By Josh Shepherd

Instead of launching a major construction project, Trover Health Care in Madisonville and Pattie A. Clay Regional Hospital in Richmond found a more cost effective way to get bigger. Both hospitals officially announced they would be full-fledged members of the Kentucky healthcare industry giant, Baptist Healthcare System, earlier this September. In addition to giving both regional hospitals greater access to capital and a position of strength in the face of health care reform legislation, the merger also increases BHSI’s presence in Kentucky’s healthcare market whose reach throughout the Commonwealth is rivaled only by KentuckyOne Health and Lifepoint.

Andy Sears, Baptist Healthcare Vice President for Planning and Development, described the partnership terms between his company, Trover, and Pattie A. Clay as a true asset merger. Both health care providers are now full-fledged members of the Baptist system, which grants them an equal share in the company’s considerable resources in capital, professional infrastructure, and ability to flourish in the changing landscape of the American healthcare system.

“It’s a fact that smaller companies within the health care industry are, or will be, under tremendous pressure to consolidate,” Sears said. Looking at the factors influencing change in the delivery of health care for the next few years – consumer demand for advanced technology, continued development and implementation of electronic medical records systems, concern about the impact of the federal Affordable Care Act – smaller systems are looking at consolidation as the best way to thrive going forward. “Larger systems have a better opportunity at surviving in the reform of the industry that we know is coming,” said Sears.

 The Trover Health System in Madisonville has operated for over a half century as a successful independent regional health care provider. It has built a distinctive reputation and has made good on its mission to provide health care to underserved areas of western Kentucky.

E. Berton Whitaker, CEO and President of the Trover Health System, said the board of trustees and medical staff spent several years debating whether to weather the next decade’s challenges as an independent or merge their assets with those of a larger organization with greater resources.

“We have a long standing history as an independent, not-for-profit company and there was plenty of sentiment to retain that identity,” Whitaker explained. “We challenged ourselves to weigh the gains we would make remaining independent against our potential progress as part of a larger organization.”

Among the factors the board weighed was access to capital, access to corporate support services, and assistance in the development of new models of payment reform. There were other factors involved as well, but these three points were particularly crucial, he said.

“We did the math. It became clear that in the long term, we were not producing enough to be on our own … it made sense to be part of a larger healthcare network so that we can be prepared to purchase smarter, plan smarter, and ultimately grow where we might struggle alone,” Whitaker said.

In early 2011, Trover announced it would seek out a partner and by November, the trustees and medical staff agreed to enter into exclusive negotiations with Baptist. “We were in a good position no matter whom we went with. The finalists [Baptist, Owensboro Medical Health System, Lifepoint Health System] are very respected and responsible organizations,” Whitaker said. “The board and staff just felt that the greatest amount of synergy was between Trover and Baptist.”

But more than that, Trover’s leadership felt that Baptist shared with them a similar mission and core values. “Joining Baptist allows us to become part of a multi-hospital network with gross revenues vastly greater than our own….we have access to more complex technology and corporate resources. While that may mean we have to standardize some aspects of our administrative operations, we also get the benefit of, for example, a marketing department that, independently, we just could not afford.

“We also believe that an affiliation with Baptist greatly enhances our ability to recruit physicians to this area and also provides us with expanded access to specialists that would have a positive impact on the service lines we provide,” Whitaker said.

Baptist Healthcare will also reap several benefits from an association with the Trover Health System.

“There was a gap in the western part of the state where we did not have a physical presence and Trover helps us fill that gap,” said Baptist’s Andy Sears

Prior to the merger, Baptist owned only one other property, Western Baptist Hospital in Paducah. They also have a management agreement with Hardin Memorial Hospital in Elizabethtown. Trover’s geographic location is spaced just far enough from Baptist’s other western Kentucky interests to make the health system a dominant presence all along the western parkway.

“If you look at our system, we have hospitals serving both the eastern and far western sections of the state as well as being well placed in Kentucky’s two largest metropolitan areas. But there are pockets of the state we don’t serve particularly well. So in looking at our geography, Trover meets our needs very well,” Sears said.

Pattie A Clay Regional Hospital

Pattie A. Clay was already operating under a management agreement with Baptist and had thrived within that relationship. But it was also under pressure to ensure its future fiscal health against concerns over federal legislation and the increasing intensity of competition among the powerful health care systems operating in the surrounding Lexington area.

 

Unlike the Trover Health Care System, Pattie A. Clay had an advantage from an existing association with the Baptist Healthcare System and its close proximity to one of its cornerstone properties – Central Baptist Hospital. It is also not that distant from another major Baptist property in Corbin.

Todd Jones, CEO and President of Pattie A. Clay Regional Hospital, said that the hospital’s board decided to take the next step and name Baptist as the sole member of the Pattie A. Clay Infirmary Association to ensure that the Madison County service area would continue to have convenient local access to health care. “Residents of Madison and surrounding counties rely on our local community hospital. We believe this relationship will enable our community hospital to be well positioned to meet present and future healthcare needs,” Jones said.

“A lot of the conversation we have had with Lexington, Corbin, and Richmond is how they can be complementary to each other,” Andy Sears added.

“In terms of our proximity to Central Baptist and Baptist Regional, we are working in conjunction with both hospitals to develop strategies and services that compliment how we deliver care.  We are looking for ways to enhance the quality of care and at the same time … lower the cost of providing care in a more efficient manner,” Jones continued.

As to future building or renovation projects, Jones said there are plans to expand the hospital’s emergency department. He and the trustees are working with Baptist to prioritize other capital improvement projects as well. Asked if those plans included new facility construction, Jones said a facility planning group has been working with the Richmond hospital. “They will design and advise us on potential renovation and growth strategies for our campus, based on community need,” Jones said.

With regard to either hospital system, there is still a formal strategic planning process to be conducted. Most of the immediate changes resulting from each hospital’s affiliation with Baptist will be cosmetic – sign changes that identify the new facilities as members of the Baptist system. But improvements will come, Sears said. It will arrive in a planned and structured way.

“Expansion plans tend to run in cycles,” Sears said. Baptist is currently involved in only one major construction project at Central Baptist Hospital. But the health system has also completed a renovation to Baptist East in Louisville and another in Paducah. Other properties will also be improved, he said.  

“In our [Baptist’s] opinion, the way the economy is moving, the way the healthcare industry is going, larger systems are simply going to be better poised to survive. But we all are facing the same challenges that all hospitals and healthcare systems are going to face – discovering the ways to reduce costs and improve quality at the same time.

“It’s going to make for some interesting developments in the coming decade,” Sears concluded.

By Josh Shepherd

Against the backdrop of a weakened national economy and amid concerns about the long term impact of federal health care legislation, Kentucky’s major health care systems are making high profile investments in new construction all across the Commonwealth.

There are at present some half dozen major construction projects underway in nearly every urban sector of the Commonwealth. Pikeville Medical Center is investing $130 million for a new medical office building and upgraded parking facility. Louisville’s Norton Healthcare System has committed $120 million to convert Suburban into Norton Women’s Hospital and Kosair Children’s Hospital, with a project completion date in late 2013. The Baptist Health Care System is rapidly approaching completion of $200 million worth of new construction on its Central Baptist complex in downtown Lexington. Just down the road from Central Baptist, the finishing touches are being applied to the massive new University of Kentucky Chandler Medical Center.

Even in some of Kentucky’s regional hospitals, millions are being invested in new construction and updates. Frankfort Regional Hospital is adding an $8 million dollar expansion to its Emergency Department and in the Land-Between-the-Lakes region of western Kentucky, Trigg County Hospital has been given a green light by the FDA to invest $7 million for a new surgery and rehabilitation unit.

Since 2010, Kentucky’s health care industry leaders have invested roughly a billion dollars in new construction projects, all of which have created hundreds of new jobs for both the short and long term in their respective communities.

In view of such building projects, it is tempting to conclude that Kentucky’s health care industry is bullish enough about the future to take on substantial risks. But according to Mike Rust, Executive Director of the Kentucky Hospital Association, these projects are about updating aging facilities, keeping current with the latest health care technology, and the maintenance of healthcare quality. “It would be more accurate to say that the industry is cautiously optimistic. There are still questions about the impact of the Accountable Care act. If one looks closely at the new construction going on, it’s more likely linked to an aging facility than needs an upgrade,” Rust said.

The new Owensboro Medical Health System hospital is a prime example of that point.

By far, the most aggressive and far-reaching construction project is that of the new Owensboro Medical Health System (OMHS) in Daviess County. In what has been described as the second largest construction project in Kentucky, OMHS hospital is costing an estimated $385 million, according to OMHS President and CEO Jeff Barber, Ph. D.

The Owensboro construction project is remarkable for a number of reasons, most notably because OMHS is taking on the project as an independent health care system. It has managed to defray some costs through contributions from private and commercial organizations, but the lion’s share of the risk is on the shoulders of OMHS itself.

The new hospital construction site is located just a few miles east of downtown Owensboro on US Highway 54 and is easily the most imposing structure in the area. It is visible from at least a mile away, perched upon a point above the flood plain overlooking Owensboro’s Yellow Creek Park.

 The decision to take on such a project was not made overnight.  Barber, who took over as OMHS President and CEO in 2004, said it took nearly three years of research before the Trustees and Medical Staff arrived at a final answer to the question of whether to renovate their existing facility or build new.

The downtown hospital is already a jigsaw puzzle of renovation projects ranging from the recently completed Mitchell Cancer Center, not even a decade old, to sections dating back to the eighties, seventies, and some sections of the original building dating all the way back to 1939.

“During the previous several years of renovation, we had moved the emergency room from one side of the campus to the other, which meant our adjacencies – our OR, Cath Labs, and diagnostics – were not conveniently located close to each other. Things were done with a purpose, but were not as operationally effective as our patients deserved,” Barber said.

OMHS hired a planning group and an architectural firm to develop a master facility plan that would bring all wings of the hospital in line with contemporary standards of health care delivery. Once they began to understand the complexity involved in a full scale renovation of the existing complex, the conversation quickly turned to a comparison of the cost to build new.

 The OMHS campus is bordered by two one-way streets, a major highway, and a railroad. In a renovation project, some buildings would have to expand across those barriers, Barber said.

 “When all was said and done, the estimate to renovate was about $421 million. It was not going to cost much more to build a new hospital. We also factored in the losses we would have sustained while renovating because we would have had to shut down sections of the hospital. Building offsite in a new location meant that nothing would hinder our normal operations. That fact was also a strong argument in favor of new construction,” Barber explained.

IPDT: Shared Risk in the Construction Process

 One of the unique features of the OMHS construction project was implementing an Integrated Project Delivery Team (IPDT) contracting approach that Barber claims maintains a high degree of control over costs.  The contract arrangement spreads the risk of cost overruns to all the principle players in the construction process. It also allows those key players to share equally in cost savings and includes incentives to meet scheduled time frames.

Basically, the building contracts were negotiated in advance among the engineering firm representing OMHS, the architect, the construction firm, and the Mechanical, Electrical and Plumbing (MEP) representatives simultaneously. All four were brought under contract at the same time and all agreed on a total projected budget.

“Operationally, how it works is that you have your architect, construction, and MEP folks all working together so that an architectural design would be reviewed by the construction and mechanical folks to see if the design would work within the parameters of the budget. It facilitated a much smoother building process. A lot more stuff could be prefabricated off-site according to exact specifications and then just brought in and installed to the main building,” Barber said.

OMHS was inspired to adopt IPDT during their visits to other hospitals during the initial design process. One hospital had tried to integrate an agreement among the principals involved, but they had waited too late and could not get all the principles to come to terms.

“The trick is to bring everyone in right at the beginning and hammer out an agreement before any ground is broken. That way, they all have an interest in bringing the project to a finish within budget and within a reasonable time frame. If they complete aspects of the project within so many days, there are bonuses they enjoy. If there are cost overruns, we all share in the losses,” Barber said. “It makes communication between all of us smoother to reduce project costs by trying to anticipate design changes at the front end and avoiding as many unexpected costs as possible on the back end. It’s a good concept and it’s working out quite well for us. All parties have been pleased with the way things are working out and it has streamlined the process. They haven’t had to go back and do many changes because they were able to anticipate those changes beforehand and designed it all the way through.”

FACILITY DESIGN

During the planning process, Barber said he and members of the trustees visited a lot of hospitals going through their own construction processes, evaluating how colleagues integrated adjacencies of service lines and patient flow.

“We spent a huge amount of time on design, figuring out how we can improve the efficiency of the flow of our health care delivery so that it is less of a burden on patients, families, visitors, medical staff and employees,” Barber said

The new facility will allow OMHS to improve the flow of their service lines as seamlessly as possible from the physician’s office to the patient care areas. Ideally, service lines, Barber explained, will be delivered all on the same floor so that neurology and neurosurgical offices would be located on the same floor as the hospital suites designed for their diagnostics and procedures. Cardiac surgery and cardiology offices will be on the same floor, and the same goes for their other service lines.

What is especially appealing about the new hospital is that the board and medical staff had the forethought to purchase land on a location that allows the hospital space to expand for the next 50 or 60 years. “No one can predict what will happen in the next several decades, but at this moment, anyway, we have a location that is free from the barriers forced such a high price tag on renovation when this whole project began.”

The old hospital will still have its place within OMHS, Barber said. The plan is not to export services to the new hospital that are already brand new at the established facility. Cancer care and research services are already state-of-the-art where they are and, thus, will remain at their location.

 “Our decision to build new seems to have corresponded nicely with an overall surge in economic development across Owensboro,” Barber said. “Our new construction is already attracting the attention of young physicians looking for a good place to practice and settle with their families.”

As a ribbon cutting ceremony looms closer, OMHS is occupied with its elaborate plans to begin operations in June 2013. The plan is for the transition from the old hospital to the new one to happen quickly. If all goes well, Barber said, OMHS would take possession of the hospital around February, spend the spring orienting the staff

It’s hard to tell what the future will bring, Barber said. But before there was ever a ground breaking ceremony for the new hospital, a lot of careful planning had gone into the decision to build a new hospital. The end result of that work has already triggered growth in jobs and opportunity in a city that appears to be enjoying an economic resurgence.

A Norton Healthcare and Humana, Inc. co-sponsored pilot program testing the market viability of a commercial Accountable Care Organization (ACO) has yielded measurable improvements in healthcare quality and cost reduction after only two and half years of implementation. These findings were included in a report Marcia Guida James, Director of Provider Engagement with Humana, Inc., presented to the US Senate Committee on Health, Education, Labor, and Pensions (HELP) last May.

The report, which briefed the Senate HELP committee on initiatives for health care quality improvement in which Humana, Inc. is involved, included testimony to the general progress that the Norton-Humana ACO has made since its inception in 2009. The assortment of positive outcomes included a 36.6 percent increase in physician follow up visits within seven days of hospital discharge, and a 12.9 percent improvement in appropriate emergency room visits. There were also measurable improvements in health care quality with increases in diabetic testing and cholesterol management, Guida James reported.

(See http://www.help.senate.gov/hearings/hearing/?id=2d743a2e-5056-9502-5d31-a233fac592b3 to see Marcia Guida James testimony before the US Senate HELP committee)

The Humana presentation to the Senate HELP Committee reflected similar positive results reported in a comprehensive study The Commonwealth Fund published on the progress of the Norton-Humana pilot ACO last January. The Commonwealth Fund is a private national foundation dedicated to the promotion of a national high performance health care system. While the Humana-Norton ACO is still being refined, there is evidence to show that a commercial ACO can succeed in raising health care quality while reducing costs in a self-insured environment.

In 2009, the Engelberg Center for Healthcare Reform at the Brookings Institute in Washington, DC and the Dartmouth Institute for Health Policy and Clinical Practice in New Hampshire (Brookings-Dartmouth) approached Humana about being one of the five pilot sites for the development of a commercial Accountable Care Organization. Humana readily accepted the challenge and subsequently approached Louisville-based Norton Healthcare to be their clinical provider partner.

“We jumped at the chance to develop this type of delivery model,” said Kenneth Wilson, MD, System Vice President for Clinical Effectiveness and Quality at Norton Healthcare. “We see the ACO as an opportunity to provide health care differently than we have been doing in the past.” The ACO model proceeds in a complimentary direction with the way in which healthcare organizations have been moving in recent years.

Where once there were small groups of physicians organized around a single specialty or a limited number of specialties, there are now multi-specialty clinics composed of numerous primary care physicians and specialists. There are hospital based groups and groups organized under a health plan. The structure of an Accountable Care Organization makes sense because it involves a network of physicians capable of providing the full spectrum of care to a patient population.

“An ACO is a logical practice model for these large health care groups,” said Thomas James, Corporate Medical Director, National Network Operations at Humana, Inc. More than that, he said, an ACO physician network presents health care providers a unique opportunity to raise health care quality, cut costs, and benefit from the savings.

The ACO model for health care delivery has been discussed for quite some time. In terms of the treatment of Medicare patients, the ACO model is a prominent feature in the recently passed federal health care law. Under the title of Medicare Shared Savings Plan, the development of an ACO provider network is actively encouraged to promote improvement in healthcare delivery while also reducing the cost. The incentive to a provider network is a share in the savings, provided that certain levels of quality are maintained or improved.

The Brookings-Dartmouth pilot programs are an effort to translate the Medicare Shared Savings Plan into a viable commercial application. Proponents of the delivery system believe that a network of physicians applying the ACO model can succeed in lowering the costs of healthcare to a self-insured population while improving the quality of that care with the ultimate result being a healthier population.

“The central idea is a bit of a departure from a typical fee-for-service approach to health care delivery,” said Dr. Wilson. “At Norton, [prior to embarking on the ACO pilot program] pretty much all of our physicians practiced according to a fee-for-service model.”

The fee-for-service model rewards physicians for the amount of care they deliver. Physicians make their living by seeing as many patients as they can, but are concerned mainly with the reimbursement they get for each individual patient encounter.

There is a general recognition that the current fee-for-service approach has resulted in a fragmented system of health care delivery, Dr. Wilson said, even in a hospital-based system where a significant percentage of the medical staff is employed. There is little financial incentive for physicians to participate in the full continuum of care because the rewards for care are based on the volume of patients seen. Once a patient has been moved elsewhere in the system, there is little bottom-line incentive to follow the patient’s care forward, to share data, limit the duplication of services, or even to take steps to encourage patients to follow through with a long term health care plan.

An ACO, on the other hand, holds the entire network of partners accountable for improving quality by sharing in the benefits of an efficient delivery of care. There are incentives built in to the payment structure that enables, and encourages, the physician network to monitor the overall health of a specific population, coordinate care among the network providers, and, by this cooperative arrangement, reduce costs.

To serve the research purposes of the Brookings-Dartmouth pilot program, Norton Healthcare and Humana, Inc. organized its ACO network utilizing a mix of Norton’s employed primary care and specialty physicians. It took its population of patients from among Norton’s and Humana’s employees, a test population estimated at approximately 7,000.

The pattern in which people engage with their physicians remains unchanged, said Dr. Wilson. They see whomever they wish, whether that provider is in the ACO network or not.

“This is not managed care,” Dr. James added. “People choose their own healthcare providers. However, there are advantages for patients to utilize network providers. If patients receive a better quality health care experience, one in which they feel that their physicians are working together to improve their health, then there is every reason to expect that the patient will seek out their care from within the ACO. I think we have been able to demonstrate, even in this short period of time, that patients respond well to the ACO model if their overall healthcare experience is positive. The network takes ownership of the health of its population,” said Dr. James.

Communication among the network providers is one of the fundamental keys to a successful ACO. When the Norton-Humana ACO began operations, Norton Healthcare was taking the initial steps to create an integrated Electronic Medical Record (EMR). But while the application of an EMR certainly helps an ACO gather data about its population and allows the payer partner in the organization to more precisely formulate cost targets for that population, physicians toying with the idea of establishing a commercial ACO must not feel that an EMR is an indispensable component of the network.

“Used correctly, it is an effective tool,” said Dr. Wilson, “But the essential aspect of an ACO is communication among partners that promotes a seamless continuum of care from the moment a patient engages a physician for treatment.”

That partnership includes not only the participating healthcare providers. The payer plays a vital role as well.

“That aspect of the network is the one of the many things I enjoy about this approach,” said Dr. James. “The ACO enhances Humana’s relationship with Norton so that we are working in concert for the benefit of the patient population. We’re not solely concerned with the numbers.”

Dr. James finds himself in a unique position with his involvement in the development of the Norton-Humana ACO. In addition to his position within Humana, he also works weekends as Norton Healthcare physician. That position enables him to understand issues that arise from both sides of the partnership.

“The measurement of the impact on quality health care through the ACO is really based on those people who use health care services consistently over time and can be attributed to a specific doctor,” said Dr. James. “A network that responds to the needs of Medicare recipients tends to have a bit more stability because those in Medicare tend to stay in Medicare. The challenge in making a commercial ACO a viable business venture for a physician network is managing the fluidity of a participating population. In a self-insured population, people come and go and their patterns of accessing care can be bit more inconsistent than a Medicare population.”

There is also a critical element that both providers and payers reckon with and that is ways to encourage the patient population to also take ownership, or better said, to be accountable as well for their own health.

An important function of reducing health care costs is for patients to take measures to reduce their level of risk. Patient accountability for their health was a major topic of discussion at the annual ACO summit, said Guida James. Historically, the general population has not been made financially accountable for failing to adhere to a plan designed to improve their health.

“It’s always a struggle to get patients to eat right, stop smoking, exercise more, and to do those other things necessary to improve their health. Even if there weren’t regulations that prevent providers from resorting to punitive measures to enforce compliance, it represents the wrong kind of thinking anyway, regardless of the health care delivery model to which a physician adheres,” said Dr. James. “The challenge is finding the right kind of messaging so that taking care of oneself really resonates with the individual.”

But what of the bottom line for providers?

The Medicare Shared Savings Program claims that an ACO earns rewards for reducing estimated costs for health care while also meeting or exceeding quality measures. But the emphasis on the shared savings aspect of the ACO has clouded perceptions somewhat of how physicians benefit.

“It is not accurate to get tied up into the idea that an ACO is completely different from fee-for-service in terms of reimbursement,” Marcia Guida James commented. “In the industry there are several different types of payment methodologies for reimbursing physicians that are being developed around ACOs. Even the Medicare Shared Savings program is built around a fee-for-service chassis. In some ACO models, the fee-for-service chassis may also have bundled payments underneath. There are just many different types of payment models involved.

“We look at the population and determine cost targets with the quality piece built in. That is one of the ultimate goals in the development process – to tie cost and quality in together. That’s probably about the best way to articulate it,” Guida James said.

“In terms of shared savings, we develop cost targets based on the experience of a particular group. Part of the assignment we have as a pilot program is to figure out methodologies of payment. We’ve only been in this thing for 2.5 years – there are still several details to be worked out.”

Regardless of the potential fate of the health care reform law, the Norton-Humana ACO has already seen enough positive outcomes in terms of health care quality and cost reductions. And the effort appears to have resulted in better health for their patient population.

Still, the Humana-Norton ACO remains a work in progress. There is a committee composed of Norton and Humana representatives that meets monthly to address numerous questions about how to maximize the ACO model’s full potential.

“There is no dearth of items on our agenda,” Guida James said.

But so far, the early results are enough to say that an ACO structured network is a viable practice model going forward.