The CFA Perspective

Are You Considering Consolidating (Rationalizing) Clinical Services Across Your Health System? Consider these 12 Key Questions

Posted by Charles Franc

7/21/15 4:12 PM

CFA recently completed an engagement in which the rationalization (consolidation) of cath lab services within a two hospital system was hotly debated.  CFA was asked its opinion of closing the cath lab at the smaller hospital (or limiting it to diagnostic-only services) and re-focusing services at the regional hospital some forty miles away.  Regardless of corporate strategic direction, it is important to consider the following practical questions when debating a rationalization issue:Merger

1.  Will you truly save money?  CV services are complex and expensive to start, keep current and maintain.  Closing/modifying a service and directing at least some patients to another hospital for a specific service or procedure may save money in the short term, but will the longer term impacts—loss of revenue, loss of patients, negative publicity/community perception—result in a net negative financial impact?

2.  Will you lose referrals?  Will referring physicians shift their preferences from the local hospital to the regional hospital?  Or will loss of market share or outmigration to other competitors become an inevitable consequence of change in local capability?  How will the population being served react?  Can better services at a regional level ever be fully justified by a perceived diminished local capability?

3.  Is the option acceptable?  Is hospital “A” as acceptable to the local population as is hospital “B?”  Is the travel time between them a factor?  Differences in reputation?  Other factors?  Are there competitive options?

4.  How will your cardiologists react?  If interventional cardiology and vascular services capability changes at the local hospital, will your staff cardiologists shift their practices to the regional hospital, or will they seek out more convenient and comprehensive alternatives in order to protect their income, save travel time and maintain their efficiency?  How will this apply to employed versus non-employed cardiologists?  Can the regional hospital absorb them?  Will I have dissention in the ranks?  Will I lose interventionalists?

5.  How will closing an interventional laboratory (for example) impact noninvasive cardiac and vascular services?  Losing interventional capabilities will have some negative impact on noninvasive testing due to loss of volume and potential negative perception.  What impact will it have and how do you mitigate this impact?

6.  What will happen to the local STEMI and stroke program?  If, for example, the “local” STEMI program transitions to a “regional” STEMI program, what are the consequences for EMS response times, door-to-balloon times and other factors critical to local healthcare? How will the service population react?

7.  Will it harm or enhance the overall clinical reputation of the hospitals?  Hospitals gain and keep non-cardiovascular patients given their overall CV program reputation (the “halo” effect).  If this reputation is diminished through a change in capability, what are the consequences?  Difficult to quantify and very subjective, it is never-the-less a real issue when considering changing any hospital’s CV capabilities.

8.  Are low volume versus quality outcomes at issue?   If a smaller program is closed, will low volumes translate to higher volumes with better outcomes in the regional program?  If low program or individual operator volumes are at issue, or if sub-standard outcomes are at play, how will consolidation impact these metrics?

9.  How will the payer community react? Will such a change enhance or diminish a hospital’s capability to negotiate competitive pricing and secure the contracts it needs to thrive? Will any competitive edge be lost or gained by either facility?

10.  Will our competitors seek an advantage?  If we lose market share and our clinical capabilities change, will our competitors seize this opportunity?  Could they realize a competitive advantage that would negate any potential financial savings from operations?  Will they try to “poach” our interventionalists?

11.  How will capacity and patient throughput be impacted?  Can the new volume be absorbed by a single facility, or will it require additional capacity, equipment, staffing, etc.  Can throughput efficiencies be enhanced or will they actually diminish given new volume?

12.  What unintended consequences may be created?  While rationalization decisions are frequently political, there may be unintended consequences that will have to be considered as the decision making process unfolds.

    Answering these and other logical questions during the analyses of rationalization or consolidation of services between facilities is a critical exercise that will help to insure a rational and well planned outcome.

    As always, CFA invites your comments, questions and suggestions.

    Topics: Clinical Programs & Services, Cardiovascular Hospital Services Optimization

    Rational Regionalization of Cardiac Services

    Posted by Peter Rastello

    4/16/13 4:46 PM

    The American Hospital Association publication, A Guide to Strategic Cost Transformation in Hospitals and Health Systems (available for download at: 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:

    1. Cost management pathway – an approach to significantly reshape and reduce cost
    2. Business restructuring pathway – critically asking, “What business are critical to our mission and vision going forward (and which ones are not critical).”
    3. 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

    1. Start with an evaluation of the organizations strategic
    2. Evaluate each business unit and service line to identify core elements
    3. Use a structured process to analyze the core businesses and services
    4. Institute a business/services line analysis framework
    5. Understand when and why service distribution planning will be needed
    6. Initiate the process of defining the most efficient and effective distribution of services
    7. Use a structured framework for service distribution planning
    8. 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.

    Topics: Clinical Programs & Services, Cardiovascular Hospital Services Optimization

    The Re-emergence of the Center Of Excellence

    Posted by Peter Rastello

    4/4/11 4:19 PM

    Will the passage of the Patient Protection and Affordable Care Act (PPACA) in 2010 usher in a renewed emphasis on hospital Centers of Excellence (COE)?  Did the Center of Excellence concept ever really go away?  Whatever you call it, and most importantly, however you define it, the COE remains a logical concept for organizing, staffing, marketing and focusing resources on a relatively homogenous patient population of great importance to the typical hospital.  This has been particularly true with comprehensive cardiovascular services, as they comprise a highly visible clinical service frequently contributing significant revenue to the hospital or health system.  Successful CV programs require focused management, significant and regular capital investment in expensive technology, ongoing clinical development and a large and diverse specialty medical staff.  Are these programs comprehensive CV service lines or CV Centers of Excellence?  CFA believes that the most successful programs are nearly indistinguishable.


    One way to interpret the intended consequences of the PPACA is the push towards a number of new payment incentives that require a closer working relationship between physicians and hospitals.  These include accountable care organizations (ACOs), pay-for-performance-type programs, payment bundling (hospital and physicians), and several other initiatives.  If hospitals need to work more closely with their physicians towards achieving common objectives, then what better way to organize this effort than around a specific service line, or Center of Excellence?  With healthcare reform promoting better health outcomes at lower cost, it makes sense that hospitals look at the best way to approach their individual strategic and operational response to reform. 


    COEs are a logical place to start.  Currently, while cardiovascular specialists focus their attention on the service line that supports their work, their level of engagement varies.  COE development can be promoted by enhancing physician/hospital integration.  Specialty physicians can be expected to work more closely within their respective hospital service lines to promote increasing value to patients and payers when they are incentivized to do so.


    Focus on COE development will parallel the needs of the developing PPACA-sponsored efforts.  Physician-hospital alignment and comprehensive integration can create the mechanism for goal congruence and appropriate incentivization towards these goals.  Alignment/integration strategies must focus on how these strategies will successfully support the goals and objectives of the service line.


    Beyond fostering closer integration and alignment with the CV medical staff to better respond to emerging requirements of the PPACA, CFA believes that eventually governmental payers will contractually steer patients to the higher quality and lower cost providers (as many private payers/managed care plans do today).  This eventuality will be driven by the necessity for Medicare and Medicaid to achieve substantial cost savings in the face of increasing demand for services by our aging population.  Preparing and positioning to respond to such a heightened competitive arena will likely drive CV COEs to re-double their program development and management efforts to new levels.  This is what CFA calls a Performance-Based Center of Excellence.


    We will leave the discussion of what is required to turn a service line into a “Performance-Based” Center of Excellence for a future article.


    CFA invites your thoughts, comments and questions.

    Topics: Clinical Performance Improvement, Cardiovascular Hospital Services Optimization

    Physician/Hospital Alignment: Bundled Payment – Part III: California

    Posted by Peter Rastello

    9/13/10 1:52 PM

    Continuing our discussion from Part Two of physician/hospital alignment issues in general, and the reemergence of bundled payment initiatives specifically, an important new pilot will soon take place in California.  The Integrated Healthcare Association ( is launching a new bundled episode of care pilot.  The IHA is a statewide group that promotes quality improvement, accountability, and affordability of healthcare in California and consists of hospitals, hospital systems, managed care organizations, physician groups, vendors/suppliers, and others.  They have been doing some interesting work, including sponsoring the largest non-governmental pay-for-performance program in the U.S., with 8 health plans, 229 medical organizations representing 35,000 physicians providing care for 10.5 million members.


    The pilot will include episode payment for total knee replacement and coronary artery bypass graft (CABG) procedures. Implementation will include mutually agreed-upon episode definitions, analysis of health plan claims data, negotiation of a payment model with implementation of this phase of the pilot expected in August 2010.  Later phases of the pilot will expand the number of covered procedures and extend the pilot outside of southern California.


    Participation in the pilot is voluntary (all have preexisting contractual relationships) and includes:  Aetna, Blue Shield of California, CIGNA, HealthNet, Cedars-Sinai Medical Center, Hoag Hospital, UCLA Health System, Saddleback Memorial Medical Center, and Tenet-California.  Additionally, several IPAs, and medical groups will participate.


    Bart Asner, MD, CEO of Monarch HealthCare and one of the IPA pilot participants, states:


    “Over time, pilot participants commit to sharing savings realized via higher-quality, more efficient care.  Ultimately, these savings will flow through to consumers in more affordable health insurance products.”


    This pilot was profiled in a Los Angeles Times article entitled “One-Price Approach to Surgery” (LA Times, April 24, 2010) which focused on the “wildly different prices for the same medical procedure, often in the same town.”  They sited as an example, a health insurance executive that had both knees replaced a couple of months apart in separate northern California hospitals, but by the same surgeon.  The bill at the first hospital was $95,000, but the second cost only $55,000.  The article goes on to discuss the potential for bundled payments to increase care coordination and having the potential to slow down the rise of health care costs and drive down premiums.  It also mentions the possible downside of bundling:


    • Works well for defined procedures such as CABG, but is difficult to apply to chronic conditions such as diabetes
    • Does not deter hospitals and physicians from performing unnecessary tests and procedures
    • Will not impact the continual rise of labor costs and prescription drugs; two large cost drivers
    • May give hospitals and physicians greater clout in negotiating prices with insurers


    This bundled payment pilot points out the critical “three-legged stool” (hospital/physicians/payer) required for success.  Hospitals must have willing physician partners to work with and the insurance market must be willing to buy this new product at a negotiated price.  Note that since California prohibits the direct employment of physicians, the physician/hospital affiliation model employed under this pilot is the affiliated independent medical group or IPA, which aligns its incentives with the hospital to produce a shared savings.


    As one can see, experiments with bundled payments for episodes of care continue to flourish.  CFA will keep you informed on further developments on hospital/physician alignment and bundled pricing, and would welcome your thoughts and comments as we progress.

    Topics: Bundled Hospital Payment, Cardiovascular Physician-Hospital Alignment, Cardiovascular Hospital Services Optimization

    Clinical Performance Improvement: “The Best Measure of Outcome is Outcome”

    Posted by Peter Rastello

    3/18/10 1:13 PM

    Over the long consulting careers of CFA's Principals, the relationship between cardiovascular procedural volume and quality outcomes has continually merited examination.  Multiple studies have addressed the issue for a wide range of cardiovascular procedures.  It is intuitive-isn't it?-that higher volume cardiovascular programs produce better outcomes, and vice versa?

    Researchers, professional societies (through evidence-based practices), payers and the media have all addressed the issue, in some cases setting guidelines and standards for minimum volumes at both the program and physician operator level.  In certain states, falling below a minimum volume standard can trigger a clinical audit and could result in program decertification.  Unfortunately, we all know that "volume equals quality" just isn't that simple-it is complex and heavily nuanced.

    A recent example of research into this issue was published in the Journal of the American Medical Association in November 2009.  The article examined the association of hospital primary angioplasty volume with quality and outcome.  One of its authors, Dr. Deepak L. Bhatt of the Cleveland Clinic, concluded that the mortality from small, medium and large volume providers does not differ considerably. Other markers of quality were also studied, such as door-to-balloon times and length of stay.  He further concluded that,

    "As common sense would suggest, certainly there is a level where volume does matter, but in the contemporary era, that threshold may vary.  The best measure of outcome is outcome."    

    Dr. Bhatt's conclusion is surprising simple, yet profound:  the best measure of outcome is outcome.  In this era of pay for performance, bundling payments, rewarding specific levels of outcome metrics, demand for increasingly transparent results and heightened public expectations, hospitals need to pay strict attention to Dr. Bhatt's simple conclusion and make it work for their program.

    CFA recommends that hospitals (and individual physician operators) whose CV service line volume of a key procedure falls below generally accepted minimum volume indicators take the following actions:

    • Acknowledge that for some individuals and organizations, volumes and outcomes will always be linked.
    • Establish specific and detailed outcome metrics for your program and insure that all applicable quality outcomes for the procedure meet or exceed generally accepted standards.
    • If there are deficiencies, internally acknowledge them and work vigorously, in a coordinated manner, to address and improve performance to initially attain acceptable and then higher levels of performance.
    • Enlist the aid of your physician staff in understanding the problem, setting acceptable levels of performance and addressing the underlying issues.
    • Take the necessary strategic planning steps to understand the underlying reasons for volume changes and explore what must occur to raise volume above applicable standards. Has volume declined in the overall market? Is there a trend in just one clinical segment of the market? Has a competitor moved market share? Has a key technology changed? Is this a physician supply issue? Remember however, that successfully raising volume does not obviate the need to aggressively manage outcome metrics. Raising volume in the presence of a significant underlying issue could actually negatively impact a key outcome metric.
    • Be prepared to defend your volume and related outcomes against any assault-from the media, your competitors, regulators or other interest groups. Have your data ready and your communication plan developed well in advance. In this case, the best offense is a good defense.
    • If all else fails, carefully consider any programmatic consolidation opportunity that may arise within the service line. Obviously not for everyone, but for a select few, consolidation may be the optimal solution.

    For further information, CFA refers you to Association of Hospital Primary Angioplasty Volume in ST-Segment Elevation Myocardial Infarction with Quality and Outcomes, published in JAMA, November 25, 2009; 302(20); 2207-2213. (

    Topics: Heart Hospital Services Optimization, Clinical Performance Improvement, Cardiovascular Hospital Services Optimization