a positive impact on overall profitability.

Historically, many health systems’ business plans were oriented toward the acquisi- tion of physical assets (e.g., real estate, property, equipment, hospital facilities). As of 2015, with health systems facing a more complex operating environment, organizations are more heavily focused on acquiring physicians, investing in clinical health information technology

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(HIT), and improving their ambulatory care capacity to better meet the changing healthcare delivery models (Wong-Hammond and Damon 2013).

New investments in HIT provide a synergistic effect for any new hospital construc- tion. By combining high-performance work processes and investments in new facilities with state-of-the-art technology, healthcare organizations can streamline clinical processes, improve patient care, and enhance the organization’s profitability. The cumulative effect of new processes, investments in technology, and hospital construction sets the stage for increased quality and profitability.

Marketing Plan

As discussed in Chapter 5, a strong marketing plan is important to ensuring the success of new business initiatives. As a result, the development of a formal marketing plan is an important part of the process of developing a business plan. The marketing plan considers the demographic characteristics of the population in the service community. It also takes into account the competitive marketplace, the healthcare organization’s capabilities, and the areas with the greatest economic potential. Separate parts of the marketing plan should be designed to attract the attention of physicians; patients; and major employers, which can be a source for contracts and employee health services.

An analysis of patient demographics—part of the first P in the five Ps of a marketing plan (Chapter 5)—is important because the demand for new healthcare business initiatives is often a function of age, sex, culture, and economic status. In addition, a high percent- age of patients with commercial insurance will increase the level of profitability for a new business initiative, whereas a high percentage of patients who are dependent on Medicaid reimbursement or who have no way to pay will reduce profitability.

Financial Plan

While the intent of this book is not to teach a full finance course, it is necessary for healthcare administrators to understand some financial terms and concepts in order to complete a busi- ness plan. The following sections discuss these ideas as part of the financial plan component.

Organizations compose financial plans—documents analyzing financial informa- tion on potential performance—to model the future of a new business initiative. Capital funding is most often needed to obtain buildings, land, and equipment that cost more than a certain dollar amount. Other expenses can come from operating revenue. A capital acquisition strategy is key to any healthcare business plan and should consider the following (Wong-Hammond and Damon 2013):

◆ How to access external debt such as bank loans or bond financing; additionally, for-profit hospitals have the ability to use equity capital, which is the sale of common stock

Financial plan

Document➤that➤

analyzes➤financial➤

information➤to➤

demonstrate➤potential➤

performance➤of➤a➤new➤

business➤initiative.

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◆ The use of business plans to set targets, create objectives, and reprioritize

◆ Multiple finance options, such as lease strategies versus buy strategies

◆ Levels of risk associated with an initiative in order to calculate the needed financial returns

A financial plan will also include start-up costs and operating expenses for any new business initiative. As part of this process, planners summarize the anticipated financial results of an initiative in pro forma financial statements. The accurate forecasting of clinical workload is key to these statements. Because accurate forecasts are often difficult to make, healthcare organizations frequently develop pro forma statements reflecting different workload scenarios. These statements reflect the potential revenue stream of the proposed initiative several years into the future because an ongoing cash flow is necessary to pay back debt and meet operating expenses.

Income Statement

An income statement is a summary of an organization’s revenue and expenses over a defined period. A statement of operations is similar to an income statement, except it is used by not- for-profit organizations and reflects the fact that they do not generate profits. A pro forma income statement for a new physical therapy clinic is shown in Exhibit 7.3.

Payback Period

A payback period is the length of time a new business initiative will take to recoup an organization’s original investment. The shorter the payback period, the more rapidly an organization is able to recover its original capital investment and redeploy its resources to new projects. When prioritizing new business initiatives, organizations often pick projects that will have the shortest payback period.

Exhibit 7.4 shows a payback period for the proposed physical therapy clinic featured in Exhibit 7.3. Note that it considers three scenarios, as do the pro forma financial state- ments discussed earlier in the financial plan section. These scenarios could differ based on volume or model of care. In the case of this clinic, the scenarios are based on projected workload or volume. The graph in Exhibit 7.4 is a summary of the information provided in Exhibit 7.5.

Net Present Value

Net present value (NPV) is a figure investors calculate to determine whether a capital project will be worth the investment. In basic terms, it is the amount of money a business initiative is projected to earn minus the amount of money invested in it. If NPV is greater than zero, the initiative is probably worth the investment; it will generate more money than the organization’s original investment in it. If NPV is less than zero, the initiative is probably not worth the investment; it will not generate enough money to repay the investment in

Pro forma financial

statement

Statement➤prepared➤

before➤a➤business➤

initiative➤is➤undertaken➤

to➤model➤the➤

anticipated➤financial➤

results➤of➤the➤initiative.

Income statement

Summary➤of➤an➤

organization’s➤revenue➤

and➤expenses➤over➤a➤

certain➤period.

Payback period

Length➤of➤time➤it➤

takes➤a➤new➤business➤

initiative➤to➤recoup➤

the➤cost➤of➤the➤original➤

investment.

Net present value

(NPV)

Figure➤calculated➤on➤

the➤basis➤of➤discounted➤

cash➤flow➤to➤evaluate➤

the➤financial➤worth➤of➤

a➤business➤initiative;➤

the➤amount➤of➤money➤

a➤business➤initiative➤

is➤projected➤to➤earn➤

minus➤the➤amount➤

of➤money➤originally➤

invested➤in➤it.

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it. NPV uses discounted cash flow (see Highlight 7.3), which takes into account the cost of the capital invested in the project and the fact that money loses value over time because of inflation. The value of the project is obtained by discounting expected cash flows (the residual cash flows after all operating expenses), but prior to debt payments, at the weighted average cost of capital (the cost of the different components of financing used by the company,

exHIbIt 7.3 Pro Forma Physical Therapy Clinic Annual Income Statement

Projected Revenue Cost Center and Expenses

REVENUE

1010 PHYSICAL THERAPY REVENUE $384,155

EXPENSES

100 SALARIES—GENERAL –85,000

1585 FRINGE BENEFITS –9,750

3500 MED/SURG SUPPLIES –1,435

3800 MARKETING –5,000

4600 OFFICE SUPPLIES –175

4640 POSTAGE/SHIPPING –134

4800 MINOR EQUIPMENT –1,314

5550 SUPPLIES AND MATERIALS –1,306

5630 LINEN EXPENSE –1,232

5640 REPAIRS AND MAINTENANCE –366

7030 BUILDING DEPRECIATION –24,000

7060 EQUIPMENT DEPRECIATION –1,612

7600 LEASE/RENT—EQUIPMENT –2,336

9100 PROFESSIONAL DUES –495

TOTAL EXPENSES –134,155

NET INCOME $250,000

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weighted by their market value proportions). A 12 percent cost of capital is used in the NPV calculations for the projected physical therapy clinic’s payback analysis in Exhibit 7.5, showing different scenarios of projected workload (100 percent, 90 percent, and 80 percent). The rate is determined by the individual organization to reflect the cost associated with borrowing money for a project. Note that Year 0 in all three scenarios includes the same building costs and net cash flows (and the resulting cumulative cash flows)—essentially, the

exHIbIt 7.4 Projected Physical

Therapy Clinic Payback Period

4.80

4.60

4.40

4.20

4.00

3.80

3.60 1 2

Scenario

Ye ar

s

3

HIGHLIGHT 7.3 Discounted Cash Flow

Discounted➤cash➤flow➤is➤used➤to➤determine➤the➤value➤of➤an➤amount➤of➤money➤over➤time.➤

It➤revolves➤around➤the➤principle➤that➤a➤dollar➤today➤is➤worth➤more➤than➤a➤dollar➤tomorrow➤

and➤uses➤a➤discount➤rate➤(also➤called➤a➤weighted average cost of capital)➤to➤calculate➤

worth.➤The➤discount➤rate➤accounts➤for➤changes➤in➤value➤because➤of➤factors➤such➤as➤infla-

tion➤as➤well➤as➤the➤return➤that➤could➤have➤been➤earned➤by➤investing➤the➤money.

The➤principle➤of➤discounted➤cash➤flow➤implies➤that➤an➤investment➤today➤is➤worth➤

whatever➤amount➤it➤will➤earn➤for➤the➤investor➤in➤the➤future.➤For➤example,➤if➤you➤invest➤

$1,000➤today➤and➤expect➤it➤to➤earn➤another➤$100➤in➤five➤years,➤the➤value➤of➤that➤money➤is➤

actually➤$1,100.➤Put➤another➤way,➤the➤$1,100➤that➤you➤have➤in➤five➤years➤is➤worth➤$1,000➤

today.

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cost of the building. In the first year, the net income is different depending on the volume, or the number of appointments the clinic has filled. Then each year, the net income uses a 2 percent market share increase. In the first scenario of 100 percent projected workload, the net income accumulated for 3.96 years results in the payback of the building cost and expenses over time. From that point on, the revenue stream has covered the fixed costs and is generating significant net income.

Internal Rate of Return

Internal rate of return (IRR) is a term used in capital budgeting to measure and compare the profitability of investments. It is the interest rate at which the NPV of all the cash flows (both positive and negative) from a project or an investment equal zero. In the same way that payback period may be used to prioritize projects (as discussed earlier in the chapter), an organization could choose the project with the highest IRR from a list of potential projects, thereby maximizing overall profitability. The IRR for the first scenario of the

Internal rate of return

(IRR)

Interest➤rate➤at➤which➤

the➤NPV➤of➤all➤the➤

cash➤flows➤(both➤

positive➤and➤negative)➤

from➤a➤project➤or➤an➤

investment➤equal➤zero.➤

The➤term➤is➤used➤in➤

capital➤budgeting➤to➤

measure➤and➤compare➤

the➤profitability➤of➤

investments.➤

exHIbIt 7.5 Projected Physical Therapy Clinic Payback AnalysisPayback Period, 100% of Projected Workload

Sq. Ft. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Totals

Building costs ($750,000) $ – $ – $ – $ – $ – ($750,000)

Net income $ – $250,000 $255,000 $260,100 $265,302 $270,608 $1,301,010

Net cash flows ($750,000) $250,000 $255,000 $260,100 $265,302 $270,608 $551,010

Cumulative payback $ – $ 250,000 $505,000 $765,100 $1,030,402 $1,031,010

Cumulative cash flows ($750,000) ($500,000) ($245,000) $15,100 $280,402 $551,010

Physical Therapy Clinic Payback Period Scenarios (Cost of Capital 12%)

Payback period (years) = 3.96 NPV = $183,787 IRR = 21.3%

Payback Period, 90% of Projected Workload

Sq. Ft. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Totals

Building costs ($750,000) $ – $ – $ – $ – $ – ($750,000)

Net income $ – $225,000 $229,500 $234,090 $238,772 $243,547 $1,170,909

Net cash flows ($750,000) $225,000 $229,500 $234,090 $238,772 $243,547 $420,909

Cumulative payback $ – $ 225,000 $454,500 $688,590 $927,362 $1,170,909

Cumulative cash flows ($750,000) ($525,000) ($295,500) ($61,410) $177,362 $420,909

Payback period (years) = 4.27 NPV = $90,409 IRR = 16.7%

Payback Period, 80% of Projected Workload

Sq. Ft. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Totals

Building costs ($750,000) $ – $ – $ – $ – $ – ($750,000)

Net income $ – $200,000 $204,000 $208,080 $212,242 $216,486 $1,040,808

Net cash flows ($750,000) $200,000 $204,000 $208,080 $212,242 $216,486 $290,808

Cumulative payback $ – $ 200,000 $404,000 $612,080 $824,322 $1,040,808

Cumulative cash flows ($750,000) ($550,000) ($346,000) ($137,920) $74,322 $290,808

Payback period (years) = 4.66 NPV = ($2,970) IRR = 11.8%

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potential physical therapy clinic, at 100 percent of projected workload (i.e., the amount of work expected to be completed by the clinic), is shown in Exhibit 7.5.

pl a n n I n g to o l s b u s I n e s s p l a n n I n g s o f t wa r e

A variety of software is available to assist business plan development. Business planning software helps the business leader define the proposed product or service, identify the specific market or markets for that product or service, conduct market research, analyze the competition, determine the market position of competitors’ products and services, and describe the clinical care process. It also helps analyze financial performance, develop a staffing plan, and determine the legal structure (e.g., wholly owned, for-profit or not- for-profit subsidiary corporation; joint venture corporation owned partly by a healthcare organization; physician group).

f I n a n c I a l a n a ly s I s t o o l s

Microsoft offers a suite of financial planning tools in Excel that can be used for healthcare business planning. These tools—which can be accessed by clicking on “fx Insert Function” under the Formulas tab—can calculate IRR, payback period, NPV, and other values. Addi- tional information on these capabilities can be found at Matt H. Evans’s website (www. exinfm.com/excel%20files/npv_irr.xls).

f o r e c a s t I n g t o o l s

Developing accurate workload projections is another important part of healthcare business planning. Future demand for a new service can be estimated by looking at patient demo- graphics in the market area. Age, sex, cultural diversity, per capita income, unemployment rate, and payer mix are all factors to consider in assessing the potential profit of a new business initiative. Consideration of referral information from physicians, health plans, and other healthcare organizations in combination with demographic data increases the accuracy of this estimate.

Regression analysis (see Highlight 7.4) is a useful tool for forecasting changes in healthcare workload over multiyear periods. This method provides an accurate estimate of future workload and can be adjusted to reflect seasonal fluctuations in the demand for health services. For example, healthcare organizations experience increased demand for services during flu season, which normally runs from October through February. While forecasting, taking into account both long-term trends and short-term variations in the healthcare business planning process is important. Examples of long-term trends in

Regression analysis

Mathematical➤method➤

of➤determining➤the➤

relationships➤between➤

variables,➤usually➤the➤

effect➤of➤one➤variable➤

on➤another,➤such➤as➤

the➤effect➤of➤a➤price➤

increase➤on➤demand.

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healthcare include a shorter length of stay for hospital inpatient care and the increased use of outpatient services. Several types of regression analysis can be performed in Excel, includ- ing linear regression, exponential regression, and multiple regression.

Quality➤and➤efficiency➤are➤becoming➤increasingly➤important➤to➤the➤success➤of➤hospitals➤in➤ the➤new,➤value-based➤environment➤of➤healthcare➤reimbursement.➤In➤addition,➤physicians➤ must➤increasingly➤become➤accountable➤for➤cost-effective➤care.➤Opportunities➤also➤exist➤to➤ take➤advantage➤of➤payment➤incentives➤through➤the➤Centers➤for➤Medicare➤&➤Medicaid➤Ser- vices➤for➤hospitals➤and➤physicians➤as➤they➤participate➤in➤ACO➤models➤and➤other➤approaches➤ to➤bundling➤healthcare➤reimbursement.➤By➤controlling➤costs,➤health➤systems➤have➤an➤op- portunity➤to➤manage➤to➤Medicare➤reimbursement➤for➤treatments➤and➤procedures,➤which➤in➤ the➤aggregate➤will➤allow➤them➤to➤become➤low-cost➤providers➤and➤succeed➤in➤the➤healthcare➤ market➤of➤the➤future➤(Levin➤and➤Gustave➤2013).

Effective➤business➤planning➤enables➤integrated➤healthcare➤systems➤to➤allocate➤health- care➤personnel,➤facilities,➤and➤information➤technology➤efficiently➤and➤deliver➤healthcare➤ services➤to➤the➤local➤community➤in➤an➤organized➤fashion.➤To➤maintain➤a➤competitive➤position➤ in➤the➤market,➤healthcare➤organizations➤must➤pursue➤new➤business➤initiatives.➤Successful➤ business➤planning➤and➤accurate➤forecasts➤for➤these➤new➤initiatives➤depend➤on➤the➤collec- tion➤and➤analysis➤of➤historical➤data,➤input➤from➤clinical➤providers,➤patient➤demographic➤data,➤

s u m m a r y

HIGHLIGHT 7.4 Regression Analysis

Regression➤analysis➤is➤a➤mathematical➤method➤of➤determining➤the➤relationship➤of➤one➤

variable➤to➤another—for➤example,➤determining➤whether➤the➤number➤of➤patient➤visits➤to➤

the➤emergency➤department➤(ED)➤is➤related➤to➤the➤day➤of➤the➤month.➤To➤discover➤whether➤

there➤ is➤ a➤ relationship➤ between➤ these➤ two➤ variables,➤ the➤ analyst➤ would➤ gather➤ data➤

about➤ both➤ (the➤ number➤ of➤ patient➤ visits➤ to➤ the➤ ED➤ and➤ the➤ calendar➤ day)➤ and➤ graph➤

the➤results.➤If➤she➤finds➤a➤relationship,➤a➤formula➤can➤be➤constructed➤that➤will➤allow➤a➤

healthcare➤provider➤to➤predict➤traffic➤to➤the➤ED➤on➤any➤given➤day.

Multiple➤regression➤analysis➤is➤the➤same➤as➤“basic”➤regression➤analysis,➤except➤a➤

greater➤number➤of➤variables➤are➤tested.➤For➤example,➤to➤further➤analyze➤the➤patient➤flow➤

in➤the➤ED,➤you➤might➤include➤time➤of➤day➤and➤length➤of➤time➤spent➤waiting➤in➤the➤emer-

gency➤department➤in➤addition➤to➤the➤number➤of➤visits➤on➤specific➤days.

*

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physician➤referral➤patterns,➤and➤competitors’➤market➤share.➤The➤use➤of➤forecasting➤tools➤ such➤as➤regression➤analysis➤increases➤the➤accuracy➤of➤forecasts➤by➤accounting➤for➤seasonal➤ fluctuations➤in➤the➤demand➤for➤health➤services,➤short-term➤variations,➤and➤long-term➤industry➤➤ trends.

The➤healthcare➤planning➤methods➤discussed➤in➤this➤chapter➤provide➤a➤framework➤on➤ which➤to➤base➤the➤process➤of➤developing➤a➤business➤plan.➤Part➤of➤this➤framework➤is➤the➤ marketing➤plan,➤which➤is➤a➤written➤document➤that➤guides➤marketing➤activities.➤Preparation➤ of➤the➤marketing➤plan➤requires➤a➤clear➤understanding➤of➤the➤competitive➤marketplace➤in➤ which➤an➤organization➤operates➤as➤well➤as➤the➤organization’s➤capabilities.➤When➤evaluating➤ potential➤new➤healthcare➤services,➤the➤organization➤should➤focus➤on➤areas➤with➤the➤greatest➤ economic➤potential.➤A➤plan➤for➤growth➤is➤also➤not➤complete➤without➤the➤numbers➤to➤back➤it➤ up.➤The➤financial➤section➤of➤a➤business➤plan➤looks➤forward,➤providing➤a➤projection➤of➤what➤ numbers➤are➤anticipated➤based➤on➤the➤analysis.➤Planners➤use➤tools➤and➤reports➤such➤as➤ payback➤period,➤IRR,➤and➤NPV➤to➤make➤these➤predictions.➤A➤plan➤is➤not➤an➤accounting➤report➤ or➤a➤tax➤return,➤but➤rather➤an➤educated➤guess➤(Wasserman➤2010).➤Ending➤with➤clear➤alterna- tives➤and➤recommendations➤so➤that➤the➤decision➤makers➤can➤draw➤conclusions➤needed➤is➤ important.➤Using➤pie➤charts,➤graphs,➤and➤other➤visuals➤will➤further➤aid➤in➤selling➤the➤plan.➤ The➤business➤plan➤is➤one➤of➤the➤major➤components➤of➤strategic➤planning➤overall.➤

r e v I e w Q u e s t I o n s

1.➤ What➤is➤a➤healthcare➤business➤plan?➤What➤key➤sections➤are➤included➤in➤a➤healthcare➤ business➤plan?

2.➤ What➤are➤horizontal➤integration➤and➤vertical➤integration?➤How➤does➤vertical➤integra- tion➤reflect➤a➤change➤of➤strategic➤direction➤for➤an➤organization?

3.➤ Discuss➤the➤importance➤of➤financial➤planning➤in➤healthcare➤organizations.➤Describe➤ several➤of➤the➤techniques➤used➤in➤the➤financial➤planning➤process.

c o a s ta l m e d I c a l c e n t e r e x e r c I s e

On➤the➤basis➤of➤the➤information➤provided➤in➤the➤Coastal➤Medical➤Center➤(CMC)➤case➤and➤ what➤you➤learned➤in➤Chapter➤7,➤develop➤a➤healthcare➤business➤plan➤for➤CMC’s➤possible➤new➤ physical➤therapy➤clinic.➤Exhibits➤7.3,➤7.4,➤and➤7.5➤may➤be➤used➤as➤CMC’s➤data.➤Make➤sure➤to➤ consider➤the➤following➤questions.

c o a s ta l m e d I c a l c e n t e r Q u e s t I o n s

1.➤ Who➤should➤be➤involved➤in➤developing➤the➤healthcare➤business➤plan? 2.➤ How➤will➤you➤know➤if➤the➤healthcare➤business➤plan➤is➤a➤success? 3.➤ What➤do➤you➤see➤as➤the➤value➤of➤the➤healthcare➤business➤plan➤for➤CMC’s➤future➤

success?

e x e r c I s e s

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C h a p t e r ➤ 7 : ➤ S t r a t e g i c ➤ P l a n n i n g ➤ a n d ➤ t h e ➤ H e a l t h c a r e ➤ B u s i n e s s ➤ P l a n 1 6 5

I n d I v I d u a l e x e r c I s e : p l a n n I n g f o r p o p u l at I o n H e a lt H o n t H e I s l a n d o f H I s pa n I o l a

Hispaniola➤is➤an➤island➤in➤the➤Caribbean➤that➤is➤divided➤into➤two➤nations,➤Haiti➤and➤the➤ Dominican➤Republic.➤Complete➤the➤following➤table➤using➤the➤NationMaster➤website➤(www. nationmaster.com).

United States Dominican Republic Haiti

Population1➤

Population➤growth2

Education3➤

Murder➤rate4➤

Drinkable➤water5➤

Gross➤domestic➤product➤per➤capita

Infant➤mortality6➤

Life➤expectancy7➤

Physicians➤per➤capita8

1➤ Total➤population➤of➤nation

2➤ Average➤annual➤percentage➤change➤in➤population

3➤ Average➤years➤of➤schooling➤received

4➤ Homicide➤rate➤per➤year➤per➤100,000➤inhabitants

5➤ Percentage➤of➤population➤with➤access➤to➤clean➤water➤sources

6➤ Annual➤number➤of➤infant➤deaths➤(aged➤less➤than➤one➤year)➤per➤1,000➤live➤births

7➤ ➤Number➤of➤years➤a➤newborn➤infant➤would➤live➤if➤prevailing➤patterns➤of➤mortality➤at➤the➤time➤of➤his➤birth➤stay➤

the➤same➤throughout➤his➤life

8➤ ➤Number➤of➤graduates➤of➤any➤facility➤or➤school➤of➤medicine➤who➤are➤working➤in➤the➤country➤in➤any➤medical➤

field➤(practice,➤teaching,➤research)

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g r o u p e x e r c I s e : p l a n n I n g f o r p o p u l at I o n H e a lt H o n t H e I s l a n d o f H I s pa n I o l a

1.➤ Are➤the➤health➤and➤well-being➤of➤a➤population➤important? 2.➤ How➤does➤education➤appear➤to➤affect➤the➤well-being➤of➤the➤United➤States,➤the➤Do-

minican➤Republic,➤and➤Haiti? 3.➤ What➤is➤the➤importance➤of➤economics➤to➤healthcare?➤ 4.➤ What➤is➤the➤relationship➤of➤public➤health➤infrastructure➤to➤population➤health➤status?➤ 5.➤ Would➤you➤rather➤live➤in➤the➤United➤States,➤the➤Dominican➤Republic,➤or➤Haiti? 6.➤ What➤is➤the➤cause➤of➤the➤difference➤between➤the➤three➤countries?

Additional Hispaniola Resources

•➤ www.nytimes.com/2014/11/30/travel/driving-the-seam-of-hispaniola.html •➤ www.nytimes.com/2012/01/09/opinion/haiti-can-be-rich-again.html •➤ www.dw.com/en/haiti-and-the-dominican-republic-one-island-two-worlds/➤

a-16593022

Kauk,➤J.,➤A.➤Hill,➤and➤P.➤Althausen.➤2014.➤“Healthcare➤Fundamentals.”➤Journal of Orthopedic

Trauma➤28➤(Suppl.➤1):➤S25–S41.➤

Levin,➤L.➤S.,➤and➤L.➤Gustave.➤2013.➤“Aligning➤Incentives➤in➤Health➤Care:➤Physician➤Practice➤

and➤ Health➤ System➤ Partnership.”➤ Clinical Orthopaedics and Related Research➤ 471➤ (6):➤

1824–31.➤

Lister,➤J.➤2015.➤“Statements➤of➤Purpose➤for➤Businesses.”➤Houston Chronicle. Accessed➤Sep-

tember➤ 4.➤ http://smallbusiness.chron.com/statements-purpose-businesses-26026.

html.

Moses,➤H.,➤D.➤M.➤Matheson,➤E.➤R.➤Dorsey,➤B.➤P.➤George,➤D.➤Sadoff,➤and➤S.➤Yoshimura.➤2013.➤

“The➤ Anatomy➤ of➤ Health➤ Care➤ in➤ the➤ United➤ States.” Journal of the American Medical

Association➤310➤(18):➤1947–63.

Stark➤Law.➤2015.➤“Stark➤Law➤FAQ’s.”➤Accessed➤September➤4.➤http://starklaw.org/stark-law-

faq.htm.

r e f e r e n c e s

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Taylor,➤T.➤2012.➤“Vertical➤vs.➤Horizontal➤Integration:➤Which➤Is➤a➤Better➤Operations➤Strategy?”➤➤

OPS Rules (blog).➤Published➤November➤9.➤www.opsrules.com/supply-chain-optimization-➤

blog/bid/241648/Vertical-vs-Horizontal-Integration-Which-is-a-Better-Operations-➤

Strategy.

Wasserman,➤ E.➤ 2010.➤ “How➤ to➤Write➤ the➤ Financial➤ Section➤ of➤ a➤ Business➤ Plan.”➤ Inc.com.➤

Published➤February➤1.➤www.inc.com/guides/business-plan-financial-section.html.

Wong-Hammond,➤L.,➤and➤L.➤Damon.➤2013.➤“Financing➤Strategic➤Plans➤for➤Not-for-Profits.”➤

Healthcare Financial Management➤67➤(7):➤70–76.➤

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1 6 8

L e a r n i n g O b j e c t i v e s

Communication is the real work of leadership.

—Nitin Nohria

You see things; and you say, “Why?” But I dream things that never were; and I say,

“Why not?”

—George Bernard Shaw

After you have studied this chapter, you should be able to

➤➤ exercise➤an➤understanding➤of➤basic➤communication➤theory➤and➤the➤appropriate➤use➤of➤

communication➤technology;

➤➤ analyze➤healthcare➤situations➤and➤choose➤the➤most➤effective➤way➤to➤communicate➤with➤the➤

audience;

➤➤ demonstrate➤strong➤communication➤skills➤when➤conducting➤research,➤writing,➤and➤verbally➤

presenting➤healthcare➤strategic➤plans;

➤➤ develop➤effective➤interpersonal➤communication➤skills;

C H A P T E R 8

C O M M U N I C AT I N G T H E S T R AT E G I C P L A N

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In t r o d u c t I o n The ability to communicate the strategic plan is a critical factor for successfully imple- menting change (Kash et al. 2014). Previous chapters of this book discussed the technical aspects of developing a strategic plan. To ensure the plan is implemented, the next step is to communicate it to the healthcare organization’s stakeholders, both in writing and verbally. These stakeholders include the board of directors, the leadership team, the medical staff, the nursing staff, administrative personnel, and key community leaders. A leader’s ability to persuasively communicate the strategic plan can help an organization motivate staff, disseminate accurate information, and align its culture and communications efforts with the strategic planning process.

pr e s e n tat I o n o f t H e st r at e g I c pl a n Communications pertaining to strategy can take many forms. Presentation of an organiza- tion’s strategic plan to community groups, routine reporting of operational results following implementation of new healthcare services, and community education on accessing new healthcare services are just a few examples. The advent of the Affordable Care Act (ACA) and the way it was marketed to the public provide an interesting healthcare communica- tions case study as well (see Highlight 8.1).

The strategic plan must be communicated both in writing and verbally. This chapter outlines strategies for persuading groups using both methods.

w r I t t e n c o m m u n I c at I o n

Effective internal communication can be used to inform staff of the strategic plan, enabling the board of directors, medical staff, nursing staff, and administrative personnel to become

➤➤ apply➤basic➤principles➤of➤critical➤thinking,➤problem➤solving,➤and➤communication➤in➤

the➤development➤of➤healthcare➤business➤plans;➤and

➤➤ apply➤skills➤in➤written,➤visual,➤and➤oral➤communication.

➤➤ Electronic➤whiteboard

➤➤ Intranet

➤➤ Motivation

➤➤ Stage➤charisma

➤➤ Webcast

K e y t e r m s a n d c o n c e p t s

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ambassadors for the organization and its new services in the community. One useful tool is the intranet, which most organizations use as an online method of communicating with employees, secure from external audiences. Each individual’s desktop can serve as a consistent location for important topics and communication of the organization’s mission, vision, and values. A health system’s intranet can serve as an important integration tool.

Clear communication with internal audiences is essential—withholding or poorly communicating key information on finances, operations, or healthcare quality can have negative consequences for staff. To improve communication with managers, leadership staff should avoid using technical jargon. Leaders should educate department heads on accounting, finance, ratios, and benchmarks and make sure they have the financial reports they need to present the strategic plan and then measure operating performance over time. Management communications should balance operational, clinical, and financial performance to ease the decision-making process. When they note deficiencies in internal communication, organi- zations should invest in courses and books that employees can use to improve their skills.

v e r b a l c o m m u n I c at I o n

Verbally communicating in a way that motivates others to do things they normally would not do, overcome barriers, and perform to the best of their abilities is a major part of a

Intranet

Computer➤network➤

using➤Internet➤

protocol➤technology➤

to➤share➤information,➤

operational➤systems,➤

or➤computer➤services➤

internally➤in➤an➤

organization.

Highlight 8.1 Healthcare Communication and the Affordable Care Act

In➤October➤2013,➤the➤ACA➤implemented➤a➤communication➤plan➤designed➤to➤market➤in-

surance➤for➤sale➤on➤the➤federal➤exchanges.➤The➤government➤found➤that➤when➤commu-

nicating➤ complex➤ mathematical➤ issues➤ to➤ the➤ public,➤ using➤ widely➤ recognized➤ visual➤

cues➤ is➤ important.➤ For➤ example,➤ Medicare➤ chose➤ to➤ market➤ the➤ ACA➤ plans➤ as➤ bronze,➤

silver,➤gold,➤and➤platinum.➤These➤visual➤cues➤represent➤a➤spectrum➤from➤low➤cost–low➤

benefit➤(bronze)➤to➤high➤cost–high➤benefit➤(platinum).➤Medicare➤found➤that➤individuals➤

who➤were➤below➤the➤mean➤in➤mathematical➤ability➤were➤able➤to➤make➤informed➤choices➤

among➤the➤plans.➤

Medicare➤also➤found➤that➤options➤listed➤at➤the➤top➤of➤the➤website➤menu➤had➤a➤higher➤

likelihood➤of➤selection.➤Government➤marketing➤staff➤also➤deemphasized➤complicated➤fi-

nancial➤information➤about➤premiums,➤copayments,➤deductibles,➤out-of-pocket➤costs,➤and➤

so➤on➤because➤it➤may➤overwhelm➤potential➤enrollees.➤Seven➤million➤people➤purchased➤

insurance➤in➤the➤new➤federal➤market,➤suggesting➤the➤wisdom➤of➤this➤approach.➤The➤sec-

ond➤round➤of➤enrollment➤showed➤similar➤success➤(Ubel,➤Comerford,➤and➤Johnson➤2015).

*

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healthcare leader’s job. By communicating the strategic plan to stakeholders, a leader can generate grassroots support for new business initiatives and enhance acceptance in the com- munity. When a leader has an idea to communicate, developing a message that is true and correct, well-reasoned, and substantiated—by solid business logic that is specific, consistent, clear, and accurate—is key. Communication is not about the presenter, his opinions, or his position. It is about helping others understand and, in turn, understanding their concerns and needs (Myatt 2012).

A good verbal presentation generates motivation, the act or process of energizing people to overcome barriers and achieve outstanding performance. Steve Jobs, CEO of Apple Inc., believed that a speaker can motivate an audience by connecting with it on emotional and intellectual levels to keep it focused on the message. He believed that developing a stage charisma—the ability of a leader to command audience attention in an impressive manner—that appeals to the audience’s emotions is important; after a speaker gains its attention, he can focus on conveying the one thing an audience really needs to hear (Ves- terager 2014). But to successfully motivate an audience, a leader must have a basic grasp of how to structure and deliver a persuasive verbal presentation on the strategic plan (for a summary, see Exhibit 8.1).

Content

Effective communication of the strategic plan transfers knowledge to stakeholders and garners support for new initiatives. Speakers successfully motivate by knowing their audience and focusing on meeting its needs. The purpose of a presentation is to influence an audience,

Motivation

Act➤or➤process➤of➤

energizing➤people➤to➤

overcome➤barriers➤and➤

achieve➤outstanding➤

performance.

Stage charisma

Ability➤of➤a➤leader➤to➤

command➤audience➤

attention➤in➤an➤

impressive➤manner.➤

This➤quality➤does➤

not➤require➤hard,➤

authoritarian,➤

overbearing➤force,➤

but➤rather➤engaging➤

individuals➤on➤a➤

personal➤level➤using➤

sincerity,➤credibility,➤

concern,➤certainty,➤and➤

hope.➤

exHIbIt 8.1 Giving Healthcare Presentations

Rehearsal Practice four times, at least once before an audience. Monitor your allotted time.

Audiovisual Support Use leading-edge technology, interactive whiteboard, Power Point. Use 10/20/30 rule: 10 slides, 20 minutes, 30-point font size.

Preparation Is Key Know your audience. Arrive early to check room and audiovisuals. Dress appropriately.

Motivating Statement Use comedy or story as a lead-in.

Audience Interest Show charts; use demonstrations, facts, and case studies. If problem is encountered, do not apologize.

Question and Answer Summarize key points. Invite limited number of one- minute questions.

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so it must satisfy the audience’s self-interest. Successful presentations answer questions, overcome objections, and present information previously not considered.

Excellent presentations provide the essential facts in a concise and understand- able manner. The strategic plan should present good, workable solutions; demonstrate innovation; and use outside sources that are then appropriately cited in the presentation. Identifying a viable strategy that will address the needs of the organization and reflect a realistic revenue and expense structure is also important. The financial analysis should clearly demonstrate the viability of the recommendation. The recommended solution should be realistic given the current healthcare environment and resource constraints. It should also demonstrate long-range strategic thinking and represent best practices that have worked successfully in other environments. The presentation should be logically organized; have smooth transitions between sections; and use a format that is clear, readable, appealing, and creative.

Presenters should make a final recommendation that is summarized in a persuasive conclusion. They should also incorporate feedback from the audience to gauge its under- standing of the issues.

Before the Presentation: Appearance, Rehearsal, and Arrangement

A speaker’s credibility begins with preparation and appearance. A professional appearance creates a positive perception during a presentation as well as respect in the workplace (Futureofworking.com 2014).

A speaker should rehearse a presentation at least four times. Family, friends, or col- leagues can serve as a test audience and provide honest feedback. The rehearsals should also be designed to ensure that the presenter covers her information in the allotted time while allowing for a question-and-answer period at the end (Morgan 2012).

Early arrival at the site of the presentation is an important part of preparation. Presenters can test the audiovisual equipment, familiarize themselves with the room, and review the presentation. This extra time helps the presenter relax and reduces the chance that problems will occur. Experienced presenters also have a backup plan ready in case the equipment should fail.

Speakers should check to make sure that the arrangement of the room is tailored to the style of the presentation. U-shaped seating is ideal for a workshop based on high audience participation. Classroom format (chairs in horizontal rows facing the front) may be suitable for informational presentations but limits audience participation. Boardroom seating (chairs around a table) works well for small groups and fosters discussion among the audience. Bistro seating (randomly placed tables) is another format that encourages discussion and is useful for group work. The objective is to make the audience comfort- able, provide its members with a clear view of the presenter, and facilitate participation.

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Presentation Technology

The use of technology can enhance presentation delivery. While Microsoft PowerPoint is the most familiar tool, the most cutting-edge technologies, from companies such as Google and Prezi, incorporate interactive components into presentations designed to keep an audience’s interest. These technologies include multicolored images, photographs, and short video clips that can be used in presentations, webinars, or videoconferences. A presentation with visual support is five times more likely to be remembered (Presentation Magazine 2012). To be effective, however, PowerPoint slides must be crafted carefully; otherwise, they will detract from the presentation and the audience will lose interest. Some follow the 10/20/30 PowerPoint rule, which recommends that a PowerPoint presentation contain 10 slides, last for 20 minutes, and use 30-point font for any text included.

Keep the lighting in the room in mind when choosing colors for the presentation’s background text. For example, in a bright room, light text on a dark background works well. Conversely, in a dark room, a light background with dark letters may work better. Most important, text should be kept to a minimum. The audience is there to hear the presenter speak, though slides featuring high-resolution photos can help the presenter tell a compelling story. If text is used, the software has a feature that enables the presenter to display information one bullet at a time to prevent the audience from reading ahead and losing track of what the presenter is saying. Limiting the text on each slide to five words is even more effective. Alternately, laser pointers can be used to emphasize items on a slide. Unless the speaker has a booming voice, a quality microphone is essential.

Videoconferencing and webcasts (video broadcasts of an event transmitted across the Internet) allow a presentation to reach a broader audience than those able to attend in person. Presentations can be viewed live on the Internet and recorded for later viewing. Another use of technology, more common in classrooms than formal presentations, is an electronic whiteboard, a device similar to a traditional whiteboard found in schools. It transmits written information to computers. It also allows live interaction with digital objects on the screen. Electronic or interactive whiteboards offer presenters flexibility because they can present notes directly from the board and the audience can download the notes to computers and storage devices. Electronic whiteboards can also link participants to each other and to the presenter via the Internet, facilitating presentations across the world.

Audience Engagement

According to Jobs’s presentation strategy, capturing the audience’s attention in the first few minutes is essential. Jobs believed that the key to engaging presentations is to ask impor- tant questions that speak to the audience at an emotional level. This engagement can be accomplished by using a storytelling technique in the first 30 seconds of a presentation.

Webcast

Video➤broadcast➤of➤

an➤event➤transmitted➤

across➤the➤Internet.

Electronic whiteboard

Electronic➤device➤that➤

looks➤much➤like➤a➤

traditional➤whiteboard➤

but➤allows➤content➤

written➤or➤drawn➤

on➤the➤screen➤to➤

be➤transmitted➤to➤a➤

computer.➤

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These stories can include analogies, painful events, or facts that connect with the audience on an emotional level and support the main message. An outstanding presentation should also include an agenda to keep the presenter on track and the audience engaged. Most important, developing a stage charisma that is appropriate for the audience is essential.

An outstanding presentation should be free of errors, the delivery style should be effective (projected voice, good eye contact, persuasive tone), the presenter should be confident, and the presentation should end on time. Dress, body language, and the use of audiovisual support can create positive (or negative) perceptions. Good eye contact with the audience and good posture can convey confidence and professional expertise. Presenters should avoid making distracting gestures, such as jingling coins, clicking a pen, or adjust- ing clothing. A monotone, mispronunciations, excessive pauses, and “uhs” and “ums” are also poor technique.

A presentation comes to life with stories, facts, and examples. Storytelling is one of the most effective techniques a good communicator can use (Manion 2011). Adding a story to make a point in a strategic plan communication will help people remember an impor- tant point. Humor targeted to the audience can be effective in engaging the group as well.

When introducing a new healthcare business initiative, leaders can express the posi- tive impact it will have on the local community, the potential for increased profitability, and the ways it will enhance quality. Appealing to the individual personally is also powerful when the program will allow employees to improve their job skills, make more money, or gain greater prestige in the community.

Maintain Audience Interest

Presenters can maintain an audience’s interest by showing trends on charts, performing demonstrations, supporting statements with facts, relating anecdotes and case studies, and developing theories with visual diagrams and videos. A good graphic display can commu- nicate the message more clearly than words can (Manion 2011). Ideally, key items should be arranged in groups of three to maintain focus and ensure that the audience understands the information being presented. Tracing all the way back to Aristotle in ancient Greece, mathematical law supports groupings of three. Examples in history include Julius Caesar’s famous quote “I came, I saw, I conquered” and the Thomas Jefferson phrase “life, liberty, and the pursuit of happiness” found in the US Declaration of Independence. Individuals more easily remember items in groups of three (Gallo 2012).

Audiences will not remember groupings, however, if they are not engaged. Conver- sational, interactive presentations hold audiences’ attention and keep them alert.

Speakers should pause periodically to ensure that the audience understands the material. Such pauses can help a presenter establish rapport with the audience and provide an opportunity for participants to ask questions.

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Question-and-Answer Session

Ending a presentation approximately ten minutes before the scheduled time gives the presenter an opportunity to summarize key points and invite questions from the audience. An effective method of managing expectations is to ask everyone in the audience who has a question to raise his hand and then give each question an equal share of the remaining time. Doing so will limit the length of the question and the time for response. Questions should be repeated to the audience and answers kept to a maximum of one minute. If an expert in the audience has information relevant to one of the questions, she can also con- tribute. When faced with negative or inappropriate questions, listen carefully and respond in a manner relevant to the presentation. For example, rephrase a negative question in a more positive manner and then respond. When facing questions that are inappropriate or of no interest to the group, a skillful speaker thanks the individual for the question and tells them that he will address it after the presentation.

A speaker should anticipate possible questions and prepare concise responses. Give accurate and complete answers with supporting factual statements, and answer questions with confidence. When faced with a particularly difficult question, defer to other presenters or other experts, or offer to provide an answer after further research.

Outstanding presentations result from understanding the audience, identifying the key items in the material, and finding the best method of delivery.

Effective➤communication➤of➤the➤strategic➤plan➤transfers➤knowledge➤to➤staff➤and➤stakeholders➤ and➤also➤garners➤support➤for➤new➤initiatives.➤Good➤communications➤avoid➤using➤technical➤ jargon➤and➤acronyms,➤limit➤the➤number➤of➤main➤points,➤and➤integrate➤the➤key➤components➤ listed➤in➤Exhibit➤8.1.➤Presenters➤should➤rehearse➤their➤presentations,➤know➤their➤audience,➤ and➤arrive➤early➤to➤evaluate➤the➤room➤and➤ensure➤all➤equipment➤works.➤They➤should➤use➤ audiovisual➤technology➤wisely➤to➤support➤the➤delivery➤of➤their➤message➤and➤engage➤their➤ audience➤immediately➤with➤a➤motivating➤statement➤that➤captures➤the➤importance➤of➤the➤topic.➤ Finally,➤to➤wrap➤up➤the➤discussion,➤effective➤presenters➤summarize➤their➤key➤points➤and➤al- locate➤time➤to➤respond➤to➤questions.

r e v I e w Q u e s t I o n s

1.➤ Who➤are➤the➤key➤stakeholders➤in➤a➤healthcare➤organization?➤Provide➤an➤example➤of➤a➤ motivating➤statement➤that➤might➤engage➤one➤of➤these➤groups.

2.➤ Discuss➤the➤key➤components➤of➤a➤healthcare➤presentation.➤Highlight➤three➤items➤you➤ think➤are➤most➤important.

s u m m a r y

e x e r c I s e s

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E s s e n t i a l s ➤ o f ➤ S t r a t e g i c ➤ P l a n n i n g ➤ i n ➤ H e a l t h c a r e1 7 6

c o a s ta l m e d I c a l c e n t e r e x e r c I s e

On➤the➤basis➤of➤the➤business➤plan➤you➤developed➤in➤Chapter➤7➤and➤the➤outline➤you➤created➤ in➤Chapter➤4,➤present➤a➤strategic➤plan➤for➤Coastal➤Medical➤Center➤(CMC)➤as➤if➤you➤were➤ad- dressing➤its➤board➤and➤senior➤leadership.

c o a s ta l m e d I c a l c e n t e r Q u e s t I o n s

1.➤ Over➤the➤past➤two➤years,➤CMC➤has➤experienced➤declining➤performance.➤Develop➤a➤ motivating➤statement➤that➤will➤generate➤support➤among➤CMC’s➤employees➤for➤the➤ implementation➤of➤the➤strategic➤plan.➤Also,➤make➤three➤suggestions➤for➤delivering➤an➤ effective➤presentation➤on➤CMC’s➤financial➤data.

2.➤ In➤the➤future,➤when➤CMC➤allocates➤its➤resources➤during➤the➤strategic➤planning➤pro- cess,➤which➤is➤more➤important:➤developing➤the➤strategic➤plan➤or➤communicating➤the➤ strategic➤plan?

I n d I v I d u a l e x e r c I s e : d e b at I n g K e y H e a lt H c a r e I s s u e s

Chapter➤8➤addresses➤the➤importance➤of➤effective➤communications.➤Choose➤one➤of➤the➤follow- ing➤topics➤and➤develop➤a➤ten-minute➤presentation➤that➤incorporates➤the➤key➤components➤of➤ communication➤discussed➤in➤Chapter➤8.➤Strive➤to➤engage➤the➤audience➤and➤generate➤support➤ for➤your➤position.

1.➤ Can➤the➤United➤States➤afford➤its➤current➤level➤of➤healthcare➤expenditures?➤ 2.➤ Does➤US➤society➤get➤good➤value➤for➤its➤healthcare➤expenditures?➤ 3.➤ Can➤an➤individual➤have➤an➤impact➤on➤healthcare➤expenditures?➤ 4.➤ What➤is➤the➤role➤of➤healthcare➤organizations➤in➤assessing➤and➤improving➤efficiency➤

and➤quality? 5.➤ Will➤the➤ACA➤have➤a➤positive➤effect➤on➤US➤healthcare?

FutureofWorking.com.➤2014.➤“Professional➤Appearance➤and➤Grooming➤for➤the➤Workplace.”➤➤

Published➤ April➤ 23.➤ http://futureofworking.com/professional-appearance-and-groom➤

ing-for-the-workplace/.

Gallo,➤ C.➤ 2012.➤ “Thomas➤ Jefferson,➤ Steve➤ Jobs,➤ and➤ the➤ Rule➤ of➤ 3.”➤ Forbes Leadership.➤➤

Published➤ July➤ 2.➤ www.forbes.com/sites/carminegallo/2012/07/02/thomas-jefferson-➤

steve-jobs-and-the-rule-of-3/.

r e f e r e n c e s

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C h a p t e r ➤ 8 : ➤ C o m m u n i c a t i n g ➤ t h e ➤ S t r a t e g i c ➤ P l a n 1 7 7

Kash,➤ B.,➤ A.➤ Spaulding,➤ C.➤ Johnson,➤ and➤ L.➤ Gamm.➤ 2014.➤ “Success➤ Factors➤ for➤ Strategic➤

Change➤Initiatives:➤Qualitative➤Study➤of➤Healthcare➤Administrators’➤Perspectives.”➤Journal

of Healthcare Management➤59➤(1):➤65–81.

Manion,➤J.➤2011.➤From Management to Leadership: Strategies for Transforming Health,➤4th➤

ed.➤San➤Francisco:➤Jossey-Bass.➤

Morgan,➤N.➤2012.➤“Seven➤Ways➤to➤Rehearse➤a➤Speech.”➤Public➤Words.➤Published➤July➤26.➤

http://publicwords.com/seven-ways-to-rehearse-a-speech/.

Myatt,➤M.➤2012.➤“10➤Communication➤Secrets➤of➤Great➤Leaders.”➤Forbes.➤Published➤April➤4.➤➤

www.forbes.com/sites/mikemyatt/2012/04/04/10-communication-secrets-of-great-

leaders/.

Presentation Magazine.➤2012.➤“The➤Seven➤Sins➤of➤Visual➤Presentations.”➤Published➤March➤

25.➤www.presentationmagazine.com/the-seven-sins-of-visual-presentations-8305.htm.

Ubel,➤P.,➤D.➤Comerford,➤and➤E.➤Johnson.➤2015.➤“Healthcare.gov➤3.0—Behavioral➤Economics➤

and➤Insurance➤Exchanges.”➤New England Journal of Medicine➤372➤(8):➤695–98.➤

Vesterager,➤ M.➤ 2014.➤ “How➤ to➤ Be➤ a➤ Charismatic➤ Leader—What➤ We➤ Can➤ Still➤ Learn➤ from➤

Steve➤ Jobs.”➤ NovaLead (blog).➤ Published➤ June➤ 14.➤ http://novalead.co/2014/06/14/

how-to-be-a-charismatic-leader-lessons-learned-from-the-late-steve-jobs/.

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1 7 8

L e a r n i n g O b j e c t i v e s

I will continue with diligence to keep abreast of advances in medicine. I will treat

without exception all who seek my ministrations, so long as the treatment of others is

not compromised thereby, and I will seek the counsel of particularly skilled physicians

where indicated for the benefit of my patient.

—From The Hippocratic Oath (modern version)

After you have studied this chapter, you should be able to

➤➤ demonstrate➤an➤understanding➤of➤the➤interparty➤relationships➤associated➤with➤healthcare➤

joint➤ventures➤and➤accountable➤care➤organizations;

➤➤ understand➤some➤of➤the➤dynamics➤and➤controversies➤surrounding➤the➤concept➤of➤

accountable➤care➤organizations➤as➤an➤alternative➤approach➤to➤the➤current➤marketplace;

➤➤ demonstrate➤a➤basic➤understanding➤of➤the➤patient-centered➤medical➤home➤with➤attention➤to➤

how➤it➤supports➤network-based➤delivery➤systems;

➤➤ master➤the➤concept➤of➤physician–hospital➤alignment➤and➤health➤system➤integration,➤

including➤consumer,➤provider,➤and➤regulatory➤developments;➤and

C H A P T E R 9

A C C O U N TA B L E C A R E O R G A N I Z AT I O N S A N D P H Y S I C I A N J O I N T V E N T U R E S

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C h a p t e r ➤ 9 : ➤ A c c o u n t a b l e ➤ C a r e ➤ O r g a n i z a t i o n s ➤ a n d ➤ P h y s i c i a n ➤ J o i n t ➤ V e n t u r e s 1 7 9

➤➤ assess➤the➤emerging➤role➤of➤medical➤groups➤and➤hospital-owned➤group➤practices➤

across➤the➤continuum➤of➤healthcare➤services.

➤➤ Accountable➤care➤organization

➤➤ Clinical➤integration

➤➤ Equity-based➤joint➤venture➤

➤➤ Hospitalist➤model

➤➤ Integrated➤physician➤model

➤➤ Medical➤foundation➤

➤➤ Patient-centered➤medical➤home

K e y t e r m s a n d c o n c e p t s

In t r o d u c t I o n A positive relationship between hospitals and physicians is important to the success of the US healthcare system, because hospitals and physicians can be both collaborators and competitors. Physicians play a key role because they direct clinical services and function as patients’ “agents.” Physicians are responsible for major decisions, including whether to admit patients, whether to perform procedures, and whether to use pharmaceuticals or other supplies. The concept of physician–hospital alignment or integration has been discussed in the healthcare field since the early 1990s (Reiboldt 2013). Many hospitals and healthcare systems have moved to vari- ous models of physician integration since that time, through which hospitals seek to capture market share and physicians pursue security and better financial footing. After the Affordable Care Act (ACA) was passed in 2010, physician–hospital alignment became driven by another factor: cost control and quality outcomes in the accountable care era (Reiboldt 2013).

Physicians work in a wide range of settings. In 2013, 26 percent of physicians were employed by hospitals, 14 percent worked in a practice owned by a hospital or health system, 22 percent had an ownership stake in a practice, 15 percent had a solo practice, 15 percent worked for physician-owned practices with no ownership stake, and 8 percent were independent contractors (Jackson Healthcare 2013).

Physicians also serve in leadership positions and have significant responsibility for the quality of care. Unfortunately, growing economic pressures, advances in technology, and increasing use of outpatient care are straining the relationship between hospitals and physi- cians and forcing them to compete for patients. In addition, managed care organizations routinely bargain with hospitals and physicians separately, which only exacerbates the divide.

cl I n I c a l In t e g r at I o n Through clinical integration, hospitals and physicians can bridge separation and defuse competition. The accountable care organization (ACO) represents the most recent effort

Clinical integration

Coordination➤of➤patient➤

care➤between➤hospitals➤

and➤physicians➤

across➤the➤healthcare➤

continuum.

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E s s e n t i a l s ➤ o f ➤ S t r a t e g i c ➤ P l a n n i n g ➤ i n ➤ H e a l t h c a r e1 8 0

to integrate the clinical care delivered to patients across providers and sites of care. Clinical integration provides an opportunity to coordinate services through centralized scheduling, electronic health records, clinical pathways, management of chronic diseases, and innova- tive quality improvement programs.

Clinical integration across the continuum of care is necessary to delivering high- quality, affordable care in the current environment (Jacquin 2014). The ACA created the ACO, which allows primary care providers to coordinate their patients’ care across the continuum of healthcare services. Moving toward evidence-based clinical practice that spans multiple settings and is appropriate for the patient’s illness will likely improve the US healthcare system. This integration is an attempt by Medicare to see healthcare from the patient and payer perspectives. Healthcare is often specialized and operates in separate silos of outpatient care, hospital care, rehabilitation, home care, and so on. Communication, goals of care, and in particular, billing are separate for all the silos. From patient and payer perspectives, however, the experience is one episode of care across a continuum.

By pooling their resources, hospitals and physicians also benefit financially. Clinical integration facilitates access to expensive medical technology, allows for greater economies of scale (see Chapter 1, Highlight 1.1), and enables subsidization of unprofitable services.

Hospitals and physicians are inherently interdependent. Yet the ability to recruit and retain quality physicians is critical to a hospital’s reputation, market share, and long-term profitability. Most patients are admitted to hospitals because of physician referral. Therefore, hospitals seeking to increase their market share would be wise to focus on improving their relationships with physicians (Reiboldt 2013). Conversely, physicians rely on hospitals to provide facilities, state-of-the-art technology, and high-quality clinical staff.

Total healthcare expenditures per typical family have increased from 2008 to 2013 (see Exhibit 9.1). However, spending on physicians as a percentage has decreased. For example, in 2008, hospital inpatient and outpatient services combined represented 46 percent of total healthcare spending, while physician services ranked second at 35 percent of healthcare spending and pharmacy third at 15 percent. By 2013, hospital inpatient and outpatient services combined climbed to 49 percent of total healthcare spending, while physician services dropped to 32 percent of healthcare spending. Pharmacy remained at 15 percent (Milliman 2008, 2013).

pat I e n t-ce n t e r e d me d I c a l Ho m e The patient-centered medical home (PCMH) is a care delivery model whereby a primary care physician coordinates patient treatment to ensure that it is timely, cost-effective, and personalized. The idea started with pediatric groups in the 1960s. Collaboration between several professional organizations expanded the model to primary care for all ages. The term home does not refer to a physical place for patients to live but rather medical care they feel is comfortable (because they know the team), safe (because the team is focused on safety

Patient-centered

medical home (PCMH)

Care➤delivery➤model➤

whereby➤a➤primary➤care➤

physician➤coordinates➤

patient➤treatment➤to➤

ensure➤it➤is➤timely,➤

cost-effective,➤and➤

personalized.

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and quality), and accessible (because it is available on demand). Comfortable, safe, and accessible are terms you could use to describe your own home.

The ACA institutionalized the concept of the PCMH as the model for an ACO that provides primary care for Medicaid patients at a lower cost. As of 2014, 41 states had developed or planned to develop demonstration projects based on this model (Phillips et al. 2014).

The PCMH was designed to focus on individual patients with complex conditions who were disconnected from the healthcare system. The PCMH program breaks down the silos that separate providers and helps patients navigate across the continuum of care (see Exhibit 9.2). The intent of the PCMH model is to shift care increasingly to outpatient settings in which providers can use a team-based approach to make optimal use of non- physician caregivers across the continuum of health services. Team members often include patient navigators, care coordinators, and advanced practice providers (nurse practitioners and physician assistants). See Highlight 9.1 for more information about the PCMH model.

The multidisciplinary approach to care should maximize the clinical outcomes for patients with complex conditions and enhance wellness and prevention. The PCMH model emphasizes ease of access, partnerships between physicians and hospitals, and the use of innova- tive technologies to improve patient care. Adoption has been shown to decrease readmissions, emergency department visits, and length of hospital stays. Components include an individualized (patient-specific) health plan, management of patient healthcare services, and clinical decision making to improve quality as well as reduce costs. Reimbursement penalties for poor readmis- sion rates could reduce Medicare costs by $8.2 billion between 2010 and 2019 (CMS 2010).

exHIbIt 9.1 Trends in Medical- Budget Spending for Average US Family, 2008 and 2013Physician $5,435 35 $6,990 32

Inpatient hospital $4,724 30 $6,855 31

Outpatient facility $2,516 16 $4,037 18

Pharmacy $2,302 15 $3,296 15

Other $633 4 $851 4

Total $15,610 $22,029

2008 2013

SpendingService Percentage Spending Percentage

Source:➤Data➤from➤Milliman➤(2008,➤2013).

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E s s e n t i a l s ➤ o f ➤ S t r a t e g i c ➤ P l a n n i n g ➤ i n ➤ H e a l t h c a r e1 8 2

HIGHLIGHT 9.1 Patient-Centered Medical Home

The➤Agency➤for➤Healthcare➤Research➤and➤Quality➤(AHRQ)➤defines➤a➤medical➤home➤not➤as➤

a➤place➤but➤as➤a➤model➤for➤delivering➤the➤core➤functions➤of➤primary➤care➤(AHRQ➤2015).➤

The➤Institute➤of➤Medicine➤(IOM)➤fueled➤the➤early➤shift➤of➤the➤PCMH➤model➤from➤pediatric➤

programs➤to➤primary➤care➤programs.➤In➤its➤report➤Envisioning the National Healthcare

Quality➤Report➤(Hurtado,➤Swift,➤and➤Corrigan➤2001),➤the➤IOM➤challenged➤AHRQ➤to➤de-

velop➤measures➤for➤patient➤centeredness.➤The➤IOM➤definition➤of➤patient➤centeredness

includes➤healthcare➤that➤establishes➤a➤partnership➤among➤practitioners,➤patients,➤and➤

their➤ families➤ (when➤ appropriate)➤ to➤ ensure➤ that➤ decisions➤ respect➤ patients’➤ wants,➤

needs,➤and➤preferences➤and➤that➤patients➤have➤the➤education➤and➤support➤they➤require➤

to➤ make➤ decisions➤ and➤ participate➤ in➤ their➤ own➤ care.➤ AHRQ➤ defines➤ a➤ medical➤ home➤

according➤to➤five➤functions➤and➤attributes:➤comprehensive➤care,➤patient➤centeredness,➤

coordination,➤accessibility➤of➤services,➤and➤quality➤and➤safety➤(AHRQ➤2015).➤

Since➤the➤2001➤IOM➤report,➤many➤researchers➤and➤professional➤organizations➤have➤

proved➤the➤benefits➤of➤enhancing➤primary➤care➤and➤medical➤homes➤(Starfield,➤Shi,➤and➤

Macinko➤2005;➤Phillips➤et➤al.➤2014).➤In➤2010,➤the➤ACA➤further➤solidified➤the➤concept➤of➤

the➤PCMH➤by➤supporting➤primary➤care➤payment➤increases➤through➤Medicare➤and➤Medic-

aid;➤expanding➤insurance➤coverage;➤and➤significantly➤investing➤in➤medical➤home➤pilots,➤

workforce➤development➤and➤training,➤prevention➤and➤wellness,➤community➤health➤cen-

ters,➤and➤additional➤care➤delivery➤innovations➤(PCPCC➤2015).

As➤a➤result➤of➤the➤ACA:

•➤ Primary➤care➤providers➤receive➤a➤10➤percent➤Medicare➤bonus➤payment➤for➤primary➤

care➤services.

•➤ A➤new➤Medicaid➤state➤option➤now➤permits➤certain➤Medicaid➤enrollees➤to➤designate➤

a➤provider➤as➤a➤health➤home,➤and➤states➤taking➤advantage➤of➤the➤option➤receive➤90➤

percent➤federal➤matching➤payments➤for➤two➤years➤for➤health➤home–related➤services.

•➤ Small➤employers➤receive➤grants➤for➤up➤to➤five➤years➤to➤establish➤wellness➤programs.

•➤ The➤Centers➤for➤Medicare➤&➤Medicaid➤Innovation➤has➤launched➤the➤Pioneer➤

ACO➤model➤and➤the➤Advance➤Payment➤ACO➤model,➤which➤offers➤shared➤savings➤

and➤other➤payment➤incentives➤for➤select➤organizations➤that➤provide➤efficient,➤

coordinated,➤patient-centered➤care.

•➤ States➤maintain➤health➤benefit➤exchanges➤and➤Small➤Business➤Health➤Options➤

Program➤exchanges,➤which➤facilitate➤the➤purchase➤of➤insurance➤by➤individuals➤and➤

small➤employers.

•➤ Teaching➤health➤centers➤provide➤payments➤for➤primary➤care➤residency➤programs➤in➤

community-based➤ambulatory➤patient➤care➤centers.

*

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po t e n t I a l st r u c t u r e s f o r pH y s I c I a n–Ho s p I ta l In t e g r at I o n Many healthcare leaders believe that physician–hospital alignment is one of the greatest challenges facing the US healthcare system. Hospitals and physicians are faced with the task of finding innovative ways to collaborate while taking advantage of their joint economic interests. ACOs, medical foundations, hospital-owned group practices, and joint venture initiatives are all potential solutions. Development of a formal, board-approved physi- cian–hospital alignment plan can help hospitals achieve this goal. At a minimum, physician engagement in strategic planning, development of an organizational culture that supports physicians, improved communication with physicians, increased emphasis on physician retention, and investment in physician leadership development are useful objectives in an alignment plan (Zeis 2013).

a c c o u n ta b l e c a r e o r g a n I z at I o n s

ACOs are groups of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated, high-quality care to the Medicare patients they serve. Coordinated care helps ensure that patients, especially the chronically ill, get the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors.

Accountable care

organization (ACO)

Group➤of➤doctors,➤

hospitals,➤and➤

other➤healthcare➤

providers➤who➤come➤

together➤voluntarily➤

to➤give➤coordinated,➤

high-quality➤care➤to➤

Medicare➤patients.

exHIbIt 9.2 Continuum of Care

Provide preventive services and wellness

Perform baseline testing and provide individualized medicine

Deliver episodic care

Manage chronic disease

Provide patient navigation

Benefits: Coordinated care vs. episodic care Reduced readmissions Management of chronic illness across the continuum Ensured high quality of care (primary care provider/team who knows the patient)

PCMH—Organizes team members to coordinate care across the continuum and prevents duplication of efforts

Provide comprehensive discharge instructions

Optimize PAC across the continuum of care

Limit readmission rates Maximize home care and adult day care

Monitor quality metrics Use care coordination and discharge follow-up calls

Use evidence-based clinical protocols

Maximize patient care and limit readmission rates

Deliver episodic care

Acute Care (Hospital) SiloPrimary Care Silo Post-acute Care (PAC) Silo

Transition patient to appropriate PAC

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The Centers for Medicare & Medicaid Services (CMS) has established the Medicare Shared Savings Program, which uses a calculated benchmark as a risk-adjusted surrogate measure of what the Medicare fee-for-service (FFS) expenditures would otherwise have been in the absence of the ACO (CMS 2014b). The ACO is paid for the service as calculated, and when it succeeds in both delivering high-quality care and spending healthcare dollars more wisely, the amount paid will be greater than expenses. In other words, if the costs for treating primary care patients assigned to physicians in the ACO are expected to increase 5 percent next year in a specific geographic area, and the ACO keeps that hike to 2 percent, the providers get to keep some portion of the extra 3 percent. All organizations involved will then share in the savings it achieves for the Medicare program (CMS 2015). The fol- lowing link provides a CMS video on ACOs: http://innovation.cms.gov/initiatives/aco/.

ACOs were established by the ACA, with final rules published in 2011. CMS designed the program to reward value and care coordination, rather than volume and care duplication. The ACA uses ACOs to encourage doctors, hospitals, and other healthcare providers to work together to coordinate care better, and it stresses preventive services designed to keep people healthy. This emphasis helps to reduce growth in healthcare costs and improve outcomes. ACOs become eligible to share savings with Medicare when they deliver that care more efficiently than others providing the same care while meeting or exceeding performance benchmarks for quality of care (CMS 2014a).

Under fully capitated ACOs, the provider assumes the highest risk and receives global payment for services. A capitated payment is a fixed, prearranged payment received by a physician, clinic, or hospital per patient enrolled in a health plan. This system differs from the traditional FFS model that pays for whatever charges are presented. Under other ACO models, if the provider reduces Medicare charges by 10 percent, Medicare gives back 50 percent of the savings, which represent 5 percent savings to be shared with all partners in the ACO.

CMS sponsored the Pioneer ACO model starting January 1, 2012, and initially included 32 organizations. After some organizations dropped out of the experiment, 19 ACOs remained and were compared to similar populations of Medicare beneficiaries (in terms of age, race, and chronic illness). During Pioneer's first two performance years, total spending for beneficiaries was compared to similar FFS beneficiaries. CMS found that the Pioneer spending increase was approximately $385 million less than the spending of similar FFS beneficiaries. This outcome was primarily because of decreased hospitalization, although there were also greater decreases in primary care evaluation and office visits and smaller increases in the use of tests, procedures, and imaging services. CMS observed no difference in all-cause readmissions within 30 days of discharge, but follow-up visits after hospital discharge increased more for ACO-aligned beneficiaries. Patients registered no difference in satisfaction scores (Nyweide et al. 2015).

ACOs do have potential downsides (Herzberg and Fawson 2012). ACOs cannot require patients to use a particular set of providers. Patients are free to seek care from any Medicare provider, in or out of the network. Patients are retroactively assigned to an orga- nization based on where they received the most primary care from the ACO. Regulators

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worried that providers would game the system by denying costly care. In reality, providers do not know if they might have overusers or noncompliant patients, nor can they focus additional incentives or resources on participants to influence their health behavior. As a result, providers face added financial risks that may be impossible to control. Regulators were also concerned about the requirement to meet benchmarks for quality measurement, governing structure, and information transmission. The administrative costs could add millions to expenses, and whether the expected savings will offset the additional costs is unclear. An organization must weigh these pros and cons before proceeding with enroll- ment in an ACO (Herzberg and Fawson 2012).

In spite of some concerns, there were 585 ACOs in 2015, up 12 percent from the previous year. In 2015, 5.6 million patients, representing 11 percent of Medicare benefi- ciaries, received care from ACOs. An additional 35 million non-Medicare patients received care from ACOs, up 6 percent from the previous year. Collectively, ACOs serve between 49 million and 59 million Americans, representing 15–17 percent of the US population (Oliver Wyman 2015).

m e d I c a l f o u n d at I o n s

One solution to physician–hospital competition is the implementation of the medical founda- tion model, under which independent physicians sell their practices to a medical foundation and then contract with the foundation to provide professional services at the foundation’s practice sites. This arrangement allows hospitals and health systems to create nonprofit legal entities to employ physicians. Medical foundations provide flexibility for hospitals seeking to employ physicians and other providers directly. The medical foundation model allows physicians to be more independent than hospital-employed physicians and is a strategy for improving physician–hospital relationships.

Some states—for example, California, Texas, and New York—do not allow hospitals to employ physicians to provide outpatient services. These states legislate what is known as the corporate practice of medicine doctrine. The rationale for prohibiting employment of physicians by hospitals is derived from the idea that individual physicians should be licensed to practice medicine, not corporations.

A foundation is typically a not-for-profit corporation affiliated with a hospital. The medical foundation model works well in states that prohibit the corporate practice of medicine because the physicians are not employed by the foundation; they only contract with it. Reimbursement for physician services is paid to the foundation, and the foundation then pays the physicians for their services.

Historically, medical foundations have been successful at recruiting physicians and establishing clinics. More recently, however, opposition to medical foundations is growing among individual physicians, small practices, and loosely affiliated independent practice associations. This opposition is growing because hospitals and physicians can jointly par- ticipate in managed care contracts under this model, thereby gaining greater market share

Medical foundation

Arrangement➤under➤

which➤independent➤

physicians➤sell➤their➤

practices➤to➤a➤medical➤

foundation➤and➤then➤

contract➤with➤the➤

foundation➤to➤provide➤

professional➤services➤

at➤the➤foundation’s➤

practice➤sites.

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and more business. This situation increases competitive pressures on individual physicians in small-group practices because they have a limited presence in the overall marketplace. Despite this resistance, the medical foundation model remains attractive to young family- practice physicians just out of their residency training because it provides them adequate compensation, and they do not have to make significant investments in facilities and technology—the clinics furnish these essentials.

H o s p I ta l -o w n e d g r o u p p r a c t I c e s

Hospital acquisition of medical group practices began in the 1990s as healthcare organi- zations created integrated delivery systems. A primary motivator for acquiring medical practices was to gain market share in the local community. Because primary care practices could drive a large number of referrals to a hospital, these practices were the first type of physician group that hospitals sought to purchase. Today, hospitals may purchase a variety of practices, including cardiology groups, orthopedic groups, and neurosurgery groups. Hospitals that purchase medical groups can improve integration, expand patients’ access to care, and foster long-term relationships with their physicians. Medical groups might wish to sell their practices as a result of the growing complexity of medical group management and increasing operating costs.

In 2015, 63 percent of physicians said they were employed by hospital-owned medical groups, and less than a third (32 percent) were in private practice. These figures illustrate the growing trend toward employment in hospital-owned groups. Employment can be a good deal for physicians—compensation includes salary, bonus, and profit-sharing contributions. For physicians in private practice, compensation includes earnings after taxes and deductible business expenses.

In 2015, the average compensation for a primary care physician was $195,000 and the compensation for a specialist was $284,000. Among specialists, the top four earners were orthopedists ($421,000), cardiologists ($376,000), gastroenterologists ($370,000), and anesthesiologists ($358,000). The lowest earners were pediatricians ($189,000), family physicians ($195,000), and endocrinologists and internists (both at $196,000) (Peckham 2015). If employing physicians is part of the business plan, strategic planners must take into account their salaries.

H o s p I ta l I s t s

Another possibility for closer cooperation between physicians and hospitals is the hospitalist model, in which a patient’s regular outpatient physician transfers complete responsibility for the patient’s care to a dedicated inpatient physician when the patient is hospitalized. This physician supervises all of the patient’s inpatient care until discharge. Hospitalist physicians can be hospital employees or members of an independent hospitalist physician

Hospitalist model

Arrangement➤under➤

which➤an➤inpatient➤

physician➤assumes➤

primary➤responsibility➤

for➤managing➤a➤

patient➤on➤admission➤

to➤the➤hospital➤

and➤supervising➤all➤

inpatient➤care➤until➤the➤

patient➤is➤discharged➤

from➤the➤hospital.➤

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group. In 2012, there were approximately 30,000 hospitalists in the United States, an increase from 20,000 in 2008, making hospitalists members of the fastest-growing medical specialty (AAMC 2012).

Use of the hospitalist model has had a positive impact on hospitals’ profitability. Hospitals using the hospitalist model had a return on assets of 3.1 percent, whereas those not using the hospitalist model took a loss, with a return on assets of −1 percent (Harrison and Ogniewski 2004). One study done in public teaching hospitals showed the hospitalist model decreased length of stay, decreased payment denial by 2 percent in spite of increased admissions, and increased average reimbursement per patient day by 22 percent (Lundberg et al. 2010). The rapid growth in hospitalist physicians shows that organizations that have implemented a hospitalist program believe it enhances the quality of care they provide.

While choosing a physician model, strategic planners need to consider hospital size to determine whether a given model is appropriate or feasible. Hospitalists are more prevalent in large, complex hospitals that offer a wide range of clinical services. In this setting, hospitalist physicians may be critical to the coordination of care across multiple clinical service areas. Smaller hospitals offering fewer services may have a smaller need for hospitalists and may best operate under a different physician model. On the other hand, hospitalists can help manage inpatient workload when a limited number of specialists are available, as may be the case in a smaller hospital.

J o I n t v e n t u r e I n I t I at I v e s

As discussed in Chapter 1, joint ventures are created when two organizations create a legal entity to participate in an economic activity. Each party contributes money to the venture and shares in its profits. The combining organizations share control of the joint entity, and the joint entity gains a larger customer base through the combination of each organiza- tion’s customers (patients in the case of healthcare), giving the joint venture a competitive advantage in the marketplace.

By supporting vertical integration, the ACA has created an environment in which hospital and physician joint ventures will continue to grow. The new generation of physi- cians will likely be receptive to business initiatives that provide incentives and measures of success designed to reward improved patient care (Moses et al. 2013). The value of their clinical judgment and their ability to engage patients in the decision-making process have the potential to improve both patient satisfaction and the value of healthcare services. As a result, physicians, nurses, and other clinical providers could become the main sources for clinical innovation. This shift will provide opportunities for joint ventures that more effectively use people, information, and technology.

Increased innovation combined with new hospital–physician enterprises allows synergistic benefits such as shared technology, collaborative research, shared expertise, and increased market share. By combining resources and patient populations, organizations can

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also expand their product lines to increase the availability of healthcare services in the local community. Exhibit 9.3 shows potential joint ventures between healthcare services, includ- ing ambulatory surgery centers, labs, clinics, and hospitals. The legal processes required to establish joint ventures fall on a continuum ranging from merger to affiliation. In the exhibit, the boxes above the arrow reflect the common characteristics required between the joint venture partners for optimum success. On the left side of the continuum, for mergers and acquisitions, these characteristics are less important because one party is usually the controlling party. However, the characteristics’ similarity should be considered in the course of change management if they are not congruent. On the right side of the continuum, there must be similarity in those characteristics (from strategy and vision to operational and financial goals), or the chance of eventual breakdown or failure of the joint venture increases.

Equity-Based Joint Ventures

Equity-based joint ventures, which are based on a new model of business cooperation, move beyond the traditional win–lose business mentality and focus on complementary relationships among physicians, hospitals, and suppliers. The philosophy of such ventures is to absorb new individuals into an organization for purposes of defusing the threat of challenging groups.

Equity-based joint

venture

Organization➤whose➤

ownership➤is➤divided➤

between➤a➤hospital➤and➤

physicians➤on➤the➤basis➤

of➤their➤contributions➤

to➤the➤enterprise.

exHIbIt 9.3 Hospital–Physician

Joint Ventures

ASC*

Strategy and Vision

Values

Trust

Operational Goals

Financial Goals

Labs

Joint Venture Continuum

Clinic Hospital

Merge Acquire Partner Affiliate

*➤Ambulatory➤surgery➤center

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In equity-based joint ventures, ownership is divided between the hospital and the participating physicians. The hospital and physicians create a new organization and con- tribute funds, facilities, or services equal to their ownership proportion. For an equity- based joint venture to succeed, there must be positive relationships among the owners and mutual benefits. For physicians, joint ventures present an opportunity to gain ownership in an organization, have a positive impact on the community, and sustain their practice over the long term.

From a hospital’s perspective, a joint venture does not always have to generate a profit because other benefits may accrue to the organization. For example, the joint venture may enhance recruitment of physicians, increase hospital admissions, or improve access to managed care contracts. Even for-profit hospitals sometimes are willing to participate in unprofitable joint ventures because they may increase revenue farther down the continuum of care or increase hospitals’ percentage of market share, which then becomes a barrier to potential new competitors.

Equity-based joint ventures between hospitals and physicians have demonstrated that they improve clinical treatment and enhance communication between hospitals and physi- cians. However, potential roadblocks are abundant. Where hospital–physician joint ventures have not succeeded, the greatest problems were lack of trust, unequal contribution of capital, and disagreement on overall control (Zasa 2011). To prevent such problems, all parties must agree on the goal, strategic direction, and anticipated financial performance of the joint venture before embarking on it. Board regulation and hospital policy also deter such issues.

Joint Ventures and Profitability

Hospitals engaging in joint ventures with physicians had occupancy rates of 55 percent, compared with 53 percent for hospitals not engaged in physician joint ventures. In terms of scope, hospital–physician joint ventures offered an average of 32 clinical services, whereas hospitals without physician joint ventures averaged 26 clinical services. In financial terms, hospitals with physician joint ventures had a return on assets of 2.5 percent, compared with 1.9 percent for those not participating (Harrison 2006).

p H y s I c I a n e m p l o y m e n t

Instead of pursuing joint ventures or implementing one of the models discussed earlier, hospital strategists may opt to directly hire physicians. As employees, physicians are exempt from the Stark laws (see Chapter 7, Highlight 7.2) and can therefore refer patients for other services in the same hospital. Physician employees are more likely than independent physi- cians to stay with their employer hospital over the long term, which provides the hospital with a consistent workforce possessing critical clinical skills. Employed physicians’ referral patterns are also more predictable. The disadvantages of physician employment include the high cost of recruitment and increased ongoing costs for salary and benefits.

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I n t e g r at e d p H y s I c I a n m o d e l

An integrated physician model is the result of a series of partnerships between hospitals and physicians developed over time. Essentially, it is a joint venture that has become many joint ventures, and all of these joint ventures are connected through congruent goals. For example, an organization following an integrated physician model could include acute care hospitals, nursing homes, affiliated medical groups, primary care clinics, employed physicians, and independent medical groups.

pH y s I c I a n en g a g e m e n t I n st r at e g I c pl a n n I n g When physicians are involved in a hospital’s decision-making process, the hospital and physicians can more easily reach agreement on the values, ethics, and culture of a new business initiative. Physician empowerment is key to increasing physicians’ engagement in the hospital’s future. Empowerment begins with physician participation on the hospital board of directors and on key board committees. The president of the medical staff should be a voting member of the board, and physicians should be members of the strategic plan- ning and finance committees. By soliciting their input, including them in focus groups about new business initiatives, involving them in the creation of the strategic plan and work schedules, and granting them the opportunity to become co-owners of the organiza- tion, hospitals can inspire physicians to commit to new business ventures. For example, if physicians are involved in the development of metrics to be used to evaluate the quality of care the organization provides, they will respond in a positive manner and be less likely to feel resentment if the data show a need for improvement.

Hospital–physician➤integration➤can➤take➤many➤forms.➤Hospitals➤can➤contract➤with➤physician➤ group➤practices➤and➤gain➤greater➤market➤share➤through➤managed➤care➤networks.➤Such➤rela- tionships➤can➤lead➤to➤joint➤ventures➤in➤which➤hospitals➤share➤ownership➤of➤the➤enterprise➤with➤ physicians.➤Finally,➤employment➤of➤physicians➤by➤hospitals➤and➤health➤systems➤is➤a➤growing➤ trend.➤This➤arrangement➤frees➤physicians➤from➤the➤frustrations➤associated➤with➤managing➤a➤ practice➤and➤allows➤them➤to➤focus➤on➤providing➤clinical➤care.

Historically,➤the➤US➤healthcare➤system➤has➤been➤fragmented,➤reducing➤the➤quality➤of➤ healthcare➤services➤provided.➤Innovations➤such➤as➤PCMHs➤and➤ACOs➤illustrate➤Medicare’s➤ commitment➤to➤managing➤across➤the➤continuum➤of➤care.➤Outside➤of➤the➤government➤sector,➤ many➤healthcare➤leaders➤believe➤that➤increasing➤clinical➤integration➤and➤coordinating➤strate- gic➤planning➤between➤hospitals➤and➤physicians➤is➤necessary➤to➤improving➤healthcare.➤Large,➤ integrated➤healthcare➤delivery➤systems➤will➤be➤better➤able➤to➤deal➤with➤future➤healthcare➤ needs➤because➤they➤have➤greater➤access➤to➤capital➤and➤deliver➤clinically➤integrated➤care.

Integrated physician

model

Series➤of➤partnerships➤

between➤hospitals➤and➤

physicians➤developed➤

over➤time.➤

s u m m a r y

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r e v I e w Q u e s t I o n s

1.➤ How➤does➤involving➤physicians➤in➤the➤strategic➤planning➤process➤help➤a➤hospital➤ reach➤its➤goals?

2.➤ Why➤is➤clinical➤integration➤important➤in➤the➤current➤healthcare➤environment? 3.➤ Choose➤one➤of➤the➤models➤for➤hospital–physician➤integration➤discussed➤in➤the➤chap-

ter➤and➤list➤the➤advantages➤and➤disadvantages➤for➤hospitals➤and➤physicians➤under➤ this➤model.

c o a s ta l m e d I c a l c e n t e r e x e r c I s e

According➤to➤Chapter➤9➤and➤the➤Coastal➤Medical➤Center➤(CMC)➤case➤study,➤is➤adoption➤of➤the➤ ACO➤model➤a➤viable➤strategy➤for➤CMC?

c o a s ta l m e d I c a l c e n t e r Q u e s t I o n s

1.➤ How➤would➤you➤assess➤physician➤engagement➤at➤CMC? 2.➤ How➤should➤physicians➤be➤involved➤in➤strategic➤planning➤at➤CMC,➤and➤at➤what➤point➤

should➤you➤involve➤them?➤ 3.➤ What➤do➤you➤see➤as➤the➤future➤of➤physician➤involvement➤at➤CMC?

I n d I v I d u a l e x e r c I s e : s o l o p H y s I c I a n m e d I c a l p r a c t I c e a n d I t s e x pa n s I o n t o a m u lt I p H y s I c I a n g r o u p p r a c t I c e

After➤graduation,➤Dr.➤Debra➤Johnson➤founded➤a➤solo➤medical➤practice➤that➤she➤incorporated➤ under➤the➤name➤Primary➤Care➤Medical➤Specialists.➤Now,➤five➤years➤after➤her➤graduation➤from➤ medical➤school,➤she➤is➤experiencing➤significant➤growth➤in➤her➤patient➤volume.➤During➤this➤ time,➤she➤has➤been➤a➤primary➤care➤physician➤and➤has➤admitting➤privileges➤at➤CMC.➤

Dr.➤Johnson’s➤practice➤is➤located➤in➤Ocean➤County,➤which➤is➤anticipating➤an➤18➤percent➤ population➤growth➤rate➤over➤the➤next➤five➤years.➤Her➤schedule➤is➤already➤fully➤booked,➤and➤ she➤has➤stopped➤taking➤new➤patients.➤She➤is➤considering➤expansion.➤Because➤Dr.➤Johnson➤ has➤no➤formal➤business➤education,➤she➤has➤approached➤CMC➤leadership➤to➤assist➤her➤with➤ some➤strategic➤planning.➤As➤part➤of➤the➤planning➤process,➤Dr.➤Johnson➤shared➤her➤most➤recent➤ business➤tax➤return,➤which➤includes➤the➤following➤income➤statement.

e x e r c I s e s

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E s s e n t i a l s ➤ o f ➤ S t r a t e g i c ➤ P l a n n i n g ➤ i n ➤ H e a l t h c a r e1 9 2

Income Statement, 2014

Revenue ($)

➤ Medicare/Medicaid 351,022

➤ Commercial➤insurance 310,949

➤ Other➤patient➤service➤revenue 301,179

➤ Ancillary➤revenue 10,577

➤ Investment➤income 10,000

➤ Contributions➤and➤grants 6,185

➤ ➤ Total➤ 989,912

Expenses ($)

➤ Salaries 500,000

➤ Operating➤expenses 244,165

➤ Benefits 125,000

➤ Facility➤expenses 84,000

➤ Supplies➤ 54,000

➤ Insurance 7,410

➤ Professional➤fees 1,190

➤ ➤ Total 1,015,765

Net➤income –25,853

According➤to➤her➤appointment➤system,➤Dr.➤Johnson➤currently➤sees➤an➤average➤of➤20➤ patients➤per➤day,➤which➤over➤a➤250-day➤annual➤work➤schedule➤represents➤5,000➤patient➤ visits.➤Based➤on➤the➤18➤percent➤population➤growth➤in➤Ocean➤County,➤Dr.➤Johnson’s➤primary➤ care➤practice➤could➤grow➤to➤10➤providers➤over➤the➤next➤five➤years.➤

During➤the➤strategic➤planning➤process,➤CMC➤evaluated➤potential➤downstream➤revenue➤ that➤could➤be➤generated➤from➤Dr.➤Johnson’s➤referrals➤(see➤the➤following➤data).➤

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C h a p t e r ➤ 9 : ➤ A c c o u n t a b l e ➤ C a r e ➤ O r g a n i z a t i o n s ➤ a n d ➤ P h y s i c i a n ➤ J o i n t ➤ V e n t u r e s 1 9 3

CMC Downstream Revenue

Service Line Service Volume×Fee Revenue

Inpatient➤ admissions

(5,000➤patients×.025➤admission➤rate)×$1,000➤profit➤ per➤admission➤

$125,000

Laboratory (5,000➤patients×.25➤laboratory➤rate)×$50➤per➤labora- tory➤test

$65,000

Radiology (5,000➤patients×.10➤radiology➤rate)×$75➤per➤radiology➤ image

$37,500

Pharmacy (5,000➤patients×.50➤pharmacy➤rate)×$100➤per➤ prescription➤

$250,000

Total➤revenue $815,000

Based➤on➤this➤information,➤answer➤the➤following➤questions:

1.➤ Is➤Dr.➤Johnson’s➤solo➤practice➤viable➤for➤the➤future? 2.➤ Should➤Dr.➤Johnson➤recruit➤new➤providers➤or➤merge➤with➤another➤practice? 3.➤ Should➤Dr.➤Johnson➤do➤just➤primary➤care➤or➤consider➤a➤multispecialty➤group?➤Identify➤

pros➤and➤cons.➤ 4.➤ Can➤expanding➤practice➤size➤reduce➤expenses,➤increase➤net➤income,➤maintain➤inde-

pendence,➤and➤increase➤contracting➤power? 5.➤ Should➤Dr.➤Johnson➤sell➤her➤practice➤to➤CMC➤and➤become➤an➤employee? 6.➤ How➤many➤years➤should➤the➤contract➤be➤guaranteed➤if➤she➤sells➤to➤CMC? 7.➤ What➤compensation➤model➤is➤appropriate,➤including➤base➤salary➤and➤increases➤

based➤on➤productivity➤or➤downstream➤revenue?➤

Assume➤Dr.➤Johnson➤decides➤to➤expand➤her➤practice➤by➤two➤providers➤annually➤for➤ the➤next➤five➤years.

•➤ Complete➤a➤five-year➤pro➤forma➤income➤statement➤for➤Primary➤Care➤Medical➤Special- ists➤by➤including➤the➤additional➤providers.➤Plan➤on➤two➤providers➤total➤in➤year➤1,➤four➤ providers➤in➤year➤2,➤six➤providers➤in➤year➤3,➤eight➤providers➤in➤year➤4,➤and➤ten➤provid- ers➤in➤year➤5.➤Also,➤budget➤for➤a➤second➤office➤location➤in➤years➤4➤and➤5.➤

•➤ Complete➤a➤five-year➤pro➤forma➤income➤statement➤for➤CMC’s➤downstream➤revenue➤by➤ including➤the➤additional➤primary➤care➤providers➤in➤Primary➤Care➤Medical➤Specialists.

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1 9 7

L e a r n i n g O b j e c t i v e s

A population that does not take care of the elderly and of children and the young has

no future, because it abuses both its memory and its promise.

—Pope Francis

In a culture where there is trust, respect, and a moral foundation, the young can grow

and the elderly thrive.

—Dr. Debra Harrison

After you have studied this chapter, you should be able to

➤➤ evaluate➤the➤availability➤of➤post-acute➤care➤services➤in➤local➤communities,

➤➤ identify➤the➤appropriate➤post-acute➤care➤interventions➤to➤meet➤the➤healthcare➤needs➤of➤

older➤adults,➤

➤➤ identify➤quality➤issues➤impacting➤the➤provision➤of➤post-acute➤care,

➤➤ discuss➤the➤challenges➤faced➤by➤healthcare➤executives➤as➤they➤develop➤a➤strategy➤to➤meet➤

post-acute➤care➤needs,➤and

➤➤ understand➤the➤sources➤of➤financing➤for➤post-acute➤care➤services➤as➤well➤as➤opportunities➤

for➤increased➤efficiency➤across➤the➤continuum➤of➤care.

C H A P T E R 1 0

S T R AT E G I C P L A N N I N G A N D P O S T- A C U T E C A R E S E R V I C E S

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E s s e n t i a l s ➤ o f ➤ S t r a t e g i c ➤ P l a n n i n g ➤ i n ➤ H e a l t h c a r e1 9 8

In t r o d u c t I o n This chapter discusses trends and factors affecting strategic planning in the post-acute care (PAC) industry. PAC providers offer important recuperation and rehabilitation services to Medicare beneficiaries after discharge from an acute care hospital. PAC providers include skilled nursing facilities (SNFs), home health agencies (HHAs), inpatient rehabilitation facilities (IRFs), and long-term care hospitals (LTCHs). In 2013, Medicare’s payments to more than 29,000 PAC providers totaled $59 billion, more than doubling since 2001. Medicare has a responsibility to ensure access for beneficiaries, appropriately reimburse providers for the patients they treat, and control costs for the beneficiary and taxpayer alike. Patient utilization of PAC is affected by local practice patterns, the availability of PAC in a market, patient and family preferences, and financial arrangements between a PAC provider and the referring hospital. Because PAC can be appropriately provided in a variety of settings, Medicare ideally would pay for PAC using one payment system with payments based on patient characteristics rather than on the site of service. This system would lend itself well to a Medicare bundled payment strategy by aligning payments across settings for select conditions (MedPAC 2015).

As the longevity of Americans increases and the number of baby boomers reaching retirement grows, the demand for PAC and similar services will increase. These develop- ments offer strategic planning opportunities and business growth potential for a wide range of healthcare providers.

Post-acute services also have the potential to significantly increase federal expendi- tures on the Medicare program. The Centers for Medicare & Medicaid Services (CMS) is concerned that a fragmented PAC system will increase costs and adversely affect the quality of care. To reduce expenditures and prevent fragmentation of services, CMS is considering bundling the payment for all PAC services that a Medicare patient receives after being dis- charged from an acute care hospital. Such a bundled payment would require IRFs, SNFs, adult health day care centers, and hospice facilities to work closely together to assume the risk associated with bundled Medicare payment for PAC. CMS views this bundling as a

Post-acute care (PAC)

Services➤provided➤after➤

discharge➤from➤an➤

acute➤care➤hospital.

K e y t e r m s a n d c o n c e p t s

➤➤ Adult➤health➤day➤care➤center

➤➤ Comorbidity

➤➤ End-of-life➤care

➤➤ Hospice➤care

➤➤ Inpatient➤rehabilitation➤facility

➤➤ Palliative➤care

➤➤ Post-acute➤care

➤➤ Prospective➤payment➤system

➤➤ Skilled➤nursing➤facility

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1 9 9C h a p t e r ➤ 1 0 : ➤ S t r a t e g i c ➤ P l a n n i n g ➤ a n d ➤ P o s t - a c u t e ➤ C a r e ➤ S e r v i c e s

better approach to managing Medicare patients across the continuum of PAC services (Morley et al. 2014). A bundled payment approach also opens up opportunities for PAC providers to acquire or merge with other organizations or to pursue joint ventures with other PAC providers.

Chronic conditions are the leading cause of illness, disability, and death in the United States and account for the majority of US healthcare expenditures. Although chronic diseases can affect people in any age group, a high incidence of such conditions occurs among the elderly. As the US population ages, more people will require chronic-disease management and end-of-life care. In addition, because of advances in trauma care, use of evidence-based medicine, and proven public health initiatives, more Americans will survive major illnesses and live well into old age. Life expectancy in the United States was 78 years in 2009 and increased to 79 years in 2013 (Moses et al. 2013). However, though Americans are living longer, chronic disease and a period of significant disability now precede most deaths. Unfortunately, the US healthcare system focuses on curing disease and prolonging life but is poorly designed to provide end-of-life care.

Care for elderly patients in acute care hospitals, IRFs, and hospice facilities is paid for by Medicare Part A. Medicare’s reimbursement for SNF care is limited to 20 days after hospitalization and has a lifetime limitation of 100 days of reimbursement for skilled nursing care. In contrast, Medicaid has no such limitation, so the majority of the care for skilled nursing patients is paid for by Medicaid. However, Medicaid’s reimbursement rate is the lowest of all payers.

As part of its cost-cutting strategy, Medicare is attempting to shift PAC into less expensive outpatient treatment and hospice settings. Medicare spent $25 billion on PAC in 1999, $42 billion in 2005, and $59 billion in 2013, which represents an increase of $34 billion since 1999. In 2013, 42 percent of Medicare patients discharged from an acute care hospital moved to PAC; of these, 20 percent were discharged to an SNF, 17 percent to an HHA, 4 percent to an IRF, and 1 percent to an LTCH. Expenditures on skilled nursing care, which have been increasing at a rate of 9 percent annually, account for the largest proportion of Medicare spending on PAC (MedPAC 2015).

de f I n I t I o n s In most cases, PAC planning is a joint decision-making process involving the patient, the patient’s family, the patient’s physician, and a hospital case manager. The three patient groups with the highest rate of PAC utilization are stroke patients, patients with hip fractures, and patients undergoing joint replacement. Other chronic conditions frequently requiring PAC are cancer, pulmonary disease, congestive heart failure, liver disease, diabetes, renal failure, dementia, Alzheimer’s disease, and Parkinson’s disease.

End-of-life care (EoLC) is a type of PAC provided when a patient is not expected to recover from his condition and further treatment is futile. EoLC does not focus on

End-of-life care (EoLC)

Care➤provided➤to➤

improve➤the➤quality➤of➤

life➤of➤patients➤who➤are➤

facing➤life-threatening➤

disease➤or➤disability➤

and➤are➤not➤expected➤to➤

recover.

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life-sustaining treatments but is designed to maximize patient comfort. Such end-of-life treatment includes hospice care and components of palliative care, which improves the quality of life of patients and their families facing life-threatening illness through the pre- vention and relief of suffering (WHO 2015). Key to this process is the involvement of a multidisciplinary clinical team that manages a family-centric approach to treatment based on the needs and desires of the patient and family.

EoLC includes access to hospice care, services that provide EoLC or palliative care to a patient and her family when the patient is no longer responding to treatment. Hospice services focus on pain relief and help the patient and family cope during the time leading up to the patient’s death. In addition to pain management, hospice offerings encompass a comprehensive mix of services, including bereavement counseling, home health care, hospital services, skilled nursing services, and other residential care services.

He a lt H c a r e a n d us po p u l at I o n de m o g r a p H I c s In the United States, an aging population and an increasing proportion of international immigrants will result in substantial changes over the course of the twenty-first century. Between 2014 and 2060, the US population is projected to increase from 319 million to 417 million. By 2030, it is projected that 1 in 5 Americans will be 65 years or older. Minorities (any group other than non-Hispanic whites) will make up half of all Americans by 2044, and by 2060, 1 in 5 Americans will be foreign born (Colby and Ortman 2015).

Under the assumption of a high level of international migration, the total US population is expected to grow to 458 million by 2050. The level of international migra- tion will play an important role in shaping changes in the size, growth rate, age structure, and racial and ethnic composition of the US population (Ortman and Guarneri 2015). The US healthcare system is facing the challenge of meeting their need for chronic care.

The Affordable Care Act has expanded the insurance coverage and access to healthcare for many Americans; however, most women and men in the United States are covered by insurance obtained through the workplace. Women are more susceptible to losing cover- age because they are almost twice as likely as men to be covered as dependents—if they become widowed or divorced or their husbands become unemployed, they also lose insur- ance coverage. A little more than one-third (35 percent) of women receive health coverage through their jobs, compared to 44 percent of men.

Affordability of care is also a key issue for women, who are disproportionately low income. More women than men report skipping needed care and forgoing prescription medicines because of the out-of-pocket costs for premiums and copayments (Kaiser Family Foundation 2013).

Their lower incomes and eligibility for the Women, Infants, and Children program have historically meant more women than men qualify for Medicaid. In 2013, 12 percent

Palliative care

Healthcare➤approach➤

that➤improves➤the➤

quality➤of➤life➤of➤

patients➤and➤their➤

families➤facing➤life-

threatening➤illness➤

through➤the➤prevention➤

and➤relief➤of➤suffering.

Hospice care

Services➤that➤provide➤

EoLC➤or➤palliative➤care➤

to➤a➤patient➤and➤her➤

family➤when➤the➤patient➤

is➤no➤longer➤responding➤

to➤treatment.

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of women were covered under Medicaid and comprised more than two-thirds of adult Medicaid beneficiaries (Kaiser Family Foundation 2013).

For frail and elderly women and their families, long-term care is a crucial concern. Women are more likely than men to need long-term care services; as a result, women comprise 73 percent of nursing home residents and home health care clients. Women who need long-term care services often pay large out-of-pocket costs for nursing home and community-based care, as a result of the limited coverage for long-term care under both Medicare and private policies (Kaiser Family Foundation 2013).

In pat I e n t re H a b I l I tat I o n fa c I l I t I e s Inpatient rehabilitation facilities (IRFs) are growing in importance as the need for restor- ative services for traumatic injuries, acute illnesses, and chronic conditions increases. To qualify as a Medicare IRF, 75 percent of admitted patients must require intensive reha- bilitation for one of ten specified physical conditions, such as stroke, spinal cord injury, head trauma, burns, hip fracture, and amputation. In 2013, about 79 percent of IRFs were hospital-based units and the remaining 21 percent were freestanding facilities. However, although the total number of facilities is greater, hospital-based IRFs usually have fewer inpatient rehabilitation beds than freestanding IRFs, so they only account for 53 percent of patients going to IRFs after acute hospital discharge (MedPAC 2015).

Large payment differences exist for the patients treated in IRFs versus skilled nurs- ing facilities (SNFs) for the same conditions because they use different Medicare payment models. As part of Medicare’s Conditions of Participation, at least 60 percent of an IRF’s patient population must fall in the “complex rehabilitation need” category. The intensity of such rehabilitation requires a higher cost structure, and as a result, reimbursement is higher. Total Medicare payments per stay in 2012 (including the add-on payments made to many IRFs for having a teaching program or treating low-income patients or high-cost outlier cases) averaged 64 percent more for patients treated in IRFs than for those treated in SNFs. The average occupancy rate at IRFs in 2012 was 63 percent (MedPAC 2015).

In communities where IRFs are located, more PAC patients are admitted to an IRF than to an SNF. PAC services are offered in numerous settings, but physicians prefer to transition patients to IRFs because they provide a minimum of three hours of intensive rehabilitation therapy per day.

IRFs are under increasing financial pressure to meet operations costs and invest in the latest healthcare technologies. In addition, Medicare is exploring a site-neutral reimburse- ment policy that could lower program spending relative to current policy by between $1 billion and $5 billion (MedPAC 2015). As a result, IRFs are being forced to redefine their roles in the spectrum of PAC services as the requirement for quality rehabilitation services becomes a local and national concern (see Exhibit 10.1). Specifically, IRFs are evaluating

Inpatient rehabilitation

facility (IRF)

Facility➤that➤provides➤

restorative➤services➤for➤

traumatic➤injury,➤acute➤

illness,➤and➤chronic➤

conditions.

Skilled nursing facility

(SNF)

Facility➤that➤treats➤

elderly➤patients➤with➤

chronic➤diseases➤

who➤need➤nursing➤

care,➤rehabilitation,➤

and➤other➤healthcare➤

services.

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expanding their service lines to include home health care, outpatient rehabilitation, and telemedicine to provide cost-effective care to the growing elderly population.

HealthSouth is one of the nation’s largest providers of PAC services, offering both facility-based and home-based post-acute services in 33 states and Puerto Rico through its network of IRFs, HHAs, and hospice agencies. HealthSouth’s hospitals provide rehabilitative care to patients who are recovering from conditions such as stroke and other neurological disorders; orthopedic, cardiac, and pulmonary conditions; brain and spinal cord injuries; and amputations.

In 2014, HealthSouth provided care to patients through 107 IRFs (32 of which operate as joint ventures with acute care hospitals) and 25 hospital-based HHAs. Health- South acquired Encompass Home Health and Hospice in 2014, which added 107 home health care locations and 20 hospice locations. The existing 25 HealthSouth HHAs were integrated into Encompass during 2015.

exHIbIt 10.1 The Network of Post-acute Care

Services

Medical Clinic

Centers of Excellence

Home Health

Assisted Living

Skilled Nursing

Nursing Home

Hospice

Inpatient Rehabilitation

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In 2014, these HealthSouth facilities generated $2.4 billion in revenue from 134,515 inpatient discharges and 739,227 outpatient visits. Nationally, HealthSouth represents 9 percent of the IRF market share, 18 percent of licensed beds, and approximately 21 percent of patients (HealthSouth 2014).

m e d I c a r e r e I m b u r s e m e n t o f I n pat I e n t r e H a b I l I tat I o n f a c I l I t I e s

Medicare reimburses IRFs through its prospective payment system (PPS). The PPS motivates IRFs to control costs by offering a predetermined fixed payment per patient case, regardless of the costs the IRF incurs in rehabilitating the patient. PPS has established payment rates for 385 rehabilitation services, called case-mix groups. Patients are assigned to these categories on the basis of their diagnosis, age, level of functional or cognitive impairment, and comor- bidity. PPS incorporates the conversion factor, which adjusts payment levels on the basis of comorbidity, local wage rates, rural status, and income. More recently, CMS has implemented new payment methodologies that allow IRFs to assume financial risk through ACOs and to participate in CMS’s bundled payment initiatives, which allow beneficiaries the freedom to select the provider of their choice. Some ACOs have established partnerships with selected PAC providers. Under this arrangement, ACOs select PAC partners by reviewing the cost and quality metrics for each provider and its geographic coverage. Hospital discharge-planning teams then choose from the selected pool of PAC providers when referring patients. Because some ACOs are at financial risk for the cost of care, CMS could consider allowing those ACOs to establish formal networks to direct beneficiaries to high-value providers (MedPAC 2015).

r e H a b I l I tat I o n s e r v I c e s I n a c u t e c a r e H o s p I ta l s

Inpatient rehabilitation is the most frequently opened new clinical service in acute care hospitals. In 2015, 900 hospitals had an IRF and 185 also had an SNF (MedPAC 2015). These organizations may have an advantage over other providers because of their ability to transition patients into PAC care to improve quality and maximize total facility revenue.

In 2013, approximately 35 IRFs closed; 80 percent were hospital-based units. How- ever, at the same time, almost two-thirds of new IRFs that year were hospital-based units. This statistic suggests that there are challenges related to hospital-based units, most likely related to reimbursement and cost, whereas some acute care hospitals with high census may find that IRF units help reduce inpatient lengths of stay and free up hospital beds for additional admissions (MedPAC 2015).

sK I l l e d nu r s I n g fa c I l I t I e s t r e n d s

While acute care hospitals are experiencing increasing pressure to reduce length of stay, SNFs are experiencing strategic opportunities to work collaboratively with acute care hospitals to

Prospective payment

system (PPS)

Reimbursement➤

mechanism➤for➤

inpatient➤healthcare➤

services➤that➤pays➤a➤

predetermined➤rate➤for➤

treatment➤of➤specific➤

illnesses.

Comorbidity

Coexistence➤of➤one➤

or➤more➤medical➤

conditions➤in➤addition➤

to➤the➤initial➤diagnosis.

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place discharged patients. In 2012, the average SNF occupancy rate was high at 82 percent. The average annual compensation for a nursing home administrator in 2015 was $99,566, with the top 10 percent earning $120,667 (Salary.com 2015).

Acute care hospitals are increasingly discharging orthopedic surgical patients to SNFs for rehabilitation services. To meet this increased demand, the number of SNFs has been growing at a rate of 12 percent annually—in 1995, a Medicare census found 13,945 SNFs, but by 2013, 15,632 SNFs furnished 2.4 million Medicare-covered stays to 1.7 million fee-for-service beneficiaries. In addition, Medicare expenditures for SNF services increased from $10.9 billion in 1999 to $15.7 billion in 2004 and to $28.8 billion in 2013. The data show that 67 percent of Medicare beneficiaries discharged from acute care hospitals go home, with the remainder discharged to PAC facilities. SNFs receive the largest number of PAC patients, specifically 13 percent of Medicare acute care hospital discharges (MedPAC 2015).

p a l l I at I v e c a r e

To palliate means to make comfortable by treating a person’s symptoms from an illness. Hospice and palliative care both focus on helping a person be comfortable by addressing issues causing physical or emotional pain or suffering. Hospice and other palliative care providers have teams of people working together to provide care. The goals of palliative care are to improve the quality of a seriously ill person’s life and to support that person and his family during and after treatment (CaringInfo 2015b).

When healthcare organizations provide palliative care services, patients have the opportunity to request information related to EoLC. Informed patients and families are allowed to participate in a care plan that includes hospital admissions, outpatient services, home health care, and PAC. These palliative care plans can reduce costs by decreasing patients’ length of stay; reducing unnecessary tests, treatments, and medications; and incorporating PAC services. Palliative care allows patients and families to discuss the most appropriate healthcare options and incorporate advance care planning (see Highlight 10.1). This accommodation may help provide a sense of reassurance knowing their values and wishes were addressed.

The majority of US hospitals have palliative care programs supported by outpatient services, nursing homes, and home health care agencies. The optimal model for provid- ing palliative care is an interdisciplinary care team that integrates healthcare providers from different backgrounds and skill sets who work collaboratively to meet the complex needs of palliative care patients. This interdisciplinary team is composed of credentialed physicians, nurses, social workers, spiritual counselors, and other healthcare practitioners whose expertise could optimize the quality of life for those patients (Hospitals in Pursuit of Excellence 2012). The following link from Allison Cuff Shimooka (2014) at The Advisory Board Company leads to a video on palliative care: http://www.advisory.com/research/ physician-executive-council/multimedia/video/2014/misconceptions-about-palliative-care.

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The palliative care team is responsible for conducting education and evaluating a patient’s medical condition. Some palliative care team members address the patient’s physical needs, such as managing pain and other symptoms; some manage referrals or coordinate discharge planning; and a chaplain can provide spiritual support and counsel- ing to patients. The entire team works together to develop and revise care plans to ensure the patient’s goals are met.

Ho s p I c e p at I e n t s ’ u s e o f e n d - o f -l I f e c a r e

Recognizing that a high percentage of total healthcare dollars is spent on EoLC, CMS cre- ated a unique hospice benefit designed to improve the quality of EoLC while also reducing its cost. This benefit, combined with a growing elderly population, creates a significant strategic opportunity to expand hospice services across the United States.

r o l e o f H o s p I c e

Hospice care contrasts with curative care in that it is not designed to cure an illness or lengthen life but emphasizes the management of pain. Hospice focuses on relieving symptoms

Highlight 10.1 Advance Care Planning

Advance care planning➤is➤about➤making➤decisions➤about➤the➤healthcare➤a➤person➤wants➤to➤

receive➤if➤she➤becomes➤unable➤to➤speak➤for➤herself.➤It➤allows➤a➤patient➤time➤to➤speak➤to➤her➤

family➤about➤her➤wishes➤and➤plan➤for➤the➤future.➤It➤includes➤the➤following➤(CaringInfo➤2015a):

•➤ Getting➤information➤on➤the➤types➤of➤life-sustaining➤treatments➤available

•➤ Deciding➤what➤types➤of➤treatment➤a➤person➤would➤or➤would➤not➤want➤should➤she➤

be➤diagnosed➤with➤a➤life-limiting➤illness

•➤ Sharing➤personal➤values➤with➤loved➤ones

•➤ Completing➤advance➤directives➤to➤put➤into➤writing➤what➤types➤of➤treatment➤a➤

patient➤would➤or➤would➤not➤want➤and➤whom➤she➤chooses➤to➤speak➤for➤her➤should➤

she➤be➤unable➤to➤speak➤for➤herself

For➤more➤information,➤consult➤the➤National➤Hospice➤and➤Palliative➤Care➤Organiza-

tion’s➤website:➤www.caringinfo.org/i4a/pages/index.cfm?pageid=3277.

*

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and supporting patients with a life expectancy of months, not years, and their families. However, palliative care may be given at any time during a person’s illness, from diagnosis through curative or noncurative treatment. Most hospices have a set of defined services, team members, rules, and regulations. Hospice services help the patient and family members handle the emotional, social, and spiritual aspects of terminal illness and help preserve the patient’s dignity (CaringInfo 2015b).

Most hospice programs are run by not-for-profit organizations. Some are affiliated with hospitals, nursing homes, or home health care agencies. The first hospice was estab- lished in 1974 in New Haven, Connecticut. In 2013, more than 1.3 million Medicare beneficiaries received hospice services from more than 3,900 providers, and Medicare hospice expenditures totaled about $15.1 billion (MedPAC 2015).

To be admitted into a hospice program, the patient must have a physician’s refer- ral and a life expectancy of six months or less. Most hospice care is provided in the home by a family caregiver; however, inpatient hospice care is available for pain and symptom management for periods of up to five days. During the referral process, a member of the hospice staff meets with the patient’s physician to talk about the patient’s medical history, symptoms, and life expectancy. They also develop a plan of care for the patient and discuss the hospice philosophy and the patient’s expectations.

t H e m e d I c a r e H o s p I c e b e n e f I t

The Medicare hospice benefit was established in 1982 and was designed to provide families with the resources to care for their dying loved ones at home or in a hospice inpatient setting. The benefit covers palliative and support services for terminally ill Medicare beneficiaries who have a life expectancy of six months or less if the terminal illness follows its normal course. Medicare spending for hospice care increased dramatically from $2.9 billion in 2000 to $15.1 billion in 2012, an increase of 400 percent. This jump was driven by an increase in the number of people electing hospice care and increasingly lengthy stays in hospice facilities. In 2013, more than 1.3 million Medicare beneficiaries received hospice services, and Medicare expenditures totaled about $15.1 billion—which constituted no increase from 2012 (MedPAC 2015).

When a person uses the Medicare hospice benefit, his condition must be certified by a hospice physician or personal physician. A written plan of care must be established and maintained by an interdisciplinary group (which must include a hospice physician, a registered nurse, a social worker, and a counselor) in consultation with the patient’s attending physician, if any. A broad set of services is included, such as nursing care, physician services, counseling and social work services, hospice aide (also referred to as home health aide) and homemaker services, short-term hospice inpatient care (including respite care), drugs to control pain and nausea, medical supplies, home medical equipment, bereavement services for the patient’s family, and other services for palliation of the terminal condition (MedPAC 2015).

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H o s p I c e a n d t H e c o n t I n u u m o f c a r e

Healthcare providers across the continuum of care benefit from cooperating with hospices to provide EoLC. Hospitals with a hospice program have higher occupancy and shorter lengths of stay and are more profitable. In a research study of almost 40,000 patients who died in 2011 of poor-prognosis cancer comparing a control group with those receiving hospice care, the latter had significantly lower rates of hospitalization, intensive care unit admission, and invasive procedures at the end of life, as well as significantly lower total costs during the last year of life (Obermeyer et al. 2014). An effective hospice program can improve acute care hospital performance by decreasing length of stay, reducing ancillary charges, and preventing unnecessary inpatient utilization by reducing hospital readmission rates and emergency department visits.

This author cowrote a research study in 2005 that showed hospitals that had a hospice program were generally larger and had more clinically complex patients. We also found that hospitals with a hospice had an average length of stay of 10.5 days, while those without a hospice had an average length of stay of 12.8 days. These statistics show that hospitals without hospice programs may be missing an opportunity to reduce costs and improve efficiency (Harrison, Ford, and Wilson 2005).

However, the provision of hospice care can be a complex challenge for healthcare organizations. Typically, hospital-based inpatient hospice care is provided, through a con- tract, by outside hospice services. Patients transferred to hospitals from their homes are protected by Medicare regulations that mandate service levels and visits be congruent across care sites. This standard usually requires a minimum of one interdisciplinary hospice team member contact per day in the hospital (primarily visits), supplemented with volunteer visits and 24-hour nursing care. In spite of this requirement, the hospice must use most of its Medicare payment to reimburse the hospital for patient costs. In addition, having the patient in the hospital can increase the likelihood that a patient will choose to quit hospice and switch to curative treatment because the hospital staff are most comfortable with the latter level of care. This shift may defeat the purpose of moving to hospice care and add to the overall cost of care. Leaders cannot ignore hospice services in the planning process, both because hospice care may constitute a gap in community services and because service provision may require collaboration with an outside agency.

c u lt u r a l d I v e r s I t y a n d H o s p I c e s e r v I c e s

A 2011 study found that, of patients who received hospice care in the United States, 82.8 percent were white, 8.5 percent were African American, and 6.2 percent were Hispanic. When compared to overall population rates, these statistics reveal an underutilization of hospice services among minority groups. Local initiatives, such as providing education on hospice services to culturally diverse groups, can increase hospice and other EoLC utiliza- tion rates among these culturally diverse populations (NHPCO 2012).

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Between 2010 and 2050, the share of the non-Hispanic white US population will decline substantially. The African American, American Indian, Alaska Native, and Native Hawaiian and other Pacific Islander populations will maintain their shares of the popula- tion. The Asian population will increase. The Hispanic population will increase substantially (Ortman and Guarneri 2015). This important demographic trend will affect the utilization of hospice and other healthcare services.

ad u lt He a lt H day ca r e ce n t e r s Adult health day care centers, which provide a combination of social and medical services, are designed to keep senior citizens in the community as long as possible, thereby reducing admissions to nursing homes. These centers also provide services to patients who require PAC and assist their family caregivers. For example, an adult health day care center can provide meals, transportation, socialization, therapeutic activities, healthcare treatment, and health referrals. Respite services for caregivers include time to rest and self-esteem or family-relations improvement programs, both designed to improve the caregiver’s psycho- logical attitude. To be effective, adult health day care centers need to incorporate activities and offer services specific to the culture of their patient and caregiver population and have been found to decrease caregiver stress (Klein et al. 2014).

The cost of adult health day care centers varies widely. It ranges from $40 a day to more than $100 per day depending on the services offered, reimbursement, and region. The average cited by the National Adult Day Services Association is $61 per day (Seniorresource. com 2015). Adult health day care is not usually covered by Medicare. Some coverage may be available through state or federal programs (e.g., Medicaid, Older Americans Act, Veterans Administration). The inclusion of “health” in the type of day care center indicates that it provides elements of healthcare and not just socialization and babysitting for seniors. The designation of adult day healthcare in many states is reserved for those centers that have been licensed by their states to provide medical care similar to what might be provided by a state-licensed assisted-living community or by a state-licensed nursing home (Seniorresource.com 2015).

Norway has a unique and comprehensive system for elder care that includes adult health day care. Norway spends more per capita on caring for its elderly than any other developed nation. Nearly 10 percent of its annual budget goes toward the provision of facilities and services to fulfill the government’s guarantee to its citizens that all will have a cost-free private apartment after retirement in addition to the assistance and care that they might need. Services are provided locally and provide various levels of care based on individual needs. They include home visits, home care systems, day care systems, residential apartments, and nursing homes. Day care may be considered if an elder needs more than just periodic visits to his home. For example, he may need daily help in preparing meals, dressing, attending social activities, and so on. Day care services are provided and buses are used for pickup and return between homes and day care centers, all free of cost (Gupta 2013).

Adult health day care

center

Facility➤that➤provides➤

services➤to➤patients➤

requiring➤long-term➤

care➤and➤helps➤family➤

caregivers➤with➤their➤

responsibilities.

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