Friday, February 16, 2007

Hospitals and doctors - Innovation and Non-Profit Hospitals: Putting Together Pieces of the Puzzle and Overcoming Barriers to Care and Profitability

I spoke yesterday to two California hospital executives, IT types, charged with the responsibility of putting together pieces of an ambulatory outpatient infrastructure puzzle to make their hospital more profitable. Perhaps I should say “infra-culture puzzle” because the regional culture of the organization, the physicians, and the people are of equal import.

No small task. It brought to mind two paragraphs I had read this week in the New England Journal of Medicine.1

“Nearly two thirds of hospitals are private, non-profit organizations. In return for exemptions from federal, state, and local taxes, they agree to organize and operate for charitable purposes – structures that do not apply to their non-profit competitors. In a highly competitive marketplace in which profit margins are narrow, this commitment has generated intense economic, legal, and moral pressures.”

“These hospitals face cost increases that will outpace reimbursement, particularly from public payers. They also face growing competition from medical staffs interested in tapping into profits from procedure-based care that can be performed in an outpatient setting. The struggle of nonprofit hospitals to maintain unprofitable services that are needed by the community, such as emergency care, as the same time that more profitable services are lost to their own medical staffs will probably intensify.”

These two were calling me because of this passage in my most recent piece. 2

Local and Regional Cultural Clashes--the RHIO Rodeo

“What politicians seldom mention is intense rivalries among healthcare stakeholders at regional and local levels. We are, after all, a competitive society. The best recent example of this is difficulties in forming Regional Health Information Organizations (RHIOs).”

“RHIOs are a grand concept. In theory, they would share data among various regional or local entities, avoid duplication, make patient care safer and more effective, achieve practice efficiencies, and render more transparent aggregate costs of the entire cost episode for consumers who now pay a larger portion for their care.
Unfortunately, RHIO stakeholders are ‘competitors.’ As such, they reluctantly share data, lest their rivals learn their costs, strengths, weaknesses, and strategies.”

The two executives to whom I spoke were putting together “a kind of RHIO,” and wanted to know if I had any “magic bullet” to overcome problems of competitive jealousies. No, I said, I did not. I suggested, however, they look into a company called Carefusion in Scottsdale that had developed software to bring together pieces of patients’ regional health experience.

Here is how the Carefusion website ( explains the company:

“Hospitals have spent millions purchasing, deploying, and maintaining clinical applications to help improve the delivery of care. All are mission-critical, and in a perfect world, they’d be integrated. Because they’re not, clinicians spend a third of their time rummaging through a maze of dispersed applications for patient data.”
“Hospitals need a solution that is comprehensive yet targeted, value-laden yet cost- effective and strategically designed for the future yet tactically relevant for today.”

“Carefx is the only provider of an open and scalable platform that aids clinicians with sleek, intuitive, and flexible access to patient information and satisfies IT imperatives by fully leveraging legacy investments within an open architecture. Some call this Context Management or Identity and Access Management.”
“We call it Patient Information Aggregation. On board as partners are leading infrastructure and application vendors, including Cerner, GE Medical Systems, McKesson, Siemens Medical Solutions, IBM, Citrix, Novell, and CA.”

Getting a Leg Up in a Fragmented Market

In a fragmented, competitive market, in which all competitors are looking for a leg up, I expect you’ll hear more about “patient information and IT aggregation” as a tool for cutting costs, increasing profits, avoiding duplication, and decreasing “fragmentation” – the bete noire of the U.S. health system. Many believe the paved information highway is the way to a rational, integrated, and profitable system.

The two executives and I fell into a discussion about how a non-profit hospital can enhance its marketing presence, increase its drawing power, and get aligned physicians on board. Among other things, these observations popped to the surface.

• Geographic blessings are important. If your base is in an affluent suburb separated by geographic barriers – a mountain, a bridge, a bay, a river, or a freeway – from competitors, you have a tremendous advantage.

• If you have a special service advantage, such as a region’s exclusive trauma center, you may be even more in the driver’s seat.

• You have to strike out inside and outside your geographic boundaries to maintain your edge . Striking out may feature a salaried physician group bound to your hospital, a contractual agreement with an IPA, a freestanding big MACC (Multispecialty Ambulatory Care Center), strategically located urgent care centers, a reference laboratory, imaging centers, multiple primary care locations, a RHIO, and a system-wide electronic network that binds it all together.

• You have to deal innovatively with the local culture, e.g., California hospitals may have to hire 40 translators to deal with the diverse California immigrant population, 6.5 million of whom are unemployed and contribute significantly to the hospital’s “bad debt.”

• You have to watch state government’s machinations, which could bring crashing to the ground all of your plans and profitability with stroke of a pen. Here the two executives were referring to the Californian universal coverage plan, which would impose a 4% levy on hospitals “right off the top”. "Off the top" means 4% of all of California’s hospitals' revenues. I was told this single law would automatically make two-thirds of California non-profit hospitals true to their name -- “non-profit.”

As I said, putting together pieces of the puzzle is no small task. In many circumstances, when it comes to overcoming obstacles to innovation, geography is destiny.

1. Studdert, D.M., and others, Regulatory and Judicial Oversight of Nonprofit Hospitals, New England Journal of Medicine, 356: 625-631, 2007, February 8.
2. Reece, R.L., Overcoming Cultural and Political Barriers to Innovation and High Performance Care,, February 8, 2007.

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