Achieving an Aligned Post-Acute Network: What`s
Transcription
Achieving an Aligned Post-Acute Network: What`s
Spring 2015 Kaufman, Hall & Associates, LLC. Advisors to the Healthcare Industry Since 1985 Achieving an Aligned Post-Acute Network: What’s Your Strategy? Patrick Allen Managing Director Post-acute care (PAC) services are of significant interest as hospitals and health systems look to reduce costs, improve quality, and develop their clinical delivery networks under value-based arrangements. Hospitals typically have many PAC providers to which they refer patients in need of continuing care after discharge. But the development and management by hospitals and health systems of a “network of PAC providers” has not been a focus or required under traditional care and reimbursement models. New payment models emerging under a population health/value construct are now incentivizing closer relationships between acute and post-acute providers. The goals are to: • Reduce costs related to uncoordinated care transitions between acute and post-acute care • Eliminate avoidable readmissions and their associated penalties • Increase the efficiency and quality of post-acute care Mark E. Grube Managing Director Partnering with and/or managing a network of PAC providers better positions hospitals and health systems for success under risk- and value-based payment models, such as shared savings, and bundled and capitated payment. Scope of Post-Acute Care Andre Maksimow Senior Vice President In This Issue Achieving an Aligned Post-Acute Network Staff Notes Kaufman Hall 2015 Healthcare Leadership Conference Developing an Effective Cost Accounting Model Calendar of Events Kaufman Hall Ranked the Top Financial Advisor Announcing a New Kaufman Hall Website ENUFF Software Suite® Training Sessions The Centers for Medicare & Medicaid Services (CMS), which is the primary payer for a significant portion of post-acute care,1 defines PAC to include:2 • Skilled nursing facilities (15,000+ SNFs in the U.S. participate in Medicare and Medicaid) • Home health agencies (12,600+ participating entities) • Inpatient rehabilitation facilities (1,100+ participating entities) • Long-term acute care hospitals (400+ participating entities) Due to their importance in improving end-of-life care and reducing its considerable costs, we include also: • Hospice care, which has approximately 3,700 participating entities, including freestanding, and hospital-, home health-, and skilled nursing-based businesses • Palliative care, which is a care practice designed to provide, through trained professionals, specialized comfort and support for individuals with a life-threatening illness; such care may be covered by Medicare Part B and Medicaid We believe that these six services or businesses are essential elements of the post-acute care continuum required of health systems to effectively manage a population’s health and reduce the nation’s healthcare costs (Figure 1). Following a brief description of the current spending environment and the government’s approach to meeting Triple Aim goals, we offer five strategies hospitals and health systems can use to ensure high performance of their PAC network. Figure 1. Overview of Post-Acute Care Services within Healthcare’s Value-Based Business Model Source: Kaufman, Hall & Associates, LLC Employers Medicare/ Medicaid Patients Revenue Sources (e.g., PMPM, Bundled Payments) Healthcare Company Hospitals Ambulatory Post-Acute Ancillaries Virtual continued on page 2 Home Health Skilled Nursing LT Acute Care Inpatient Rehab Hospice Palliative Care KaufmanHall Report Spring 2015 continued from page 1 Current Spending Environment Concerned about the high cost of U.S. healthcare, the federal government views post-acute care as an important focus for increased quality and reduced costs. Similar to acute care, direct reimbursement pressure will be significant for post-acute care, with CMS placing increasing emphasis on the assessment of each setting’s efficiency. The Medicare Payment Advisory Commission (MedPAC) cites the “exceptionally high average margins in most PAC settings” and the unnecessary spending growth resulting from “very different CMS payment rates” across settings for the care of patients with similar conditions.3 For example, per-stay payments for patients recovering from strokes and hip replacements in inpatient rehabilitation facilities are 40 to 50 percent higher than payments for patients with the same conditions receiving care in skilled nursing facilities. The Improving Medicare Post-Acute Care Transformation (IMPACT) Act, passed in 2014 and effective in October 2016, could result in a new prospective payment system that would set PAC payment rates based on the clinical characteristics of the patient, rather than on the care setting. This “site-neutral policy” likely would affect the hospital discharge process and post-acute utilization patterns,4 and will presumably shift care to the most efficient settings as appropriate based on patients’ conditions. A Carrot-and-Stick Approach CMS is using rewards and penalties to improve quality and reduce post-acute costs and hospital readmissions. The agency’s focus is on the 30-day period post hospitalization, which represents 43 percent of total Medicare spending per beneficiary.5 The three major “sticks” for hospitals are penalties for preventable readmissions and hospital-acquired conditions, and a reduction in base payments through the value-based purchasing program. The combined effect of these penalties exposes hospitals to 5.5 percent Medicare payment reductions in FY2015, with as much as 6 percent exposure starting in FY2017 if certain quality measures are not met.6 For PAC providers, payment reductions are intended to:7 • Better align reimbursement with the actual costs of providing services, thereby reducing profit margins • Ensure that beneficiaries receive medically necessary, high-quality care in the least costly setting appropriate for their condition On the reward side, providers can participate in new programs or payment mechanisms that are intended to shift Medicare reimbursement from volume to value, and reward providers for high quality, lower-cost services. These include the Medicare Shared Savings Program Accountable Care Organizations (ACOs), the Bundled Payments for Care Improvement Initiative, and other models. Alternative payment approaches are targeted to represent 30 percent of CMS payment by the end of 2016 and 50 percent by the end of 2018.8 Twenty major providers and commercial insurers also recently vowed to shift 75 percent of their business to contracts with incentives for quality and lower-cost healthcare by 2020.9 In addition, hospitals and health systems providing care under a Medicare Advantage (MA) plan have the opportunity to better manage cost and quality of inpatient and post-acute care, and to receive more of the capitated premium dollars. Thirty percent of Medicare beneficiaries (16 million) were enrolled in an MA program in 201410 and enrollment is expected to reach 22 million by 2020.11 2 © Copyright 2015 by Kaufman, Hall & Associates, LLC Improving the Performance of a Post-Acute Network Broad strategic thinking about the care patients receive after they leave the hospital’s four walls is required of health system leadership to ensure the right care in the right place, at lower costs and better quality. Efficiency will be critical for health systems that want to be included in value-based delivery networks forming nationwide. Network arrangements will “tier-out” or otherwise exclude higher-cost providers by steering patients to competitors that can offer quality services at a lower cost. Hospitals and health systems that are participating in MA, traditional Medicare, bundled payment, ACOs, and other models, will need to work closely with PAC providers to deliver value. The specifics of alignment strategies will vary based on the organization and its market, but the five overall strategies described next should be implemented by all hospitals and health systems. Strategy 1. Focus on Post-Acute Care as a Key Component of Your Integrated Delivery System Hospitals and health systems should consider post-acute services within the broader continuum, and integrate PAC within their strategic-financial planning process. Because PAC is not a homogeneous industry, but a collection of very different businesses, consideration of each of the six PAC components is recommended. Key strategic questions to answer include: • What is your health system’s strategy and timing regarding risk-based reimbursement, particularly with traditional Medicare and Medicare Advantage programs? • Does a particular PAC service provide an important strategic advantage for your organization with payers and other contracting entities? • What are the local market dynamics of each PAC business? • Can the PAC service significantly improve health system economics, either through direct contribution margins, cost avoidance, or quality benefits? An organization’s overall strategy for improving its post-acute network should be shaped by competitive dynamics in its local market and the organization’s relative “essentiality” in that market. Essential organizations bring to population health-based contracts an “attributable population”—usually tied to their primary care physician network—and a competitive (or at least minimum threshold) cost and quality profile for services that can be provided as part of a delivery network. The larger the population captured or covered by an organization, the more essential it likely will be in the new value/ population health management paradigm. The organization should assess the strategic-financial impact of improving its PAC network through alignment strategies in comparison to the impact of other strategic goals. Comparative analysis of investment in different pieces of the network is critical. Desired contracting arrangements should be considered with these investments in mind. Hospitals/health systems operating under capitated contracts can avoid significant costs through strong performance of their PAC network. Strategy 2. Assess Alignment Options and Develop the Business Case for Viable Alternatives As with integration or partnership arrangements in all industry sectors, a range of alignment options exist with PAC providers. Hospitals and health systems may consider: • General outreach/marketing/support (for example, IT integration for record sharing) KaufmanHall Report Spring 2015 • • • Preferred provider agreements (if certain quality, service, cost, and other metrics are achieved) Joint ventures through an equity or other type of investment Ownership The potential degree of integration and alignment desired by the partnering organizations ranges from low to high (Figure 2). For example, a health system’s consideration of hospice providers might involve: • An exclusive agreement to use a specific regional hospice provider for its PAC network, or to lease space to a hospice provider for inpatient hospice services • A minority interest acquisition of the hospice provider, and the joint development of care protocols • An acquisition of a hospice provider Palliative care relationships with hospice partners could involve a spectrum as well—from providing services to a health system’s inpatients, patients at outpatient clinics, and/or patients in community/ home-based settings (including skilled nursing facilities). Health systems can pursue multiple options simultaneously, depending upon the post-acute business. Owning everything typically is not a desired or viable option. Whether joint venture, acquisition, or another option is selected, the selection criteria are the same. The business case must be based on quantitative and qualitative analyses of the strategicfinancial impact (as described earlier), geographic coverage and access, ability to provide the required care, and management factors. Geographic Coverage and Access Analysis of a PAC entity’s ability to provide meaningful geographic coverage and access includes the identification and comparison of market participants, quantification of historical discharges to each, and assessment of the scope of current and proposed contracting arrangements. Skilled nursing facility and home health agency ownership is fragmented in many markets. Additionally, certificateof-need restrictions and other regulatory factors may prohibit any one player from expanding capacity in the short term, thereby limiting patient access. Geographic location plays an important part in patients’ choice of facilities. Patients typically prefer to receive treatment near their homes for services that extend beyond a short-term stay. Average length of stay in “relatively efficient SNFs” for Medicare patients is approximately 33 days,12 so location is critical for this population. Projected increases in the age 65+ demographic segment need to be considered in planning PAC network access. Additionally, hospitals contracting with MA plans need to ensure that their preferred skilled nursing and home health providers are “in network.” Ability to Provide Care A PAC entity’s ability to care for the target patient population and the fit of services covered are particularly critical. Assessment of its clinical and operational capabilities occurs through a review of its performance against quality and cost benchmarks described in the next section. Management Factors Finally, management factors such as the stability of the post-acute entity, its financial condition, and the depth and breadth of the management team are assessed through evaluation of capabilities, financial reviews, site visits, and leadership discussions. Figure 2. Alignment Continuum Source: Kaufman, Hall & Associates, LLC Low Leverage Existing Arrangements Degree of Integration Joint Venture Minority Interest 50/50 Partnership High Full Acquisition Strategy 3. Consider Multiple Providers for Preferred Arrangements Through preferred arrangements, hospitals tighten the strategicfinancial connection with their PAC providers to ensure that care consistently meets quality, utilization, and cost targets. PAC providers will need to appropriately reduce excess utilization, and share with hospitals any savings generated by new payment systems. Preferred PAC partners could make up for revenue losses through increased referrals from the health system. Medicare patients will be able to go to any PAC provider they want, but hospitals and physicians have considerable influence over patients’ decisions. With financial responsibility for readmissions—through Medicare penalties and under bundled payment programs—hospitals will need to exert that influence.13 Due to the high degree of fragmentation in skilled nursing and home health businesses in particular, health systems should develop relationships with multiple entities. Most skilled nursing facilities are small, with a national average of only about 110 beds,14 so it is not unusual for a multihospital health system to have 60 to 75 SNFs in its service area. Additionally, many skilled nursing and home health agencies, while branded locally, are managed as part of a larger operating company. Local PAC management may not be authorized to have substantive discussions regarding partnerships. Discussions at the corporate level may be required. Using Comparative Data Comparative data on PAC performance that can be useful in evaluating potential partners are available for Medicare-certified home health agencies (medicare.gov/homehealthcompare) and skilled nursing facilities (medicare.gov/nursinghomecompare). CMS recently announced that it will change the way it measures nursing homes, affecting its “Nursing Home Compare 5-Star Quality Rating System.”15 Verification and auditing of self-reported data on staffing levels and quality indicators will now occur, making the rating system more accurate and valuable. Financial performance of “relatively efficient” SNFs is available for comparison through MedPAC.16 Health systems should develop a preliminary “facility scorecard” based on solid criteria. Financial and sensitivity analyses are recommended to assess the system-level financial impact of improvements based on intended contracting arrangements. Antitrust issues related to market share should be considered, although these are less likely to be a problem due to small SNF or home health agency size. With other PAC businesses, a disproportionate referral pattern to a single PAC provider could draw scrutiny. continued on page 4 © Copyright 2015 by Kaufman, Hall & Associates, LLC 3 KaufmanHall Report Spring 2015 continued from page 3 The economic model for the preferred arrangement must create value for both parties. To ensure equitable economic terms, health systems should quantify the value of higher occupancy for post-acute partners. Proactive hospital leaders have developed or are implementing plans for a PAC network based on sound strategic-financial analyses of potential partnerships. Strategy 4. Enhance Discharge Planning and Post-Discharge Transitions Hospitals are focusing on enhancing patient transitions to appropriate post-acute care, whether to patients’ homes or facilities. Top reasons to improve the discharge process include problems related to delayed transfer of discharge summaries, unknown test results, lack of followup by patients, and confusion about medications.17 Patients may be cognitively impaired at discharge and often don’t remember details communicated by their physicians. Also, discharge instructions may be overly complex, particularly for those with low health literacy.18 Hundreds of articles in industry journals cover best practices or protocols for integrated care transitions that will help prevent hospital readmissions, better manage utilization and cost, and ensure patients are discharged to the right setting. Strategies include: • Re-engineering the discharge process • Improving discharge tools • Enhanced communication/coordination with the patient, family, and receiving facility • Placing care-coordination professionals in PAC facilities H ealth systems should consider how to achieve interoperability with their post-acute network A lack of common patient assessment data and the absence of shared quality-reporting requirements for post-acute facilities are significant barriers to the effective transition. The IMPACT Act, which mandates common data and reporting requirements for post-acute providers, will take effect in October 2016 and aims to facilitate the flow of patient information to the next healthcare setting.19 Technology also typically represents a significant barrier. Health systems should consider how to achieve interoperability with their post-acute network on a common (or any) electronic health record platform. Meaningful Use financial incentives, as provided to hospitals under the High Tech Act, were not available to skilled nursing and other post-acute facilities. However, technology-enhanced communication with PAC business partners must increase in order to share health information for coordinated care.20 New modalities providing lower-cost care and more convenient access are improving care outcomes. For example, telemedicine services provided by physicians and other clinicians have reduced hospitalizations of nursing home residents. To reduce emergency department visits, SNFs can be encouraged to switch from on-call clinicians to telemedicine services during off hours.21 Sidebar 1 provides two examples of recent efforts by health systems to improve care transitions. 4 © Copyright 2015 by Kaufman, Hall & Associates, LLC Sidebar 1. Care Transitions Providers are using new clinical staff to enhance patient transitions. For example, Western Maryland Health System, one of 10 primarily sole community providers participating in a state value-based care demonstration project, established partnerships with more than 10 skilled nursing facilities in the region. Its eventual goal is to place registered nurses, advanced practice professionals, and physicians in those facilities. “Nurse ‘transitionists’ accompany discharged nursing home residents to help with such things as medication reconciliation,” describes the system’s CEO, Barry Ronan.(a) “The care delivered in the nursing facilities has dramatically improved.” To help with the transition from traditional FFS to a capped revenue model, the state provided the system with a $5 million grant. The system used the funds to enhance IT and hire additional staff. The system implemented a community health worker program to assist patients in their homes, and helped to meet social needs in the community, such as providing transportation, housing, food, and clothing. “It’s increasingly up to us to safely discharge patients and keep them healthy beyond our walls,” says Ronan. Advocate Health Care in the Chicago area assigned “SNF-ists” to round two to three times per week with patients discharged to the 35 non-owned skilled nursing facilities and owned and non-owned home health agencies in its PAC network. Advocate manages 33,000 Medicare Advantage lives and 122,000 Medicare ACO lives. Early results are encouraging: average length of stay in the PAC facilities in 2014 was 17.3 days, significantly less than the average Medicare ALOS of 27 days.(b) Given risk-based reimbursement models, such clinicians represent a sound investment. Sources: (a) Ronan, B., as quoted in Society for Healthcare Strategy & Market Development: Redefining the “H”—How Health Systems Must Evolve to Grow and Thrive. Report from the SHSMD Thought Leader Forum, Oct. 12, 2014; (b) Englehart, M. presentation in panel, “Wolves in Sheep’s Clothing: Who Decides the Business Model for Long Term and Post-Acute Care?” National Investment Center for Seniors Housing & Care Conference, Oct. 2, 2014. Strategy 5. Ensure that Clinicians Are Part of the Solution Whether employed or independent, physicians and supporting clinical staff in post-acute settings, hospitals, and doctors’ offices must be part of a health system’s PAC strategy. A successful PAC strategy includes arrangements—whether through employment or contracts—that align or incentivize physicians and allied clinicians to ensure that patients receive care in the lowestcost setting appropriate to the patient’s condition. The hospital’s goal should be to encourage/reward behavior that helps to reduce: unnecessary admissions and readmissions; emergency department visits; and discharge to PAC facilities that provide a higher level of care than a patient requires. KaufmanHall Report Spring 2015 ACOs and clinically integrated networks are engaging physicians who care for SNF patients to align with the network to reduce unnecessary care and spending. For example, if a nursing home patient fell or had complications from a urinary tract infection, his or her physician typically might have called a hospital emergency department without considering whether it was part of a complex medical center offering a higher level of care than the patient required. In an aligned network, the physician would consider an ED in a lower-cost community hospital, or perhaps even a physician visit at the nursing home. Physicians also are responsible for ensuring that the PAC patient doesn’t “bounce back” as a readmission due to infection or other complications. Physicians may not always decide where their patients go for post-acute care, but they need to be engaged in the development of the most appropriate solution. Hospitals may wish to consider the following approaches: • Employing the lead physician(s) practicing in the preferred skilled nursing facility(ies), or making arrangements to provide coverage by hospital-employed physician(s), particularly for patients at high risk for readmission • Educating clinicians in physician-support/extender roles (including nurse practitioners and physician assistants) about preferred PAC options in the community • Ensuring that case/discharge planning managers who work with the patient and family understand the patient’s social infrastructure, know the PAC options in the community, and can refer patients to preferred home care agencies and PAC facilities Referrals to hospice and palliative care typically come from oncologists or physicians who have patients with such conditions as end-stage liver disease, chronic obstructive pulmonary disease, and heart failure. Hospitals must encourage and incentivize doctors to have much earlier conversations with patients about end-of-life care than they typically do. Increased use of hospice and palliative care will be critical to improving patients’ quality of life and reducing care costs. Concluding Comments Post-acute services must be included in the strategic-financial plans of hospitals and health systems going forward. Organizations should determine where they can have a material effect on the quality and cost of post-discharge patient care in their communities, and focus on those areas to develop and maintain an aligned post-acute network. Building a sustainable managed PAC network involves detailed analyses and due diligence in evaluating potential partners, and exploring an appropriate range of alignment options. Partnerships with home health agencies, skilled nursing facilities, hospice agencies, and other PAC entities likely will be the most viable option pursued by proactive health systems. Your comments are welcome. Please feel free to contact the authors Patrick Allen ([email protected]), Mark Grube ([email protected]), and Andre Maksimow ([email protected]) at 847.441.8780. References and Notes Medicare and Medicaid paid for nearly 80 percent of the $78 billion national health expenditures for home health care, and 53 percent of the nearly $152 billion of expenditures for freestanding and government-operated nursing care facilities (Source: National Health Expenditures by Source of Funds and Type of Expenditures, data available at CMS.gov). 1 MedPAC: A Data Book: Health Care Spending and the Medicare Program. June 2014. 2 MedPAC: Report to Congress: Medicare Payment Policy. March 2014. 3 American Hospital Association: Private-Sector Hospital Discharge Tools. January 2015. 4 Note: Includes Part A and B expenditures (post-acute care, hospital readmissions, and others); skilled nursing represents about 37 percent of the 1-30 days post-hospitalization costs. Medicare Hospital Compare website: “Medicare Hospital Spending by Claim.” www.medicare.gov/ hospitalcompare/Data/spending-per-hospital-patient.html. 5 Analysis by Kaufman, Hall & Associates, LLC, January 2015. 6 MedPAC (March 2014), p. 169. 7 U.S. Dept. of Health and Human Services: “Better, Smarter, Healthier: In Historic Announcement HHS Sets Clear Goals and Timeline for Shifting Medicare Reimbursements From Volume to Value.” Press Release, Jan. 26, 2015. 8 Rappleye, E.: “20 Major Health Systems, Payers Pledge to Convert 75% of Business to Value-Based Arrangements by 2020.” Becker’s Hospital CFO, Jan. 28, 2015. 9 Kaiser Family Foundation: Medicare Advantage. Fact Sheet, May 2014. 10 Neuman, T., Jacobson, G.: “Medicare Advantage: Take Another Look.” Kaiser Family Foundation, May 7, 2014. 11 MedPAC (March 2014), p. 199-200 (Table 8-9). SNFs qualified as “relatively efficient” if they were in the best third of the distribution of one measure and not in the bottom third on any measure for three consecutive years. 12 Mechanic, R.: “Post-Acute Care—The Next Frontier for Controlling Medicare Spending.” NEJM, 370(8): 692-694, Feb. 20, 2014. 13 Kaiser Family Foundation: “Overview of Nursing Facility Capacity, Financing, and Ownership in the United States in 2011.” June 28, 2013. 14 Centers for Medicare & Medicaid Services: “Nursing Home Compare 3.0: Revisions to the Nursing Home Compare 5-Star Quality Rating System.” Press Release, Feb. 12, 2015. 15 See MedPAC (June 2014) p. 117 for metrics of “relatively efficient SNFs.” 16 Agency for Healthcare Research and Quality: Re-engineered Discharge Toolkit. March 2013. 17 Alper, J., Hernandez, L.M.: “Facilitating Patient Understanding of Discharge Instructions.” Institute of Medicine, Workshop, Mar. 17, 2014. 18 American Hospital Association (Jan. 2015). 19 American Health Information Management Association: “Electronic Health Record Adoption in Long Term Care.” Journal of AHIMA, 85(11), Nov.-Dec. 2014. 20 Grabowski, D.C., O’Malley, A.J.: “Use of Telemedicine Can Reduce Hospitalizations of Nursing Home Residents and Generate Savings for Medicare.” Health Affairs 33(2): 244-250, Feb. 2014. 21 © Copyright 2015 by Kaufman, Hall & Associates, LLC 5 KaufmanHall Report Spring 2015 Staff Notes Please join us in congratulating… Three executives have been promoted to Managing Director: Patrick Allen, who joined Kaufman Hall in 2009, is a member of the firm’s Mergers and Acquisitions practice. He has more than 20 years of healthcare experience advising on partnerships, mergers, acquisitions, divestitures, joint ventures, valuations, fairness opinions, and related transactions, representing not-for-profit and for-profit providers, as well as private equity firms. Patrick is a regular speaker at industry events and conferences for The Governance Institute and American College of Healthcare Executives, among others. His articles appear frequently in healthcare journals, with topics including partnership structuring, evolving healthcare services models, and consolidation trends. Daniel Majka joined the firm in 1998, and is a member of Kaufman Hall’s Financial Planning, Financial Advisory, and Strategy practices. Based in Los Angeles, he consults on a national basis for clients, including regional healthcare systems, academic medical centers, and community hospitals. His areas of expertise include the preparation of integrated strategic and financial plans, development of capital allocation processes, financial advisory services for debt transactions, and merger and acquisition-related financial analyses. Dan also is actively involved in development of Kaufman Hall’s software suite. He is a frequent speaker at industry events, such as for the Healthcare Financial Management Association and the American College of Healthcare Executives. His topics include, among others, financial planning and capital allocation for healthcare organizations. Anu Singh, who joined Kaufman Hall in 2006, is a member of the Mergers and Acquisitions practice. His expertise includes the evaluation, structuring, negotiation, and execution of mergers, acquisitions, partnerships, joint ventures, and other forms of transactions for healthcare clients nationwide. He also leads projects involving the assessment of strategic options, growth strategies, and business unit/segment viability. He has advised on or evaluated more than 100 healthcare transaction-related engagements. Anu has presented at various industry and professional events and seminars, including those sponsored by The Governance Institute, Healthcare Financial Management Association, Volunteer Hospital Association, and the National Federation of Municipal Analysts. He also has authored articles and been quoted in a number of industry publications. 6 © Copyright 2015 by Kaufman, Hall & Associates, LLC Promoted to Senior Vice President were Sarah Dawkins, who joined the firm’s Financial Advisory practice in 2009, and Andre Maksimow, who joined the Mergers and Acquisition practice in 2011. In the Strategy practice, Andrew Cohen, who joined Kaufman Hall in 2012, and Tim Shoger, who joined in 2011, also were promoted to Senior Vice President. Promoted to Vice President were Dan Clarin in Strategy, Ashish Shah in Mergers and Acquisitions, Gordy Sofyanos in Financial Planning, and Mary Katherine (M.K.) White in Software. Susan Asby, Marek Kowalewski, Conor McCaw, Joe Morrison, Saba Noorali, Erik Swanson, and Orlando Ramos were promoted to Assistant Vice President. Hunyah Basathia and Jonathon Gali were promoted to Senior Associate. In the Software division, Olga Samaras was promoted to Senior Support Analyst, Kelly Suga to Support Analyst, and Luke Taylor to Manager of Client Technical Services. Other promotions include Jennifer Bruenning to Staff Accountant, John Darland to Network Administrator, and Mike Gornik to Controller. At Axiom EPM, Jeff Baker was promoted to Senior Technical Consultant, Brandon Bloomquist to Senior Implementation Consultant, Mike Gurnee to Lead QA Engineer, Wendy Hunter to Senior Technical Writer/QA Specialist, Mike Rossi to Technical Training Manager, and Jennifer Wilson to Director of Marketing. Please join us in welcoming… Nick Long joined Kaufman Hall as a Vice President in the Higher Education division of the Financial and Capital Planning practice. Susan Santoro joined as a Vice President in Strategic Cost Management. In the Strategy practice, Jeff Kilpatrick joined as Vice President and Plamen Todorow joined as a Senior Associate. At Axiom EPM, Gene Whiteley-Ross joined as a Software Implementation Consultant for Higher Education, and James Kattinge, Sr., joined as Graphic Designer. For the General Industries, Kevin Severson joined as Director of Strategic Accounts, and Harris Googe joined as a Software Implementation Consultant. Roy Berelowitz and Beth Sutton joined as Directors of Strategic Accounts for Financial Institutions. Susan Vargo joined as Business Development Representative, also with Financial Institutions. KaufmanHall Report Spring 2015 Kaufman Hall Presents The 2015 Healthcare Leadership Conference October 21st to 23rd at the Four Seasons Hotel Chicago Please mark your calendars and plan to attend this exceptional educational and networking opportunity. Information on the four keynote speakers follows. Nate Silver, one of today’s leading statisticians, uses innovative data-driven probabilistic thinking and analyses to predict performance and results. Mr. Silver first gained national attention during the 2008 presidential election, when he correctly predicted the results of the primaries and the presidential winner in 49 states. In 2012, he called all 50 states and the District of Columbia. Earlier in his career, he developed a widely acclaimed system called PECOTA (Player Empirical Comparison and Optimization Test Algorithm), which predicts player performance, career development, and seasonal winners and losers in baseball. Mr. Silver is Founder of FiveThirtyEight, an award-winning website that he recently relaunched in partnership with ESPN. The website applies Mr. Silver’s trademark analysis to politics, sports, big data, and more. Mr. Silver is the author of “The Signal and the Noise: Why Most Predictions Fail—But Some Don’t.” His book was a New York Times bestseller in 2012 and was named Amazon’s No. 1 Best Non-Fiction Book that year. Data-based predictions underpin a growing sector of critical fields, so it’s important to ask questions such as: What kind of predictions can we trust? What methods do the most reliable forecasters use? What sorts of things can be predicted, and what can’t? In his book, Mr. Silver describes modern prediction science, uncovering a connection among humility, uncertainty, and good results. In January 2014, Mr. Silver was named to Advertising Age’s “40 Under 40” list of “the Bright Young Stars of Marketing.” Fast Company named him No. 1 of the “100 Most Creative People in Business 2013” and Creativity magazine listed him in its “Creativity 50 2013.” He also has appeared in Time magazine’s “100 Most Influential People of 2009.” Farzad Mostashari, M.D., is the CEO of Aledade, a start-up to help primary care doctors form accountable care organizations. Dr. Mostashari served from 2011 to 2013 as the National Coordinator for Health IT at HHS where he coordinated U.S. efforts to build a health information technology infrastructure for healthcare reform and consumer empowerment. During his tenure, he led the implementation of the Health IT for Economic and Clinical Health (HITECH) Act. Since that time, Dr. Mostashari was a Visiting Fellow at The Brookings Institution in Washington D.C., where he focused on payment reform and delivery system transformation. Prior to his 4-year tenure with the federal government, Dr. Mostashari served as Assistant Commissioner at the New York City Department of Health and Mental Hygiene, held posts with the Centers for Disease Control and Prevention, was a lead investigator in the outbreaks of West Nile virus and anthrax in New York City, and was among the first developers of real-time, nationwide electronic disease surveillance systems. Forbes cites him as the ultimate “patient advocate.” Dr. Mostashari did his graduate training at the Harvard School of Public Health and Yale University School of Medicine, and his internal medicine residency at Massachusetts General Hospital. Additionally, he completed the CDC’s Epidemic Intelligence Service program. Robert Pearl, M.D., is Executive Director and CEO of The Permanente Medical Group, the nation’s largest medical group. Providing healthcare to 3.4 million Kaiser Permanente members, it includes approximately 8,000 physicians and 33,000 staff members, and operates 21 medical centers in Northern California. In addition, Dr. Pearl is the President and CEO of the Mid-Atlantic Permanente Medical Group, which serves 500,000 members in Maryland, Virginia, and the District of Columbia. Over the past decade, he has been a leader in implementing advanced information technology systems across Kaiser Permanente. Board certified in plastic and reconstructive surgery, Dr. Pearl received his M.D. from the Yale University School of Medicine. He completed his residency in plastic and reconstructive surgery at Stanford University and currently serves on the faculty as a Clinical Professor of Plastic Surgery. In addition, he is on the faculty of the Stanford Graduate School of Business and teaches courses on strategic thinking and strategic change. Selected by Modern Healthcare as one of the most powerful physician leaders in the nation, Dr. Pearl has published more than 100 articles in various medical journals and has contributed to many books. He has made more than 100 presentations at national meetings and is an advocate for the power of physician-led, integrated medical delivery systems. Kenneth Kaufman is Chair of Kaufman Hall. Since 1976, Mr. Kaufman has provided healthcare organizations with expert counsel and guidance in areas including strategy, finance, financial and capital planning, and mergers, acquisitions, and partnerships. Recognized as a leading authority and committed to industry education, Mr. Kaufman has given more than 400 presentations at meetings such as those organized by the American College of Healthcare Executives, American Hospital Association, Healthcare Financial Management Association, The Governance Institute, and others. He has authored or coauthored six books and his articles regularly appear in major healthcare publications. Mr. Kaufman has an M.B.A. with a concentration in Hospital Administration from the University of Chicago Graduate School of Business. Stay tuned for further information about the 26th annual Healthcare Leadership Conference. Save the date! October 21st to 23rd © Copyright 2015 by Kaufman, Hall & Associates, LLC 7 KaufmanHall Report Spring 2015 Developing an Effective Cost Accounting Model Dan Seargeant, Dr.P.H., Vice President, and Jay Spence, Vice President of Product and Industry Solutions Having an effective and efficient cost accounting system is essential for hospitals and health systems as they face unprecedented pressures to decrease costs and increase care quality. Healthcare finance professionals need a cost accounting model that enables them to view volume, cost, and margin analytics across patient populations and clinical service lines. They also need the ability to assess cost-of-care processes at the patient or activity level to understand the true costs of care and support decision making. Many organizations have outdated costing models that are either too simplistic or too complex and resource intensive. More than 50 percent of respondents to a 2014 Kaufman Hall survey of a sample of U.S. hospitals and health systems said they lack valid and reliable procedures for gathering patient-level, activity-based costing information. More than two-thirds said developing such procedures is a high priority for their organization. As demand intensifies to integrate comprehensive performance reporting in strategic and operational planning, organizations need reliable cost accounting models that can be easily maintained and adapted, and that reflect changes in care processes. By focusing on six key areas highlighted here, healthcare leaders can implement a cost accounting model that balances organizational resources and effort with the appropriate level of detail needed to ensure accuracy. Implementing an Enhanced Data Model Unlike many older models, modern cost accounting systems support a consistent level of granularity across financial and patient views. For example, whereas an older model might have a broad category for “direct supply costs,” a newer system would break them down into components such as medical supplies, surgical supplies, pharmacy, and other categories. The costing system should be flexible and allow finance professionals to tailor cost categories across different departments and cost types (i.e., labor, supply, and overhead), and to carry those categories within the financial and patient data models. Establishing unique categories for high-cost items such as certain medications, medical devices, and implants also allows for greater precision in assigning costs. More detail provides greater insight into cost-of-care trends. The resulting data support meaningful cost projections for strategic forecasting. Reconciling Data Efficiently The flow of data through cost accounting systems must be transparent and easy to understand. Healthcare leaders should be able to validate data at different points during the process, enabling them to attest to the accuracy of the results reported to stakeholders. The goal is to ensure consistency between cost and profitability analytics used for strategic planning and the organization’s financial statements. Efficient data reconciliation allows healthcare leaders to easily compare financial results with cost data and identify inconsistencies in patient-level costs. 8 © Copyright 2015 by Kaufman, Hall & Associates, LLC Accommodating Multiple Modeling Techniques Absorption costing has been the dominant cost accounting method for decades. With this approach, historical expenses are summarized into cost groups or pools to provide department and category totals, including whether costs are associated with direct patient care or overhead expenses. To meet current and future costing needs and further ensure the validity of data, cost accounting systems should accommodate multiple costing methods simultaneously—such as relative cost-to-charge ratios, direct or micro-costing of items, reverse markups, and time-based estimates for creating relative value units. Incorporating multiple methods allows organizations to supplement the chargemaster as the primary determinant of cost, and allows for more efficient and refined modeling of patient-level costs. Organizations then can integrate data from multiple sources (e.g., materials management and surgical systems) allowing for more precise data on higher-cost supplies and procedures. Improving Transparency of Cost Allocations Many older cost accounting models did not allow individuals to see how calculations were done. Modern systems should provide transparency into how costs are assigned both from traditional operational views (e.g., cost of labor in the lab) and from the perspective of the patients who consume those services. Healthcare leaders should be able to trace data back to its source efficiently and intuitively. This is increasingly important as more people across the organization access and use costing data for strategic and tactical planning activities. Transparency allows decision makers to clearly understand how data are derived, which enables them to best apply the data for strategic-planning initiatives. Securing Department Manager Participation Department managers should be involved in the development and implementation of the organization’s cost accounting model. Their expertise in day-to-day operations and clinical care equips them to offer valuable insights regarding how to enhance internal processes and improve patient-level cost data. For example, department managers can help to better identify high-cost patients. Having the support of senior leaders is essential to gaining the involvement of department managers. The engagement of department managers also is critical to building trust in the cost accounting model among clinical staff. If managers trust the data, they will support the model and be better stewards and users of costing information. Providing Staff and Stakeholder Education and Training A concerted effort to educate staff and stakeholders is important in building a trustworthy cost accounting model. Members of the cost accounting team should be well educated and experienced. They should be provided regular professional development opportunities to build their expertise and promote confidence in such expertise among stakeholders. KaufmanHall Report Spring 2015 Education and training opportunities also should be extended to other stakeholders to keep them informed of ongoing improvements, such as data model enhancements, improved transparency and flexibility, and department-level participation. Such initiatives help build trust in cost accounting processes and the resulting initiatives and strategies. Focusing on Accuracy, Efficiency, and Transparency The transition of the U.S. healthcare system from a volume- to a value-based business model has increased the need for hospitals and health systems to have a trusted source of service line cost and profitability analytics. Having reliable costing data equips healthcare leaders to make sound decisions for their organizations. With the strong support of executive leadership, progressive organizations are ensuring the accuracy and efficiency of costing data through new technologies and the implementation of transparent and valid cost accounting processes. Your comments are welcome. Dan Seargeant ([email protected]) and Jay Spence ([email protected]) can be reached at 847.441.8780. For more information on Kaufman Hall’s cost accounting software, please contact Russ Anderson at [email protected] or 847.441.8780. 2015 Calendar of Events The Governance Institute Fast and Furious and Playbook 2015 for the Retail/Outpatient Imperative Kenneth Kaufman March 17, Dana Point, CA ACHE Congress Meeting the Retail Healthcare Imperative Mark Grube and Dan Clarin March 17, Chicago, IL HFMA Massachusetts-Rhode Island Chapter Integration: State of the Art and State of the States Ryan Gish March 20, Norwood, MA HFMA Region IV Strategic Cost Transformation: The Mary Washington Story Kristopher Goetz March 23, Baltimore, MD HFMA Western Pennsylvania/Three Rivers AAHAM Population Health Management and Retail Health Robert York March 25, Pittsburgh, PA Illinois Hospital Association Embracing Risk in Evolving Value-Based Payment Models Debra Ryan April 8, Naperville, IL Healthcare Roundtable The New Retail/Consumer Strategy Imperative Mark Grube April 9 and April 12, Houston, TX HFMA Colorado Chapter Leveraging New Business Models to Improve Value Robert York April 16, Westminster, CO HFMA Value-Based Financial Planning Jason Sussman April 16, Virtual Conference VHA Inc. Healthcare’s Disruptive Competitors Mark Grube April 23, New Orleans, LA Missouri Hospital Association Managing Risk Arrangements: Getting from Here to There Robert York April 29, Columbia, MO VHA Georgia Reform Becomes Reality, Disruption as the New Normal James Pizzo May 1, Amelia Island, FL HFMA Georgia Chapter Ensuring Successful Integration: The Real Work Begins Before the Ink Is Dry Tim Shoger May 6-8, Young Harris, GA Western Regional Trustee Symposium Leadership and Governance to Support Population Health Robert York June 10, Sun Valley, ID Iowa Hospital Association Healthcare in Transition: Fast and Furious Kenneth Kaufman June 10, Coralville, IA Wisconsin Hospital Association Managing Risk Arrangements: Getting From Here to There Andrew Cohen June 18, Wisconsin Dells, WI HFMA ANI Competing in the Emerging Retail Healthcare Environment Mark Grube and Dan Clarin June 24, Orlando, FL Georgia Hospital Association Where Have All the Inpatients Gone? Mark Grube July 17, Amelia Island, FL Missouri Hospital Association Creative Affiliations for Success in the New Era Speaker TBD August 12, Jefferson City, MO The Governance Institute Fast and Furious and Playbook 2015 for the Retail/Outpatient Imperative Kenneth Kaufman September 1, Colorado Springs, CO © Copyright 2015 by Kaufman, Hall & Associates, LLC 9 pre-sorted standard u.s. postage P A I D chicago, il permit no. 4269 5202 Old Orchard Road Suite N700 Skokie, IL 60077 Phone: 847.441.8780 Fax: 847.965.3511 kaufmanhall.com Twitter: @KaufmanHall CHICAGO • ATLANTA • BOSTON • LOS ANGELES • NEW YORK • PORTLAND Kaufman Hall Was the Top Financial Advisor for New Debt Issues in 2014 Software Training Kaufman Hall again ranked No. 1 as the top advisor in the country in new healthcare debt for combined long-term municipal public offerings and private placements. Thomson Reuters’ year-end 2014 Municipal Market Analysis indicated that Kaufman Hall supported $4.35 billion in debt transactions on behalf of client hospitals and health systems in 2014. Budget Advisor® General System and Reporting (Skokie, IL) March 17 and 18 May 12 and 13 According to the report, Kaufman Hall advised on the issuance of more new long-term municipal healthcare debt than any other firm. The company was ranked first by supporting $2.93 billion in tax-exempt debt issues through 26 new healthcare long-term transactions, representing a 22.5 percent share of activity in this debt market. Kaufman Hall was third in private long-term municipal issues, supporting $1.41 billion through 40 transactions solely to healthcare providers, representing an 11.9 percent share of the total private issue activity that Thomson Reuters tracks. Budget Administration April 13 (Online) April 14 and 15 (Skokie, IL) June 9 (Online) June 16 and 17 (Skokie, IL) Kaufman Hall has achieved the position as the No. 1 financial advisor to the nation’s healthcare providers in 11 of the past 12 years. The firm is the only independent financial advisory firm providing services exclusively to healthcare borrowers. This allows Kaufman Hall’s consultants to provide completely conflict-free borrowing recommendations and to vigorously advocate for clients’ interests throughout the financing process. Reporting (Online) March 24 (Introduction) April 21 (Reporting II) May 7 May 26 June 23 (Reporting II) For more information on Kaufman Hall’s financial advisory services, please contact Therese Wareham at 847.441.8780 or [email protected]. Provider (Online) April 17 June 11 Kaufman Hall Launches Redesigned Website Hospital Advisor® Enterprise Edition Product Training (Skokie, IL) March 19 and 20 April 16 and 17 May 14 and 15 June 18 and 19 Launched in March, the redesigned kaufmanhall.com features a bright and contemporary appearance. It offers intuitive navigation and convenient access—from your desktop computer, smartphone, or tablet—to valuable information and resources related to our management consulting, software, and thought leadership. (March—June 2015) System Administration (Online) May 5 Capital Advisor® Capital Allocation (Online) March 26 and 27 May 28 and 29 Capital Management (Online) April 23 and 24 June 25 and 26 Training for other Kaufman Hall software products is available upon request. Registration is limited. Class dates and availability subject to change based on client demand. For the most current class schedule and to register for a class, please visit http://education.kaufmanhall.com. For more information, call 847.441.8780 or email [email protected].