Pulse Healthcare Magazine, Winter 2013

NAVIGANT PULSE WINTER 2013 | 1

in 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.

Winter 2013

Hard Truths: Business As Usual No Longer Sufficient For Academic Medical Centers

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http://www.navigant.com/healthcare


in this issueHard Truths: Business As Usual No Longer Sufficient For Academic Medical Centers

A LETTER FROM DAviD BuRik

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.

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.

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.

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.

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.

NAviGANT ADviSORS OFFER THEiR EXPERTiSE

uPCOMiNG EvENTS

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This edition of Pulse focuses on academic medicine. I hasten to add that all segments of the healthcare industry will find this a useful read because although academic medical centers (AMCs) are a small percentage of U.S. hospitals, their clinical footprints and research and education activities make them a vital part of care in almost every market in the U.S. As a result, this edition is not only intended to be helpful to AMCs, but for payers, community hospitals, physicians and life sciences companies to better understand and anticipate the upcoming actions of their AMCs.

Most objective observers would suggest that Federal and state policies generally have placed a high value on medical education for a long time. Clearly, however, the pendulum now is swinging in the opposite direction as government payments for clinical activities are looking to AMCs to provide a particularly large percentage of Medicare and Medicaid savings.

In addition, the average consumer, who increasingly is being empowered to make choices, will get on the Internet and likely find that the AMCs’ quality isn’t as high as he or she thought it was, and that the higher price is difficult to justify.

We believe that AMCs in particular will benefit if they move their mindset from “justifying the cost” to “earning the business.” This, of course, is easier said than done. In fact, this challenge may be a meaningful application of the management cliché that “culture eats strategy.”

David Burik

Clients, Colleagues and Friends:

A Letter from David Burik

Our observation is that the typical AMC strategy is justifiably proud of its accomplishments, but does not always have a keen ear for external messages suggesting changes. These messages are discounted, data is contested, prognostications of imminent change have been heard before and never come to pass. Of course, in many AMCs, evidence abounds that there is nothing wrong at all as the ribbon is cut on the new center, a record gift was just received, the faculty has never been more productive or you never find a timely appointment or an available bed.

In the past, it may have been simply easier to get greater funds flow through the clinical enterprise than to demand greater cost effectiveness from the research or academic enterprise, or greater accountability from a powerful chair. It is the ability for the clinical enterprise to continue to flow those funds that is at the heart of today’s challenge. The good news is AMCs have begun to gain on-campus acceptance of the emerging challenge and to craft a vigorous response.

In this edition of Pulse, we highlight some of these promising strategic responses. An overview article by Navigant’s Christine Malcolm examines the bold moves by the “first responders” to meet the challenges ahead. Their actions – in five key areas – range from creating a streamlined and accountable clinical enterprise with a shared strategy and embracing the “new math” of enrolled lives to nurturing the relationship with referring

CONTiNuED ON NEXT PAGE


Best regards,

David Burik, Managing Director, Co-Leader, Strategic Consulting Division, Navigant Healthcare [email protected] 312.583.4148

physicians and transferring hospitals, training the next generation of disciplined leaders and thoughtfully forming partnerships.

Navigant’s Andy Epstein interviews University of Colorado School of Medicine Dean Richard Krugman to present changes afoot in response to Dean Krugman’s “blue sky” challenge to organize the school as if it were starting over. Among the results: department chairs are figuring out how to reorganize to benefit the entire research enterprise rather than sticking to the notion that each science has to be neatly compartmentalized.

Navigant’s John Lutz and David Posch, CEO of Vanderbilt University Hospital and Clinics, describe the Clinical Integrated Network that Vanderbilt has formed with community partners to advance its vision of improving population health while becoming a global destination for cutting-edge healthcare delivery, research and teaching. Starting with a Navigant “roadmap” developed last year, Vanderbilt already has formed affiliations with 18 Tennessee hospitals with a goal of supporting 100,000 lives by the 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.

As always, Navigant stands ready with more than 600 seasoned consulting professionals and industry thought leaders to assist health systems, physician organizations and payers in designing, developing and implementing integrated, technology-enabled solutions that create high-performing healthcare organizations. The latest enhancement of our services, detailed in this edition of Pulse, is our combination with Easton Associates, an international consulting firm specializing in the life sciences industry. With the addition of Easton’s team based in New York, London and Beijing, we have more than doubled the number of Navigant professionals with global business strategy expertise for pharmaceutical, biotech and medical device companies, diagnostic suppliers and life sciences investors.

As co-leader of Navigant’s Strategic Consulting Division with Andy Epstein, I would be delighted to discuss the challenges facing your organization – AMC or any other – and the strategic options for confronting and solving them. Please visit our website, navigant.com/healthcare, or contact me directly by phone or email.

http://www.navigant.com/professionals/b/burik_david/



Academic Medicine at the Crossroads: Five Steps for Success in 2020By Christine Malcolm

kEY 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 leaders

Academic medicine has a history of reinventing itself. Ever since the Flexner Report prompted more rigorous medical education with a devastating assessment of medical schools 100 years ago, academic medical centers (AMCs) have had to adapt to waves of scientific development, such as antibiotics, transplantation and genomics, followed by the dawn of Medicare and Medicaid. Now, as a result of the Accountable Care Act and the global economic crisis, academic medicine again must face some hard truths. After nearly five decades of remarkable growth and development, there are threats to every element of the academic mission – teaching, research, patient care and community service.




Reductions to education supplements, both direct and indirect, are being implemented. University financial crises, with limits on tuition income, leave little room to shift to other means of support to pay for education. Research revenues, especially from Federal programs, have been hit by across-the-board reductions. As a result, it looks like a generation of young scientists may never be able to achieve the stable support that the National Institutes of Health has provided highly accomplished scientists for decades.

Clinical revenues – the economic engine of the academic enterprise – are threatened as well. Government programs already fail to cover the cost of care, and lower base payments, lower market basket adjustments and pay-for-performance programs will cut payments even further. Most academic medical centers also are heavily reliant on state support, and the fiscal crisis facing nearly all state governments will trigger many additional reductions. Disproportionate share support, a supplement to cover uncompensated care, is in the process of being reduced. The combined impact of these reductions is tens of millions of dollars for most AMCs.

These factors are exacerbated by the increasingly rapid diffusion of innovation from the AMC to community settings. The broad swath of tertiary and quaternary services that

were once the core of the AMC now have been reduced to a narrower set of services like solid organ transplantation or certain rare diseases that are expensive and challenging to treat – and the work of the innovators, who know that their innovations will be in the community as soon as their residents and fellows join the competition. For example, 10 years ago, advanced cardiac or neuro-imaging with intervention was the near exclusive domain of the AMC. Now these services have spread to nearly all large community hospitals and even some smaller competitors to the AMC. The combination of government pressure and competitive pressures are causing some to say that the sun is setting on academic medicine in the U.S. Indeed, the doomsayers will be right if AMC leaders underestimate the seriousness of this latest crisis threatening their future, or find they are incapable of mobilizing their organizations in pursuit of a new future.

At Navigant, we believe a clear-eyed acknowledgment of the depth of the challenges is the first step to the essential reinvention of AMCs today. But just as we should not fool ourselves into believing that “this too shall pass,” we should not underestimate the underlying strength and ingenuity of academic medical enterprises, their well of public support and their capacity for reinvention. One AMC leader we are privileged to work with – Mark Laret, CEO of UCSF Medical Center and board

Strategic & Operational Planning under uncertainty: AMCs are Facing Profound Business Challenges

THREATS TO CLiNiCAL REvENuES » Impact of “Sequestration”

» Medicare payment reductions – lower base payments, lower market basket adjustments, productivity adjustments – all in the ACA

» Value Based Purchasing – such as nonpayment for readmissions or Hospital Acquired Infections (HAI)

» Medicaid funding reductions due to state budget crises

» Commercial payment following governmental lead

» Disproportionate Share Hospital (DSH) payment reductions

» Potential cuts looming for outpatient/physician services – Hospital Based Clinics, non-renewal of “Doc Fix"

» Increased governmental and regulatory burden

THREATS TO MEDiCAL EDuCATiON AND RESEARCH REvENuES » Impact of “Sequestration”

» University budget cuts – high and rising – with no end in sight (especially for public universities)

» Reduced Indirect Medical Education (IME) payments

» Limits on tuition income

» Reduced grants and contracts – both funding and wage limits

» Potential Graduate Medical Education (GME) Reallocation

» Pension shortfalls and rising costs


chair of the Association of American Medical Colleges – sums up the situation succinctly: “Society is giving us this new charge, and – if we choose to see it as such, this amazing opportunity – to become a hotbed for radical, new thinking about how we achieve our core purposes.”

Some academic medical centers like UCSF Medical Center are “first responders” to the impending crisis, and are making bold moves to address the challenge ahead. We believe there are five key actions that they are taking to transform their organizations.

1. Create a single, streamlined and accountable clinical enterprise – representing the hospital, the practice plan and the faculty – to improve strategic agility in a highly competitive market. Set a shared clinical strategy, and pursue it as if your life depended on it (and it does!)

In most markets, the academic group practice is either one of, or the, largest group practice in its market. Yet the AMC group practice rarely performs as powerfully as its non-academic competitors. The AMC group practice is the heart of the clinical enterprise. When one considers its potential and relative competitiveness, it is hard to explain why faculty practices are rarely able to achieve the competitive edge that is demonstrated by group practices such as the Mayo Clinic, Virginia Mason Clinic, Ochsner Health System and the Cleveland Clinic. Why are most academic practices so much weaker? Is it because of complex decision-making? Or is it because AMC group practices serve many masters? What can be learned from successful group practice-based health systems that can be of use to the AMC?

Academic medical centers compete with health systems with a single focus – clinical care – with full-time physicians and hospital leaders who work full time on that single mission. In contrast, most AMC meetings, departments and even individuals are constantly balancing the many missions of the enterprise. Nobel Prize winners are called on to weigh in on managed-

care contracts, while full-time clinicians feel both disrespected and under pressure to publish and attract extramural funding. At the center of all of this are the clinical chairs, who have the most challenging jobs in the AMC. Clinical chairs must balance very large businesses in two or three different economic environments – clinical care, research and education. Their faculties have many options both inside and outside academic medicine, and keeping them engaged during times of rapid change is a true challenge. The effort necessary to gain commitment of the chairs and faculty leadership to form a streamlined, empowered and agile clinical enterprise structure cannot be underestimated.

Yet this clinical focus is one of the core strengths that AMCs can potentially leverage to create a competitive edge in the new world. Many of our most sophisticated AMC clients are in the process of powerfully aligning the hospital, clinical faculty and the practice plan into a clinical enterprise that removes duplication of effort and costs and is focused on competing successfully in a hypercompetitive, price-sensitive environment. There is a remarkable base of clinical talent, administrative expertise, systems and operations that can be aligned just as effectively as a Mayo or Cleveland Clinic group practice. AMCs have many more of the pieces of the puzzle than most health systems that have both independent and employed physicians, with internal competition, and significant barriers to collaboration.

Some innovative AMCs are celebrating the unique value that each individual brings to the enterprise. At the same time, they are aligning their organizations to create separate clinical and research structures, with well-defined career paths for researchers and clinicians, eliminating cross subsidy between the clinical and research missions. This model has the benefit of full-time academic clinicians and full-time researchers, each of whom is productive, appreciated and engaged. To quote Gary Fleischer, M.D., physician-in-chief at Boston Children’s Hospital: “The triple-threat


individual faculty member is dead. Long live the triple-threat department!”

At the University of Michigan Medical Center, all of the outpatient functions now are managed by faculty physicians in a unique incentive relationship between the medical center and the faculty practice. Clinical faculty have been created as the accountable executives for each aspect of the practice, and are responsible for management decisions, with authority to reduce duplication, grow, implement improvements and earn incentives for doing so. Since the inception of the arrangement, the economic benefit created by this new model has been estimated at more than $52 million.

There also are opportunities to consolidate back office functions (such as revenue management), centralize information-technology systems, create a single structure for quality/safety/reliability and redesign clinical operations with a common data base and measurement systems – the common shared-service environment that has been the hallmark of leading health systems.

The raw materials are there. The will to align and come together in pursuit of a future course of action often is the missing ingredient.

2. Embrace the “new math” of enrolled lives. Run the numbers and help clinical leaders model their solutions to the challenges inherent in the new environment.

Many AMC CEOs recognize the current business model’s troubling dependence on clinical growth. The past growth has been impressive. Many AMCs recently experienced the most successful years in their organization’s history, fueled by remarkable growth in highly subspecialized, procedure-intensive healthcare. Clinical growth has been the principal economic engine of academic medicine. Academic medical centers grew in both scale and distinction since the implementation of the Medicare and Medicaid programs. Between 1966 and 2011, medical school faculty counts grew from 15,000 to 138,000 (920%) while

medical school enrollment grew from 33,000 to 80,000 (240%). Clinical growth created a base of operational and financial support that has been the foundation for investment in biomedical research, clinical innovation and service to the medically underserved. It is the fuel that makes everything run.

Peter Senge, in The Fifth Discipline, talks about the importance of mental models. Our underlying business model has shifted, and if we want to “win” in the new environment, we will need some new mental models to align the faculty around the new rules of the game. One of the most effective ways to do so is to develop an enterprise financial model for the future that includes inpatient, outpatient and physician fee streams. The model can then be adjusted to incorporate the known changes in the payment streams and the timing of the onset of health insurance exchanges and other known changes. Faculty leaders can suggest strategies and can “try on” how successful they will be, such as “enrolled life” expansion, tertiary and quaternary expansion, Medicare Advantage expansion, quality improvement and cost management incentives, bundled pricing and network expansion.

The clinical leaders will most likely conclude that a multi-dimensional strategy of enrolled-life expansion and service to others through specialty contracts and bundles is the only way to create adequate economic support for the enterprise. When we work with Navigant clients to take a hard look at the numbers, the potential impact of mitigating strategies and their relative value in the new value equation, they become motivated to reinvent themselves. The level of change required to be successful is both sobering and inspirational. It aligns neurosurgeons and primary care physicians alike, as they begin to appreciate their interdependency.

Later in this issue of Pulse, David Posch, CEO of Vanderbilt University Hospital and Clinics, and Navigant’s John Lutz describe Vanderbilt’s strategy to create a base of enrollment and a


Clinically Integrated Network to serve it. The network already has grown to 70,000 enrolled lives, and plans to add more Medicare and newly insured enrollees as health reform unfolds in Tennessee. Another example is the University of Michigan Medical Center, consistently a “first mover” in responding to health reform. It has participated in the Medicare Shared Savings pilots as well as the Physician Group Practice Demonstration project. UMMC leaders are committed to continuing to demonstrate that they know how to win in the new environment, and have proven their capabilities for adaptation. The University of California, Los Angeles is expanding its capacity for population health, beginning with its current Medicare Advantage enrollment and its capitated managed care patients that it has managed for decades. UCLA is refining its care-management capabilities by implementing a primary care innovation model in all of its primary care sites, expanding its network and sites of care and working in the Medicare Shared Savings program.

AMCs are best able to contract successfully and be paid fairly if both public and private payers fully understand the value the AMC provides to them – the unique value equation that is a reflection of market position, access, network, quality/satisfaction/outcome metrics and cost. The measurement of this value and modeling

ways to enhance it by unlocking the natural strengths and competitiveness of the organization are highly effective ways to align the clinical enterprise around a set of moves that can help sustain the economic base of the organization through a powerful “enrolled lives” strategy. In every case where Navigant clients have adopted these models, the work to achieve success in the new model has helped clinical leaders become both knowledgeable about the economic challenges ahead, and more comfortable with effective responses to them.

3. Identify, measure, understand and nurture the relationships that have long been the lifeblood of the academic medical center – relationships with referring physicians and transferring hospitals. Create a physician structure that can align community physicians and the academic group practice into an integrated clinical structure.

One phenomenon that is rarely understood and measured, and even more rarely well managed, is the process of accepting referrals and transfers from other care settings. Navigant’s work has shown in many settings that transfers and referrals are two of the most rapidly growing “service lines” in academic medicine. Research also has shown that referral volume has grown by roughly 10% per year for the last 10 years. Many believe this is a natural


How Sequestration Will Hurt Patients“Only 6% of hospitals, major teaching hospitals, and their medical school physicians provide more than 20% of all hospital care in this country, 41% of hospital charity care, 20% of care to Medicare patients, and 25% of care to Medicaid patients.“

“Sequestration’s 2% cut in Medicare reimbursements will mean that the average major teaching hospital will have nearly $14 million less to support critical patient care services often unavailable elsewhere in communities, including trauma centers, burn units, poison centers and psychiatric units.”

– Darrell G. kirch, M.D., president and CEO, Association of American Medical Colleges

From his article “How sequestration will hurt patients”

http://thehill.com/blogs/congress-blog/healthcare/282793-how-sequestration-will-hurt-patients


outgrowth of the quality movement. As soon as physicians realize that their patient might need something outside their area of expertise, they realize that it is best for their quality metrics, the metrics for the hospital and the careful management of risk and liability to get the patient to the right setting quickly.

The gold standard and desire of every referring physician or hospital is a single phone call that connects the referring physician with the accepting physician, and in the case of a transfer, arranges transport. Yet the systems that field the incoming calls of these physicians and hospitals are highly idiosyncratic, poorly developed and in some cases nonexistent. This is a process that every AMC should master now. These relationships are the foundation of the AMCs’ value and should be carefully nurtured. After full implementation of the Accountable Care Act, the contract implications of the referral will make it an even more complex process.

Referring physicians and physicians seeking the safety of a clinical enterprise are the first group of clinicians who will be attracted to join the network or extended physician group of the academic group practice. Partners Community Healthcare Inc. (PCHI) is an excellent, early example of a broad network, with aligned contracts, a well-distributed geography and loyal community partners. PCHI’s 5,500 physicians are “committed to enhancing both the physician-patient relationship and the physician experience through innovation in medical practice.”

4. Imbed quality, safety, reliability, the patient experience and cost management in every aspect of the organization. Leverage the teaching and training environment to both bring the organization along and train a next generation of leaders who have this discipline at their core.

Academic medical centers are widely recognized by the public as the best hospitals in the U.S. healthcare system. Currently, all of the U.S. News Honor Roll hospitals are academic medical centers (15) or very large teaching

hospitals (two). Despite national distinction and reputation, many AMCs lag in this new environment that demands both high quality at lower cost and improved patient access.

Creating improvement across the Triple Aim is the challenge ahead. Oftentimes, clinical leaders only remember one or two of the Triple Aim: (1) improvement in the patient experience of care, including both quality and satisfaction; (2) improving the health of populations; and (3) reducing the per capita cost of healthcare.

Some academic clinical enterprises have taken on the challenge and created real improvement. Seattle Children’s Hospital has embraced “Toyota Lean” concepts, and systematically tackled issues such as throughput and patient safety with a focus on standardization. The care for more than 30% of the inpatient discharges at Seattle Children’s Hospital is delivered using “clinical standard work” – engineered by their clinicians, in active collaboration in a Lean process to deliver consistent quality and outcomes.

Other academic enterprises, like UCLA, have tackled the challenge of consistent service quality with a common approach. The UCLA approach, called CICARE, has the vision “to heal humankind, one patient at a time, by improving health, alleviating suffering and delivering acts of kindness.” UCLA’s patient satisfaction scores have risen to the top 1% nationally as a result.

Peter Pronovost, M.D., at Johns Hopkins is perhaps one of the most distinguished leaders in the healthcare quality and safety movement. He has led the systematic development of the quality and safety agenda across the enterprise. Most AMCs now teach and train for quality/safety and reliability, and have found that the side benefit of this endeavor is the active and continuous engagement of clinical teams throughout the hospital in a process of continuous improvement. This set of activities is at the heart of all missions of academic medicine, research, teaching, patient care and community service.


5. Consider organizing a health system that leverages AMC core strengths in partnership with community providers to create an effective health system.

There is perhaps no question that generates more heated discussion than whether the academic medical center should be part of a larger health system. In the 1990s, many AMCs merged, sold or formed a health system. The outcomes of hasty consolidation are well known. The most commonly discussed are the moves with imperfect outcomes, such as the Geisinger/Penn State merger, the Stanford/UCSF merger, the creation and dissolution of the Health Alliance of Greater Cincinnati, and several for-profit acquisitions including Tenet’s acquisition (and subsequent sale) of the University of Southern California Medical Center.

While these examples are the source of endless debate, there also have been a number of very successful partnerships that have positioned AMCs at the core of a highly successful integrated delivery system, with a sustained competitive advantage. The Barnes-Jewish-Christian/Washington University system, Partners HealthCare and MedStar/Georgetown are examples of long-term successes that have created capabilities and competitive positions that are without peer in their markets. Newer promising relationships include the formation of the University of Colorado Health, the Trinity acquisition of Loyola University Medical Center and local system building by Yale New Haven Hospitals, Vanderbilt and the University of Washington Medical Center. All of these relationships are being constructed to gain the benefits of “system-ness” and the geographic reach and clinical relationships that will be required to succeed in the future. In this context, the AMC can do what it does best, and the remaining system hospitals can provide community-based care in community settings. Each party wins.

iN CONCLuSiON

Academic medical centers are like the mighty redwoods in the California forest – noble organizations that we look up to and admire, that are recognized for their strength and power. But, like the redwood, in the current environment AMCs’ shallow root system threatens their very existence. The creation of an aligned, excellent, clinically driven, network-based academic clinical enterprise, with a relentless commitment to innovation and transformation, is the best way to sustain their strength and power in 2020. While this is a very challenging endeavor, the time to start is now.

About Christine L. MalcolmChristine Malcolm has more than 30 years of healthcare consulting and executive experience, including senior line experience in two academic medical centers, a leading industry association, the country's largest integrated health system and several health services and technology companies. Christine's practice focuses on strategic planning for large health systems, teaching hospitals, children's hospitals and academic medical centers. Contact Christine at 415.356.7105 or [email protected].

http://www.navigant.com/professionals/m/malcolm_christine_l/


kEY POiNTS

» Overcome complacency that ‘the platform isn’t burning’

» Function like a multispecialty group practice, led by clinical chairs

» Place a premium on collaboration and transparency

Now in his 23rd year as dean of the University of Colorado School of Medicine, Richard Krugman, M.D., is the longest-serving medical school dean in the U.S. The school, founded in 1883, is part of the nation’s newest healthcare campus that boasts world-class hospitals. Its faculty has made medical breakthroughs in research ranging from human chromosomes and cancer genes to immunology and AIDS. The school has enjoyed double-digit growth in clinical revenue for more than a decade.

Yet in his “State of the School” address just over a year ago, Dean Krugman told his colleagues that difficult challenges ahead demanded a new vision. “Complacency is not an option,” he warned. He also issued this “blue sky” challenge: “If we were starting over as a School of Medicine today, with more than 2,000 faculty and $1 billion in revenue, how should we organize ourselves to have maximum success in each of our missions – research, clinical practice, education and community service – by 2020?”

At Navigant, we were privileged to be selected to help Dean Krugman and CUSOM ask difficult questions such as “Why are we doing this?” and “How do we change without destroying the very fabric of what made us successful?” We just completed an intensive seven-month visioning process that required rethinking the entire business model. We’re now entering the second phase where the school develops its strategic plan and decides

what resources and realignments are needed to make the plan a reality.

None of this is easy. In complex academic medical centers, where traditionally independent-minded chairs and faculty have aggressively pursued and fiercely protected their own agendas, a dean cannot say “Let’s march in this direction!” and expect the troops to follow. As Dean Krugman puts it, only half facetiously, “The dean appoints the chairs and then serves at their pleasure.” The typical compartmentalized organization of an AMC is deeply rooted in tradition, frustrating change agents and patients alike. My own father, also a physician, found it exceedingly difficult to navigate among the disparate specialties when he was seeking treatment in an AMC. Real, lasting change requires carefully building a culture of collaboration and shared values.

Dr. Krugman begins with a distinct advantage in this transformational work. His long tenure as dean has enabled him to select all the chairs, so the school enjoys a higher degree of cultural alignment among the leaders and faculty than many AMC peers. This will enable them to make rapid progress in responding successfully to the changing environment. It will support rapid innovation and implementation of new structures and programs. Many AMC peers must begin their work with an intense focus on purpose, values and cultural alignment to prepare their organizations for change. At CUSOM, department chairs are recognizing that single-minded advocacy of their areas may diminish the overall success of the school. All stakeholders are realizing they need to act more effectively as a group practice and then as a strong unified partner with hospitals. They are facing up to the hard truth that pressures on clinical revenues and research support – which make up 80% of CUSOM’s total revenues – will decrease their margin substantially unless diminished revenues

The Colorado Experience: Time for Bold New IdeasBy Andy Epstein, M.D.



Q&A with

Richard Krugman, M.D.Dean, University of Colorado School of Medicine and Vice Chancellor for Health Affairs, University of Colorado Denver

Q: What are the unique challenges facing medical schools and academic health centers?

Dean krugman: Clearly, the biggest challenge is we all are looking ahead to a time where the plethora of economic resources that we've been accustomed to having for the last 20 years is going to be constrained. We're heading into a period of a relative drought in Federal funding for research. No matter what happens in Washington, I suspect that the National Institutes

About university of Colorado School of Medicine Anschutz 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)


are matched with a similar decline in expenses. A consensus is building that bold actions are required to maintain the school’s ambitious and transformational trajectory.

What’s next? For a temperature check, we asked Dean Krugman to reflect on the response so far to his “blue sky” challenge and how CUSOM is moving ahead to reinvent itself in the decade ahead. What follows is an edited transcript of our conversation.


of Health, which is our primary source for resources, is going to be more constrained. It's already constrained and incredibly competitive. And the revenue we use for our education mission – state money and students' tuition in our case as a public school – is constrained. We've lost 50% of our state support over the last decade and our tuition has tripled, making it increasingly unaffordable for students to enroll for an education.

Another resource is the clinical portion, which has been the source of revenue that has supported both of the first two missions with additional funding in education and research. Clinical dollars are going to be increasingly constrained as Medicare, Medicaid and private payers – who we rely on for our clinical revenue – tighten up their resources. So we're looking ahead to a time where, if we're going to do more, we'll have to do more with incrementally less money. And if we just want to stay the same, we're probably still going to need to find ways to do less.

Q: What is the most challenging part of your “blue sky” challenge?

Dean krugman: I decided to ask the school, if we're starting over, how do we need to be organized to be maximally successful in all of our missions, given the realities of a future where there is incrementally less money? The most challenging part for us is that, as some have put it, the platform isn't burning yet. We've had 10-15% increases in our clinical revenue every year for the last 15 years. It’s hard for people – particularly a group of people like an academic faculty who are less comfortable with change than many people – to recognize that this is something we really need to do.

And so getting the engagement of everybody in the process has been somewhat of a challenge. But I just signed thank you letters to 230 people who were part of phase one of this process. And we have fairly broad engagement now as we head into the second phase. It has been less challenging for us to get the buy-in of all our

chairs and center directors because I talked with all of them about what I was thinking, and the majority thought it was a good idea.

Q: What role do department chairs play in leading needed change?

Dean krugman: Department chairs have an enormous role to play in any school of medicine. They're really the heart of the academic structure. The clinical chairs are most responsible for the education of residents and fellows in specialty fields, and for the research and clinical faculty development within their fields. In the past each department, or each division, was a clinical program – a tub on its own bottom. In the future, if we're going to be successful in healthcare and generate the kind of clinical revenue we need, we must function like a multispecialty group practice. There really aren't many research-intensive schools of medicine in the U.S. that know how to be an effective multispecialty group practice that can meet the Triple Aim: providing the best care for patients, the best care for populations, at the lowest, most effective cost. That’s just not been on our radar screen in the past, with the exception of Mayo, Dartmouth-Mary Hitchcock or Cleveland Clinic that were clinics before they were medical schools. So we have a huge challenge in the clinical area.

The basic science chairs have a different challenge. I'm actually encouraged by the conversations I'm hearing among my basic science chairs because they realize that science is not neatly compartmentalized into biochemistry, physiology, microbiology, immunology and pharmacology anymore. It's much more multispecialty, and so in some ways they may actually be finding it easier to figure out how to organize so that our research enterprise is as successful as it needs to be.

So while there are challenges, I'm in a unique position where I've recruited every one of our chairs and major center directors. And they all think this is something we should be doing, so we're doing it together collaboratively.


Q: Are there leadership lessons that you’ve learned so far in this process?

Dean krugman: Yes, stick around 15 or 20 years if you can.

Q: Has your long tenure as dean been an advantage or disadvantage?

Dean krugman: I'm 23 years into this work, and I can tell you that had I raised this challenge in the third year I was in this job I would not be in this job longer than four years. Our situation may be unique here. But I hope that the lesson, assuming that we're going to be successful here, doesn't get lost on those places that haven't had the 20-plus-year experience we had. It is going to be a challenging time everywhere, and it is going to take a lot more collaboration and willingness to give some things up by chairs and center directors and deans if our institutions are going to survive the difficult times ahead.

Q: How are you rethinking your financial model?

Dean krugman: In some ways, we have been fortunate here. Fifteen or 20 years ago I was frustrated that the adult side of our enterprise at University of Colorado Hospital was such a very small clinical enterprise. Our major clinical departments were almost entirely focused on research and did relatively little clinical work. In part, that's because for the first 70 years as a medical school with Colorado General Hospital, we had no clinical revenue because the hospital was a public indigent-care hospital. But having been frustrated in the '90s turns out to have been a blessing. Now the chairs of medicine, neurology, dermatology and of the surgery and other departments all agree that we have to dramatically expand our clinical enterprise. We actually now have the capacity to do so.

Going forward, while I don’t think we will be able to get the 12-15% annual growth that we've had for the past decade, I do think we can have, and we will need, at least 8% growth. Even with less of an increase in our growth, we

will still have growth and I think we will still be able to support what we need to do. However, we still need to shrink our basic infrastructure, because I think everyone is going to have to take costs out of their administrative infrastructure if they're going to be successful in the future.

Q: How important is transparency in the flow of funds and accountability?

Dean krugman: Our people are increasingly willing to be very transparent about the resources that are coming from the hospital to the departments in the school. There is increasingly an understanding that it can't just be done on a department-by-department basis – that we must provide support to one another. The faculty group practice has to support our two affiliated hospitals, university and children's services, and at the same time the support that comes from them has to be transparent and understandable by everyone. The hospitals are their own entities with their own boards. We are the antithesis of an integrated health system. We have entities that are totally separate that have decided that they ought to work with each other – because nobody works for each other – if we're all going to make it here.

Q: Where are there cost-cutting opportunities?

Dean krugman: In the research area, we're talking with the university administration about how to streamline our whole grants and contracts administration. It is a $425 million book of business and every department has one or two or three people leading grants management. They're not particularly well-coordinated or defined. Within the clinical arena, we already have a fabulous business enterprise and university physicians focused on the revenue cycle and contracting. We're doing collaborative things with the hospitals to get ready for the future. We're one of the bundled payment pilots that the Centers for Medicare & Medicaid Services (CMS) has just announced. Some of our units are talking about using Lean technology to look at how they do their work.


I'm not prepared to take on Lean for the whole institution at the moment because I think that has to be campus-wide, not just school-wide. But certainly Denver Health, one of our clinical partners, has demonstrated that you can do a lot with Lean to improve both your process and your cost structure.

Q: How do you increase the collaboration among departments?

Dean krugman: Within the clinical arena, I see the research enterprises in the departments getting more engaged institutionally within some major centers, or areas, like cancer or cardiovascular disease or other things, where there is more central funding of a research infrastructure. For example, the PhDs who are hired in clinical and basic science departments to support and conduct research have very different base salary support, with those in basic science departments having 30-50% base salary support and those in clinical departments having 2-5% base support. I think there may be a way we can homogenize that particular process to support the whole research enterprise better than department by department. But the clinical departments need to exist in one form or another because they have the training requirements set by the residency review committees to support the growth and development of their future faculty. That is not something that you can easily ignore. By far, one of the more important things that we do as an institution is to train the next generation of physicians and specialists.

Q: What are the most effective incentives to get the behavior you're looking for?

Dean krugman: I make it explicit to everyone that, number one, I want them to be successful and I'm not going to do anything that suborns them or interferes with their success without informed consent. But it's also explicit that, compared to their peers, their job is not just to have the country's most successful department in their specialty. That’s what chairs were like in the '90s. Instead they need to be working with

me, and with all of the other chairs, the center directors and the hospital directors, to make not just their department, but the school, the centers and the hospitals as good as they can be. That naturally requires some give and take and some willingness to be patient. If, in fact, what would vault one department to the top in the country comes at the expense of other departments, then it's probably not something we want to do automatically here. We want to have a broader conversation, and move the institution in a way that everybody is as successful as they can be. Twenty years ago, that wasn't necessarily the way this place worked, or many places worked.

Q: What do you do when someone doesn’t fit with the culture you’re building?

Dean krugman: I haven't had much of a problem with that. Over the course of the years, I had two or three chairs who we recruited who really didn't fit into this culture, or environment, who were more interested in their own department. They're no longer here. They were as uncomfortable in this environment as we were with them. So it was good for them to move on. Everyone should have the opportunity to work in a place where they can be happy.

Q: How are you addressing the disparity in funding among departments and centers?

Dean krugman: We openly acknowledge that we have big disparities in base funding, but everybody knows it and everybody sees it. I've said to everyone that we're not going to reallocate our existing resources because we don't have enough resources to reallocate. The disparities we have are historic; they go back to a formula put together to allocate base funding in 1985. The way we've been successful here is by reallocating resources off incremental revenues so that nobody is gouged or cannibalized. We may give one or two departments more money at any given time because of their needs, either one-time money through our academic enrichment fund or, if we got a big windfall in state money, we would


work something out incrementally. But we have so little we haven't felt it useful to gouge people.

Q: How does the university of Colorado Health system fit into the picture?

Dean krugman: University of Colorado Health is going to be enormously important for the future. Assuring a flow of patients and clinical revenue is important. It's a new system and it's evolving. We have agreed we are going to start working on a formal affiliation agreement. It has a huge amount of promise, but we have a lot of details to work on to make sure that it's successful.

university 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 the new health system with an academic medical center because this would give us uniqueness in the market, region and nation. University of Colorado Health is a new health system partnership of equals that combines Poudre Valley Health System, one of the top-performing community health systems in the nation, 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 by combining academic-based and community-focused medicine to bring innovative and leading-edge care to patients throughout the Rocky Mountain region.

“We were particularly interested in the strategic value that the University of Colorado faculty practice would contribute. The faculty provided the deepest bench of medical specialists in the region, especially in quickly advancing areas such as oncology, cardiovascular surgery, the neurosciences and the biosciences. They are the source of top-quality training sites for the next generation of healthcare professionals eager to meet the needs of diverse populations from the Front Range to rural areas across the Eastern Plains. In addition, their highly ranked primary care programs and health services researchers bring a critical new dimension in this era of ‘The Triple Aim.’ We decided to call the new health system University of Colorado Health to signify the importance of our academic affiliation.”

– Rulon Stacey, Ph.D., FACHE, President, University of Colorado Health

Rulon Stacey was named president of the University of Colorado Health in 2012. In the 16 years previously, he led the transformation of Poudre Valley into a health system with two dozen facilities in three states. In 2008, Poudre Valley was one of only three organizations – and the only heatlhcare organization – to receive the Malcolm Baldrige National Quality Award, the nation’s highest presidential recognition for performance excellence. He is immediate past chairman of the American College of Healthcare Executives.

Q: if a case study is written about your school in 2020, what do you want it to say?

Dean krugman: First of all, I anticipate the school will be here. Whoever my successor is at the time, I hope he or she is enormously successful. I hope this school will have grown and developed as well as it could. I have no illusions that what we think will be happening in 2020 will actually happen. But if the doomsday scenarios that there will only be 30 or so research-intensive medical schools in the U.S. are correct, I think it is far more likely we will be 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.



About Richard Krugman, M.D.Richard Krugman, M.D., is Vice Chancellor for Health Affairs for the University of Colorado Denver and has served as Dean of the University of Colorado School of Medicine for 22 years. He oversees all clinical programs of the university at its five affiliated hospitals. Dr. Krugman is a graduate of Princeton University and earned his medical degree at New York University School of Medicine. A board-certified pediatrician, he completed his internship and residency in pediatrics at the University of Colorado School of Medicine. He is an internationally recognized authority in the field of child abuse prevention. Contact Dr. Krugman at [email protected] or 303.724.0882.

About Andrew Epstein, M.D.Andy Epstein, M.D., is a Managing Director at Navigant with nearly 40 years of healthcare industry experience. He directs consulting engagements for the leaders of university and community hospitals, integrated health systems, faculty practices and large physician groups and focuses on organizational design, physician leadership effectiveness and hospital-physician relationships and structures. He speaks nationally about strategy, physician-hospital collaboration, enterprise and physician governance models and change management. He has a bachelor’s degree from Dartmouth College and an M.D. from the School of Medicine at Case Western Reserve University. Board certified in internal medicine, he completed his internship and residency at University of Colorado Hospital. Contact Andy at [email protected] or 617.748.8332.


The Vanderbilt Experience: An Expanding Clinically Integrated NetworkBy David R. Posch and John A. Lutz

kEY POiNTS

» Strike a balance that increases efficiency without antitrust concerns

» Create a roadmap that assesses eight key areas

» Set an ambitious goal: For Vanderbilt, 100,000 covered lives

Successful clinically integrated networks (CINs) require significant financial analysis, market research, strategic planning, resource commitment and a certain “leap of faith” belief that collectively we can all do better than we can individually. Academic medical centers, faculty, independent community hospitals,


independent physician practices and insurance companies have begun working collaboratively all over the country to drive up patient (and physician) satisfaction, care efficiency and effectiveness, while driving down costs and inappropriately delivered care. Providing the right care at the right time by the right provider with the right outcome at the right cost – and being rewarded for it – are the underlying goals of clinical integration. Academic medical centers are under increasing pressure from commercial and governmental payers to reduce operating expenses, increase efficiency and effectiveness through demonstrated quality improvement initiatives. CINs have the potential to bend the cost curve.



The Federal Trade Commission defines a CIN as a legal organization of physicians, hospitals and ancillary providers that substantially integrates the delivery of care to achieve significant efficiencies – higher quality and more cost-effective care. Additionally, the activities of the CIN will not violate the antitrust laws if joint payer contracting is reasonably necessary to achieve those efficiencies and the anticompetitive effects of the joint contracting do not exceed the pro-competitive benefits of the efficiencies.

Two years ago, Vanderbilt’s leadership recognized the potential of CINs and understood the importance of developing a CIN for its Medical Center, Children’s Hospital, Clinics and affiliated hospitals throughout Tennessee to advance its vision of improving population health while becoming a global destination for cutting-edge healthcare delivery, research and teaching.

In 2011, Vanderbilt retained Navigant to provide an assessment of Vanderbilt’s readiness to develop a CIN and develop a practical “roadmap” for its implementation. The goal was to design, develop and implement a clinically integrated network of providers that could ensure that Vanderbilt‘s vision was realistic and could be achieved.

Since then, Vanderbilt has formed affiliations including 18 Tennessee hospitals in one of the nation’s largest launches of a CIN.

OuR APPROACH

Vanderbilt initially identified three independent community hospital partners (Maury Regional

Medical Center, NorthCrest Medical Center and Williamson Medical Center) and their respective medical staff members, composed of both employed and private primary care and specialist physicians as its initial affiliates.

Eight areas or building blocks required of CINs were assessed, including:

» Legal and compliance

» Leadership and governance

» Provider network

» Care and service delivery

» Information technology

» Finance

» Contracting capabilities

» Clinical performance

Within each area, qualitative and quantitative assessment findings drove recommended actions for Vanderbilt’s leadership to review, discuss and determine next steps. For example, Vanderbilt and its affiliated community hospitals were aware of the requirements for a formal legal and governance structure, but had yet to create it. In another example, shortages of primary care physicians were identified in specific market areas that needed to be addressed as the CIN was being developed. The action steps recommended by Navigant specifically addressed each of the required CIN building blocks.

Vanderbilt’s leadership used the Navigant “roadmap” to complete their CIN readiness

vanderbilt university Hospital and ClinicsNashville, 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)


during 2012 by implementing the necessary legal structure, governance, leadership and infrastructure components. With these components completed, the CIN was ready to begin.

OuR CuRRENT STATE

In December 2012, Vanderbilt established a wholly-owned limited liability company (LLC), named the Vanderbilt Health Affiliated Network (VHAN) to govern its CIN. An LLC was recommended by legal counsel for simplicity, expansion flexibility and liability limitation. The board leadership is comprised of half hospital executives and half physician directors, with board membership drawn from Vanderbilt and the participating affiliates. With Vanderbilt, there are now 18 hospitals from six affiliates covering central Tennessee from the northern border to the southern border, and 100 miles to the east and 130 miles to the west of Nashville. The system has more than 3,000 inpatient beds and 3,000 physicians.

In January 2013, Vanderbilt and its affiliated hospitals began managing the healthcare needs of their 70,000 employees and dependents. The goal is to have 100,000 lives supported by VHAN by the end of 2013.

The first phase has addressed the employees of VHAN affiliates and their dependents, who are all self-insured. By allowing beneficiaries to be treated at any of the participating facilities, VHAN offers the convenience of receiving quality healthcare closest to home, delivered in the most appropriate, cost-effective setting.

Also beginning in January, VHAN is being offered by Aetna, allowing area employers to use the same network offered to VHAN employees and their dependents. In addition to clinical services, VHAN will offer population-based disease management. VHAN is working toward clinical integration within the next 12 to 18 months, with shared medical records and shared programs of quality improvement and disease management. VHAN will work directly with large employers on health plan design and provider accountability.

In the latest affiliation, announced in January, Vanderbilt University Medical Center and West Tennessee Healthcare agreed to collaborate on programs and services and forge new solutions to improve the quality and lower the cost of healthcare in the region. Consistent with Vanderbilt’s other affiliation agreements, each party remains independent and free to continue pursuing individual initiatives.

A Forward-Thinking Approach“Major developments are occurring rapidly within the delivery of healthcare as the result of the advancement of medical science. At the same time, changes to Federal and state health policy are promoting the creation of innovative models to more efficiently and effectively coordinate the delivery of healthcare across broad populations.

“These affiliations are a tremendous positive for all parties, serving as a forward-thinking approach to partnerships between community-based hospitals and large tertiary referral centers performing specialty care, training and research.”

– Jeff Balser, M.D., Ph.D., Vice Chancellor for Health Affairs and Dean of the Vanderbilt University School of Medicine

From article “vuMC teams with 3 Midstate hospitals”


http://www.mc.vanderbilt.edu/reporter/index.html?ID=11380


About David PoschDavid Posch is CEO of Vanderbilt University Hospital and Clinics and executive director for the Vanderbilt Medical Group. In addition to leading the outpatient and inpatient clinical enterprise and medical group operations, he leads the strategic planning office for Vanderbilt University Medical Center. He joined Vanderbilt in 1999 as chief operating officer of the Vanderbilt Medical Group and Clinics, became CEO in 2007, and assumed the role of CEO of Vanderbilt University Hospital in 2011. Previously, he worked at Oshsner Clinic in New Orleans for eight years, capping his career there as executive administrator, and spent 16 years at Cleveland Clinic Foundation in administrative and leadership roles. He has a bachelor’s degree 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 [email protected] or 615.343.5013.

About John A. LutzJohn Lutz is a director within Navigant’s Healthcare Strategy Team, with more than 30 years of healthcare leadership experience. He is the physician-hospital transactions team leader, responsible for strategic alignments ranging from small group mergers to multiple-hospital clinically integrated network developments. Previously, he was CEO of a large, multispecialty physician practice and held senior leadership roles with two hospital systems. He is a Fellow of the American College of Healthcare Executives and the American College of Medical Practice Executives. He is a graduate of Yale University and formerly an Administrative Fellow at Massachusetts General Hospital. Contact John at [email protected] or 518.813.4134.


New and Old School Lessons for Academic Physician CompensationBy Ronald L. Vance

kEY POiNTS

» Focus on modifications to base-plus-incentive design

» Incent improved performance in quality, service and efficiency

» Motivate physicians to achieve enterprise-wide goals

Universities, academic medical centers (AMCs) and others with employed and affiliated physician faculty and community members have accelerated the refinement of their physician compensation plans to prepare themselves to bridge between the current


“Curve 1” world (where providers are primarily paid based on fee-for-service reimbursements) to a “Curve 2” world (where providers are primarily paid based upon outcomes and/or reduced costs). Most of the focus so far has been to modify the predominant base-plus-incentive design approaches to include expanded minimum work standards (MWS) requirements and to include higher levels of quality, service, efficiency and other non-throughput activities. At Navigant, as advisors, observers and implementers of these initiatives, we believe there are many “lessons learned” in migrating from “old school to new school” compensation plans.



All health systems face multiple shared clinical delivery reimbursement pressures, such as reduced payment rates for the same or greater levels of historic inpatient and outpatient professional and technical services, reduction and/or elimination of payments for outpatient professional and technical ancillary services and penalties for readmissions and other adverse clinical outcomes. AMCs and their affiliated physicians face additional challenges to support their missions, including diminished governmental, commercial and private levels of funding for teaching, research and other academic activities. More specifically, many AMCs have become more reliant on revenues from their clinical healthcare delivery activities, in light of diminishing funding for their teaching and research missions, coupled with reduced Graduate Medical Education payments, National Institutes of Health grants and philanthropy contributions.

SEEkiNG BALANCE

Over the last 10 years, we have observed a significant evolvement of multiple plan design approaches to address market needs. The most predominant physician compensation plan design options being utilized today include the following approaches:

A. Revenue-less-expenses;

B. Production-based plans, generally relying upon Work Relative Value Units (wRVUs), as assigned by the Centers for Medicare and Medicaid Services (CMS), plus other performance incentives; and

C. Base-plus-incentives

Some of the comparative advantages and challenges of these models are shown below.

There has been a fairly deliberate movement from A to B and, increasingly, to C-based compensation plan designs, which seek to strike a new balance between the realities of still-important fee-for-service reimbursement and pressures on production, with the emerging importance of demonstrating higher levels of quality, clinical service and cost-efficiency. Similarly, many AMCs that started with a predominant C (base-plus-incentive) focus and further utilized A and B plan approaches have largely returned to hybrid C approaches.

In addition to the other comparative benefits and challenges noted below, two key reasons for these movements include: (1) challenges to account for allocated revenues and expenses within the Option A approach (that are beyond the physician’s control) may not fully recognize physician effort and required practice expenses, while incentivizing competition between physicians for the best-paying patients at the expense of ensuring access for all types of patients; and (2) incentives that over-rely on “production” (whether in terms of professional collections, wRVUs and/or other similar volume-based metrics) frequently promote more activity rather than focus on value in terms of quality, service, efficiency and overall outcome of physician-directed work.

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”

http://view.bmo-email.com/?j=fe5011787c61017a7316&m=fef41778726d04&ls=fdf21c707362017f71137072&l=fe5916757c610d7d7413&s=fdf91574706506797616787d&jb=ffcf14&ju=fe2410787c63047c711678&r=0


Within the base-plus-incentive (Option C) approach, many faculty compensation plans essentially combine the production and quality/service incentives that are identified separately within Option B. Furthermore, while most non-academic employed physician compensation plans still emphasize open-ended production

incentives and most rely on wRVUs as the primary “production” metric, we anticipate that the market will increasingly cap/limit individual performance incentives and increasingly rely on other compensation incentives for team-based quality, service and efficiency performance targets. Navigant Healthcare Director Cynthia

Most Frequently utilized integrations Physician Compensation Plan Designs (“Earned Compensation” Equals)



Arnold notes that organizations will need plan design flexibility to “motivate physicians to achieve enterprise-wide goals that are well beyond their core clinical activities, such as ACO/CIN network development, collaboration on payer initiatives, etc.”

LESSONS LEARNED

Lessons learned from AMCs’ increased utilization (and/or return) to the use of the base-plus-incentive approach include:

» Acknowledging that the pressures and reliance on clinical revenue to support all academic missions continues to require higher levels of accountability for wRVUs, professional collections and/or other clinical volume within better defined minimum work standards (MWS) to “earn” the budgeted base salaries.

» Willingness to fund base salaries at the department or division level, to the extent the aggregate participants’ production and qualitative performance meets budgeted levels of MWS targets.

» Willingness to allow chairs and division leaders discretion to set varying clinical production MWS targets at the individual faculty member level and allocate work in order to maximize team-based performance.

» Acknowledging that AMCs must require better defined sources of funding for all missions, including otherwise non-funded additional

teaching and research activities. One example: requirements that there be MWS for all forms of funded base salary activities, and potentially reduced salaries for non-funded activities or unmet MWS.

» Consequently, as further illustrated below, there should be clarification that the initial academic clinical full-time equivalency (FTE) is set at a 1.0 level and that the sources of funding for “buy downs” in other above-and-beyond teaching, research and/or medical administrative activities must be clearly identified.

» Increasing budgeting for performance incentives (as a percentage of base salary levels) based on a combination of production and non-production metrics, for achieving “stretch goals” above base salary MWS levels. Examples could include incentives for excess wRVUs above the MWS level required to “earn” the clinical base salary level, or achieve a high level of defined core measures for clinical protocols and/or actual outcomes.

» Recognition that “open-ended” incentives for higher volumes of wRVUs or similar metrics is continuing to promote volume-based behaviors rather than focus on balanced Curve 1 and Curve 2 incentives. Therefore, capping/limiting the potential incentive for incremental wRVUs or other volume-based production metrics to better strike this balance – as well as better limit the organization’s

Clarifying Categories of Compensated “Work” and Minimum Work Standards


subsidization for incentives that do not have a funding source after expenses are offset by collections.

» Requiring that up to 25 to 50% of the potential (beyond base salary) performance incentives be based on non-production metrics, to heighten focus and reliance on documented quality, service and efficiency behaviors. Examples could include high levels of patient satisfaction, clinical outcomes and achieving expense/wRVU targets. Navigant Healthcare Managing Director Rick Cameron notes that increasing use of non-clinical compensation components are “challenging our existing 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 that result in higher levels of efficiency, reduced costs and/or expanded service offerings. Examples could include payments to aligned faculty members for adhering to protocols that reduce readmissions, improve operating room turnaround times and standardize surgical device implants.

» Increasing emphasis on team-based work and decreasing emphasis on individual performance. Navigant’s Cynthia Arnold notes that since payment mechanisms have only partially evolved beyond Curve 1 to Curve 2, creating a balanced set of incentives for developing population management activities may require special consideration for nurse practitioners, physician assistants and other care-coordination leaders.

» As the pace of physician integration further accelerates over the next three to five years, with further anticipated declines in actual physician reimbursements and enhanced needs for focused and aligned incentives for value-based activities, we will be recommending increasing utilization of

hybrid base-plus-incentive designs, as well as advanced features within these hybrid designs. The “lessons learned” above provide further guidance for evaluation of clarified sources of funding, minimum work standards, balanced production and non-production incentives and inclusion of additional potential incentives for enterprise-focused service line and program improvements. While most systems will likely use a mixture of physician compensation plan designs, we anticipate further transition to plan designs that include these elements and reduce or eliminate the disproportionate reliance on individual clinical productivity metrics.

About Ronald L. VanceRon Vance, a Managing Director at Navigant Healthcare, has more than 26 years of healthcare experience, serving more than 150 health systems, hospitals, medical groups and academic institutions. He is responsible for the Physician Strategy team, and his practice is largely focused on physician-to-physician and physician-hospital alignment strategic and business planning, advanced medical staff development planning, compensation, performance improvement, organizational development, governance and related leadership development issues. He has extensive experience in providing Fair Market Value reasonableness assessments for a broad range of physician services relationships, including numerous compensation, professional service and on-call coverage arrangements for hospitals and health systems. Ron has a bachelor’s degree from Millikin University and is a cum laude graduate of Southern Illinois University of Law. He is a member of the State Bar in Illinois, Missouri and Georgia. Contact Ron at [email protected] or 770.814.4480.

http://www.navigant.com/professionals/v/vance_ronald_l/


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Easton Associates, an international consulting firm specializing in the life sciences industries, has joined Navigant’s Healthcare practice, more than doubling the number of our professionals with global business strategy expertise for pharmaceutical, biotech and medical device companies, diagnostic suppliers and life sciences investors.

With the expansion of the Life Sciences team, Navigant broadens the capabilities and strategic offerings to pharmaceutical, biotech, device and diagnostics companies across the globe. Navigant's Life Sciences practice is part of Navigant Healthcare and assists global pharmaceutical companies, biotech firms, medical device companies, diagnostics suppliers and life sciences companies in gaining competitive advantage by maximizing their business development, market access, strategic marketing, marketing research, brand management and pricing and reimbursement initiatives.

The team now has an expanded presence in New York City, Princeton, N.J., Boston, Chicago and San Francisco as well as London and Beijing, and offers significant engagement experience launching products in North and South America, Europe, Asia and emerging markets.

“This combination of two highly regarded firms in the life sciences market adds new capabilities

and scale to the life sciences market,” said Eduardo Schur, Managing Director and leader of Navigant’s Life Sciences practice. “Additionally, the combination of our talents in concert with our Healthcare payer and provider practices will result in a broad spectrum of services to address increased complexities in pharmaceutical, biotech, medical device and diagnostic industries. Our collective experience, innovative capacity and ability to understand current and future trends will be a timely asset to our clients.”

The expertise of Easton’s professionals, many of whom have advanced degrees in medicine and pharmaceutical science, has led to long-standing client relationships with large pharmaceutical firms, specialty pharmaceutical, biotech, diagnostics and medical device companies.

“Innovation is a cornerstone of Easton’s philosophy,” said Kris Lowe, Managing Director, who joins Navigant from Easton Associates. “Navigant shares that commitment with Easton which made the firm a perfect fit for our Easton professionals. Our entire senior management team feels that the transition to Navigant is the right decision not only because the two firms are complementary in the services that we provide, but also in the shared vision of delivering excellence to our clients.” For more information, visit us at navigant.com/lifesciences.

Navigant NewsInternational Life Sciences Consulting Firm Joins Navigant

Managing DirectorsMarie Cassese • 212.901.1910 • [email protected] Robert Friedman • 212.901.1909 • [email protected] Michelle Hasson • 212.901.1905 • [email protected] Balraj Kakkar • 646.227.4263 • [email protected] Kristine Lowe • 212.901.1904 • [email protected] Eduardo Schur • 609.896.4027 • [email protected] Roger Zan • 609.219.8772 • [email protected] Paul Zhang • 212.901.6924 • [email protected]

The expanded team provides product and business strategy expertise for: » Pharmaceutical companies

» Biotech firms

» Medical device companies

» Diagnostics suppliers

» Life sciences

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EUROPE

http://www.navigant.com/lifesciences

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http://www.navigant.com/professionals/l/lowe%20kristine/

http://www.navigant.com/professionals/s/schur_eduardo/

http://www.navigant.com/professionals/z/zan_roger/

http://www.navigant.com/professionals/z/zhang%20paul/


Navigant advisors offer their expertiseNavigant is knowledgeable on a variety of healthcare topics that are important to physician practices, health systems and payers. Below are some highlights and links to articles featuring our experts.


DELivERiNG vALuE TO MuLTiPLE STAkEHOLDERS: 2013 & BEYOND

Navigant Healthcare’s Michael Nugent explores the four strategies that can help payers and providers give their customers more value for the dollar as healthcare reforms emerge over the next few years. As we enter 2013, a variety of factors are combining to make not just promising, but also delivering value to patients a strategic priority.

iMPLEMENTiNG CLiNiCAL AND FiNANCiAL COLLABORATiON BETWEEN PAYERS AND PROviDERS

Healthcare payment reform is beginning to generate some early successes in the form of reduced costs, improved quality and aligned incentives. Navigant Healthcare Managing Director Mike Nugent highlights two case studies that illustrate the challenges and rewards hospitals and health systems are likely to experience in pursuing clinical and financial collaborations.

OuTLOOk FOR iNDEPENDENT COMMuNiTY HOSPiTALS: uNCERTAiN

Scott Clay, Navigant Healthcare Director and co-author Peter Bruton, Managing Director for RBC Capital Markets’ New York, discuss the impact of today’s challenging financial healthcare environment on leaders of independent community hospitals as they consider whether they can continue to be “stand-alone” healthcare delivery systems.

TALES OF THREE MEDiCAL DEviCE MARkETS iN CHiNA

Navigant Healthcare’s Paul Zhang, Celia Deng, Wei Sun and Zhiyi Tong present three case studies of different device markets – coronary stents, orthopedic implants and ultrasound systems – and explain the strategies that large companies are using to compete in each of these product areas. For device companies, China is proving to be a market replete with both immediate opportunity and significant risk. Quick wins are possible in China, but long-term commitment and constant adaptation are the rules for sustainable success.

THE LONG-TERM CARE ELEPHANT iN THE ROOM – RiSkS AND REWARDS FOR PAYERS, PROviDERS, PLANS AND CONSuMERS

A white paper by Navigant Healthcare’s Kevin Harris and Norbert Goldfield of 3M Health Information Systems highlights the new challenges stakeholders face in the rebalancing and coordination of programs and services across the entire long-term care continuum. The paper examines the steps needed to assess and impact performance, quality measurement and cost containment in delivering excellence in patient care.

For links to these articles and more, visit our insights & Events page at navigant.com/healthcareinsights.

http://www.navigant.com/insights/library/healthcare/2012/delivering_value_multiple_stakeholders.aspx/

http://www.navigant.com/insights/library/healthcare/2012/financial_collaboration.aspx/

http://www.navigant.com/insights/library/healthcare/2012/independent_community_hospitals/

http://www.navigant.com/insights/library/healthcare/2012/article_in_vivo/

http://www.navigant.com/insights/library/healthcare/2011/the-long-term-care/

http://www.navigant.com/healthcareinsights

NAVIGANT PULSE WINTER 2013 | 30NAVIGANT PULSE WINTER 2013 | 30

Upcoming EventsNavigant’s experts speak on a variety of healthcare issues throughout the year. This calendar highlights upcoming events that our experts are participating in across the country.

POST-ACuTE CARE PROviDERS CAN NO LONGER BE THE LAST LEG OF THE CONTiNuuM RELAY RACE

The historical fragmentation of post-acute providers, a lack of relationships between hospitals and post-acute facilities and lack of control over post-acute processes and outcomes have managed care executives evaluating whether developing post-acute partnerships is a key opportunity or too large of a risk. Navigant Healthcare’s Donna Cameron and Rich Bajner stress that in order to manage care across an episode, acute and post-acute care providers must work together in a different way. They must develop new relationships and infrastructure to improve quality outcomes and reduce overall cost.

MARCH 14-16 American Medical Group Association (AMGA) Annual Conference Collaborative for Clinical Integration and Value

Speaker John Lutz

Exhibitor Alleviant, Powered by Navigant Healthcare

APRIL 13 American Health Lawyers Association Webinar Fair Market Value Bootcamp Webinar and Roundtable Discussion Series

Speaker Rick Cameron

APRiL 19-20 American College of Chest Physicians – Business of Medicine Course Key Drivers for Physician-Hospital Affiliations: Alignment & Clinical Integrations

Speaker Ron Vance

MAY 1-3 National Health insurance Exchange Summit ACO, Co-Ops and Healthcare Provider Alternatives and Strategies in Participating in Health Insurance Exchanges

Implementation of Health Insurance Exchanges will necessitate a fundamental rethinking of strategy on the part of healthcare systems, including redefining the relevant geographic market for healthcare systems. Key focus areas of this presentation include:

» Financial Modeling: Alternative Reimbursement Structures; Budget models; Compensation and Contract Administration

» Network Access and Contracting Strategies

» Organizational Design and Governance

» Compliance and Reporting Requirements

Speakers Cheryl Duva, Casey Nolan, Dan Turula, Cynthia Arnold, Paul Butler

NAviGANT HEALTHCARE iS A PROuD SPONSOR OF HFMA’S 2013 viRTuAL CONFERENCE April 11 | July 17 | October 16

HFMA’s Virtual Conference

Tangible Solutions to Timely Industry Challenges

visit Navigant Healthcare’s Buyer’s Resource Guide at http://www.hfma.org/brg/details.cfm?cfgridkey=4923 For links to these events and more, visit our insights & Events page at navigant.com/insights/events.

http://www.navigant.com/insights/library/healthcare/2012/post_acute_care_providers.aspx/

http://www.navigant.com/insights/events

©2013 Navigant Consulting, Inc. All rights reserved.

Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services.

See navigant.com/licensing for a complete listing of private investigator licenses.

Dave Zito Managing Director Navigant Healthcare Practice Area Leader [email protected] 312.583.5871

David Burik Managing Director Co-Leader, Strategic Consulting Division [email protected] 312.583.4148

ABOuT NAviGANT

Navigant (NYSE: NCI) is a specialized, global expert services firm dedicated to assisting clients in creating and protecting value in the face of critical business risks and opportunities. Through senior level engagement with clients, Navigant professionals combine technical expertise in Disputes and Investigations, Economics, Financial Advisory and Management Consulting, with business pragmatism in the highly regulated Construction, Energy, Financial Services and Healthcare industries to support clients in addressing their most critical business needs. More information about Navigant can be found at navigant.com/healthcare.


http://www.navigant.com/licensing

http://www.navigant.com/professionals/z/zito_david_p/

http://www.navigant.com/professionals/b/burik_david/

Pulse Healthcare Magazine, Winter 2013

Health & Medicine

Transcript of Pulse Healthcare Magazine, Winter 2013