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Health reform challenges, the prospect of lower reimbursement, and the effects of a recessionary economy are driving increased consolidation among hospitals, physicians and other providers seeking to find economies of scale, streamline processes and improve their market strength. To be poised and ready to take advantage of new market opportunities, it is essential that hospitals have a governance and management structure that facilitates organization-wide strategic vision, oversight and decision-making to maximize opportunities for fulfilling their mission and vision.
Spurred by passage of the Patient Protection and Affordable Care Act, today's health care environment is changing rapidly. To achieve its objective of shifting the nation's health care system to a payment system based on value, the ACA specifies the implementation of a number of programs with the intent of improving the quality of patient care and reducing or controlling health care costs. Among these are the shared savings programs (commonly referred to as accountable care organizations), payment penalties for hospital-acquired conditions and high rates of readmissions, value-based purchasing, and bundled payments.
A key tactic of these programs is the accountability providers will be held to in efforts to control costs and raise the quality of care delivered. Not only will financial penalties be imposed for HACs and readmissions, but financial risk is shifted to providers in programs like ACOs and bundled payments. Clinical outcomes, including patient experience and other new measures, will be publicized on the Hospital Compare Web site.
Another method to achieve cost-control and improve care quality is the effort to advance coordination and integration of care. In addition to ACOs and bundled payments, the ACA authorizes a Medicare Community-Based Care Transitions Program and a Medicaid grant program to establish community-based, interdisciplinary, inter-professional health teams to coordinate with Medicaid's Patient-Centered Medical Home pilots and CMS' Multi-Payer Advanced Primary Care Initiative.
The Congressional Budget Office projects a $500 billion reduction in Medicare spending through these reform efforts. As of 2010, annual Medicare market-basket updates are being reduced, ultimately projected to result in a $157 billion payment decrease. From 2014-2019, another $14 billion reduction will be realized, with a 75 percent reduction in payments to Medicare Disproportionate Share Hospitals. Failure of the Super Committee to reach agreement on deficit cuts has triggered two percent cuts for Medicare providers under The Budget Control Act of 2011.
Increasing Consolidation
During the first nine months of 2011, there were 71 mergers involving 132 hospitals across the United States, totaling $6.9 billion. In contrast, the entire year of 2010 resulted in 74 mergers, which involved 126 hospitals and totaled $5.8 billion. According to Gene J. O'Dell, American Hospital Association vice president, strategic and business planning, two of the more interesting findings of the AHA's 2012 Environmental Scan are the increase in hospital mergers resulting from "increased competition and consolidation in U.S. markets" and the "pursuit of performance excellence initiatives to achieve better strategic and operating results."
These trends are substantiated by recent reports from Standard & Poor's, Moody's and Fitch that highlight industry consolidation, integration and physician alignment as trends to watch. Moody's 2011 Outlook for the Not-For-Profit Healthcare Sector noted that larger scale organizations will be better able to withstand market volatility, and market pressures will drive an increase in mergers and acquisitions. S&P and Fitch echoed this outlook, citing the potential benefits of mergers and acquisitions for hospitals seeking to benefit from economies of scale, lower costs, access to capital, and strengthened market presence.
Why Consider Governance Change?
As organizations grow, acquire or merge, their governance structures often become increasingly complex. Adding to the complexity is the fact that the governance of one subsidiary is not always consistent or aligned with another, and none may be in sync with the corporate parent. The boards of the various subsidiaries may be different sizes, they may or may not have the same officers or standing committees. Committee functions may vary and correlating boards and committees may have varied decision-making authority. The complexity created by inconsistent governance structures and authorities is a barrier to the organization's ability to be nimble, responsive, efficient and effective.
The transforming health care environment, with all of its implications, is motivating many organizations to evaluate their governance structures. Key environmental forces compelling leaders to evaluate their governance structures include the recessionary environment, passage and implementation of the ACA, and increased scrutiny of and expectations for governance accountability. While the complexity of system growth may be one catalyst for change in health care systems' governance structures, the need to ensure the organization's leaders can focus their attention on its utmost priorities of mission fulfillment, financial strength and viability, delivery of high quality of care, and the strategic thinking required to achieve these priorities is paramount amid today's environmental challenges.
Phil Betbeze, a writer for HealthLeaders Media, has even challenged organization and system leaders, asking "Are you looking for ways to meet that challenge [new realities of lower reimbursement and higher accountability] with new voices, new organizational structures and new protocols? If not, you should be. The leaders are."
One of the most important reasons for evaluating an organization's governance structure is to ensure that among all of the other priorities the organization must navigate, the organization has the governance structure that best supports its efforts to fulfill the organization's mission and advance its vision for the future.
System Governance
A health care system is a group of organizations working under common governance and management to advance a mission and vision embraced across the organization. There are any number of specific examples of different system governance structures. Every organization must determine what variation in governance structure is the best fit and will allow its leaders to effectively direct and oversee that particular organization. However, there are key characteristics that can be referenced in evaluating and considering the benefits or disadvantages of different governance models. A 2005 Governance Institute Special White Paper, entitled Pursing Systemness: The Evolution of Large Health Systems, identified three models of health system governance and management:
Highly Autonomous, Least Integrated Governance. Governance structures can generally be measured by the degree in which the responsibilities and authorities of the system board and its subsidiaries are centralized and integrated. Least integrated are those organizations known as holding companies. Holding companies are generally characterized as being "decentralized." These organizations have a system board with overall responsibility for the organization, yet rarely exercise authority over the organization's subsidiaries. The subsidiary boards of holding companies operate with a high degree of autonomy. These boards set goals and make decisions independently of the system board and other subsidiaries. Consequently, there is often limited communication, standardization or sharing of best practices among the organization's entities. Few business operations are conducted at the system level, requiring only a lean corporate staff. For some holding companies, system level governance and operations essentially exist on paper only.
Little Autonomy, Highly Integrated Governance. At the opposite end of the integration scale are "operating companies," highly centralized and integrated organizations. The boards of these companies retain full authority and responsibility, drive the company's strategic direction, set goals for all entities, conduct oversight and execute decision-making. Subsidiary boards are either eliminated or become "advisory" in nature with little real decision-making authority. Centralized business operations are conducted by a corporate staff and are highly standardized with mandatory best practices.
Shared Governance. Along the scale of integration are "Shared Governance Systems." Although the degree of autonomy, responsibility and centralization of business functions in shared governance systems may vary from organization to organization, these organizations balance degrees of integration, standardization and centralization with local authority, responsibility and representation. Under a shared system of governance, the system board typically retains authority over setting organization-wide strategic direction, setting subsidiaries' performance expectations, retaining authority over internal and external auditing, and hiring and evaluating subsidiaries' CEOs. The system board also maintains close oversight of the subsidiaries' financial and quality performance. These actions are carried out with due consideration to subsidiary participation and input. System board composition is not necessarily representational, but is based instead on the competencies and expertise needed to carry out the system's responsibilities and strategic vision.
Positioning for an Uncertain Future
The growing trend of partnerships, mergers and joint ventures in health care is expected to continue over the next few years, in large part due to the volatile economy and unknowns surrounding health care reform. And while local hospitals may not be in danger of closing, they may be in a better position to serve their communities if they partner with another facility or organization. Partnership provides opportunities for economies of scale and necessary capital for reinvestment into physical facilities and information technology systems. Forward-thinking hospital boards should be considering what they can do now to best position their organizations and their boards of trustees to be in an advantageous position if and when the opportunity for partnership does arise.
Special thanks to The Walker Company for use of: Adapting to a Transforming Health Care Environment: Consolidation Considerations. Author Cindy Fineran is a senior consultant of The Walker Company Healthcare Consulting LLC, a Lake Oswego, Oregon-based health care governance consulting firm.
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As we begin 2012, it's hard to remember a time when there were so many major advocacy issues facing Kansas hospitals at any one time. Here is a brief summary of five of those issues that will occupy much of our time this year, in both Topeka and Washington.
I. Debt discussions in Congress - From all indications, the Congressional discussions over reduction in the national debt will continue well into this year. As we have already seen, this will be a tremendous challenge. While most agree that the debt challenge needs to be met for the good of the country as a whole, doing so requires a serious examination of federal health programs, especially Medicare. It also implicates the physician payment issues involved with fixing the Sustainable Growth Rate because the cost of this "fix" continues to grow. Our challenge this year will be to get our delegation to better understand the implications of proposed cuts on Kansas hospitals, and to encourage them to be our advocates with other members of Congress.
II. Medicaid reform - While Medicaid will no doubt be discussed on the federal level, the issue of Medicaid reform will be on the front burner in Topeka. There is no question that the state must look seriously at the trends of the Medicaid program over the last decade to figure out if there are ways to increase its efficiency while maintaining high quality care. As we move from the discussion of Medicaid managed care toward implementation, there are many things that health care providers will be watching closely to see if the state truly intends to provide better care management or just manage cost. We will be challenged to make sure that lawmakers understand Medicaid reform should not put the health care safety net at risk.
III. Regulations - The plethora of regulations, especially on the federal level, is well documented. Regardless of the ultimate outcome of the reform law, we will continue to see the number of proposed regulations increase. Our challenge will be twofold: first, we need to get our delegation to understand when a regulation is burdensome and be ready to sign on to a "dear colleague" letter; second, we need to be able to help our members understand the impact of proposed regulations and and how to deal with them.
IV. Courts - While the courts may not seem like a normal setting for a discussion of advocacy, they certainly are this year. Most notably, the United States Supreme Court will soon begin consideration of the health reform law passed in 2010. Not many are predicting what the court will do, but it goes without saying that the decision will have tremendous implications on the future of the reform law's implementation. And of course, in Kansas, the case challenging our limits on non-economic damages still languishes. In both of these important cases, the decision rendered by the court will certainly create additional advocacy challenges for Kansas hospitals.
V. Elections - The federal elections this fall will have dramatic implications for health care policy because both the White House and the U.S. Senate stand the chance of changing parties. It is doubtful, but not beyond possibility, that the Kansas Congressional Delegation will change. In addition, elections in the Kansas State Senate will determine whether moderate or conservative Republicans will be in control at the Statehouse. In any event, the Kansas Hospital Association will need to stay engaged with elections on both the federal and state level.
These are just a few of the many advocacy issues we will face during 2012. As always, we will need hospital trustees to be a part of our grassroots efforts to make sure that community hospitals are heard in Topeka and Washington.
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It has been four years since Miller v. Johnson (the Kansas case challenging our law limiting non-economic damages) was appealed to the appellate courts in Kansas. In April, it will be three years since the case was transferred to the Kansas Supreme Court. Much has happened during that period of time. The case has been argued before the Supreme Court twice, resulting in more than four hours of public discussion by the justices. The Court has welcomed one new member, changed chief justices, and seen one of the justices recuse himself. Unfortunately, the one thing that hasn't happened in the last four years is a decision settling the issues before the Kansas Supreme Court. There has been much speculation as to the reasons why the Court has yet to reach a decision. Some have pointed to the changes on the Court, others have suggested the Court is simply incapable of reaching a decision.
Contrast this situation with the legal dispute over the Affordable Care Act, which was passed less than two years ago. There have been dozens of cases filed challenging the law, and there have been decisions from federal courts ruling both in favor of and against the law's constitutionality. The case was just accepted by the United States Supreme Court last fall, and that court will hear arguments surrounding the challenges over a three-day span in late March.
The U.S. Supreme Court will begin on March 26 with one hour of arguments on whether a separate federal law will prevent the courts from ruling until the law's individual mandate has taken effect. On March 27, the justices will hear two hours of arguments on the core question of whether the mandate is unconstitutional. And on March 28, the court will hear arguments on two issues: how much, if any, of the law's other provisions can be upheld if the mandate is unconstitutional, and whether the health law's Medicaid expansion is constitutional.
The Court's schedule further confirms the widespread expectation that it will issue a ruling on the health care law next June, which would be in the middle of the 2012 election campaign. It also would be less than one year after the case was transferred to the U.S. Supreme Court.
Regardless of your feelings about the constitutionality of the health reform law, it is clear that so far the United States Supreme Court has employed a more efficient process than the Kansas Supreme Court. Of course, it is possible that the U.S. Supreme Court could get bogged down in its efforts to reach a decision, but this is highly unlikely. And, given the fact that there is no requirement on how long the Kansas Supreme Court can take to reach a decision, it is entirely possible that we will see a ruling on the health reform law before we see a decision on our state's tort reform law.
2012 looks to be a big year for court decisions in both the U.S. and Kansas Supreme Courts. However, it remains to be seen which court will be the first to resolve the important health care issues on its docket.
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The Kansas Hospital Engagement Network will help hospitals of similar sizes and types to share and learn from peer organizations across the country. We are excited to be involved in this project with our partners at the Kansas Healthcare Collaborative, our joint quality effort with the Kansas Medical Society. Through the Kansas Hospital Engagement Network, KHC and the Kansas Hospital Association will provide education and training to help hospitals make health care safer and less costly by reducing health care acquired conditions and preventable readmissions.
KHC and KHA will work with each participating hospital to identify the set of improvement activities that are most relevant to the hospital's needs. Types of improvement activities and support that will be available include:
- Stand-alone improvement activities such as Webinars, educational sessions and open-ended sessions where challenges can be discussed individually with subject matter experts;
- Topic-specific fellowship programs to develop individual and team capability for implementation;
- Improvement collaboratives utilizing the PDSA model, improvement advisors and learning sessions; and
- Ongoing learning networks with site visits to selected sites and peer-to-peer information sharing and assistance.
The Kansas Hospital Engagement Network will offer education on a variety of topics, including leadership development, culture of safety, teamwork and communications and LEAN training. Hospitals also will have access to content and learning opportunities in ten areas of focus:
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Adverse drug events
- Catheter-associated urinary tract infections
- Central line-associated blood stream infections
- Injuries from falls and immobility
- Obstetrical adverse events
- Pressure ulcers
- Surgical-site infections
- Venous thromboembolism
- Ventilator-associated pneumonia
- Preventable readmissions
The Kansas Hospital Engagement Network is available to all hospitals in Kansas, and there is no fee for participation in the two-year educational program. The bold aims of this program are to reduce preventable hospital acquired conditions by 40 percent and reduce hospital readmissions by 20 percent, in turn, significantly reducing costs. Submission of data on simple measures through a Web-based reporting system is a requirement of participation.
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Legislation was introduced in December by United States Senators Jerry Moran and Kent Conrad (D-ND) that would make permanent the State 30 J-1 Visa Waiver program. The legislation (S. 1979) would permit states to recommend visa waivers for physicians recruited to care for patients in medically underserved communities. Under the State 30 J-1 Visa Waiver program, foreign-born, American-trained doctors agree to practice medicine in underserved communities for at least three years in exchange for the waiver of certain visa restrictions that extend their stay in the U.S. Since its inception, the State 30 J-1 Visa Waiver program has been extended numerous times and brought more than 9,000 doctors to rural and underserved communities in all 50 states. You may learn more about the State 30 J-1 Visa Program on the KDHE Web site.
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The National Health Service Corps Loan Repayment Program application cycle is open until May 2012. Award amounts for this year's program have been modified to help ensure communities with the greatest need – those with the highest Health Professional Shortage Area scores – receive recruitment support to fill much needed clinical positions. Providers at sites with HPSA score 14+ can receive up to $60,000 for the initial two-year commitment. Providers at sites with HPSA score 0-13 can receive up to $40,000. With continued service, NHSC providers may be able to pay off all of their student loans. For additional program details, please see the 2012 NHSC Loan Repayment Program At-A-Glance Fact Sheet. Click here to view the complete Application and Program Guidance.
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To assist Kansas Hospital Association member hospitals in their communications with their elected federal and state officials, KHA has developed a set of advocacy issue briefs outlining many of the state and federal issues in which we may need grassroots effort.
Each Kansas Advocacy Issue will highlight the issue, the action needed and who to contact for more information. Kansas Advocacy Issues may be used to educate community members about important issues affecting your hospital. Kansas Advocacy Issues are available online. We will continue to create issue briefs and update the Web site as federal and state issues change.
Current federal issues include: Deficit Reduction Alternatives in Health Care; Protecting Small, Rural Hospitals; Hospitals and Health Care: Putting America Back to Work; and Protect the Hospital Safety Net.
Current state issues include: Medicaid Reform; Stabilizing Kan-ed; Tort Reform; and Newborn Screening Funding Mandate.
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