In many ways, today’s modern healthcare system in the United States (U.S.) is a legacy arrangement based on the hospital system structure created by The Hospital Survey and Construction Act of 1946, often referenced as the Hill-Burton Act (Shi, & Singh, 2014). This legislation created a national hospital system dominated in number by nonprofit hospitals (Shi, & Singh, 2014). In 2012, 50.5% of U.S. hospitals were classified as nonprofits, 18.9% were operated by state and local government, 17.3% were private for profit facilities, and the remaining 13% were psychiatric, federal, or classified as other nonfederal entities (Shi, & Singh, 2014).
Since the middle 1980’s, hospital facilities across all classifications in the United States (U.S.) have undergone considerable contraction and consolidation (Shi, & Singh, 2014). Consider, that since 1985 average bed capacity (ABC) across community hospitals decreased from 169.5 in 1985 to 161.5 in 2010 (Shi & Singh, 2014). More recently, the total number of community hospital beds have moved from 823,560 in 2000 versus 804,943 in 2010 (Shi, & Singh, 2014). Scholars suggest, that downward compression in U.S. hospital capacity, since the 1980s, is primarily related to three primary factors including changes in hospitalization reimbursements, efficiencies across the spectrum of managed care, and finally hospital closures (Shi, & Singh, 2014; Fundamental, 2012). More recent factors impacting downward pressures relative to hospital consolidations also include extensive capital outlays for developing or upgrading Electronic Health Record (EHR) systems, and impediments to accessing capital required to remain competitive (Fundamental, 2012).
Impacts of Changing Reimbursement Models and Managed Care Cost Efficiencies
The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 eventuated the elimination of the cost-plus reimbursement model and instituted the prospective payments system (PPS) that utilized Diagnostic Related Groups (DRG) (Shi, & Singh, 2014). The PPS methodology pays by fixed rate criteria based on patient admission diagnosis (Shi, & Singh, 2014). Hospital profit margins are frequently impacted by this rate structure, in that, to generate cost efficiencies facilities must keep costs per patient below the PPS rates per admission (Shi, & Singh, 2014). Payment pressures related to PPS squeezed hospital margins significantly across the previous two decades, conversely, these pressures resulted in over 550 hospital closures during this timeframe (Shi, & Singh, 2014). Further, declining margins created fiscal headwinds across the hospital sector that led to increased merger and acquisition activity among hospital entities (Shi, & Singh, 2014; Kaul, Prabha, & Katragadda, 2016). For example, in 2011, median revenue growth across the hospital sector was four percent, the lowest rate in 20 years (Fundamental, 2012).
During the 1990s, Managed Care Organizations (MCO) brought efficiencies in cost containment to the U.S. healthcare system (Shi, & Singh, 2014). The resultant impacts of MCO’s utilizing the managed care model brought about significant improvements in areas such as patient education, preventive treatment modalities, and clinical patient care and health maintenance that diminished hospital utilization rates (Shi, & Singh, 2014; Kaul et. al., 2016). Evaluating average length of stay (ALOS) metrics one finds that ALOS for community hospitals in 1980 was 7.3 days (Shi, & Singh, 2014). However, after the introduction of MCO systems, ALOS fell to 4.9 days by 2000 (Shi, & Singh, 2014). These data provide potential insight into the synergies surrounding managed care cost controls and treatment efficiencies, and their impacts on hospitals. The combination of which, eventuated significant financial headwinds further compressing hospital revenues, and impacting hospital profit margins (Shi, Singh, 2014).
Decreasing revenues from changes in reimbursement, and decreases in hospital utilization rates based in managed care impacts resulted in hospitals nationwide consolidating in-house services by closing whole in-patient units and combing in-patient services through the implementation of multi-service units (Shi, & Singh, 2014; Kaul, et. al., 2016). Additionally, the hospital sector consolidated through the closure of over 200 rural hospitals, and 300 urban community hospitals from 1990 to 2000 (Shi, & Singh, 2014).
Researchers suggest, that two more recent factors impacting hospitals include requirements for capital expenditures to modernize electronic health records (EHR) systems, and diminishing capacities to access capital to modernize systems and remain competitive (Fundamental, 2012). A primary component of the move towards value based care reimbursement includes the quality of facility EHR systems (Fundamental, 2012). Meaningful use standards include requirements aligned with implementing certified technologies in EHR (Fundamental, 2012). Facilities that have failed to upgrade to EHR meaningful use compliant systems report financial barriers related to system costs, costs of capital, and system maintenance costs (Fundamental, 2012). These barriers, with emphasis on costs of capital, create significant fiscal burdens on hospital systems further endangering margins (Fundamental, 2012). Further, deferred systems up-grades, or periods of low level modernization projects, potentially place hospitals in disadvantaged positions relative to competitors with lower costs of capital or greater access to capital (Fundamental, 2012).
The totality of consolidation, reimbursement challenges, expanding patient populations, and capital expenditures for a growing array of physiological technologies, healthcare information technology infrastructure, EHR systems, client management and scheduling systems, revenue management systems, bioinformatic and data analytics place many healthcare systems in vulnerable fiscal position (Fundamental, 2012; Shi, & Singh, 2014; Kaul, Prabha, & Katragadda, 2016). Moreover, systems with challenging capital positions often face an inevitable downward spiral consisting of declining fiscal health eventuating deficits in system credit ratings, bringing about deteriorating capacities to access capital at reasonable rates, compelling systems to utilize larger portions of retained earnings to finance near-term system upgrades, resulting in diminished levels of savings to invest in future technologies, finally culminating in significant impacts in financial health and competitive positioning (Fundamental, 2012).
Beyond Consolidation Towards Integration
Considering these headwinds, both old and new, healthcare systems must move beyond the cost efficiencies garnered through previous periods of consolidation. Contemporary systems in search of greater efficiencies in providing quality care and services based in the wellness-quality continuum, methodologies to maximize capital expenditures in ways that best utilize capital and opportunity costs, and generate scaled efficiency must focus on system-wide operating models (Kaul, Prabha, & Katragadda, 2016; Toward, 2016).
Today, health systems face extraordinary pressure to enhance quality across the spectrum of their operations, while at the same time, improve upon cost efficiencies across their systems. Traditional healthcare organizational systems often employ structures that find individual facilities operating as stand-alone entities (Kaul, Prabha, & Katragadda, 2016). Further, these traditional systems often fail to develop and deploy system wide guidelines, programs and complementary operations across the organization (Kaul, Prabha, & Katragadda, 2016). Additionally, traditional systems commonly grade individual facilities in areas such as profitability, performance improvement, and quality of care versus evaluating the entirety of the system on these and other metrics (Kaul, Prabha, & Katragadda, 2016).
The Integrative Model
Forward looking models must serve as structural frameworks, across which, the fundamental production of care and services are delivered. This model engages the continuous evolution of internal and external forces shaping modern healthcare delivery and translates these forces into dynamic integrative strategies. During the preceding period of consolidation integrative strategies, when utilized, often centered on assimilating business support lines to derive cost efficiencies (Toward, 2016). However, contemporary healthcare systems should integrate across business, support, and clinical lines throughout the entirety of their systems to obtain maximal synergies in efficiency.
Integrated systems must engage all system facilities and lines in a manner that supports the development of a singular integrative organization. Integrative models de-silo classical healthcare systems arrangements and re-aligns contemporary systems business, support, and clinical operations on a shared responsibility towards a continuum engaging patient-centric and wellness-quality delivery (Kaul, Prabha, & Katragadda, 2016; Toward, 2016).
No two healthcare systems are alike, in fact, the U.S. healthcare system is an amalgamation of non-profit, for profit, and government healthcare system entities. These entities differ in many ways such as facility size, capacity, capabilities, market size and patient populations, and fiscal health. Likewise, no singular integrative model will suffice to meet the needs and requirements of every system. Kaul, Prabha, and Katragadda (2016) suggest, that a baseline integrative framework might contain three key components including a corporate nucleus, a joint enterprise complex, and patient facing operating units.
In this baseline integrative framework, strategists suggest, that the Corporate Nucleus (CN) provides overall guidance relative to integrated strategy development and oversight, corporate portfolio lines, lean core organizational services, and policy development (Kaul, Prabha, & Katragadda, 2016). The Joint Enterprise Complex (JEC), collaborates with patient facing units to provide efficient delivery of business and support assistance, and delivers products, information, and service to the CN (Kaul, Prabha, & Katragadda, 2016). Patient Facing Operating Units (PFOU), concentrate resources on the provision of exceptional healthcare delivery focused on expanding value on the wellness-quality continuum (Kaul, Prabha, & Katragadda, 2016).
Figure 1: Based on the baseline integrative model introduced by Kaul, Prabha, and Katragadda (2016).
Fostering Integrative Change
A 2015 survey on corporate integration and mergers polled 800 American executives from various industries (Toward, 2016). Regarding systems integration, 82% of responding executives indicated their organization created integrative teams (Toward, 2016). Perhaps more important, 90% of these corporate executives indicated, that integrative teams were vital to successful integrative ventures (Toward, 2016). Change management practitioners often point to the importance of Change Management Resource Teams (CMRT) as being instrumental in successfully carrying out change initiatives (Employee, 2016).
Alpern and Aguirre (2014) submit, that ten impactful principles play important roles in shaping change throughout an organization they include:
- Synergize the existing culture; rather than endeavoring to bring whole-sale cultural change. Identify elements of existing culture aligned to the change initiative, highlight these strong cultural influences and engage the attention of those in the organization most impacted by the change.
- Strong executive commitment in supporting organizational leaders and teams engaged in carrying out change.
- Engaging all layers of the organization; Bring the full complement of corporate knowledge to bear; front line personnel often prove to be instrumental repositories of technical, logistical, and customer centric issues centered in change.
- Presenting and supporting both the rational and emotional case for change; Rationale might include capturing new market share, emotional motives such as enhancing the lives of customers are often equally powerful and engaging.
- Begin by defining and modeling a critical few new behaviors aligned to change and evolve in complexity from there.
- Engage and sustain engagement across the organization, across the timeline of change, and beyond. This tenant should be continual; its importance is manifold.
- Lead beyond the traditional lines by acknowledging the social networks imbedded in the organization and the informal leaders of these networks.
- Leverage formal structures such as reward and acknowledgement systems and promote training and development.
- Leverage informal mechanisms that create an ethic of ownership across the organization.
- Assess and modify by implementing change and performance measures aligned to change processes.
Dr. John Halamka (2011) explains, that healthcare differs from other industries in several important ways including revenue payments that emanate, not from the consumer, but third parties such as insurance or Medicare. Further, employee conventions differ significantly from other industries with key organizational members, namely physicians, most of whom do not work as employees of health systems but as independent contractors interacting with the system. Price negotiation is restricted and payment models are established by external entities creating artificial market prices for health system services, while most other industries operate on free market principles. Additionally, health systems are confined by “anti-kickback” laws that discourage healthcare entities from building referral relationships. Furthermore, most industries produce products or offer services that can be standardized throughout a company’s operations where improvements in service, performance, or quality can be efficiently carried out. However, healthcare is based in significant physiological differences among individuals, who are acted upon by a myriad of disease processes, injuries, and behavioral antecedents requiring a host of differential services and treatment capacities be employed to provide effective care.
The confluence of these differentiators, and other distinguishing factors relative to healthcare systems discussed above, suggest that, as these systems seek to establish efficiency through integrative models and change management principles one key dynamic might enhance integrative efforts.
Integrative Liaison Teams as Collaborative Multipliers
This writer concludes, that the addition of Integrative Liaison Teams (ILT) to baseline integrative models will significantly impact integrative efforts across the healthcare systems spectrum. ILT’s comprised of leadership and functional subject matter experts from entities across the system serve as the nexus for collaborative system integration. Like Change Management Resource Teams, ILT’s should be chartered to develop and apply structured integration management and strategic methodologies towards healthcare system network integration (Employee, 2016). Utilizing integrative strategies, Integrative Liaison Teams should develop system specific plans for engaging the people and systems in integrative processes. These plans include establishing communication plans, an integrative time-lined course map, and training plans aimed at educating system employees relative to leaderships integrative vision, integrative objectives, timelines and outcome expectations (Employee, 2016).
Figure 2: The authors modified integrative model with the inclusion of the Integrated Liaison Team
Perhaps, equally important, is the role ILT’s play in the 10 principles to leading change mentioned above. Here, this group of leaders and functional experts serve as a communicative and collaborative core, through which, the organizational integrative vision flows. Further, the ILT enhances communicative and collaborative integrative efforts through ensuring each of the three primary system components, the Corporate Nucleus, Joint Enterprise Complex, and Patient Facing Operating Units remain informed and connected regarding integrative processes. Finally, the ILT serves as stewards of the integrative program by addressing process concerns identified by any of the three primary system components and collaborates with and between the primary components to problem solve and improve efficiencies impacting integrative efforts or organizational performance.
Issues related to the consolidation era, evolving modifications in reimbursement models, and growing capital expenditures in technology investments have resulted in many healthcare systems operating in precarious fiscal environments and in mal-aligned systems. The confluence of these factors impact efficiencies in system performance, weigh on organizational cost efficiencies, and produce deficits in opportunity costs across the system. Health systems must move beyond institutional paradigms fixed in classic healthcare operating models, towards integrative models producing patient-centric paradigms focused on the wellness-quality continuum. This writer suggests, integrative models that include Integrative Liaison Teams might best serve as an efficient nexus engaging health system’s integrative visions, communication, and collaboration.
Alpern, D., & Aguirre, M. (2014). 10 Principles of Leading Change Management. Retrieved from http://www.strategy-business.com/article/00255?gko=9d35b
Employee Roles in Initiating Successful Change Management | Prosci. (2016). Retrieved from https://www.prosci.com/change-management/thought-leadership-library/roles-in-change-management
Fundamental Transformation of the Hospital Field. (2012). Retrieved from http://www.aha.org/research/policy/realignment.shtml
Kaul, A., Prabha, K. R., & Katragadda, S. (2016). Size should matter: Five ways to help healthcare systems realize the benefits of scale. Retrieved from http://www.strategyand.pwc.com/reports/size-should-matter
Shi, L., & Singh, D. A. (2014). Delivering Healthcare in America: A Systems Approach (6th ed.). Sudbury, MA: Jones and Bartlett Publishers
Toward Systemness | Deloitte US | Health Care Providers. (2016). Retrieved from https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/towards-systemness-insights.html