NAVIGANT PULSE WINTER 2013 | 1                                                                                            ...
NAVIGANT PULSE WINTER 2013 | 1                                      in this issue                                      Har...
NAVIGANT PULSE WINTER 2013 | 2A Letter from David Burik                                                       David BurikC...
NAVIGANT PULSE WINTER 2013 | 3        physicians and transferring hospitals, training the   As always, Navigant stands rea...
NAVIGANT PULSE WINTER 2013 | 4Academic Medicine atthe Crossroads: FiveSteps for Success in 2020By Christine MalcolmKey Poi...
NAVIGANT PULSE WINTER 2013 | 5         Reductions to education supplements, both                were once the core of the ...
NAVIGANT PULSE WINTER 2013 | 6chair of the Association of American Medical            care contracts, while full-time clin...
NAVIGANT PULSE WINTER 2013 | 7        individual faculty member is dead. Long live the        medical school enrollment gr...
NAVIGANT PULSE WINTER 2013 | 8Clinically Integrated Network to serve it. The            ways to enhance it by unlocking th...
NAVIGANT PULSE WINTER 2013 | 9        outgrowth of the quality movement. As soon as            hospitals (two). Despite na...
NAVIGANT PULSE WINTER 2013 | 105.	 Consider organizing a health system that          In Conclusion    leverages AMC core s...
NAVIGANT PULSE WINTER 2013 | 11        The Colorado Experience: Time for Bold New Ideas        By Andy Epstein, M.D.      ...
NAVIGANT PULSE WINTER 2013 | 12                                                           Q&A                    with     ...
NAVIGANT PULSE WINTER 2013 | 13        of Health, which is our primary source for            chairs and center directors b...
NAVIGANT PULSE WINTER 2013 | 14Q: Are there leadership lessons that you’ve            will still have growth and I think w...
NAVIGANT PULSE WINTER 2013 | 15        Im not prepared to take on Lean for the whole         me, and with all of the other...
NAVIGANT PULSE WINTER 2013 | 16work something out incrementally. But we have            Q: If a case study is written abou...
NAVIGANT PULSE WINTER 2013 | 17        About Richard Krugman, M.D.                          About Andrew Epstein, M.D.    ...
NAVIGANT PULSE WINTER 2013 | 18The Vanderbilt Experience:An Expanding Clinically Integrated NetworkBy David R. Posch and J...
NAVIGANT PULSE WINTER 2013 | 19        The Federal Trade Commission defines a CIN as              Medical Center, NorthCre...
NAVIGANT PULSE WINTER 2013 | 20during 2012 by implementing the necessary                 The first phase has addressed the...
NAVIGANT PULSE WINTER 2013 | 21        About David Posch                                   About John A. Lutz        David...
NAVIGANT PULSE WINTER 2013 | 22New and Old School Lessons forAcademic Physician CompensationBy Ronald L. VanceKey Points  ...
NAVIGANT PULSE WINTER 2013 | 23        All health systems face multiple shared clinical        C.	Base-plus-incentives    ...
NAVIGANT PULSE WINTER 2013 | 24Within the base-plus-incentive (Option C)             incentives and most rely on wRVUs as ...
NAVIGANT PULSE WINTER 2013 | 25        Arnold notes that organizations will need plan          teaching and research activ...
NAVIGANT PULSE WINTER 2013 | 26  subsidization for incentives that do not have        hybrid base-plus-incentive designs, ...
NAVIGANT PULSE WINTER 2013 | 27See how far impact can reach.A comprehensive strategy for change can start small,with daily...
Pulse Healthcare Magazine, Winter 2013
Pulse Healthcare Magazine, Winter 2013
Pulse Healthcare Magazine, Winter 2013
Pulse Healthcare Magazine, Winter 2013
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Pulse Healthcare Magazine, Winter 2013


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This edition of Pulse focuses on academic medicine as the face a mandate for changes. It is also intended for payers, community hospitals, physicians and life sciences companies to better understand and anticipate the upcoming actions of their AMCs.

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  1. 1. NAVIGANT PULSE WINTER 2013 | 1 Winter 2013 Hard Truths: Business As Usual No Longer Sufficient For Academic Medical Centersin this issUEAcademic Medicine at the Crossroads: Five Steps for Success in 2020 • The Colorado Experience: Time for Bold New IdeasThe Vanderbilt Experience: An Expanding Clinically Integrated Network • New and Old School Lessons for Academic Physician Compensation © 2013 Navigant Consulting, Inc.
  2. 2. NAVIGANT PULSE WINTER 2013 | 1 in this issue Hard Truths: Business As Usual No Longer Sufficient For Academic Medical Centers 2 A LETTER FROM David Burik 4 ACADEMIC MEDICINE AT THE CROSSROADS: FIVE STEPS FOR SUCCESS IN 2020 Navigant Healthcare Managing Director Christine Malcolm examines how some AMCs are reinventing themselves in response to government and competitive pressures that are threatening their future. 11 THE COLORADO EXPERIENCE: TIME FOR BOLD NEW IDEAS In an interview with Navigant Healthcare’s Andy Epstein, University of Colorado School of Medicine Dean Richard Krugman describes the transformational power of collaboration and “blue sky” thinking. 18 THE VANDERBILT EXPERIENCE: AN EXPANDING CLINICALLY INTEGRATED NETWORK Navigant Healthcare’s John Lutz and David Posch, CEO of Vanderbilt University Hospital and Clinics, outline the “roadmap” followed to launch one of the nation’s largest clinically integrated networks. 22 NEW AND OLD SCHOOL LESSONS FOR ACADEMIC PHYSICIAN COMPENSATION Navigant Healthcare’s Ron Vance details the hybrid base-plus- incentive compensation designs that are needed with accelerating physician integration and additional anticipated declines in physician reimbursements. 28 NAVIGANT NEWS Easton Associates, an international consulting firm specializing in life sciences, has joined Navigant Healthcare, more than doubling the number of professionals dedicated to the pharmaceutical, biotech, medical device and diagnostic industries. 29 NAVIGANT ADVISORS OFFER THEIR EXPERTISE 30 UPCOMING EVENTS
  3. 3. NAVIGANT PULSE WINTER 2013 | 2A Letter from David Burik David BurikClients, Colleagues and Friends:This edition of Pulse focuses on academic Our observation is that the typical AMC strategymedicine. I hasten to add that all segments of is justifiably proud of its accomplishments, butthe healthcare industry will find this a useful read does not always have a keen ear for externalbecause although academic medical centers messages suggesting changes. These messages(AMCs) are a small percentage of U.S. hospitals, are discounted, data is contested,their clinical footprints and research and prognostications of imminent change haveeducation activities make them a vital part of been heard before and never come to pass. Ofcare in almost every market in the U.S. As a course, in many AMCs, evidence abounds thatresult, this edition is not only intended to be there is nothing wrong at all as the ribbon is cuthelpful to AMCs, but for payers, community on the new center, a record gift was justhospitals, physicians and life sciences received, the faculty has never been morecompanies to better understand and anticipate productive or you never find a timelythe upcoming actions of their AMCs. appointment or an available bed.Most objective observers would suggest that In the past, it may have been simply easier toFederal and state policies generally have get greater funds flow through the clinicalplaced a high value on medical education for a enterprise than to demand greater costlong time. Clearly, however, the pendulum now effectiveness from the research or academicis swinging in the opposite direction as enterprise, or greater accountability from agovernment payments for clinical activities are powerful chair. It is the ability for the clinicallooking to AMCs to provide a particularly large enterprise to continue to flow those funds that ispercentage of Medicare and Medicaid savings. at the heart of today’s challenge. The good news is AMCs have begun to gain on-campusIn addition, the average consumer, who acceptance of the emerging challenge and toincreasingly is being empowered to make craft a vigorous response.choices, will get on the Internet and likely findthat the AMCs’ quality isn’t as high as he or she In this edition of Pulse, we highlight some ofthought it was, and that the higher price is these promising strategic responses. Andifficult to justify. overview article by Navigant’s Christine Malcolm examines the bold moves by the “firstWe believe that AMCs in particular will benefit if responders” to meet the challenges ahead.they move their mindset from “justifying the Their actions – in five key areas – range fromcost” to “earning the business.” This, of course, is creating a streamlined and accountableeasier said than done. In fact, this challenge clinical enterprise with a shared strategy andmay be a meaningful application of the embracing the “new math” of enrolled lives tomanagement cliché that “culture eats strategy.” nurturing the relationship with referring CONTINUED ON NEXT PAGE
  4. 4. NAVIGANT PULSE WINTER 2013 | 3 physicians and transferring hospitals, training the As always, Navigant stands ready with more next generation of disciplined leaders and than 600 seasoned consulting professionals and thoughtfully forming partnerships. industry thought leaders to assist health systems, physician organizations and payers in designing, Navigant’s Andy Epstein interviews University of developing and implementing integrated, Colorado School of Medicine Dean Richard technology-enabled solutions that create Krugman to present changes afoot in response high-performing healthcare organizations. The to Dean Krugman’s “blue sky” challenge to latest enhancement of our services, detailed in organize the school as if it were starting over. this edition of Pulse, is our combination with Among the results: department chairs are Easton Associates, an international consulting figuring out how to reorganize to benefit the firm specializing in the life sciences industry. With entire research enterprise rather than sticking to the addition of Easton’s team based in New the notion that each science has to be neatly York, London and Beijing, we have more than compartmentalized. doubled the number of Navigant professionals with global business strategy expertise for Navigant’s John Lutz and David Posch, CEO of pharmaceutical, biotech and medical device Vanderbilt University Hospital and Clinics, companies, diagnostic suppliers and life describe the Clinical Integrated Network that sciences investors. Vanderbilt has formed with community partners to advance its vision of improving population As co-leader of Navigant’s Strategic Consulting health while becoming a global destination for Division with Andy Epstein, I would be delighted cutting-edge healthcare delivery, research and to discuss the challenges facing your organization teaching. Starting with a Navigant “roadmap” – AMC or any other – and the strategic options for developed last year, Vanderbilt already has confronting and solving them. Please visit our formed affiliations with 18 Tennessee hospitals website,, or contact with a goal of supporting 100,000 lives by the me directly by phone or email. end of this year. Navigant’s Ron Vance focuses on the ultimate pocketbook issue – how AMCs are accelerating the refinement of physician compensation plans to prepare themselves to bridge between a fee-for-service to a pay-for- outcomes world. Best regards, David Burik, Managing Director, Co-Leader, Strategic Consulting Division, Navigant Healthcare 312.583.4148
  5. 5. NAVIGANT PULSE WINTER 2013 | 4Academic Medicine atthe Crossroads: FiveSteps for Success in 2020By Christine MalcolmKey Points»» Start by acknowledging the depth of the challenges»» Choose an integrated clinical team with a shared strategy»» Create partnerships»» Train next generation of disciplined leadersAcademic medicine has a history of reinventingitself. Ever since the Flexner Report promptedmore rigorous medical education with adevastating assessment of medical schools 100years ago, academic medical centers (AMCs)have had to adapt to waves of scientificdevelopment, such as antibiotics,transplantation and genomics, followed by thedawn of Medicare and Medicaid. Now, as aresult of the Accountable Care Act and theglobal economic crisis, academic medicineagain must face some hard truths. After nearlyfive decades of remarkable growth anddevelopment, there are threats to everyelement of the academic mission – teaching,research, patient care and community service.CONTINUED ON NEXT PAGE
  6. 6. NAVIGANT PULSE WINTER 2013 | 5 Reductions to education supplements, both were once the core of the AMC now have been direct and indirect, are being implemented. reduced to a narrower set of services like solid University financial crises, with limits on tuition organ transplantation or certain rare diseases income, leave little room to shift to other means that are expensive and challenging to treat of support to pay for education. Research – and the work of the innovators, who know that revenues, especially from Federal programs, their innovations will be in the community as have been hit by across-the-board reductions. soon as their residents and fellows join the As a result, it looks like a generation of young competition. For example, 10 years ago, scientists may never be able to achieve the advanced cardiac or neuro-imaging with stable support that the National Institutes of intervention was the near exclusive domain of Health has provided highly accomplished the AMC. Now these services have spread to scientists for decades. nearly all large community hospitals and even some smaller competitors to the AMC. The Clinical revenues – the economic engine of the combination of government pressure and academic enterprise – are threatened as well. competitive pressures are causing some to say Government programs already fail to cover the that the sun is setting on academic medicine in cost of care, and lower base payments, lower the U.S. Indeed, the doomsayers will be right if market basket adjustments and pay-for- AMC leaders underestimate the seriousness of performance programs will cut payments even this latest crisis threatening their future, or find further. Most academic medical centers also they are incapable of mobilizing their are heavily reliant on state support, and the organizations in pursuit of a new future. fiscal crisis facing nearly all state governments will trigger many additional reductions. At Navigant, we believe a clear-eyed Disproportionate share support, a supplement acknowledgment of the depth of the to cover uncompensated care, is in the process challenges is the first step to the essential of being reduced. The combined impact of reinvention of AMCs today. But just as we should these reductions is tens of millions of dollars for not fool ourselves into believing that “this too most AMCs. shall pass,” we should not underestimate the underlying strength and ingenuity of academic These factors are exacerbated by the medical enterprises, their well of public support increasingly rapid diffusion of innovation from and their capacity for reinvention. One AMC the AMC to community settings. The broad leader we are privileged to work with – Mark swath of tertiary and quaternary services that Laret, CEO of UCSF Medical Center and boardStrategic & Operational Planning Under Uncertainty: AMCs are Facing Profound Business ChallengesTHREATS TO CLINICAL REVENUES THREATS TO MEDICAL EDUCATION»» Impact of “Sequestration” AND RESEARCH REVENUES»» Medicare payment reductions – lower base payments, lower »» Impact of “Sequestration” market basket adjustments, productivity adjustments – all in »» University budget cuts – high and rising – with no end in sight the ACA (especially for public universities)»» Value Based Purchasing – such as nonpayment for »» Reduced Indirect Medical Education (IME) payments readmissions or Hospital Acquired Infections (HAI) »» Limits on tuition income»» Medicaid funding reductions due to state budget crises »» Reduced grants and contracts – both funding and wage»» Commercial payment following governmental lead limits»» Disproportionate Share Hospital (DSH) payment reductions »» Potential Graduate Medical Education (GME) Reallocation»» Potential cuts looming for outpatient/physician services – »» Pension shortfalls and rising costs Hospital Based Clinics, non-renewal of “Doc Fix"»» Increased governmental and regulatory burden
  7. 7. NAVIGANT PULSE WINTER 2013 | 6chair of the Association of American Medical care contracts, while full-time clinicians feelColleges – sums up the situation succinctly: both disrespected and under pressure to publish“Society is giving us this new charge, and – if we and attract extramural funding. At the center ofchoose to see it as such, this amazing all of this are the clinical chairs, who have theopportunity – to become a hotbed for radical, most challenging jobs in the AMC. Clinicalnew thinking about how we achieve our core chairs must balance very large businesses in twopurposes.” or three different economic environments – clinical care, research and education. TheirSome academic medical centers like UCSF faculties have many options both inside andMedical Center are “first responders” to the outside academic medicine, and keeping themimpending crisis, and are making bold moves to engaged during times of rapid change is a trueaddress the challenge ahead. We believe there challenge. The effort necessary to gainare five key actions that they are taking to commitment of the chairs and facultytransform their organizations. leadership to form a streamlined, empowered and agile clinical enterprise structure cannot be1. Create a single, streamlined and accountable underestimated. clinical enterprise – representing the hospital, the practice plan and the faculty – to improve Yet this clinical focus is one of the core strengths strategic agility in a highly competitive market. that AMCs can potentially leverage to create a Set a shared clinical strategy, and pursue it as competitive edge in the new world. Many of our if your life depended on it (and it does!) most sophisticated AMC clients are in the process of powerfully aligning the hospital,In most markets, the academic group practice clinical faculty and the practice plan into ais either one of, or the, largest group practice in clinical enterprise that removes duplication ofits market. Yet the AMC group practice rarely effort and costs and is focused on competingperforms as powerfully as its non-academic successfully in a hypercompetitive, price-competitors. The AMC group practice is the sensitive environment. There is a remarkableheart of the clinical enterprise. When one base of clinical talent, administrative expertise,considers its potential and relative systems and operations that can be aligned justcompetitiveness, it is hard to explain why faculty as effectively as a Mayo or Cleveland Clinicpractices are rarely able to achieve the group practice. AMCs have many more of thecompetitive edge that is demonstrated by pieces of the puzzle than most health systemsgroup practices such as the Mayo Clinic, that have both independent and employedVirginia Mason Clinic, Ochsner Health System physicians, with internal competition, andand the Cleveland Clinic. Why are most significant barriers to collaboration.academic practices so much weaker? Is itbecause of complex decision-making? Or is it Some innovative AMCs are celebrating thebecause AMC group practices serve many unique value that each individual brings to themasters? What can be learned from successful enterprise. At the same time, they are aligninggroup practice-based health systems that can their organizations to create separate clinicalbe of use to the AMC? and research structures, with well-defined career paths for researchers and clinicians,Academic medical centers compete with eliminating cross subsidy between the clinicalhealth systems with a single focus – clinical care and research missions. This model has the– with full-time physicians and hospital leaders benefit of full-time academic clinicians andwho work full time on that single mission. In full-time researchers, each of whom iscontrast, most AMC meetings, departments and productive, appreciated and engaged. Toeven individuals are constantly balancing the quote Gary Fleischer, M.D., physician-in-chief atmany missions of the enterprise. Nobel Prize Boston Children’s Hospital: “The triple-threatwinners are called on to weigh in on managed-
  8. 8. NAVIGANT PULSE WINTER 2013 | 7 individual faculty member is dead. Long live the medical school enrollment grew from 33,000 to triple-threat department!” 80,000 (240%). Clinical growth created a base of operational and financial support that has been At the University of Michigan Medical Center, all the foundation for investment in biomedical of the outpatient functions now are managed research, clinical innovation and service to the by faculty physicians in a unique incentive medically underserved. It is the fuel that makes relationship between the medical center and everything run. the faculty practice. Clinical faculty have been created as the accountable executives for each Peter Senge, in The Fifth Discipline, talks about aspect of the practice, and are responsible for the importance of mental models. Our management decisions, with authority to underlying business model has shifted, and if we reduce duplication, grow, implement want to “win” in the new environment, we will improvements and earn incentives for doing so. need some new mental models to align the Since the inception of the arrangement, the faculty around the new rules of the game. One economic benefit created by this new model of the most effective ways to do so is to develop has been estimated at more than $52 million. an enterprise financial model for the future that includes inpatient, outpatient and physician fee There also are opportunities to consolidate back streams. The model can then be adjusted to office functions (such as revenue management), incorporate the known changes in the payment centralize information-technology systems, streams and the timing of the onset of health create a single structure for quality/safety/ insurance exchanges and other known reliability and redesign clinical operations with a changes. Faculty leaders can suggest strategies common data base and measurement systems and can “try on” how successful they will be, – the common shared-service environment that such as “enrolled life” expansion, tertiary and has been the hallmark of leading health quaternary expansion, Medicare Advantage systems. expansion, quality improvement and cost management incentives, bundled pricing and The raw materials are there. The will to align and network expansion. come together in pursuit of a future course of action often is the missing ingredient. The clinical leaders will most likely conclude that a multi-dimensional strategy of enrolled-life 2. Embrace the “new math” of enrolled lives. Run expansion and service to others through the numbers and help clinical leaders model specialty contracts and bundles is the only way their solutions to the challenges inherent in the to create adequate economic support for the new environment. enterprise. When we work with Navigant clients to take a hard look at the numbers, the potential Many AMC CEOs recognize the current business impact of mitigating strategies and their relative model’s troubling dependence on clinical value in the new value equation, they become growth. The past growth has been impressive. motivated to reinvent themselves. The level of Many AMCs recently experienced the most change required to be successful is both successful years in their organization’s history, sobering and inspirational. It aligns fueled by remarkable growth in highly neurosurgeons and primary care physicians subspecialized, procedure-intensive healthcare. alike, as they begin to appreciate their Clinical growth has been the principal interdependency. economic engine of academic medicine. Academic medical centers grew in both scale Later in this issue of Pulse, David Posch, CEO of and distinction since the implementation of the Vanderbilt University Hospital and Clinics, and Medicare and Medicaid programs. Between Navigant’s John Lutz describe Vanderbilt’s 1966 and 2011, medical school faculty counts strategy to create a base of enrollment and a grew from 15,000 to 138,000 (920%) while
  9. 9. NAVIGANT PULSE WINTER 2013 | 8Clinically Integrated Network to serve it. The ways to enhance it by unlocking the naturalnetwork already has grown to 70,000 enrolled strengths and competitiveness of thelives, and plans to add more Medicare and organization are highly effective ways to alignnewly insured enrollees as health reform unfolds the clinical enterprise around a set of moves thatin Tennessee. Another example is the University can help sustain the economic base of theof Michigan Medical Center, consistently a “first organization through a powerful “enrolled lives”mover” in responding to health reform. It has strategy. In every case where Navigant clientsparticipated in the Medicare Shared Savings have adopted these models, the work to achievepilots as well as the Physician Group Practice success in the new model has helped clinicalDemonstration project. UMMC leaders are leaders become both knowledgeable about thecommitted to continuing to demonstrate that economic challenges ahead, and morethey know how to win in the new environment, comfortable with effective responses to them.and have proven their capabilities foradaptation. The University of California, Los 3. Identify, measure, understand and nurtureAngeles is expanding its capacity for the relationships that have long been thepopulation health, beginning with its current lifeblood of the academic medical centerMedicare Advantage enrollment and its – relationships with referring physicians andcapitated managed care patients that it has transferring hospitals. Create a physicianmanaged for decades. UCLA is refining its structure that can align community physicianscare-management capabilities by and the academic group practice into animplementing a primary care innovation model integrated clinical all of its primary care sites, expanding itsnetwork and sites of care and working in the One phenomenon that is rarely understood andMedicare Shared Savings program. measured, and even more rarely well managed, is the process of accepting referrals andAMCs are best able to contract successfully and transfers from other care settings. Navigant’sbe paid fairly if both public and private payers work has shown in many settings that transfersfully understand the value the AMC provides to and referrals are two of the most rapidlythem – the unique value equation that is a growing “service lines” in academic medicine.reflection of market position, access, network, Research also has shown that referral volumequality/satisfaction/outcome metrics and cost. has grown by roughly 10% per year for the lastThe measurement of this value and modeling 10 years. Many believe this is a natural CONTINUED ON NEXT PAGEHow Sequestration Will Hurt Patients“Only 6% of hospitals, major teaching hospitals, and their medical school physicians provide more than20% of all hospital care in this country, 41% of hospital charity care, 20% of care to Medicare patients, and25% of care to Medicaid patients.““Sequestration’s 2% cut in Medicare reimbursements will mean that the average major teaching hospitalwill have nearly $14 million less to support critical patient care services often unavailable elsewhere incommunities, including trauma centers, burn units, poison centers and psychiatric units.”– Darrell G. Kirch, M.D., president and CEO, Association of American Medical CollegesFrom his article “How sequestration will hurt patients”
  10. 10. NAVIGANT PULSE WINTER 2013 | 9 outgrowth of the quality movement. As soon as hospitals (two). Despite national distinction and physicians realize that their patient might need reputation, many AMCs lag in this new something outside their area of expertise, they environment that demands both high quality at realize that it is best for their quality metrics, the lower cost and improved patient access. metrics for the hospital and the careful management of risk and liability to get the Creating improvement across the Triple Aim is patient to the right setting quickly. the challenge ahead. Oftentimes, clinical leaders only remember one or two of the Triple The gold standard and desire of every referring Aim: (1) improvement in the patient experience physician or hospital is a single phone call that of care, including both quality and satisfaction; connects the referring physician with the (2) improving the health of populations; and (3) accepting physician, and in the case of a reducing the per capita cost of healthcare. transfer, arranges transport. Yet the systems that field the incoming calls of these physicians and Some academic clinical enterprises have taken hospitals are highly idiosyncratic, poorly on the challenge and created real developed and in some cases nonexistent. This is improvement. Seattle Children’s Hospital has a process that every AMC should master now. embraced “Toyota Lean” concepts, and These relationships are the foundation of the systematically tackled issues such as throughput AMCs’ value and should be carefully nurtured. and patient safety with a focus on After full implementation of the Accountable standardization. The care for more than 30% of Care Act, the contract implications of the referral the inpatient discharges at Seattle Children’s will make it an even more complex process. Hospital is delivered using “clinical standard work” – engineered by their clinicians, in active Referring physicians and physicians seeking the collaboration in a Lean process to deliver safety of a clinical enterprise are the first group consistent quality and outcomes. of clinicians who will be attracted to join the network or extended physician group of the Other academic enterprises, like UCLA, have academic group practice. Partners Community tackled the challenge of consistent service Healthcare Inc. (PCHI) is an excellent, early quality with a common approach. The UCLA example of a broad network, with aligned approach, called CICARE, has the vision “to contracts, a well-distributed geography and heal humankind, one patient at a time, by loyal community partners. PCHI’s 5,500 improving health, alleviating suffering and physicians are “committed to enhancing both delivering acts of kindness.” UCLA’s patient the physician-patient relationship and the satisfaction scores have risen to the top 1% physician experience through innovation in nationally as a result. medical practice.” Peter Pronovost, M.D., at Johns Hopkins is 4. Imbed quality, safety, reliability, the patient perhaps one of the most distinguished leaders in experience and cost management in every the healthcare quality and safety movement. aspect of the organization. Leverage the He has led the systematic development of the teaching and training environment to both quality and safety agenda across the enterprise. bring the organization along and train a next Most AMCs now teach and train for quality/ generation of leaders who have this discipline safety and reliability, and have found that the at their core. side benefit of this endeavor is the active and continuous engagement of clinical teams Academic medical centers are widely throughout the hospital in a process of recognized by the public as the best hospitals in continuous improvement. This set of activities is the U.S. healthcare system. Currently, all of the at the heart of all missions of academic U.S. News Honor Roll hospitals are academic medicine, research, teaching, patient care and medical centers (15) or very large teaching community service.
  11. 11. NAVIGANT PULSE WINTER 2013 | 105. Consider organizing a health system that In Conclusion leverages AMC core strengths in partnership Academic medical centers are like the mighty with community providers to create an redwoods in the California forest – noble effective health system. organizations that we look up to and admire,There is perhaps no question that generates that are recognized for their strength andmore heated discussion than whether the power. But, like the redwood, in the currentacademic medical center should be part of a environment AMCs’ shallow root systemlarger health system. In the 1990s, many AMCs threatens their very existence. The creation ofmerged, sold or formed a health system. The an aligned, excellent, clinically driven, network-outcomes of hasty consolidation are well based academic clinical enterprise, with aknown. The most commonly discussed are the relentless commitment to innovation andmoves with imperfect outcomes, such as the transformation, is the best way to sustain theirGeisinger/Penn State merger, the Stanford/UCSF strength and power in 2020. While this is a verymerger, the creation and dissolution of the challenging endeavor, the time to start is now.Health Alliance of Greater Cincinnati, andseveral for-profit acquisitions including Tenet’sacquisition (and subsequent sale) of theUniversity of Southern California Medical Center.While these examples are the source of endlessdebate, there also have been a number of verysuccessful partnerships that have positionedAMCs at the core of a highly successfulintegrated delivery system, with a sustained About Christine L. Malcolmcompetitive advantage. The Barnes-Jewish- Christine Malcolm has more than 30 years ofChristian/Washington University system, Partners healthcare consulting and executive experience,HealthCare and MedStar/Georgetown are including senior line experience in two academicexamples of long-term successes that have medical centers, a leading industry association,created capabilities and competitive positions the countrys largest integrated health systemthat are without peer in their markets. Newer and several health services and technologypromising relationships include the formation of companies. Christines practice focuses onthe University of Colorado Health, the Trinity strategic planning for large health systems,acquisition of Loyola University Medical Center teaching hospitals, childrens hospitals andand local system building by Yale New Haven academic medical centers. Contact Christine atHospitals, Vanderbilt and the University of 415.356.7105 or Medical Center. All of theserelationships are being constructed to gain thebenefits of “system-ness” and the geographicreach and clinical relationships that will berequired to succeed in the future. In this context,the AMC can do what it does best, and theremaining system hospitals can providecommunity-based care in community settings.Each party wins.
  12. 12. NAVIGANT PULSE WINTER 2013 | 11 The Colorado Experience: Time for Bold New Ideas By Andy Epstein, M.D. Key Points what resources and realignments are needed to make the plan a reality. »» Overcome complacency that ‘the platform isn’t burning’ None of this is easy. In complex academic »» Function like a multispecialty group practice, medical centers, where traditionally led by clinical chairs independent-minded chairs and faculty have »» Place a premium on collaboration and aggressively pursued and fiercely protected transparency their own agendas, a dean cannot say “Let’s march in this direction!” and expect the troops Now in his 23 rd year as dean of the University of to follow. As Dean Krugman puts it, only half Colorado School of Medicine, Richard Krugman, facetiously, “The dean appoints the chairs and M.D., is the longest-serving medical school dean then serves at their pleasure.” The typical in the U.S. The school, founded in 1883, is part of compartmentalized organization of an AMC is the nation’s newest healthcare campus that deeply rooted in tradition, frustrating change boasts world-class hospitals. Its faculty has agents and patients alike. My own father, also a made medical breakthroughs in research physician, found it exceedingly difficult to ranging from human chromosomes and cancer navigate among the disparate specialties when genes to immunology and AIDS. The school has he was seeking treatment in an AMC. Real, enjoyed double-digit growth in clinical revenue lasting change requires carefully building a for more than a decade. culture of collaboration and shared values. Yet in his “State of the School” address just over Dr. Krugman begins with a distinct advantage in a year ago, Dean Krugman told his colleagues this transformational work. His long tenure as that difficult challenges ahead demanded a dean has enabled him to select all the chairs, so new vision. “Complacency is not an option,” he the school enjoys a higher degree of cultural warned. He also issued this “blue sky” challenge: alignment among the leaders and faculty than “If we were starting over as a School of many AMC peers. This will enable them to make Medicine today, with more than 2,000 faculty rapid progress in responding successfully to the and $1 billion in revenue, how should we changing environment. It will support rapid organize ourselves to have maximum success in innovation and implementation of new structures each of our missions – research, clinical and programs. Many AMC peers must begin practice, education and community service – their work with an intense focus on purpose, by 2020?” values and cultural alignment to prepare their organizations for change. At CUSOM, At Navigant, we were privileged to be department chairs are recognizing that single- selected to help Dean Krugman and CUSOM minded advocacy of their areas may diminish ask difficult questions such as “Why are we the overall success of the school. All stakeholders doing this?” and “How do we change without are realizing they need to act more effectively destroying the very fabric of what made us as a group practice and then as a strong unified successful?” We just completed an intensive partner with hospitals. They are facing up to the seven-month visioning process that required hard truth that pressures on clinical revenues and rethinking the entire business model. We’re research support – which make up 80% of now entering the second phase where the CUSOM’s total revenues – will decrease their school develops its strategic plan and decides margin substantially unless diminished revenues
  13. 13. NAVIGANT PULSE WINTER 2013 | 12 Q&A with Richard Krugman, M.D. Dean, University of Colorado School of Medicine and Vice Chancellor for Health Affairs, University of Colorado Denverare matched with a similar decline in expenses. Q: What are the unique challenges facingA consensus is building that bold actions are medical schools and academic health centers?required to maintain the school’s ambitious andtransformational trajectory. Dean Krugman: Clearly, the biggest challenge is we all are looking ahead to a time where theWhat’s next? For a temperature check, we plethora of economic resources that weveasked Dean Krugman to reflect on the response been accustomed to having for the last 20 yearsso far to his “blue sky” challenge and how is going to be constrained. Were heading into aCUSOM is moving ahead to reinvent itself in the period of a relative drought in Federal fundingdecade ahead. What follows is an edited for research. No matter what happens intranscript of our conversation. Washington, I suspect that the National Institutes CONTINUED ON NEXT PAGEAbout University of Colorado School of MedicineAnschutz Medical Campus in Aurora, Colo.»» Hospital relationships: University of Colorado Health (partnership between University of Colorado Hospital and Poudre Valley Health System), Children’s Hospital Colorado, Denver Health, National Jewish Health, Veterans Affairs Medical Center»» Revenue: $962 million»» Number of M.D. students: 638»» Faculty: 2,637»» More than 1,100,000 outpatient visits a year»» Ranked 4th in primary care by U.S. News & World Report»» National Institutes of Health funding: $179 million direct (includes Department of Health and Human Services direct funding, excludes Department of Defense, National Science Foundation and other Federal funding)
  14. 14. NAVIGANT PULSE WINTER 2013 | 13 of Health, which is our primary source for chairs and center directors because I talked resources, is going to be more constrained. Its with all of them about what I was thinking, and already constrained and incredibly competitive. the majority thought it was a good idea. And the revenue we use for our education mission – state money and students tuition in our Q: What role do department chairs play in case as a public school – is constrained. Weve leading needed change? lost 50% of our state support over the last decade and our tuition has tripled, making it Dean Krugman: Department chairs have an increasingly unaffordable for students to enroll enormous role to play in any school of medicine. for an education. Theyre really the heart of the academic structure. The clinical chairs are most responsible Another resource is the clinical portion, which for the education of residents and fellows in has been the source of revenue that has specialty fields, and for the research and clinical supported both of the first two missions with faculty development within their fields. In the additional funding in education and research. past each department, or each division, was a Clinical dollars are going to be increasingly clinical program – a tub on its own bottom. In constrained as Medicare, Medicaid and private the future, if were going to be successful in payers – who we rely on for our clinical revenue healthcare and generate the kind of clinical – tighten up their resources. So were looking revenue we need, we must function like a ahead to a time where, if were going to do multispecialty group practice. There really arent more, well have to do more with incrementally many research-intensive schools of medicine in less money. And if we just want to stay the same, the U.S. that know how to be an effective were probably still going to need to find ways to multispecialty group practice that can meet the do less. Triple Aim: providing the best care for patients, the best care for populations, at the lowest, Q: What is the most challenging part of your most effective cost. That’s just not been on our “blue sky” challenge? radar screen in the past, with the exception of Mayo, Dartmouth-Mary Hitchcock or Cleveland Dean Krugman: I decided to ask the school, if Clinic that were clinics before they were were starting over, how do we need to be medical schools. So we have a huge challenge organized to be maximally successful in all of in the clinical area. our missions, given the realities of a future where there is incrementally less money? The most The basic science chairs have a different challenging part for us is that, as some have put challenge. Im actually encouraged by the it, the platform isnt burning yet. Weve had conversations Im hearing among my basic 10-15% increases in our clinical revenue every science chairs because they realize that year for the last 15 years. It’s hard for people – science is not neatly compartmentalized into particularly a group of people like an academic biochemistry, physiology, microbiology, faculty who are less comfortable with change immunology and pharmacology anymore. Its than many people – to recognize that this is much more multispecialty, and so in some ways something we really need to do. they may actually be finding it easier to figure out how to organize so that our research And so getting the engagement of everybody in enterprise is as successful as it needs to be. the process has been somewhat of a challenge. But I just signed thank you letters to 230 people So while there are challenges, Im in a unique who were part of phase one of this process. And position where Ive recruited every one of our we have fairly broad engagement now as we chairs and major center directors. And they all head into the second phase. It has been less think this is something we should be doing, so challenging for us to get the buy-in of all our were doing it together collaboratively.
  15. 15. NAVIGANT PULSE WINTER 2013 | 14Q: Are there leadership lessons that you’ve will still have growth and I think we will still belearned so far in this process? able to support what we need to do. However, we still need to shrink our basic infrastructure,Dean Krugman: Yes, stick around 15 or 20 years if because I think everyone is going to have toyou can. take costs out of their administrative infrastructure if theyre going to be successful inQ: Has your long tenure as dean been an the future.advantage or disadvantage? Q: How important is transparency in the flow ofDean Krugman: Im 23 years into this work, and I funds and accountability?can tell you that had I raised this challenge inthe third year I was in this job I would not be in Dean Krugman: Our people are increasinglythis job longer than four years. Our situation may willing to be very transparent about thebe unique here. But I hope that the lesson, resources that are coming from the hospital toassuming that were going to be successful here, the departments in the school. There isdoesnt get lost on those places that havent increasingly an understanding that it cant justhad the 20-plus-year experience we had. It is be done on a department-by-department basisgoing to be a challenging time everywhere, – that we must provide support to one another.and it is going to take a lot more collaboration The faculty group practice has to support ourand willingness to give some things up by chairs two affiliated hospitals, university and childrensand center directors and deans if our institutions services, and at the same time the support thatare going to survive the difficult times ahead. comes from them has to be transparent and understandable by everyone. The hospitals areQ: How are you rethinking your financial model? their own entities with their own boards. We are the antithesis of an integrated health system. WeDean Krugman: In some ways, we have been have entities that are totally separate that havefortunate here. Fifteen or 20 years ago I was decided that they ought to work with eachfrustrated that the adult side of our enterprise at other – because nobody works for each other –University of Colorado Hospital was such a very if were all going to make it here.small clinical enterprise. Our major clinicaldepartments were almost entirely focused on Q: Where are there cost-cutting opportunities?research and did relatively little clinical work. Inpart, thats because for the first 70 years as a Dean Krugman: In the research area, weremedical school with Colorado General Hospital, talking with the university administration aboutwe had no clinical revenue because the how to streamline our whole grants andhospital was a public indigent-care hospital. But contracts administration. It is a $425 million bookhaving been frustrated in the 90s turns out to of business and every department has one orhave been a blessing. Now the chairs of two or three people leading grantsmedicine, neurology, dermatology and of the management. Theyre not particularly well-surgery and other departments all agree that coordinated or defined. Within the clinicalwe have to dramatically expand our clinical arena, we already have a fabulous businessenterprise. We actually now have the capacity enterprise and university physicians focused onto do so. the revenue cycle and contracting. Were doing collaborative things with the hospitals to getGoing forward, while I don’t think we will be ready for the future. Were one of the bundledable to get the 12-15% annual growth that weve payment pilots that the Centers for Medicare &had for the past decade, I do think we can Medicaid Services (CMS) has just announced.have, and we will need, at least 8% growth. Some of our units are talking about using LeanEven with less of an increase in our growth, we technology to look at how they do their work.
  16. 16. NAVIGANT PULSE WINTER 2013 | 15 Im not prepared to take on Lean for the whole me, and with all of the other chairs, the center institution at the moment because I think that directors and the hospital directors, to make not has to be campus-wide, not just school-wide. just their department, but the school, the But certainly Denver Health, one of our clinical centers and the hospitals as good as they can partners, has demonstrated that you can do a be. That naturally requires some give and take lot with Lean to improve both your process and and some willingness to be patient. If, in fact, your cost structure. what would vault one department to the top in the country comes at the expense of other Q: How do you increase the collaboration departments, then its probably not something among departments? we want to do automatically here. We want to have a broader conversation, and move the Dean Krugman: Within the clinical arena, I see institution in a way that everybody is as the research enterprises in the departments successful as they can be. Twenty years ago, getting more engaged institutionally within that wasnt necessarily the way this place some major centers, or areas, like cancer or worked, or many places worked. cardiovascular disease or other things, where there is more central funding of a research Q: What do you do when someone doesn’t fit infrastructure. For example, the PhDs who are with the culture you’re building? hired in clinical and basic science departments to support and conduct research have very Dean Krugman: I havent had much of a different base salary support, with those in basic problem with that. Over the course of the years, science departments having 30-50% base salary I had two or three chairs who we recruited who support and those in clinical departments really didnt fit into this culture, or environment, having 2-5% base support. I think there may be who were more interested in their own a way we can homogenize that particular department. Theyre no longer here. They were process to support the whole research as uncomfortable in this environment as we enterprise better than department by were with them. So it was good for them to department. But the clinical departments need move on. Everyone should have the opportunity to exist in one form or another because they to work in a place where they can be happy. have the training requirements set by the residency review committees to support the Q: How are you addressing the disparity in growth and development of their future faculty. funding among departments and centers? That is not something that you can easily ignore. By far, one of the more important things that we Dean Krugman: We openly acknowledge that do as an institution is to train the next generation we have big disparities in base funding, but of physicians and specialists. everybody knows it and everybody sees it. Ive said to everyone that were not going to Q: What are the most effective incentives to get reallocate our existing resources because we the behavior youre looking for? dont have enough resources to reallocate. The disparities we have are historic; they go back to Dean Krugman: I make it explicit to everyone a formula put together to allocate base funding that, number one, I want them to be successful in 1985. The way weve been successful here is and Im not going to do anything that suborns by reallocating resources off incremental them or interferes with their success without revenues so that nobody is gouged or informed consent. But its also explicit that, cannibalized. We may give one or two compared to their peers, their job is not just to departments more money at any given time have the countrys most successful department because of their needs, either one-time money in their specialty. That’s what chairs were like in through our academic enrichment fund or, if we the 90s. Instead they need to be working with got a big windfall in state money, we would
  17. 17. NAVIGANT PULSE WINTER 2013 | 16work something out incrementally. But we have Q: If a case study is written about your school inso little we havent felt it useful to gouge people. 2020, what do you want it to say?Q: How does the University of Colorado Health Dean Krugman: First of all, I anticipate thesystem fit into the picture? school will be here. Whoever my successor is at the time, I hope he or she is enormouslyDean Krugman: University of Colorado Health is successful. I hope this school will have growngoing to be enormously important for the future. and developed as well as it could. I have noAssuring a flow of patients and clinical revenue illusions that what we think will be happening inis important. Its a new system and its evolving. 2020 will actually happen. But if the doomsdayWe have agreed we are going to start working scenarios that there will only be 30 or soon a formal affiliation agreement. It has a huge research-intensive medical schools in the U.S.amount of promise, but we have a lot of details are correct, I think it is far more likely we will beto work on to make sure that its successful. one of them because of the process that we have started this past year. And I hope that we will be a real beacon for the type of tertiary and specialty care that meets the Triple Aim. CONTINUED ON NEXT PAGEUniversity of Colorado Health:A Partnership of A Top Community Hospital and Top AMC“As Poudre Valley Health System considered options for partners, we were most interested in forming thenew health system with an academic medical center because this would give us uniqueness in themarket, region and nation. University of Colorado Health is a new health system partnership of equalsthat combines Poudre Valley Health System, one of the top-performing community health systems in thenation, with University of Colorado Hospital, the highest-ranked academic medical center in the country.UC Health is dedicated to building a healthier community and providing unmatched patient care bycombining academic-based and community-focused medicine to bring innovative and leading-edgecare to patients throughout the Rocky Mountain region.“We were particularly interested in the strategic value that the University of Colorado faculty practicewould contribute. The faculty provided the deepest bench of medical specialists in the region, especiallyin quickly advancing areas such as oncology, cardiovascular surgery, the neurosciences and thebiosciences. They are the source of top-quality training sites for the next generation of healthcareprofessionals eager to meet the needs of diverse populations from the Front Range to rural areas acrossthe Eastern Plains. In addition, their highly ranked primary care programs and health services researchersbring a critical new dimension in this era of ‘The Triple Aim.’ We decided to call the new health systemUniversity of Colorado Health to signify the importance of our academic affiliation.”– Rulon Stacey, Ph.D., FACHE, President, University of Colorado HealthRulon Stacey was named president of the University of Colorado Health in 2012. In the 16 yearspreviously, he led the transformation of Poudre Valley into a health system with two dozen facilities inthree states. In 2008, Poudre Valley was one of only three organizations – and the only heatlhcareorganization – to receive the Malcolm Baldrige National Quality Award, the nation’s highest presidentialrecognition for performance excellence. He is immediate past chairman of the American College ofHealthcare Executives.
  18. 18. NAVIGANT PULSE WINTER 2013 | 17 About Richard Krugman, M.D. About Andrew Epstein, M.D. Richard Krugman, M.D., is Vice Chancellor for Andy Epstein, M.D., is a Managing Director at Health Affairs for the University of Colorado Navigant with nearly 40 years of healthcare Denver and has served as Dean of the University industry experience. He directs consulting of Colorado School of Medicine for 22 years. He engagements for the leaders of university and oversees all clinical programs of the university community hospitals, integrated health systems, at its five affiliated hospitals. Dr. Krugman is a faculty practices and large physician groups graduate of Princeton University and earned his and focuses on organizational design, physician medical degree at New York University School leadership effectiveness and hospital-physician of Medicine. A board-certified pediatrician, relationships and structures. He speaks nationally he completed his internship and residency about strategy, physician-hospital collaboration, in pediatrics at the University of Colorado enterprise and physician governance models School of Medicine. He is an internationally and change management. He has a bachelor’s recognized authority in the field of child degree from Dartmouth College and an M.D. abuse prevention. Contact Dr. Krugman at from the School of Medicine at Case Western or 303.724.0882. Reserve University. Board certified in internal medicine, he completed his internship and residency at University of Colorado Hospital. Contact Andy at or 617.748.8332.
  19. 19. NAVIGANT PULSE WINTER 2013 | 18The Vanderbilt Experience:An Expanding Clinically Integrated NetworkBy David R. Posch and John A. LutzKey Points independent physician practices and insurance companies have begun working collaboratively»» Strike a balance that increases efficiency all over the country to drive up patient (and without antitrust concerns physician) satisfaction, care efficiency and»» Create a roadmap that assesses eight key effectiveness, while driving down costs and areas inappropriately delivered care. Providing the right care at the right time by the right provider»» Set an ambitious goal: For Vanderbilt, 100,000 with the right outcome at the right cost – and covered lives being rewarded for it – are the underlying goalsSuccessful clinically integrated networks (CINs) of clinical integration. Academic medicalrequire significant financial analysis, market centers are under increasing pressure fromresearch, strategic planning, resource commercial and governmental payers tocommitment and a certain “leap of faith” belief reduce operating expenses, increase efficiencythat collectively we can all do better than we and effectiveness through demonstrated qualitycan individually. Academic medical centers, improvement initiatives. CINs have the potentialfaculty, independent community hospitals, to bend the cost curve. CONTINUED ON NEXT PAGE
  20. 20. NAVIGANT PULSE WINTER 2013 | 19 The Federal Trade Commission defines a CIN as Medical Center, NorthCrest Medical Center and a legal organization of physicians, hospitals and Williamson Medical Center) and their respective ancillary providers that substantially integrates medical staff members, composed of both the delivery of care to achieve significant employed and private primary care and efficiencies – higher quality and more cost- specialist physicians as its initial affiliates. effective care. Additionally, the activities of the CIN will not violate the antitrust laws if joint Eight areas or building blocks required of CINs payer contracting is reasonably necessary to were assessed, including: achieve those efficiencies and the anticompetitive effects of the joint contracting »» Legal and compliance do not exceed the pro-competitive benefits of »» Leadership and governance the efficiencies. »» Provider network Two years ago, Vanderbilt’s leadership »» Care and service delivery recognized the potential of CINs and understood the importance of developing a »» Information technology CIN for its Medical Center, Children’s Hospital, »» Finance Clinics and affiliated hospitals throughout Tennessee to advance its vision of improving »» Contracting capabilities population health while becoming a global »» Clinical performance destination for cutting-edge healthcare delivery, research and teaching. Within each area, qualitative and quantitative assessment findings drove recommended In 2011, Vanderbilt retained Navigant to provide actions for Vanderbilt’s leadership to review, an assessment of Vanderbilt’s readiness to discuss and determine next steps. For example, develop a CIN and develop a practical Vanderbilt and its affiliated community hospitals “roadmap” for its implementation. The goal was were aware of the requirements for a formal to design, develop and implement a clinically legal and governance structure, but had yet to integrated network of providers that could create it. In another example, shortages of ensure that Vanderbilt‘s vision was realistic and primary care physicians were identified in could be achieved. specific market areas that needed to be addressed as the CIN was being developed. Since then, Vanderbilt has formed affiliations The action steps recommended by Navigant including 18 Tennessee hospitals in one of the specifically addressed each of the required CIN nation’s largest launches of a CIN. building blocks. OUR APPROACH Vanderbilt’s leadership used the Navigant “roadmap” to complete their CIN readiness Vanderbilt initially identified three independent community hospital partners (Maury Regional Vanderbilt University Hospital and Clinics Nashville, Tenn. Revenue: $1.66 billion Beds: 909 Faculty: 2,404 full-time (Vanderbilt School of Medicine) Residents: 675 Students: 1,880 (medical, nursing and PhD programs)
  21. 21. NAVIGANT PULSE WINTER 2013 | 20during 2012 by implementing the necessary The first phase has addressed the employees oflegal structure, governance, leadership and VHAN affiliates and their dependents, who areinfrastructure components. With these all self-insured. By allowing beneficiaries to becomponents completed, the CIN was ready treated at any of the participating facilities,to begin. VHAN offers the convenience of receiving quality healthcare closest to home, delivered inOUR CURRENT STATE the most appropriate, cost-effective setting.In December 2012, Vanderbilt established a Also beginning in January, VHAN is beingwholly-owned limited liability company (LLC), offered by Aetna, allowing area employers tonamed the Vanderbilt Health Affiliated Network use the same network offered to VHAN(VHAN) to govern its CIN. An LLC was employees and their dependents. In addition torecommended by legal counsel for simplicity, clinical services, VHAN will offer population-expansion flexibility and liability limitation. The based disease management. VHAN is workingboard leadership is comprised of half hospital toward clinical integration within the next 12 toexecutives and half physician directors, with 18 months, with shared medical records andboard membership drawn from Vanderbilt and shared programs of quality improvement andthe participating affiliates. With Vanderbilt, disease management. VHAN will work directlythere are now 18 hospitals from six affiliates with large employers on health plan design andcovering central Tennessee from the northern provider accountability.border to the southern border, and 100 miles tothe east and 130 miles to the west of Nashville. In the latest affiliation, announced in January,The system has more than 3,000 inpatient beds Vanderbilt University Medical Center and Westand 3,000 physicians. Tennessee Healthcare agreed to collaborate on programs and services and forge new solutionsIn January 2013, Vanderbilt and its affiliated to improve the quality and lower the cost ofhospitals began managing the healthcare healthcare in the region. Consistent withneeds of their 70,000 employees and Vanderbilt’s other affiliation agreements, eachdependents. The goal is to have 100,000 lives party remains independent and free tosupported by VHAN by the end of 2013. continue pursuing individual initiatives. CONTINUED ON NEXT PAGEA Forward-Thinking Approach“Major developments are occurring rapidly within the delivery of healthcare as the result of theadvancement of medical science. At the same time, changes to Federal and state health policy arepromoting the creation of innovative models to more efficiently and effectively coordinate the deliveryof healthcare across broad populations.“These affiliations are a tremendous positive for all parties, serving as a forward-thinking approach topartnerships between community-based hospitals and large tertiary referral centers performingspecialty care, training and research.”– Jeff Balser, M.D., Ph.D., Vice Chancellor for Health Affairs and Dean of the Vanderbilt University Schoolof MedicineFrom article “VUMC teams with 3 Midstate hospitals”
  22. 22. NAVIGANT PULSE WINTER 2013 | 21 About David Posch About John A. Lutz David Posch is CEO of Vanderbilt University John Lutz is a director within Navigant’s Hospital and Clinics and executive director for Healthcare Strategy Team, with more than 30 the Vanderbilt Medical Group. In addition to years of healthcare leadership experience. He is leading the outpatient and inpatient clinical the physician-hospital transactions team leader, enterprise and medical group operations, responsible for strategic alignments ranging he leads the strategic planning office for from small group mergers to multiple-hospital Vanderbilt University Medical Center. He joined clinically integrated network developments. Vanderbilt in 1999 as chief operating officer Previously, he was CEO of a large, multispecialty of the Vanderbilt Medical Group and Clinics, physician practice and held senior leadership became CEO in 2007, and assumed the role of roles with two hospital systems. He is a Fellow of CEO of Vanderbilt University Hospital in 2011. the American College of Healthcare Executives Previously, he worked at Oshsner Clinic in New and the American College of Medical Practice Orleans for eight years, capping his career there Executives. He is a graduate of Yale University as executive administrator, and spent 16 years and formerly an Administrative Fellow at at Cleveland Clinic Foundation in administrative Massachusetts General Hospital. Contact John at and leadership roles. He has a bachelor’s degree or 518.813.4134. in psychology from Miami University of Ohio and a master’s of science degree in organizational analysis and development from Case Western Reserve University. He can be reached at or 615.343.5013.
  23. 23. NAVIGANT PULSE WINTER 2013 | 22New and Old School Lessons forAcademic Physician CompensationBy Ronald L. VanceKey Points “Curve 1” world (where providers are primarily paid based on fee-for-service reimbursements)»» Focus on modifications to base-plus-incentive to a “Curve 2” world (where providers are design primarily paid based upon outcomes and/or»» Incent improved performance in quality, reduced costs). Most of the focus so far has service and efficiency been to modify the predominant base-plus- incentive design approaches to include»» Motivate physicians to achieve enterprise- expanded minimum work standards (MWS) wide goals requirements and to include higher levels ofUniversities, academic medical centers (AMCs) quality, service, efficiency and other non-and others with employed and affiliated throughput activities. At Navigant, as advisors,physician faculty and community members observers and implementers of these initiatives,have accelerated the refinement of their we believe there are many “lessons learned” inphysician compensation plans to prepare migrating from “old school to new school”themselves to bridge between the current compensation plans. CONTINUED ON NEXT PAGE
  24. 24. NAVIGANT PULSE WINTER 2013 | 23 All health systems face multiple shared clinical C. Base-plus-incentives delivery reimbursement pressures, such as reduced payment rates for the same or greater Some of the comparative advantages and levels of historic inpatient and outpatient challenges of these models are shown below. professional and technical services, reduction and/or elimination of payments for outpatient There has been a fairly deliberate movement professional and technical ancillary services from A to B and, increasingly, to C-based and penalties for readmissions and other compensation plan designs, which seek to strike adverse clinical outcomes. AMCs and their a new balance between the realities of still- affiliated physicians face additional challenges important fee-for-service reimbursement and to support their missions, including diminished pressures on production, with the emerging governmental, commercial and private levels of importance of demonstrating higher levels of funding for teaching, research and other quality, clinical service and cost-efficiency. academic activities. More specifically, many Similarly, many AMCs that started with a AMCs have become more reliant on revenues predominant C (base-plus-incentive) focus and from their clinical healthcare delivery activities, further utilized A and B plan approaches have in light of diminishing funding for their teaching largely returned to hybrid C approaches. and research missions, coupled with reduced Graduate Medical Education payments, In addition to the other comparative benefits National Institutes of Health grants and and challenges noted below, two key reasons philanthropy contributions. for these movements include: (1) challenges to account for allocated revenues and expenses Seeking Balance within the Option A approach (that are beyond the physician’s control) may not fully recognize Over the last 10 years, we have observed a physician effort and required practice expenses, significant evolvement of multiple plan design while incentivizing competition between approaches to address market needs. The most physicians for the best-paying patients at the predominant physician compensation plan expense of ensuring access for all types of design options being utilized today include the patients; and (2) incentives that over-rely on following approaches: “production” (whether in terms of professional collections, wRVUs and/or other similar volume- A. Revenue-less-expenses; based metrics) frequently promote more activity B. Production-based plans, generally relying rather than focus on value in terms of quality, upon Work Relative Value Units (wRVUs), service, efficiency and overall outcome of as assigned by the Centers for Medicare physician-directed work. and Medicaid Services (CMS), plus other performance incentives; and The ‘Existential’ Question Facing AMCs “In the long run, perpetuating expensive, acute care-centric operating paradigms will be self-defeating for all health systems. The ‘existential’ question for AMCs is whether they can accommodate public demands for better health services within today’s more stringent medical education and research funding environment. AMCs that embrace change will redefine academic medicine, justify the public’s trust and thrive for decades.” – David W. Johnson, Managing Director and Sector Head, Healthcare and Higher Education, Public Finance and Infrastructure Banking, BMO Capital Markets From his article “The Academic Question: Existential Challenges Confronting Academic Medicine”
  25. 25. NAVIGANT PULSE WINTER 2013 | 24Within the base-plus-incentive (Option C) incentives and most rely on wRVUs as theapproach, many faculty compensation plans primary “production” metric, we anticipate thatessentially combine the production and quality/ the market will increasingly cap/limit individualservice incentives that are identified separately performance incentives and increasingly rely onwithin Option B. Furthermore, while most non- other compensation incentives for team-basedacademic employed physician compensation quality, service and efficiency performanceplans still emphasize open-ended production targets. Navigant Healthcare Director Cynthia CONTINUED ON NEXT PAGE Most Frequently Utilized Integrations Physician Compensation Plan Designs (“Earned Compensation” Equals)
  26. 26. NAVIGANT PULSE WINTER 2013 | 25 Arnold notes that organizations will need plan teaching and research activities. One design flexibility to “motivate physicians to example: requirements that there be MWS for achieve enterprise-wide goals that are well all forms of funded base salary activities, and beyond their core clinical activities, such as potentially reduced salaries for non-funded ACO/CIN network development, collaboration activities or unmet MWS. on payer initiatives, etc.” »» Consequently, as further illustrated below, there should be clarification that the initial Lessons Learned academic clinical full-time equivalency (FTE) Lessons learned from AMCs’ increased utilization is set at a 1.0 level and that the sources of (and/or return) to the use of the base-plus- funding for “buy downs” in other above-and- incentive approach include: beyond teaching, research and/or medical administrative activities must be clearly »» Acknowledging that the pressures and identified. reliance on clinical revenue to support all »» Increasing budgeting for performance academic missions continues to require higher incentives (as a percentage of base salary levels of accountability for wRVUs, professional levels) based on a combination of production collections and/or other clinical volume within and non-production metrics, for achieving better defined minimum work standards “stretch goals” above base salary MWS (MWS) to “earn” the budgeted base salaries. levels. Examples could include incentives for »» Willingness to fund base salaries at the excess wRVUs above the MWS level required department or division level, to the extent to “earn” the clinical base salary level, or the aggregate participants’ production and achieve a high level of defined core measures qualitative performance meets budgeted for clinical protocols and/or actual outcomes. levels of MWS targets. »» Recognition that “open-ended” incentives »» Willingness to allow chairs and division leaders for higher volumes of wRVUs or similar metrics discretion to set varying clinical production is continuing to promote volume-based MWS targets at the individual faculty member behaviors rather than focus on balanced level and allocate work in order to maximize Curve 1 and Curve 2 incentives. Therefore, team-based performance. capping/limiting the potential incentive for incremental wRVUs or other volume-based »» Acknowledging that AMCs must require better production metrics to better strike this balance defined sources of funding for all missions, – as well as better limit the organization’s including otherwise non-funded additional Clarifying Categories of Compensated “Work” and Minimum Work Standards
  27. 27. NAVIGANT PULSE WINTER 2013 | 26 subsidization for incentives that do not have hybrid base-plus-incentive designs, as well a funding source after expenses are offset by as advanced features within these hybrid collections. designs. The “lessons learned” above provide further guidance for evaluation of clarified»» Requiring that up to 25 to 50% of the potential sources of funding, minimum work standards, (beyond base salary) performance incentives balanced production and non-production be based on non-production metrics, to incentives and inclusion of additional potential heighten focus and reliance on documented incentives for enterprise-focused service line quality, service and efficiency behaviors. and program improvements. While most Examples could include high levels of patient systems will likely use a mixture of physician satisfaction, clinical outcomes and achieving compensation plan designs, we anticipate expense/wRVU targets. Navigant Healthcare further transition to plan designs that include Managing Director Rick Cameron notes that these elements and reduce or eliminate the increasing use of non-clinical compensation disproportionate reliance on individual clinical components are “challenging our existing productivity metrics. tools and mechanisms for establishing Fair Market Value of both this part of potential compensation, as well as as total cash compensation that can be paid to physicians because most of the compensation and production surveys do not (yet) capture non- clinical compensation information.”»» Including increased “other incentives” for supportive physician co-management activities of key service lines and programs About Ronald L. Vance that result in higher levels of efficiency, Ron Vance, a Managing Director at Navigant reduced costs and/or expanded service Healthcare, has more than 26 years of offerings. Examples could include payments healthcare experience, serving more than to aligned faculty members for adhering to 150 health systems, hospitals, medical groups protocols that reduce readmissions, improve and academic institutions. He is responsible for operating room turnaround times and the Physician Strategy team, and his practice standardize surgical device implants. is largely focused on physician-to-physician and physician-hospital alignment strategic»» Increasing emphasis on team-based work and business planning, advanced medical and decreasing emphasis on individual staff development planning, compensation, performance. Navigant’s Cynthia Arnold notes performance improvement, organizational that since payment mechanisms have only development, governance and related partially evolved beyond Curve 1 to Curve leadership development issues. He has extensive 2, creating a balanced set of incentives for experience in providing Fair Market Value developing population management activities reasonableness assessments for a broad range may require special consideration for nurse of physician services relationships, including practitioners, physician assistants and other numerous compensation, professional service care-coordination leaders. and on-call coverage arrangements for hospitals»» As the pace of physician integration further and health systems. Ron has a bachelor’s accelerates over the next three to five degree from Millikin University and is a cum years, with further anticipated declines laude graduate of Southern Illinois University in actual physician reimbursements and of Law. He is a member of the State Bar in enhanced needs for focused and aligned Illinois, Missouri and Georgia. Contact Ron at incentives for value-based activities, we will or 770.814.4480. be recommending increasing utilization of
  28. 28. NAVIGANT PULSE WINTER 2013 | 27See how far impact can reach.A comprehensive strategy for change can start small,with daily process improvements. Then it grows.Operations become more efficient. Employees moreengaged. Patients and their families more satisfied. Allbecause the right healthcare consulting firm helpedyour organization make more than a change. You’remaking an impact. Find out how with