The American Hospital Association publication, A Guide to Strategic Cost Transformation in Hospitals and Health Systems (available for download at: www.hpoe.org/strategic-cost-transformation) deals with the overriding issue of cost management in an era of evolving value-based business models. It is highly recommended reading for cardiovascular service line administrators and other healthcare administrators.
The authors, Kaufman, Hall & Associates, Inc., set forth three tracks for hospitals to strategically think about managing costs. These tracks are:
- Cost management pathway – an approach to significantly reshape and reduce cost
- Business restructuring pathway – critically asking, “What business are critical to our mission and vision going forward (and which ones are not critical).”
- Clinical Transformation pathway – reducing costs through clinical transformation
Under the Clinical Transformation pathway, CFA was struck with the opinion expressed on the underlying need for hospitals and health systems to rationally look at the provision of programs and services, what they call the “distribution of services,” over a region or market area, with the goal of “regionalizing” or “rationalizing” the access, location, and provision of services in the most effective manner.
Over the years, CFA has been involved with a number of projects where multihospital systems attempt to rationally distribute cardiovascular services by relocating/consolidating them from hospital “A” to hospital “B.” Most typically, this has involved consolidating cardiac surgery into a single facility from two or more hospitals in a single-market area system. The reasons behind this strategy have been quality issues, volume issues, cost containment, unique local circumstances and combinations thereof. The single greatest mitigating factor has historically been the regulatory and clinical need to provide surgery-on-site to justify offering percutaneous coronary intervention (PCI). A decision to consolidate is made infrequently, due to its obvious difficulty, with political, clinical and financial consequences to all members of the system and cardiovascular program. Now that justifying surgery based on the need to provide surgery-on-site for PCI is steadily declining (virtually non-existent in many, but not all states), one major regulatory reason for justifying CV surgery has diminished. Beyond the choice of CV surgery, there are other low-volume, high-tech and expensive programs and services that are candidates for regionalization. The example of Transcatheter Aortic Valve Replacement (TAVR) comes to mind, as the CMS conditions of participation are stringent and set minimal volumes for both initiation of the new and maintenance of the existing TAVR program.
The historical justification for regionalization now takes on new meaning. The AHA publication makes the case that the new environment makes hospitals being “all things to all people” a mission that will doom many to ultimate financial failure. Local community access to some programs and services may have to be accomplished via referral to system partners or strategic partnership outside the system. The authors set forth eight strategies for analyzing these difficult and far-reaching
- Start with an evaluation of the organizations strategic
- Evaluate each business unit and service line to identify core elements
- Use a structured process to analyze the core businesses and services
- Institute a business/services line analysis framework
- Understand when and why service distribution planning will be needed
- Initiate the process of defining the most efficient and effective distribution of services
- Use a structured framework for service distribution planning
- Ensure a solid fact base for the service distribution plan
Call it regionalization, rationalization, or optimal service distribution, this concept takes on new meaning in the absolute need to aggressively manage costs. CFA knows of one prominent ten-hospital, multistate system that will soon take on the optimal distribution of CV services head on. One-third of their facilities have full-service CV programs. These are hard decisions that need solid facts, dispassionate analysis, logical decision-making and analytical frameworks, a reasonably quick decision making timeframe, and, most importantly, total commitment from the highest levels of system and regional administration, given the enormous practical and political challenges. Many hospitals and healthcare systems will be reluctant to consider such decisions; but the strategic and economic challenges ahead are simply too daunting to not face the difficult reality of creating an optimal distribution system for high-priced specialty services that will support financial success under fee-for-value reimbursement systems.
CFA invites your comments, suggestions and questions.