Fourth Meeting of UofL Hospital Operations Review Committee.

Some good work, but continued disappointment.

On May 9, the UMC Ad Hoc Operations Review Committee held its next to last meeting.  One additional meeting is scheduled for May 23, at which time the final report of the consultant organization, Dixon Hughes Goodman (DHG), will be presented.  Given the level of detail presented at yesterday’s meeting, I do not expect any major new elements to be presented.

The meeting agenda was brief, including an “update” to DHG’s analysis to date, and a presentation of case studies of hospitals deemed similar to University of Louisville Hospital. Most of the committee members appeared to be present as were some half-dozen of the consultants. Reporter Laura Ungar of the Courier-Journal and myself were the only members of the public that I recognized.

It was clear that much discussion was occurring outside the meeting room. Reference was made to a long meeting that morning. The committee declared an executive session for the last half-hour of the 2-hour meeting justified on the basis of “personnel and/or competitive issues.” Since all the consultants were allowed to remain the room I doubted that personnel matters were the reason. Because there was no serious discussion of the presentation held in my presence, I also had to assume that therefore the meat of the committee’s deliberations was conducted outside of public view. That is too bad, as it violated further the promise of open meetings, is an obstacle to verification of any committee findings, and therefore diminishes the value of a final report to policy makers and the community. Although disappointed, I was not surprised at this.

I was able to photograph the slides used to organize the presentation (2.8 MB). They were difficult to see in the meeting room but with a little Photoshopping for readability and an added index number, I think they will be helpful to you as they were to me. A copy of the case reports is also available on this website.  My description of the meetings events got long.  You can fast-forward to the Comments at the end if you wish.

Summary of Presentations by Various DHG Personnel:

The first slide promised an agenda of preliminary key findings, preliminary recommendations, next steps and action items, and the case studies of similar institutions. These latter two items were not addressed in the open meeting. I suspect this is what the executive session was all about.

The consultants have captured a large amount of information. They praised the Hospital for working hard, and for their desire to improve but cautioned that the gap to get to where they needed to be was deep. Lead consultant Craig Anderson set the stage by noting that in a world of inevitable cuts in health care spending, every hospital was repositioning themselves to thrive. Normal improvements will be insufficient. We will be chasing a moving target in a world of health care reform regardless of whether or not the Affordable Care Act is repealed. A series of additional presenters followed with more detailed assessments and recommendations.

Summary of Key Findings with Preliminary Recommendations.

  • 1. Maintaining the status quote is not viable. Find a partner that enables UNC to increase access points and expand primary care physician base.
  • 2. Operational improvements are essential regardless of partnership. Develop a strategic plan with a revitalized organizational mission and vision.
  • 3. Growth opportunities appear to exist if aggressive action is taken. Pursue initiatives for operational, economic, and cultural improvements.
  • 4. Quality improvement initiatives have been successful but ongoing improvements required. Engage with University physicians to promote closer alignment and integration.
  • 5. Variability exists in key service line operations and clinical outcomes. Pursue service line growth initiatives with support from university physicians.
  • 6. Organizational structure consists of misaligned incentives. Evaluate the structure to ensure aligned incentives for all parties.
  • 7. Disparate information technology systems negatively impact clinical and operational effectiveness. Assign individual ownership to each improvement initiative.

Financial Status of the Hospital.

Beginning with slide #5, the next presenter went on to summarize the current and projected financial status of the Hospital. The self-evident conclusion was that maintaining the status quo is not viable. Although the hospital’s operating margin (profit) in 2012 approaches 2%, projections through 2016 show the hospital breaking even or showing a loss with diminishing cash on hand. The abrupt worsening of the numbers for 2013 was (among other factors) attributed to costs related to last year’s unsuccessful accusation by Catholic Health Initiatives, falling out of Humana’s network, reductions in payments from Passport Medicaid managed care, and global reductions in Medicare payments (Slide #6). When a variety of financial indicators were evaluated using the standards of rating agencies such as S&P or Moody’s, it was claimed that UMC would not be able to issue investment-grade bonds, and that the hospital had no additional debt capacity at any reasonable interest rate. The inability to raise capital was equated to an impediment to additional growth. I cannot evaluate those statements.

Additional discussion clarified that the hospital is not in default, and that it could borrow money, but it would be expensive to do so. Funds would be required to invest in new buildings or for new equipment necessary for medical practice. [Where did all the money for the many new research palaces downtown come from?] An estimate was made that a 25% increase in patient volume or $86 million additional net revenue would be required to rise to an “A” rating. The requirement for increased revenues would be diminished by any of the cost savings, several that were soon going to be recommended. It was acknowledged that the challenge to increase revenues was made more difficult by the fact that faculty physicians were “aligned elsewhere,” the hospital had no primary care network, and the competition from other hospitals was stiff.

Some discussion was held over the future of Louisville’s QCCT trust for indigent care. It was assumed that this would inevitably decrease in the future as more people obtain health care coverage as a result of healthcare reform. Similarly, supplemental state payments to disproportionate share hospitals for indigent care would also decrease for the same reason.

Revenue Cycle (slide #9).

The next presenter delved into the nuts and bolts of how the Hospital can get paid better through increased efficiencies in how it does its day-to-day business of taking care of patients. There was thought to be considerable room for improvement. Reporting responsibility was considered to be too diffuse. More money needs to be collected before the patient goes out the door. Better clinical record-keeping is necessary to document if patients might be sicker and therefore larger bills can be submitted. Billing practices are inefficient. Information technology systems are not talking well together. It seemed clear to the consultants that operational improvements are essential regardless of any future partnership. Potential savings of tens of millions of dollars were mentioned.

One outside committee member reasonably asked, “How can you collect from people who have no money?” The answer was that this is a big strategy initiative for all hospitals and that it was important to establish a culture where the patient is expected to pay. Our local culture seems to go the other way.

Labor Efficiency (Slide #11).

Labor makes up 50% or more of hospital expense. The consultants analyzed our work hours. They compared us to other hospitals. We did not look so good. While there was some variation among different units, a big problem is there are too many full-time employees and not enough part-time employees to deal with the fluctuations of patient occupancy and demand. The consultants seemed surprised and appeared to believe that some product line managers were ill-equipped to deal with staffing issues. There was also discussion that better use should be made of practitioners at different levels of training, for example as on the continuum from nursing aide to independent nurse practitioner.

It was suggested that bringing the Hospital even up to average with respect to similar hospitals would result in a savings of over $13 million. It was recognized that this process would take at least a year to show benefit, and that every other hospital would be trying to do the same thing at the same time.

Supply Chain (Slide #13).

University Hospital appeared to be doing better in this area. They are associated with Premier, a good group purchasing organization. The hospital does well on such things as recovery of high-cost supply items (whatever that means) , and running a tight pharmaceutical formulary. Consultants can of course always find opportunities for improvement, and by tightening things up even further, additional estimated total yearly savings of some $3.3 million was thought possible.

On the other hand, to accomplish these things requires much physician involvement with physician leadership at the table. This is apparently not happening. [The theme of lack of support or engagement by University of Louisville faculty arose time after time in the afternoon’s presentations.]

Growth of Clinical Services (slide #14).

A slide shown at the last meeting was represented. The customary strategy is to try to get greater market share of things that pay well, especially if we are good at them. [The unstated other side of the coin in this strategy is to minimize services that don’t pay very well whether we are good at them or not!] It was thought that some growth opportunity existed if aggressive action was taken. Service lines that might be emphasized include oncology, central nervous system, trauma, digestive disease, and musculoskeletal disease. It was estimated that increasing the Hospitals market share in each of these by 5% would yield an annual $19.6 million to the bottom line.

The words “aggressive action” are emphasized because the task is challenging. UofL’s market share is low to begin with, and only in trauma is UofL the market leader. Unfortunately, trauma does not pay very well so a 5% increase does relatively less to improve the bottom line. The market leader in almost all the other areas is Norton Healthcare. For all the advertising done by the Brown Cancer Center, its market share is small. In all the areas UofL thinks it is strong, it is bested by Norton. While there appears to be some room for competitive growth in the area of digestive diseases, UofL Hospital still has less than a 10% market share. [Gastrointestinal disease was the service “given” to University Hospital by Norton and Jewish when they co-managed UMC. Not much progress has been made since.]

It was stated that to be successful in this area, University physicians would need to be involved more and engaged to a greater degree in increasing quality of care. Better strategic alignments are needed. [Basically a lot of euphemisms were expressed for having to pay faculty doctors more to practice where they are supposed to in the first place.] The question was asked about how realistic it was to grow referral relationships with community physicians. This is recognized as a major problem. The current Chairman of the new University of Louisville physician’s group rose to speak from the audience and attempted to be encouraging promissing that the faculty physicians were coming together as one. [The task of assembling all faculty physicians into the same group practice has not yet been accomplished, and even if it is, it cannot be assumed faculty would change the location of their hospital practice.]

Quality of Care (slide #16).

It was recognized from the beginning by the consultants that standard measurements of quality of clinical care at University Hospital were not so good. Indeed, they were pretty bad. Recognizing that the hospital has been working hard to improve the situation, the consultants recalculated and summarized selected quality measurements for the last two quarters only, instead of the last four years. This recognizes the recent improvements, and assumes such improvement will continue. This recalculation still places U of L well below average compared to similar hospitals. Medicare will pay hospitals better for high-quality care, but the amount of money on the table is small, and improving quality is a necessary and worthwhile goal of its own.

Despite some general improvement, there is still considerable variation in key service line operations and clinical outcomes as illustrated in Slide #19. It went without saying that the hospital cannot improve the quality of its care without the full committed participation of its physicians.

Organizational Structure Inadequate. (#20).

I confess to some small and probably undeserved satisfaction at the comments of the consultants related to the organizational structure of the Hospital and its relationship to the University of Louisville and its various subunits. The presenter spoke of many Boards of the related entities with different priorities and incentives. The discussion was broadened to suggest that most traditional academic medical centers are ill-equipped to compete in the new world of health care. Institutional resistance to change at the silo level and above is considerable.

Final Summary (Slide #23).

The consultants restate the preliminary recommendations made at the onset of their presentation.

“Even with the operational and strategic improvements, the economic viability of University hospital is questionable at best. DHT believes that University hospitals should explore partnership opportunities in conjunction with the following improvements to make itself a more suitable partner.”

Key Findings with Preliminary Recommendations (Repeated from above).

  • 1. Maintaining the status quote is not viable. Find a partner that enables UNC to increase access points and expand primary care physician base.
  • 2. Operational improvements are essential regardless of partnership. Develop a strategic plan with a revitalized organizational mission and vision.
  • 3. Growth opportunities appear to exist if aggressive action is taken. Pursue initiatives for operational, economic, and cultural improvements.
  • 4. Quality improvement initiatives have been successful-ongoing improvements required. Engage with University physicians to promote closer alignment and integration.
  • 5. Variability exists in key service line operations and clinical outcomes. Pursue service line growth initiatives with support from university physicians.
  • 6. Organizational structure consists of misaligned incentives. Evaluate the structure to ensure aligned incentives for all parties.
  • 7. Disparate information technology systems negatively impact clinical and operational effectiveness. Assign individual ownership to each improvement initiative.

Case Studies. (Download here.)

These were given to the committee without much comment. Although at the onset of the committees work, the issue of benchmarking or comparison to similar institutions stood front and center. The consultants seem to be backing away from that emphasis by pointing out that to be different is not necessarily to be better or worse. Every hospital or medical center is unique and a product of its local environment. They all have similar sounding stories. They all struggle with growth and information technology infrastructure.

University Vice President Dunn did want it read into the record that some other similar hospitals receive sources of state and local government funding for indigent care. He wanted to make the case that our QCCT fund is not completely unique.

Next Steps (Slide #24).

The next and final meeting of the committee will be held on May 23 at 3:30 in the larger auditorium of the Ambulatory Care Building of the Hospital. Perhaps there will be more of the public present. I suspect the University will want to have media in attendance.

It is not clear to me what additional steps the consultants will take. It seems they have done all their information collection. They have already made a number of high-level action plans and much economic scenario modeling. We shall see.

Comments.

So, what are we to make of all of this? The end of the ad hoc committee’s work is near, and I suspect most of the cards are already on the table. The slides and and tables will be tidied up. A presentation for the media will be prepared. Due to the relatively short period of their engagement, the consultants only promised recommendations for future action at a high or general level as opposed to a detailed plan. University Hospital will be left to deal with the innumerable details, (unless of course the executive session of this last meeting was to hire Dixon Hughes Goodman for ongoing help.) The public was not presented with, nor do I expect to see voluntarily, specific financial information about the Hospital’s operations that allow us to calculate how much cost is incurred in caring for the uninsured, the underinsured, Medicaid, or other categories of patient. If the object of this committee’s appointment was to justify the expenditure of QCCT funds and to prove that no inappropriate diversion had occured, that goal has in my opinion not been met.

At the first committee meeting, hospital President Taylor asked the consultants to add as an additional goal whether the amount of money the Hospital passed on to the University for research and other uses was appropriate. We have heard nothing since that addresses that goal. A senior UofL official recently asked the president of another academic center (in my presence) how much his hospital gave to its parent university for research. The answer was “zero.” Perhaps that answer is more universal than we were given to believe here in Louisville! In any event, nothing in the past four meetings addressed the critical issue of how the mega-millions of dollars transferred to University accounts from University Hospital and its clinics is used, or more to the point, how it might be kept to support the Hospital. The consultants have been quite silent on this point so far. To be honest, I think they are giving the University too much protection in this regard.

The University has now heard the consultants lend support to its two most important wishes: the desire for a new partner, and for more money. A cynic would say that the University got what it paid for. When I worked in Washington, the running joke was that a consultant would provide whatever result was desired, and indeed, would produce results supporting any side of an issue. This would not be fair to Dixon Hughes Goodman. Indeed, they appear to have done their work diligently, competently, and ethically. In fact, much of the information they revealed was very unfavorable to the University to say the least. Nonetheless, it is the job of a consultant to help their client achieve desired goals. The University has not been shy about expressing its desire for a partner with money. While DHG had access to useful comparative information and outside databases, it was dependent to a large extent on information and opinions provided to them by the University and its Hospital. Because it appears that the public will not have access to financial and occupancy information in any meaningful detail, independent analysis and verification will not be possible. I do not doubt that the advice provided by DHG will be valuable to the University and its hospital. Indeed, one might reasonably ask why they or someone like them might not have been asked for help earlier to deal with what seems like everyday hospital issues. We did not get to where we are in a single day or a single year.

A disappointing theme that emerged in the previous meetings and in this one is how a lack of “engagement” or “alignment” by full-time University faculty was hurting University Hospital’s financial status and the quality of its clinical care. This is an old story. This vicious cycle of neglect has been brewing since the day the hospital opened, despite the fact that UofL medical school has one of the larger full-time clinical faculties in the country. Nothing I have seen in previous merger planning, nor in any public discussions to which I am privy indicates how this will change. If the University’s own faculty will not support its hospital, how can the University ask the public to bail it out with additional money and support? This is a critical matter and a central part of the flawed organizational structure that was highlighted by DHG in their report to date. Nothing of which I am aware indicates to me that the new University of Louisville Physicians, Inc., set up as it was to do battle with insurance companies, will support University Hospital any differently. Prove me wrong–please!

It is difficult after all of this, not to imagine how the Hospital might have fared under its own management if the University had not had its way with her for so long. In my view, a hospital’s first responsibility is to take good care of its patients. If it is able, its second responsibility is to facilitate the training of doctors, nurses and other health professionals within its walls. Everything else is optional and subject to resources. The Hospital is not there to support the University. If anything, it is the other way around. The University has controlled the hospital long enough. I say, keep hands off for a while, and indeed, pay back in this time of need some of the money that you taken off the top for so many years.

Finally.

During the executive session, reporter Laura Ungar and I were left to stand in the hallway together for some time, during which she interviewed me. She asked if I was opposed to any new partner at all, and I am quoted in this morning’s paper as saying that I was not opposed to a merger with a Baptist or a Jewish Hospital (that did not compromise the clinical, academic, or administrative freedom of the University.) I did not intend to omit Norton Hospital from this category. In fact, I proposed that UofL be free to form partnerships with any and all health care entities in the state. I expressed my concern that if UofL forms a formal and restrictive partnership with any one entity, that it would immediately become a business rival of all the others. This is not in my mind an appropriate role for a public hospital. Given that some 80% of primary care physicians in Louisville are employees of one hospital or another, such a partisan alignment would not help with the goal of creating a referral network. Not completely tongue-in-cheek, I also suggested that if former Governor Patton gets his way, Pikeville School of Osteopathic Medicine will become a third state medical school in Kentucky. These three schools would be a formidable statewide partnership network indeed! Are you three schools talking, or do sports rivalries get in the way of what is best for Kentucky?

Enough for now. I want to report on what happened at the meeting and to make the slides and handouts available. I reserve the right to add to these comments in the coming days. You are welcome to help me!

Peter Hasselbacher, MD
May 10, 2012

Agenda
Presentation Slides 2.8 MB
Comparisons of similar hospitals 6.8 MB