While cost reduction efforts at hospitals and health systems typically emphasize internal cost structures, it’s important to look at other factors to address new payment models and evolving types of insurance plans. That’s the advice of Jim Blake, Managing Director at consulting firm Kaufman Hall, who has published a helpful overview on how organizations can use a more encompassing approach to cost-reduction efforts.

His view is that hospitals and health systems will need to use a “total cost” strategy in order to remain competitive in the new environment. Organizations that take a proactive approach to implementing a total-cost strategy will be able to navigate future developments from a position of strength. Waiting for external pressures to reach a boiling point is fraught with risk and will leave little room for error.

Blake suggests developing a roadmap that links needed investments to the benefits they are expected to deliver in terms of improving internal cost structures as well as reducing the total cost of care. A key area for potential new investments involves data analytics, which will help an organization more accurately quantify goals and benchmark their performance against specific metrics.

Key factors vary across different parts of the country. The article notes, for example, that “per capita health expenditures in Connecticut and Maine are far higher than those in Georgia and Arizona. Even more telling, research has shown striking variations in healthcare costs within small areas, variations that are not readily explained by demographic differences and are more likely associated with differences in how healthcare is deployed, used, and practiced.”

Approaches to reducing costs under fee-for-service models (e.g., better management of capital, labor, overhead and supply costs) can have little impact in value-based models that rely on total population health and care coordination with partners. Fee-for-service models also provided minimal incentives to improve clinical effectiveness, which is now critical. Other factors to consider include service-line distribution. It’s important to review operations to determine if a health system is providing similar services at multiple facilities that are geographically close in proximity.

To learn more about this holistic approach to cost-reduction efforts, you can access the article at: http://www.kaufmanhall.com/thought-leadership/resources/full-details/why-hospitals-should-tackle-the-total-cost-challenge

Hospitals & Health Networks (H&HN), a publication of the American Hospital Association, featured an article this month that helps executives stay on top of the critical issue of care coordination. With the increasing importance of value-based care models, knowing the relevant key factors will not only help you improve the quality of care but simultaneously enable increased efficiencies.

Accountable care organizations (ACOs) are one element of this changing landscape, but other approaches to population health management are also in play. The AHA article provides C-suite executives with a helpful checklist that will ensure you have all the bases covered, including:

Assigning Accountability – The article lists five factors that executives should consider in terms of accountability, including the need to assign a dedicated team to be responsible for care coordination.

Improving Referral Systems – A list of six points will help you focus on ways to streamline the referral process, including the need to have a referral tracking system that combines all of the pertinent data in a single, easily accessible system.

Building Relationships and Agreements – It’s important to be clear about the scope of responsibilities for various partners, and equally important to document their responsibilities to help measure and ensure compliance.

Providing a Patient Support System – Increasingly, patients are being required to help manage their own care, and clear communication with patients is paramount to improving health outcomes.

Maximizing the Value of EHR Systems – Six items to consider about EHR systems, including how your organization can extract the greatest possible value from this data, especially in terms of sharing the data and making it available to the care team in “real time,” as it is entered into the system.

Improving Communication – Almost 50% of healthcare-related errors occur during handoffs among different providers; the article lists five items that will help you prevent errors due to poor communication.

Implementing Changes – Being slow to implement a comprehensive strategy for care coordination carries substantial risks in value-based payment models; make it a top priority to get ahead of the curve.

To learn more, you can access the article and its checklist at the H&HN website: http://www.hhnmag.com/display/HHN-news-article.dhtml?dcrPath=/templatedata/HF_Common/NewsArticle/data/HHN/Daily/2015/May/royer-readmissions-EHRs

A report published last month by the Kentucky Hospital Association (KHA) details payment cuts to hospitals in the state, which are projected to reach almost $7 billion by 2024. While the report lauds the Affordable Care Act (ACA) and the expansion of Medicaid in the state for expanding health coverage (400,000 people have gained insurance), related changes have also “resulted in hospital staff layoffs and threaten to reduce the availability of hospital care, especially in rural areas.”

The report notes that the expanded health coverage could be compromised if hospitals end up reducing services, which could also impact the quality of care that is available. Some key factors noted in the report include the following:

>> Medicaid and Medicare are reimbursing significantly below the cost of providing care; Medicare is paying 86% and Medicaid is paying 82% of the actual cost of care.

>> Hospital readmission penalties have increased to 3% in 2014, and the penalties are levied against hospitals even when the readmission was unrelated to the patient’s original stay or was not preventable.

>> Even if the rate of increase in hospital-acquired conditions, such as infections, is small, 25% of all hospitals in the country will see their Medicare payments cut as a result.

>> Payments to offset costs related to uncompensated care, so-called disproportionate share hospital (DSH) payments, are being cut significantly even though hospitals will continue to incur costs related to uncompensated care.

The report notes that “bad debts accounted for 43% of all uncompensated care costs in 2013 and have grown by nearly $200 million over the past three years as more privately insured patients have moved to plans with higher deductibles and co-payments they cannot afford.”

For more information and other key data points, you can download the 15-page report at: http://assets.fiercemarkets.com/public/healthcare/code-blue-report.pdf

A team of researchers from the University of Washington has been analyzing seven value-based payment programs with an eye toward how the payment landscape may evolve. They’ve published an article on their findings as well as an overview at Health Affairs (link below), which provides a sampling of how some initiatives are playing out.

An analysis of pilot programs implemented in six states (Maine, Massachusetts, New Hampshire, Oregon, Pennsylvania and Washington) found a mixed bag of successes and failures in terms of “payment reform.” Their report attempts to address reasons for varying success and failure rates. Among those factors that seem to facilitate a movement toward value-based models are:

>> Strong, trusted leadership that effectively knows how to balance competing interests between providers and payers.

>> Well-organized payers, particularly at the state level, which are able to sustain market pressures on providers.

>> Access to databases such as an all-payer claims database (APCD) as well-functioning health information exchanges (HIEs) to enable sharing of data.

Factors that appear to facilitate the maintenance of fee-for-service (FFS) payment structures include the following:

>> Lack of ongoing engagement by major purchasers, such as self-insured employers, union groups and consumer groups.

>> Inability to implement a standardized claims adjudication process, which would otherwise enable accurate comparisons across different treatment plans.

>> Competing priorities among different stakeholders, even within a single insurer, for example, when an insurer’s nationwide priorities conflict with those at the state and local regions.

Other factors influencing these dynamics include the costs involved in changing FFS billing processes and payment transactions; healthcare delivery systems that are unable to assume responsibilities for population health (both financially and clinically); and a lack of interest from patients as well as groups that represent patients. You can learn more at the link below.

Heath Affairs: http://healthaffairs.org/blog/2015/04/14/implementing-value-based-payment-reform-learning-from-the-field-of-practice/

Interviews recently conducted by Becker’s Hospital Review highlight the advice that CEOs wish they’d received prior to starting their job.

Chris Van Gorder, President and CEO of Scripps Health in San Diego remarked, “Nobody ever told me that being CEO really was a 24/7 job, 365 days of the year, with little privacy in an environment where every decision is scrutinized.” Steven Goldstein, CEO of Strong Memorial Hospital in Rochester, NY, said, “The constant need for problem solving is an inherent part of the business.”

One common thread in many comments is that there is a lot of on-the-job learning that takes place in the C-suite. Michael J. Dowling, president and CEO of North Shore-LIJ Health System in Great Neck, NY, stated, “First of all, nobody told me much of anything before I became CEO in 2002.”

Career development is all about taking responsibility for the future and being proactive in terms of where you’d like to be in the coming years. Taking the initiative to learn from others will prepare you to be better able to take advantage of opportunities when they arise.

Another key takeaway: future developments in the healthcare industry are relatively unpredictable. Mr. Downing summed up his sentiments, saying, “We all knew healthcare was changing as we entered the new millennium, but nobody understood the degree to which healthcare would evolve.” But, on a positive note, he indicated that navigating new complexities in the industry has been one of the most rewarding challenges of his career.

When Mr. Van Gorder, began his job as CEO, the hospital was already in default on its bonds and he agonized over having to initiate layoffs and let many people go who he had worked side-by-side with over the years. However, over the past 15 years as CEO, he has been able to sustain a “no layoff philosophy” even though it has been sometimes difficult to find ways to reduce costs.

To learn more, you can read their advice and comments in the article at Becker’s Hospital Review: http://www.beckershospitalreview.com/hospital-management-administration/the-advice-nobody-gave-me-before-i-became-a-ceo-3-chiefs-weigh-in.html

Technology is transforming the healthcare industry at an accelerating pace, and the annual HIMSS conference is one of the best venues to learn about current trends and future outlooks. HIMSS is a not-for-profit organization dedicated to health IT education and networking opportunities.

Next week’s conference runs from April 12-16 in Chicago, and highlights at the show include new areas of focus on cybersecurity, building value in health IT, and using innovative non-EHR technologies to improve care delivery, clinical workflow, collaboration and patient satisfaction.

Keynote speakers include George W. Bush, who helped drive the development of health IT by establishing the Office of the National Coordinator (ONC) for Health IT when he was president. Karen DeSalvo, the current National Coordinator for Health IT is also a keynote speaker, along with Medicare & Medicaid Services Acting Administrator Andy Slavitt. Other featured speakers include Humana CEO Bruce Broussard and Walgreens President Alex Gourlay.

An important topic at every year’s HIMSS conference is technology interoperability—the ability to combine and integrate systems from various vendors to achieve the greatest possible value from IT resources. In part, the ONC is dedicated to helping address these issues, but the pace is slow. In January, the ONC published its 10-year plan to help foster interoperability (link below), but much remains to be done to transform the plan into reality.

When this year’s HIMSS conference kicks off on Sunday, the first topic for discussion will be interoperability, with a presentation by Erica Galvez, the ONC’s Interoperability Portfolio Manager, who will discuss how the government is planning to work with industry to improve interoperability. Visit the resources below to learn more about the conference and the ONC roadmap.

HIMSS Conference: http://www.himssconference.org/

ONC Technology Roadmap: http://www.healthit.gov/sites/default/files/nationwide-interoperability-roadmap-draft-version-1.0.pdf

As healthcare payments are increasingly linked to value-based models, population health management is becoming more important as a means to reduce financial risks. A report recently released by the Academy Huron Institute provides some valuable background on the evolving trends within population health management. Three key factors noted in the report include the following:

Increasing prevalence of risk-based programs—the report provides an analysis of how healthcare providers are taking on greater risks through commercial incentives, partnering with health plans, and participating in accountable care organizations (ACOs).

Greater emphasis on population health management—health systems are planning to allocate a “significantly greater level of investment” in population health management, with ROIs anticipated within three years to four years.

The need to utilize new infrastructure—the infrastructure needed to improve population health management is mainly tied to data analytics and related information technology systems such as electronic health records. The key to maximizing ROI here involves the ability to collect large amounts of this data and then transform it into actionable intelligence through the use of data analytics.

The report notes that 2015 may be a pivotal year marked by a “dramatic shift toward the use of risk-based agreements and execution of population health management.” In 2014, approximately 15% the revenue generated by the nation’s leading health systems was earned through value-based or at-risk alternative payment models, but that percentage is expected to increase to 21% this year and then grow substantially throughout the remainder of the decade.

You can learn more by downloading the 10-page report at: http://www.huronconsultinggroup.com/Insights/Report/Healthcare/Population-Health-Collaboratives-2015-Agenda-Based-on-Evolving-Trends

Last week CMS announced a new Next Generation ACO Model, which asks providers to agree to take on greater risks related to their performance in return for potentially sharing in a greater proportion of savings. In return for accepting more risk, CMS is providing a “predictable benchmark and flexible payment options that support ACO investments in care improvement infrastructure.”

A key aspect of the new model involves a greater level of care coordination between providers and beneficiaries. CMS is offering additional coverages for tele-health services as well as post-discharge home services, and beneficiaries will be financially rewarded for receiving their healthcare from the ACO’s staff; however, participating beneficiaries will retain the freedom to engage any Medicare provider.

The new model features two “risk tracks,” one of which is a 100% “Full Performance Risk” while the other involves more shared risks. The stated overarching goal of the ACO approach involves “paying providers based on the quality rather than the quantity of care they give patients;” and with increased financial incentives for providers, CMS believes the approach has the potential to simultaneously decrease costs while improving health outcomes.

Interested organizations will have two opportunities to apply, one this year and one next year, and participation in the new ACO model is expected to last up to five years. Providers are required to submit a Letter of Intent by May 1, followed up with a formal application by June 1, 2015. The second round of applications will be accepted next spring, 2016. For more information, see the links below.

HHS Press Release: http://www.hhs.gov/news/press/2015pres/03/20150310b.html

CMS Next Generation ACO Model: http://innovation.cms.gov/initiatives/Next-Generation-ACO-Model/

Frequently Asked Questions: http://innovation.cms.gov/Files/x/nextgenacofaq.pdf

A web-based search tool provided Billian’s Health Data provides access to a large database of hospital news, including mergers and acquisitions, renovation plans, facility openings, health technology rollouts, RFPs, c-suite hires and more.

An easy registration process (just name and e-mail address) allows you to search by region of the country or state, and then select a category such as:

● Mergers/Acquisitions
● Construction/Renovation
● Facility Openings
● Facility Closings
● Requests for Proposals (RFPs)
● Certificate of Need (COA) Announcements
● Health Information Technology
● Medical Equipment

“DBA Announcements” are also searchable, which includes hospital transitions in ownership, partnerships, name changes, rebranding, and new designations such as those involving hospitals that have changed trauma center certifications.

The information can be sorted by Date, Region or State, and all of the data is searchable by specific facilities as well as by free-form keywords, which allows easy filtering.

Billian’s is a market-research firm that sells industry information to vendors and providers, but it also provides free access to this database, which can help executives learn more about facilities of interest, including recent investments, divestitures, executive moves, etc. You can learn more by accessing the database at the link below.

Billian’s Hospital News and Vital Statistics Search: http://www.billianshealthdata.com/News/Vitals/Search

A recent analysis of popular hospital rating systems revealed wide discrepancies. The research results were published this week by Health Affairs Journal and focused on four popular rating systems: U.S. News & World Report, Consumer Reports, Leapfrog, and HealthGrades. The study found that the rankings can confuse not only patients but providers and payors as well.

Some of the issues involve lack of consistency on how quality is measured and a lack of transparency in how the ratings are conducted. A key takeaway is that hospitals could use the data to help focus on improvements but are unable to do so until standardization and transparency issues are addressed.

While Consumer Reports and Leapfrog do provide “full methodological transparency” they fall short by using “judgment-based weighting schemes as opposed to approaches that incorporate information about measure reliability and validity.” Likewise, “U.S. News and HealthGrades do not make their proprietary risk-adjustment models fully transparent.”

Key findings in the study reveal that no single hospital was rated as a “high performer” by all four of the ranking systems. Additionally, only 10 percent of the 844 hospitals that were rated as a high performer in one system were also rated as a high performer in any of the other three systems.

Access to the full report is limited to subscribers of Health Affairs Journal but news articles on the report are available at the links below.

Fierce Healthcare: http://www.fiercehealthcare.com/story/best-and-worst-hospital-rankings-often-conflict-confuse-consumers/2015-03-03

New York Times: http://www.nytimes.com/2015/03/03/business/hospital-rating-systems-differ-on-best-and-worst-facilities.html?_r=0

Heath Affairs Journal: http://content.healthaffairs.org/content/34/3/423.full.html

A committee report to Georgia governor Nathan Deal was published this week (link below) and it proposes a plan to revitalize rural hospitals by making them part of a “holistic system” via an integrated “hub and spoke” model.

This plan to help rural hospitals in Georgia provides a reference point for other states and small hospitals in similar situations. Almost two-thirds of the 61 rural hospitals in Georgia are losing money, and almost one-third have been operating with a budget deficit for at least the previous five years. Only seven of the hospitals have been profitable in each of the previous five years.

In the committee report, four hospitals have been proposed as the “Hub” systems that will provide primary hospital care as well as nursing home, home health and rural health clinic components. The “Spokes” will include the following:

● Smaller Critical Access Hospitals
● Federally Qualified Health Centers (FQHCs)
● School Clinics Equipped for Telemedicine
● Public Health Departments

“Spoke” resources also include local physicians as well as ambulances equipped with Wi-Fi and telemedicine capabilities. In this model, the larger regional hospitals would direct patients to facilities that provide the most appropriate specialized services. As a result, smaller facilities will not be burdened with the costs associated with providing a wide range of specialized services. Additionally, a key goal is to minimize use of Emergency Departments as an access point for primary care.

The committee’s recommended pilot project designates four Hub facilities: Union General, Appling Health System, Crisp Regional and Emanuel Regional Medical Center. The State of Georgia is providing $3 million in funding for the pilot project and associated infrastructure.

To learn more about the initiative you can access the final published report and a related news article at the links below.

Rural Hospital Stabilization Committee – Final Report to the Governor: https://gov.georgia.gov/sites/gov.georgia.gov/files/related_files/document/Rural%20Hospital%20Stabilization%20Committee%20Report%20022315%20FINAL.pdf

Atlanta Journal-Constitution Article:
http://politics.blog.ajc.com/2015/02/23/nathan-deals-plan-to-save-struggling-rural-hospitals/

This is the fourth in the series that explores the inner working relationship between a hospital foundation and its parent during a sale. The author, John Gilchrist, FAHP, CFRE, has lived through one nonprofit sale and is experiencing a second sale. His insights into this process can prove to be excellent counsel to an organization going through a merger or acquisition.

Nothing in this post should be taken or construed as professional advice nor is it intended as such. For your particular situation, you should always seek the advice of a competent professional attorney. I simply seek to share my insights and experiences as this is my second nonprofit sale in the capacity of a Foundation executive in the past seven years.

In general, when one non-profit acquires another, the Foundation being acquired has a corporate member substitution, changes it fundraising focus to the new member, and continues to raise funds and friends, albeit for a different mission. The acquiring organization must work through the important work of integrating two corporate and philanthropic cultures, adapting and combining databases and records, and determining future staffing, for example.

In the event of a for-profit acquisition, the Foundation may be re-purposed, dissolved with any remaining assets going to another foundation with a similar mission, or a conversion foundation may arise. A conversion foundation is typically used to create the strongest degree of separation from the former non-profit enterprise. The conversion foundation is created with the excess of sale proceeds, after the former non-profit’s liabilities and debts have been discharged.

The conversion foundation may be saddled with pension liabilities or other debt, as was the case with the Empire Health Foundation (Spokane, Washington), which arose from the sale of non-profit Empire Health Services to Community Health Systems. In that transaction, pension and workers’ compensation liabilities of approximately $35-40 million were transferred to the Empire Health Foundation (EHF). The move enabled the new for-profit owner to start with a clean slate and may be a requirement of the Asset Purchase Agreement (APA). While the EHF had the extensive level of liabilities, it also had the assets to cover them. And it possessed an unrestricted corpus of approximately $50 million.

The former Foundation is usually dissolved, with remaining assets going to the conversion foundation. In most cases, the former Foundation will have disbursed all its available funds, both unrestricted and temporarily restricted funds prior to the close of the sale. If any temporarily restricted funds remain, state law governs the final dispensation. For example, should the donor be deceased, those funds might revert to the attorney general’s to attain the closest attainment of the restriction – perhaps with the conversion foundation or a community foundation. If the donor is living and does not elect to re-restrict his/her gift, said gift may be returned.

The board of the former Foundation is normally disbanded; though some members may be asked to join the conversion foundation’s new board. The structure of the conversion foundation is much different than your former Foundation. The primary difference is the conversion foundation is likely to be formed as a private foundation, with limited or no fundraising responsibilities. Instead of a major gifts officer, planned giving officer, annual giving officer, the staff complement may likely be program officers, grant management, and a chief investment officer, for example. The conversion foundation may hold an opportunity for the former Foundation executive to remain affiliated with a semblance of the former enterprise. Do not discount or disregard the potential employment opportunity here, but it may not be the right fit for every Foundation executive.

In the next installment, I will discuss questions around fundraising activities post-sale announcement…and as always, your feedback, questions and comments are welcomed.

A focus group involving eight CMOs was held last week in Miami by Navigant, a healthcare research organization. Navigant partnered with the American Association for Physician Leadership to interview the CMOs about how their role is changing within different venues: hospitals, medical groups, health insurers, and post-acute facilities.

Within the C-suite, CMOs see their roles expanding significantly. Conclusions drawn from the focus group include four key themes that are putting increased pressure on the role of CMOs:

Clinical transformation: Particularly in hospitals and medical groups, CMOs must work as an integral part of a team that is focused on reducing errors, increasing compliance with evidence-based medicine, reducing unnecessary care, and encouraging patients to take a more active role in their healthcare.

Physician engagement: While “rank and file physicians believe they should be left alone,” CMOs are increasingly required to engage doctors in areas such as team-based care, clinical integration, and clinical performance.

Provider-sponsored risk: With financial risks increasingly being shifted to providers, clinical decisions must be approached in a collaborative manner within “care teams” and with patients in order to reduce costs.

Super systems: CMOs must quickly adapt to the new environment where large health systems offer comprehensive services, health plans and even alternative health services.

To learn more about these trends and how they are impacting hospitals and other healthcare organizations, visit: http://www.naviganthrp.com/cmos-mvps/

This is the third in the series that explores the inner working relationship between a hospital foundation and its parent during a sale. The author, John Gilchrist, FAHP, CFRE, has lived through one nonprofit sale and is experiencing a second sale. His insights into this process can prove to be excellent counsel to an organization going through a merger or acquisition.

With the January 13 announcement, I took advantage of using the year end summary of giving to present the facts around the sale. As usual, every donor, regardless of amount, in the prior year received his/her summary of giving, along with the general stewardship report. In addition, a 2-page Frequently Asked Questions (FAQ) supplement was provided. If you would like a copy, please e-mail me at This email address is being protected from spambots. You need JavaScript enabled to view it..

Patience is needed in preparation of these materials – the corporate communications team must approve any external communications after the announcement. One lesson for the reader to take: Use the January 31 deadline the Foundation normally notifies each donor who has made a gift of single gift $250 the breakdown of charitable gifts vs. the Fair Market Value (FMV) Foundation provided goods and services, i.e. how much of the event ticket is eligible for a federal charitable tax deduction, and use it as a prime communications vehicle.

I salute our corporate communications professionals for their assistance in preparation of the FAQ with the many pressures tugging at their schedules. Another lesson: the Foundation executive must lead in the process, but cannot do it alone.

With the communication priorities of employee, physician, and bondholder relations (and creditor committee in a bankruptcy filing) looming in a nonprofit hospital sale, every public communication must be vetted through the filter of the system’s public relations team, or in the case of a single hospital sale through its public relations.

Compiling the FAQ was no simple task, as the system could not provide any indication as to type of buyer: non-profit, for-profit, or governmental.

In the next installment, I will discuss what happens in a for-profit acquisition of a non-profit enterprise…and as always, your feedback, questions, and comments are welcomed.

This is the second in a series that explores the inner working relationship between a hospital foundation and its parent during a sale. The author, John Gilchrist, FAHP, CFRE, has lived through one nonprofit sale and is experiencing a second sale. His insights into this process can prove to be excellent counsel to an organization going through a merger or acquisition.

The system had prepared the announcement communications (i.e. media releases, notices to physicians, associates, volunteer leaders – including those on the Foundation board) for a 10 a.m. distribution. My role was to call the board members of the Saint Louise Foundation with the news; as the O’Connor Foundation board met at noon on announcement day, I would contact those who were not in attendance. With each call, the deeper the news impacted me – my world had just been fundamentally shifted. During each call, the Foundation board member wanted to know how and when the decision was made. Why did the system only announce its intent to sell and not wait until a buyer had signed an agreement? That actually turned into a positive as it allowed me to discuss the values of the sponsoring order and the importance they placed on respect and transparency, to name but two. Several times I was asked what impact this would have on me personally, as I had started only five months ago and had not yet moved my family. I appreciated and thanked those persons for the concern for my personal welfare; I politely answered that matter would resolve itself over time. Our primary tasks are to disseminate information about the sale to our donors and other stakeholders and to find avenues for continued fundraising, if possible.

Frankly, I received some pushback on future fundraising. Some board members felt it best to cease the existing events already in the pipeline. Always listen to their concerns – they do set strategy and have deep connections into the community. Some felt they would not be as successful as in the past – and they made a valid point. Fortunately, the board chair, who in his profession provided advice and counsel on many mergers and acquisitions, joined me and advised everyone to take a pause, not make any hasty decisions, and to focus on where the enterprise was positively engaged in outreach activities the Foundation could support.

Every development officer has that list of activities ready to describe to a prospect – make sure you have your list ready and updated. Fortunately, our Foundation had supported a pediatric clinic that traditionally saw patients with no resources, were undocumented, or for any number of reasons, had no medical home.
While most board members could understand the economics and the rationale for the sale, the understanding did not mitigate the emotional effects brought on by the announcement. In some ways, board members took it almost as the announcement that a loved one just received a terminal diagnosis. The Daughters of Charity had served San Jose for 125 years. Some of these volunteers had served this faith-based mission of the hospital for over 10 years – I observed some of these board members viewed the Sisters v almost as family members. They were understandably concerned, perhaps even worried, for their future. The Sisters responded with the dignity, class, and grace they had shown every member of the San Jose community. They relied on God for their daily sustenance, and were not about to change their thinking with one announcement!

Their attitude of acceptance of the decision to sell, prayerful discernment for a new owner who would share their passion for service to the less fortunate, and commitment to all associates was evident throughout this initial board meeting. Our CEO excelled in casting the perspective toward the future. Our situation was unfortunate, yet he painted the picture of the San Jose hospitals’ work toward sustainability that had been accomplished to date – a new owner could provide significant resources the Daughters just did not have.

One lesson for the Foundation executive is to always present the positives for the organization: a new owner saves the enterprise, preserves thousands of jobs, recapitalizes the facility, brings economies of scale for purchasing, etc. As the Foundation executive, you cannot show any negative feelings or impressions about your professional future. Take the high road, always. I found 40-50 minutes on an elliptical rider at the gym every day, or every other day, would literally “work the negatives out”. So you have another reason to exercise.

In the next installment, I will discuss the donor communication and the possible futures for the Foundation…and as always, your feedback, questions, and comments are welcomed.

The increase in hospital merger and acquisition (M&A) activity creates many consequences, both known and unknown. Generating greater economies of scale for purchasing, payor contracting, and physician recruitment are just a few of the known ramifications. One large unknown is what happens to a hospital’s fundraising foundation. With over 4,500 US nonprofit hospitals and many of those with a fundraising function, both the acquiring and acquired organizations need to understand these consequences, beyond the legal transactional considerations.

The foundation of the acquired hospital may have hundreds, perhaps thousands, of loyal and dedicated donors. The combined gifts of these friends of the organization may range in the seven to nine figures. Many of these foundations have built deep, meaningful and productive relationships with community members. What happens to these relationships in a M&A situation? Perhaps the foundation’s fund corpus is not significant relative to the dollar value of the combined organization. A 2013 Advisory Board report indicated philanthropic revenue accounted for approximately 42% of available hospital capital. Too often, the foundation is a back-burner issue, if it is even at the strategy table. The relationships within a community can be a powerful ally to a hospital seeking approval in its merger efforts – if the benefits are communicated early in the process to these donors.

This series explores the inner working relationship between a hospital foundation and its parent during a sale. The author, John Gilchrist, FAHP, CFRE, has lived through one nonprofit sale and is experiencing a second sale. His insights into this process can prove to be excellent counsel to an organization going through a merger or acquisition.

M&A Activity Likely to Continue in the Non-Profit and For-Profit Hospital Sector

Hospital mergers and acquisitions (M&A) are occurring at a rapid pace and many more active discussions are happening in hospital boardrooms across the nation. The PWC 2nd quarter 2014 Health Services Deals Insights report states M&A activity is likely to continue in two largest components (non-profit and for-profit) of the US hospital sector. 87% of US hospitals are at least considering some form of alignment with other hospitals or hospital systems (DHG Healthcare Winter 2013 – What Hospital Executives Should Be Considering in Hospital Mergers & Acquisitions).

This series of reflections is not meant to be offered nor construed as any professional advice. I seek to share the experience of going through a non-profit hospital sale as it pertains to its related fundraising foundation. My hope for the reader is to increase awareness of the possible ramifications of this scenario in the accountable care organization (ACO) era.

One can imagine the feeling of a 6:50 a.m. call on January 13 for a mandatory senior management meeting at 8 a.m. The CEO informed us the hospital system would announce later that day of its intention to sell the system, in whole or in parts, to any qualified buyer. The reasons were many, but they centered on size, scope and essentiality. Size relates to a system’s ability to secure low cost capital and to extract best pricing from suppliers, among other factors. Scope focuses on care integration to reduce costs and improve quality – hardly an impossible task with sufficient resources in clinical documentation and utilization management tools, for example. Essentiality addresses market share vis-à-vis the competitive market. In order to negotiate appropriate reimbursement from managed care networks (MCN), the healthcare enterprise must have sufficient patient and provider market share in the community. If your enterprise can not reach an agreement with a MCN, the MCN must feel as much (perhaps more) economic pain as the enterprise in the absence of a contract. At that threshold real negotiations and genuine compromise can occur and lead to a livable agreement.

The announcement signified the beginning of extreme change for the hospital Foundation, its donors, board members, and especially you, the Foundation leader. Your professional life has just been turned upside down. One finds oneself asking questions like:

• What happens during the sale process?
• What if no qualified buyer is found? Is a Chapter 11 bankruptcy filing possible? Hospital closure?
• What economic signs were missed?
• What do you tell donors? What about the donor who just 13 days ago made his largest gift – a significant six-figure gift – ever?
• Will the hospital, and foundation, have to conduct layoffs?

More questions will follow in the ensuring days and weeks. Two suggestions: 1) Make sure you have a voice in the development of the post-announcement communications materials. 2) Address the implications for existing Foundation funds.

Consider this statement as your source of strength in these meetings: Donors embody a group of highly passionate supporters of your enterprise – you might be the sole representative of their interests.

An article published this week by “D Healthcare” presents key statistics on the most profitable hospitals in North Texas. The data is useful to analyze and compare to hospitals in other parts of the country. Data on profit margins, net income, net patient revenues and occupancy percentages provide good benchmarks for comparison purposes.

Despite relatively flat inpatient occupancy rates, the cumulative profit margins for hospitals in North Texas have been above 12% in three of the last four years. One strategy that successful hospitals are using involves increasing their presence in neighborhoods to deliver primary care services, which includes partnering with retail outlets such as Walgreens, CVS and Wal-Mart.

The article notes that 740,000 people in Texas gained health coverage through the Affordable Care Act, however, that increase probably will not increase inpatient rates at hospitals; therefore, hospitals have begun to team up with retailers to expand their reach within communities to deliver primary care.

Those retail activities are in addition to hospital expansion plans that include the construction of new facilities. The article contains a link to a snapshot of the “healthcare building boom” going on in North Texas. The construction activity reflects several trends, including the aging baby boomer population and an increase in the number of people moving to Texas. The two fastest growing metro areas in the country in recent years have been Dallas-Fort Worth-Arlington and Houston-The Woodlands-Sugarland.

To review the data points on revenue, profitability, net income and inpatient percentages, see the article and its accompanying chart at: http://healthcare.dmagazine.com/2015/01/21/here-are-the-most-profitable-hospitals-in-north-texas-and-why/

Keeping political opinions discreet is common sense, but hospital executives are facing added scrutiny from employers and board members. A recent article in Becker’s Hospital Review provides a helpful refresher course on the potential pitfalls of party politics: “CEOs considering a career move might see their political agenda come into question. It’s naive to think board members aren’t cognizant of politics when searching for a new chief, especially if the CEO candidate and hospital are from a red state and blue state.”

Executives may be faced with questions regarding their opinions on healthcare legislation. Additionally, the Federal Election Commission’s (FEC) contribution database provides a public record of contributions not only to political candidates but also to industry organizations. Avoiding endorsements of candidates as well as campaign contributions can be beneficial with regard to maintaining an air of neutrality, regardless of your personal stance on issues.

On the other hand, many executives are not reluctant to share their opinions. “Comb through the FEC database and you'll find many hospital and health system CEOs — including those at some of the most recognizable and largest nonprofit systems in the country — who aren't shy about their Democratic or Republican leanings.”

The bottom line is that it’s helpful to keep in mind the potential ramifications involved whenever you express your political leanings, particularly when those preferences have the potential to become part of the public record.

To learn more, visit Becker’s Hospital Review at: http://www.beckershospitalreview.com/healthcare-blog/when-it-comes-to-party-politics-some-ceos-put-on-more-of-a-poker-face-than-others.html

Each year PricewaterhouseCoopers (PwC) interviews industry experts and healthcare consumers to produce a list of top issues impacting the industry. This informative report, which was published last month by PwC's Health Research Institute (HRI), devotes one page to each of the Top 10 issues and delves into the implications that each issue will have on the industry. Key data points are clearly presented and the report is a valuable resource for assessing major trends in the industry.

Citing a “profound transformation” occurring in the industry, PwC says “the healthcare sector will begin to look and feel like other industries, catering to audiences expecting one-click service [and] consumers are leading the way, bearing more of the cost of their own care—and making more decisions.”

Healthcare consumers are more price-conscious than ever before, with 82% indicating that price is an important factor when making decisions about healthcare. That trend is coupled with more physicians embracing “do it yourself healthcare,” including mobile health apps that monitor a patient’s vital signs, analyze blood, track medication adherence, etc.

Some of the key trends noted in the report include an unprecedented level of data sharing and transparency; the need for healthcare organizations to revisit regulations that allow non-physicians to provide more services; a requirement to fully integrate data from electronic medical records throughout the enterprise; and the need to pursue strategic partnerships that encourage innovation, lower costs and fill gaps in business operations.

You can access the PwC report at: http://www.pwc.com/en_US/us/health-industries/top-health-industry-issues/assets/pwc-hri-top-healthcare-issues-2015.pdf

CMS is developing and testing new payment and service delivery models in accordance with the Affordable Care Act and other legislation. Some models are designed to demonstrate whether various approaches are more effective than others at improving care and/or fostering innovation in the healthcare industry. There are seven broad categories used to group the models:

● Accountable Care
● Bundled Payments for Care Improvement
● Primary Care Transformation
● Initiatives Focused on the Medicaid and CHIP Population
● Initiatives Focused on the Medicare-Medicaid Enrollees
● Initiatives to Speed the Adoption of Best Practices
● Ways to Accelerate Testing of New Payment and Service Delivery Models

CMS provides a website (link below) that displays the various models and their current status, for example, whether they are Under Review, Accepting Applications, Ongoing, No Longer Active, etc.

The information available at the website can help you stay informed about changes as they evolve; other resources allow you to identify hospitals and other healthcare providers that are participating in the various programs.

As an example of the type of information that is available, one “demonstration model” tracked patients after they left the hospital to determine whether hospital-physician collaborations prevented complications, avoided duplication of services, improved quality and/or eliminated unnecessary costs. You can access these resources as well as other data and reports at: http://innovation.cms.gov/initiatives/index.html#views=models