Does 3M’s Acquisition of CodeRyte Represent a Defensive Strategy?

This week’s announcement that 3M has acquired CodeRyte was a surprise as much as it was completely predictable.  On one hand, 3M Health Information Systems has had enjoyed what seemed at times to be a near ubiquitous presence in the coding solutions market for years and has been noticeably absent in the M&A arena since 2006 when it acquired SoftMed Systems (note: the $230M acquisition of Attenti in 2010 sits within 3M’s Track and Trace Solutions division).  However, with the impending move to ICD-10 in October 2014 as well as a broader trend toward greater levels of clinical documentation granularity and improved data management and analytics capabilities in healthcare, it is completely understandable that 3M had to make a provocative move to both protect its market share and strengthen its ability to deliver value to its provider customers in a highly regulated, increasingly complex healthcare environment.  The fact that 3M has had a reseller arrangement with CodeRyte since 2009 is further evidence of the existing relationship and fit between the two organizations.

With that being said 3M’s move to acquire CodeRyte represents, in our opinion, a potential defensive strategy to maintain its leadership position in coding and documentation improvement.  While not conclusive, there are a host of data points that seem to support this assertion:

• Heavy reliance on legacy encoder and grouper technologies – 3M’s leading flagship products provide a lot of financial stability for the organization, but these technologies are becoming dated amid the industry’s ongoing evolution and other, more nimble solutions coming to market
• Success and momentum of Optum and A-Life – Optum’s acquisition of A-Life has been very successful in the marketplace as of late, further challenging 3M’s existing position in computer assisted coding (CAC)
• Uptake of point of care workflow tools – While 3M’s 360 Encompass System provides an intriguing bridge between customer’s financial and clinical data at the point of care, this solution is relatively new and has presumably not had the sort of uptake that meaningfully impacts the division’s top-line
• Limited success in penetrating adjacent markets – 3M has struggled to extend its solution set into growing opportunities with payers, Health Information Exchanges (HIEs), and Accountable Care Organizations (ACOs).  Payers, for one, represent a huge counter-market to the providers as the entire healthcare industry looks to neutralize the impact of the ICD-10 transition

This isn’t to say that the combination of 3M and CodeRyte isn’t innovative – in fact, the addition of CodeRyte’s Natural Language Processing (NLP) and CAC capabilities could greatly improve the workflow efficiencies at the end-user level.  However, the need of 3M to bolster and extend its coding capabilities is apparent as emerging clinical, financial, and compliance objectives increasingly require a more pervasive data management and analytics platform delivered at the point of care and throughout the healthcare ecosystem (providers, payers, EMR vendors, consumers, etc.) to solve a range of increasingly complex and intermingled challenges.

 

Seth Kneller

Seth Kneller is a Vice President at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

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What About Patient Accountability?

The debate between payers and providers over the responsibility and accountability of healthcare costs certainly didn’t begin with the drafting and eventual passage of the ACA, nor will it end. Like the Hatfields and McCoys, a war of words (and figures) has been waged between these primary stakeholders in the healthcare industry for decades. There is a fundamental distrust and disagreement regarding who is responsible for the unsustainable growth in healthcare costs – and who should ultimately be responsible and held accountable for the standard “healthcare system” objectives of increasing efficiency, decreasing costs, and improving outcomes.

To bend the cost curve, many of the recent conversations and reform efforts have been focused on population health management, care coordination, compliance, and engagement. New technologies and regulations are emerging daily with a promise to increase the efficiency and effectiveness of healthcare. New business and care delivery models (and old ones with new names) are being developed and deployed, such as ACOs and Medical Homes. And, most of these new ideas and solutions are being described as “consumer-driven,” “patient-centric,” and “integrated,” yet most are failing to produce the results that politicians, employers, and consumers are aggressively demanding.

Meanwhile, the heavily scrutinized leaders of health insurance companies and hospital systems continue to blame each other for the meteoric rise in health care costs – and they should be – but not as healthcare executives but rather as healthcare consumers… and consumers of cigarettes, alcohol, hamburgers, and home entertainment.

To clarify this point, I recall my experience at the 2010 World Health Care Congress in Washington DC (April 12-14). It was the first major industry conference shortly after the ACA passed (March 23). A morning panel of shell-shocked CEOs from leading payers and providers engaged in a “healthy” yet intense discussion about conflicts of interest, cost-shifting, risk-sharing, accountability, insurance exchanges, consumerism, fee-for-service vs. value-based, supply/demand imbalances, the aging population, end-of-life, fraud and abuse, technology integration and interoperability, industry consolidation, regulations, EHRs and meaningful use, and the economy, among other timely topics.

As soon as the session ended, the industry leaders charged with creating solutions for our national healthcare crisis flooded out of the auditorium into the hallways of the convention center. I observed in dismay as many shuffled outside for a smoke break in finger-numbing temperatures while the masses consumed sugar-loaded pastries, donuts, coffee drinks, juices and soft drinks from well-catered tables. Did I mention that we had all been sitting in chairs all morning?

If we really want to get serious about “bending the cost curve,” then we need to address our society’s apathy regarding unhealthy behaviors and environments. There is overwhelming evidence that prevalent yet preventative consumer behavior, such as smoking, alcohol abuse, poor nutrition, and lack of physical activity, are imposing enormous costs on our society. Chronic conditions that are caused or worsened by unhealthy lifestyles, such as heart disease, diabetes, asthma, obesity, and cancer, account for more than seventy-five percent of U.S. healthcare expenditures. To truly solve our healthcare crisis, patients and consumers of healthcare must assume more accountability.

Surely, that is one thing payers and providers should agree upon!

Together, these key stakeholders need to redesign our healthcare system with new solutions that will drive patient accountability and reward healthy behavior. Just as banks utilize credit ratings and the automobile insurance relies upon driving records to help manage their risks, the healthcare payers and providers need a standard means to help manage their risks. It’s quite simple in these other scenarios I referenced. If we are financially irresponsible, then it costs us more to borrow money. If we drive irresponsibly, then it costs us more to purchase car insurance.

There is overwhelming evidence that individuals with unhealthy habits pay only a fraction of the costs associated with their behaviors. Most of the expenses caused by their decisions and lifestyle are passed on to the rest of society in the form of higher insurance premiums, taxpayer-funded government expenditures for healthcare, and disability benefits.

Many payers, particularly self-insured employers, are already leading the charge to shift the risk and responsibility associated with healthcare directly to individuals. A recent survey by Hewitt Associates found that nearly half (47%) of employers either already use financial incentives or plan to use financial incentives during the next three to five years to penalize and/or reward the health-related behavior of their employees.

Section 2705 of the Patient Protection and Affordable Care Act (ACA) is a provision that holds significant potential. In 2014, employers may apply up to 30% of the total amount of employees’ health insurance premiums (50% at the discretion of the Secretary of Health and Human Services) to provide performance-based wellness incentives. This represents an attempt by the government to rein in healthcare costs associated with unhealthy behaviors. The clear objective of this ACA provision and the political rhetoric behind it is to improve health-related behavior and reduce the prevalence of chronic disease caused by unhealthy lifestyles.

These incentive programs have drawn criticism from those concerned that holding individuals responsible for their health, particularly through the use of penalties, violates individual liberties and discriminates against the unhealthy. And, as someone whose mother suffered from Multiple Sclerosis, a dreadful chronic disease without a known cause or cure, I can surely understand their argument but there must be a logical set of conditions under which a new incentive-based system can be developed and deployed in a responsible, ethical manner to contain healthcare costs and encourage healthy behavior. This issue was central in the historic Supreme Court hearings on the constitutionality of ACA’s mandate that just wrapped-up.

Read our blog next week for a proposed measurement system that will help drive patient accountability and promote healthy behavior.

John Montague

John Montague is a Vice President at TripleTree focused on innovative companies and solutions that are shaping the future of healthcare. E-mail John at jmontague@triple-tree.com

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Healthcare: Survival of The Fittest

According to Levin and Associates, mergers and acquisitions in the healthcare industry totaled over $227 billion, an 11% increase over 2010 and the fourth-largest year of the past decade. Even more interesting, is that the value of healthcare services deals increased 43% while technology decreased 2%. Hospital systems are moving into new communities, integrated health systems are acquiring additional delivery system assets, managed care networks are growing, and specialty care service businesses are expanding their footprint—to be well-positioned for survival in a post-reform world.

This is the type of data we shared with TripleTree’s Health Executive Roundtable–the investment bank’s “think tank” comprised of a diverse group of health industry executives with backgrounds ranging from banking, medical device, education and life sciences; to food services, technology, human capital management, and compliance.

We asked each Roundtable member: “What are the key trends that will emerge from this consolidation?”

Their independent and unique perspectives are published in:

Viewpoint: A Kaleidoscope of Insights Regarding Growth Opportunities amid Consolidation in the Healthcare Industry.

You can view and download the report here.

In addition, you are invited to participate in a webcast on Wednesday, February 29, 2012 from 12-1 pm CST where we will discuss the highlights and key themes from the report. You can register for the webcast at: https://www2.gotomeeting.com/register/771534410. After registering you will receive a confirmation email with information about joining the event.

As a preview. the following are the highlights and key themes from the report:

1. Healthcare costs will increase. It’s all about supply and demand. Market consolidation sets the stage for increasing healthcare costs as fewer, large, hospital and healthcare systems leverage their size and strength during unit cost contract negotiations with payors.
2. Contraction of the delivery system = expansion of demand for meaningful innovation to combat the pressures of #1. However, the only “new new things” that will survive are those that solve real problems with a scalable, cost-efficient solutions that integrate with the existing healthcare infrastructure.
3. B to C solutions require B to B revenue streams. Consumer adoption is critical for demonstrating relevance, but consumers don’t typically fund high growth enterprises.
4. “Health and Wellness” will transition to “Life and Well-Being.” Payers and employers will seek innovations that support life and well-being as the distinction between work, home and health become increasing blurred.
5. Healthcare gaming will emerge–actually, it will explode. Gaming platforms that integrate entertainment, interaction, and achievement will be a transformational solution for driving consumer engagement and behavior change as well as provider education, training, delivery, research and cost containment.
6. Electronic health records will evolve into smart health information technology ecosystems. These ecosystems will (finally) enable the coordination of care and drive shared accountability among healthcare providers.
7. Doctors will be loyal to a single system. (Smart) hospitals and health systems will attract and retain doctors with mobile and wireless software applications that enhance personal income and lifestyle.
8. The most disruptive solutions are likely to come from outside the traditional healthcare industry. The core assets and capabilities that fuel retail, consumer packaged goods, banking, and telecommunications, for example, can be translated into unique and meaningful healthcare solutions by companies and individuals not trapped in parochial “we’ve always done it that way” thinking.

A “perfect storm” is brewing where science and technology have no boundaries, and the convergence of reform and unsustainable medical costs are generating opportunities for change. I can’t think of a more exciting time to be in healthcare.

I look forward to your feedback via blog post comments, personal email, or during the webcast.

Archelle Georgiou

Archelle is a Senior Advisor and Chair of TripleTree’s Healthcare Executive Roundtable, and focused on creating health through innovation.  You can follow Archelle on Twitter, on her blog, or email her at ageorgiou@triple-tree.com.

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ACOs: Good News for Skeptics

As TripleTree continues to cover the rapidly evolving opportunities associated with health reform, I have remained an optimist about the potential for the many health reform experiments included in the healthcare reform bill to create meaningful healthcare savings in the long term.   In particular, I have been hopeful about the various shared savings programs to meaningfully impact cost and quality in the healthcare system, and momentum has continued to build, with CMS naming 32 organizations to the Pioneer ACO program in December.

This is what makes the recent news from CBO disheartening.  Last month, they released an analysis showing that ten different demonstration programs – six disease management and four value-based payment approaches – have usually not had any meaningful impact on reducing Medicare spending.    One of these value-based demonstrations “allowed large multispecialty physician groups to share in estimated savings if they reduced total Medicare spending for their patients.”

Sound familiar?  Troublingly, this program had little to no effect on Medicare expenditures.  (The only program of the four that did have an effect on costs used bundled payments for heart bypass surgeries.)

Adding to the bad news, Leavitt Partners released a study late last year showing that of the 164 accountable care organizations (ACOs) they have identified (note that the Leavitt definition of ACO overlaps with – but doesn’t perfectly align with – the CMS definition), were somewhat evenly distributed across 41 of 50 states.  However, these same 164 were found in just 144 of the 306 hospital referring regions (HRRs) – a benchmark of regional health care markets where patients are referred for care.   While a number of these HRRs had three or more ACOs, large swaths of the country had yet to see even one yet suggesting that perhaps ACOs are springing up largely to compete with each other, rather than focusing on finding geographic areas where a new care delivery model could meaningfully reduce costs.  This is one of the issues that skeptics of the model are concerned about, as my colleague highlighted recently.

In any case, critics of the healthcare reform have certainly gotten some new ammunition in the past few weeks – we’ll be keeping an eye out for some good news to highlight in a future post.   As before, I still remain optimistic about the change in mentality that CMS’s ACO program seems to have brought in how payers and providers are rethinking the traditional and rigid zero sum game of treatment and reimbursement, allowing new ways for commercial payers and care delivery organizations to partner to deliver quality care.

Let us know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

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The Divide in the ACO Debate – Beltway Rhetoric versus Marketplace Cynicism

Amid the broader – and oftentimes highly opinionated and heated – ACO conversation occurring across Washington and the private sector, The Wall Street Journal published an interesting piece last week highlighting the specific views of three individuals:

• Don Berwick is the former administrator for CMS who just stepped down last December.  Don oversaw the creation of the ACO framework under the Medicare Shared Savings Program.
• Tom Scully is currently a General Partner at the New York-based private equity firm Welsh, Carson, Anderson & Stowe.  Tom formerly served as the CMS administrator from 2001 to 2004 and CEO of the Federation of American Hospitals.
• Jeff Goldsmith is a president of Health Futures, a healthcare consulting firm out of Charlottesville, VA and an associate professor of public health sciences at the University of Virginia.

What becomes immediately apparent in the three-way dialogue (done via email) is the lens through which various participants view the industry’s efforts to improve healthcare’s fundamental problem of shifting from the traditional fee for service to a value-based approach.  There aren’t any quick, silver bullet answers to the debate, but what is evident is the divide among those that represent Washington’s political rhetoric (Don) and those that must figure out ways to make the new framework work within a dynamic, private care delivery system (Tom and Jeff).

Several disagreements bubble to the surface related to:

The role providers will play

• Berwick: “The ACO premise is different. Beneficiaries don’t join an ACO; providers of care do.”
• Scully: “The biggest flaw with ACOs is that they are driving more power to hospitals—not to doctors. Very scary, and I am a hospital guy.” … “If the doctors had the capital to organize comprehensive ACOs to control their own fate and drive us to more efficient care, I would be bullish on ACOs. But doctors are again along for the ride, not driving the bus.”
• Goldsmith: “In practice, however, the ACO is more like asking the hungry horse to guard the granary. The major savings for Medicare are to be found by keeping people out of the hospital, and reducing the incomes of the specialists who dominate hospital politics. To get those savings, hospitals and their specialists have to turn their backs on five decades of making more by doing more.”

Emphasis on the patient

• Berwick: “…the formula for ACO success is clear: keep quality high, save money by improving—not by restricting—care, and remain attractive to beneficiaries, who could go anywhere for care.”
• Scully: “The best models for ACOs are doctor groups like Monarch HealthCare in Los Angeles or JSA HealthCare in Tampa. Give doctors lots of patient data, pay them to see patients more often, follow their drug use and health status more closely to keep them out of hospitals—and give them control of the cash!”
• Goldsmith: “The biggest problem with the ACO, however, isn’t the faulty business proposition, but the patient’s role.” … “In the ACO, providers are accountable to Medicare. Patients won’t get a dime of the savings, and no choice whether to participate or not.” “Despite all the rhetoric about ACOs being patient-centered, it is a paternalistic, “we’ll decide what you need” kind of model.”

Prospects for care improvements and financial success of ACOs

• Berwick: “Knowing full well the results of the PGP demonstration, the CMS office of the actuary estimated base-case Medicare savings of over $400 million in the first three years of the ACO program.”  … The “32 physician groups and health-care systems selected for the pioneer program, covering 860,000 Medicare beneficiaries, [are] projected to save $1.1 billion in health-care costs over the first five years.”
• Scully: “In the system we have, ACOs are conceptually right, in that the concept inches toward differential pricing for quality, and Don should be congratulated. But we need to step back out of the trees, look at the forest and question the financing system we have created.”
• Goldsmith: “Having each community, large or small, set up its own ACO is like setting up a backyard steel mill.” … “It is the incredibly heterogeneous 5% of the population that generates 47% of all costs that you need to focus on, and if you don’t have enough of them in your “attributed” population, you cannot concentrate the resources to change their care and lives.”

Startup costs of an ACO

• Scully: “The start-up cost of a real ACO is probably $30 million and up in a midsize market.”
• Berwick: “The actual barriers to entry appear a lot lower than the $30 million cost that Tom Scully mentions; CMS estimates are only a fraction of that.” “… the CMS Innovation Center has proposed a program of advance payment to provide front-end capital and extra operating funds for care coordination, information systems and the like.”
• Goldsmith: “A more credible estimate of setup costs for a provider system with no prior managed-care experience to participate in the shared savings program: $10 million to $15 million per health system (consulting, IT systems conversions, new staff, etc.).”

 Prospects for success

• Berwick: “Smart entrants, focused on seamless care, outcomes and beneficiary satisfaction, will both reduce Medicare’s expenditures and reap financial rewards for themselves.” … “I hope and expect that ACOs will honor the trust they have been given by doing the job—lower cost through care improvements. If they violate that trust, the costs to them and to the future of seamless, coordinated care in America will be high indeed.”
• Scully: “Don’s vision is great, and who can’t like what he has tried to do with ACOs… Except that the incentives are very small, the change will be slow, and we are just nibbling at real system reform.”
• Goldsmith: “There were a lot of good ideas in the Affordable Care Act for saving money and improving quality. Unfortunately, the ACO wasn’t one of them.” … “By pushing this edgy idea from the policy world and ignoring the real-world evidence of its own trials, CMS picked the wrong horse.”

In a final from Jeff Goldsmith: “One of the most serious problems with the health-care world just now is the gap between the policy world and the real world. The ACO is Exhibit A in this yawning disconnect.”  Jeff is right to point out that there’s a divide between the public and private domains, yet progress, however small, has arguably been made.

The real question is whether “the vision” put forth by Don Berwick will ultimately evolve into a pervasive performance-based delivery model in which quality, efficiency, and choice are the driving factors behind private sector reimbursement and profitability.  To those outside of Washington, there certainly seems to be a long way to go – let us know what you think.

Seth Kneller

Seth Kneller is a Vice President at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

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Ramping up for HIMSS 2012

It’s hard to believe that HIMSS 2012 is just around the corner.  As we look ahead amid the consolidation and investment opportunities in healthcare, if you are at HIMSS this year and would like to exchange perspectives on the industry or bring us up to speed on your progress for the year, please let us know.

Here is what’s on our radar related to our research and advisor agenda for the year.

• Why ‘consumerism’ is impacting healthcare delivery models at an unprecedented pace
• How mobile applications are key tools for navigating a ‘B2C shift’ in healthcare
• Where innovations are evolving quickly to meet the demographic shift of seniors
• How productivity tied to health is a growing focus for employers
• Why compliance-centric issues ranging from payment integrity to improved patient outcomes are dominating many health care cost debates
• How the shift toward ACOs and Medical homes is radically altering care delivery models
• The impacts of ‘life beyond the EMR’ as more granular clinical documentation will substantially increase risks associated with reimbursement, compliance, and productivity.
• How healthcare is being driven by data and analytics to build a more complete picture of a patient
• Where the pharma market is shifting away from paper-based systems and processes and calling for innovations that reduce cost across the clinical development landscape

Let us know what you’re thinking about…see you at HIMSS in a few weeks!

Chris Hoffmann

Chris Hoffmann is a Senior Director at TripleTree covering ‘consumerism’ and where legacy and edge technologies are impacting healthcare. Follow Chris on Twitter or e-mail him at choffmann@triple-tree.com.

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ACO Update: A Third Horse Enters the Race

A few months ago, we noted that the release of regulations for ACOs would trigger an ACO services race across the healthcare landscape, where market participants would be sprinting to create service offerings that would help hospitals and physician practices become compliant with the CMS ACO regulations for sharing financial risk and the rewards.  So where do things stand six months later?

Just like earlier this year, the “Big Two” – Optum and Aetna – seem to be squarely in the lead of creating a turnkey ACO solution.  And in the last few weeks, we’ve seen a couple items of note from these two.  The first was an interview with Charles Kennedy, CEO of Aetna’s ACO division on HISTalk.  In the interview, Kennedy talks about how Aetna is pursuing the ACO opportunity via three go-to-market offerings:

• Clinical integration (basically an HIE via Medicity)
• A population-based approach with chronic disease management tools that typically rolls out to hospital employees as a way of deploying a light version of an ACO
• A full, private-label health plan, where a delivery system has their own health plan “powered by Aetna”

Last week, Optum announced that it has brought together its own ACO division with more than 700 people (!) focused on enabling “Sustainable Health Communities,” which is Optum’s version of the ACO concept.  Optum’s press release calls out its own five-part strategy:

• Patient and population health management
• Informatics, analytics, and technology
• Clinical integration, network development, and physician change management
• Payment model, contracting, and actuarial expertise
• Operating expertise

Interestingly, the press release also mentions that Optum is also bringing solutions to market targeted at commercial health plans and government payers – the other side of the ACO/shared risk/bundled payment equation.

The big question we have been trying to figure out here at TripleTree is who is going to follow “the Big Two” and their industry-leading ACO partnership announcements (specifically: Optum with Tuscon Medical Center and Aetna with Carilion Clinic)?  Where are the other healthcare companies that are going to pursue this mammoth opportunity?  Wellpoint’s acquisition of CareMore, McKesson’s acquisition of Portico, and Harris Corporation’s acquisition of Carefx certainly point to their interest in this market, as does Premier’s burgeoning alliance with IBM – but we have yet to see any of these or other players signal their interest in developing a broader set of provider-focused bundled payment service offerings.

This past week we think have finally seen another company unequivocally throwing its hat in the ring:  The Advisory Board Company announced the creation of a new company called Evolent Health, in partnership with the UPMC Health Plan.  Evolent intends to provide a platform for population and health plan management to leading health systems as they develop their value-based care strategies.  This follows ABCO’s earlier acquisitions of Crimson, Concuity, and Cielo MedSolutions – all earlier signals that the company was pursuing the hospital analytics, contracting, and registry marketplaces in a big way.

It makes perfect sense for The Advisory Board to do this – with nearly unparalled access to hospital c-suites across the country, it was only a matter of time before they launched a solution to address the many, many requests they must be getting to help with hospitals’ new risk-sharing strategies.  We see this as a welcome development in this space, and hope to see other HCIT players, undoubtedly facing their own questions from their healthcare clients, enter the fray as well.  Where are you, Accenture, Microsoft, and Elsevier?

Let us know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

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Preserving the Quality of Care amidst Surging Hospital M&A

Over the past 18 months, the healthcare industry has experienced a tremendous uptick in the volume of hospital mergers and acquisitions. Since January, over 60 transactions have been announced, a 65% increase year over year. While the barrage of activity can be attributed to a number of structural changes stemming from healthcare reform (e.g. emergence of ACOs, reimbursement cuts, reporting requirements etc.), it is clear that non-profit hospitals under mounting financial pressure have become prime acquisition targets for for-profit hospitals and private equity investors.  Vanguard Health’s purchase of Detroit Medical Center and Steward Health’s purchase of Charitas Chrisiti in 2010 marked the beginning of a wave of acquisitions that will likely roll on through 2011 and into 2012.

Source: Ponder & Co. and Irving Levin Associates, Inc.

We believe the hospital industry will continue to consolidate and undergo tremendous structural and organizational changes in the decade ahead. Perhaps Fortis offers a few key principals to emulate in order to ensure the preservation of high quality care. Nearly 80% of U.S. acute-care hospitals are non-profits and a significant portion of them failed to break-even in 2010. Amidst the financial crisis in 2008 and the subsequent sputtering of the U.S. economy, non-profit hospitals have been required to delay critical investments that could meaningfully enhance efficiency and profitability. Concurrently, revenue growth has been challenged by with both price and volume trends. In addition to cuts in Medicaid and Medicare, many Americans are electing to cut back on medical services and are forgoing elective surgeries, the most lucrative procedures for hospitals. With declining revenues and scarce resources for investment in modernized technologies, non-profit hospitals are seeking partnerships with competitors or other investors with much deeper pockets.

So what are the implications of this flurry of recent hospital M&A activity for you and me?

• How will the quality of our care change, if at all?
• Can the culture and mission of a non-profit hospital be integrated with that of a for-profit, often publically traded organization, and how can it affect coordination and communication across the continuum of care?
• Let’s not forget about the reaction of the individuals providing us care. Can these mergers agitate the physicians and result in significant turnover?

While the rationale for many of these transactions makes sense, in theory, integration can be the most critical and challenging component of a transaction. A botched integration plan can have tremendous consequences on the quality of care.

Fortis Healthcare – A Mini Case Study in Consolidation

Although there is not a standard playbook that each hospital can follow, one hospital system has successfully architected an aggressive M&A strategy and may be a model other hospital systems can follow. Fortis Healthcare, one of India’s largest healthcare hospital systems, has experienced tremendous growth since its founding in 2001. Fortis now has 54 hospitals within its system, one-third of which were acquired. Over the past nine years, Fortis has grown its patient capacity and revenue at CAGRs of 40% and 70%, respectively, and has also enjoyed significant margin expansion. What is most remarkable is that this explosive growth has not come at the expense of quality. Fortis continues to deliver clinical outcomes that rival those of Kaiser, Mass General and Mount Sinai.

Hospital	Mortality (%)
Beth Israel Deaconess Medical Center, MA	0.58
Fortis Health Care, India	1.13
Brigham and Women’s Hospital, MA	1.15
Massachusetts General Hospital MA	1.61
Kaiser Foundation Hospital, CA	2.03
State of New York aggregate, NY	2.09
Mount Sinai Medical Center, FL	4.20

Source: Data excerpted from Regina Herzlinger and Pushwaz Virk, MD, “Fortis Healthcare (A),” HBS No 9-308-030 (Boston: Harvard Business School Publishing, 2008), p. 13

• Shared Learnings. The target company should not always be forced into the acquirer’s model. The target company may possess superior “best-practices”, and the acquirer must be willing to accept and implement them into the combined organization.

• Patient Care Delivery. Be mindful of all patient touch points from admittance to discharge. Develop support systems that will guarantee a repeatable, high-end service that exceeds the patient’s expectations.

• Retain Top Talent. The acquirer should be prepared for cultural differences and implement the proper incentives and leadership development programs to retain the top talent. Effective leadership within a hospital system requires a delicate mix of senior clinicians and management professionals.

• Efficient Systems. Measure and quantify clinical and non-clinical processes, identify areas of improvement and eliminate variability. Develop standardized processes that are both replicable and scalable.

Let us know what you think. Have a great week.

Jon Hill

Jonathan Hill is a Vice President with TripleTree covering the healthcare industry and specializing in population health management and facility-based services.  You can contact him at jhill@triple-tree.com.

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ACO Speed Bumps, Courtesy of CMS

We recently reviewed an article outlining the current debate between the American Telemedicine Association (ATA) and Centers for Medicare & Medicaid Services (CMS) regarding the statutory restrictions placed on telehealth by CMS in certain rules effecting accountable care organizations (ACOs).  In summary, ATA is asking that five Medicare requirements that effectively limit the use of telemedicine—by prohibiting reimbursement—be waived or modified.

It is ironic that CMS is supporting unnecessary road blocks to ACO enablement, a care delivery methodology that is a cornerstone of the 2009 health reform legislation.    At the core of the government’s support for ACOs is the idea that Medicare and Medicaid spending is unsustainable and a system that rewards providers for delivering the same (or better care) could be most impactful by better managing patients with chronic conditions, reducing readmissions and minimizing ER visits.

Thus, it seems counterintuitive that new approaches to delivering care (i.e., ACOs), should be encumbered.  As persuasively pointed out by a letter from the head of the ATA to the head of CMS; “telehealth should be an integral part of how ACOs provide healthcare. The benefits of telehealth for Medicare beneficiaries and Medicare program include:

• Reduction of in-person overuse, such as in emergency rooms and preventable inpatient admissions
• Triaging for faster, appropriate specialist care
• Improve[d] patient outcomes and quality
• Increase provider productivity
• Relief for provider shortages
• Reduction in disparities to patient access
• Decrease unnecessary variations in care…”
  – Source

While impactful, yet another memo from the ATA on this same subject was even more persuasive.  Entitled “Recommendations to the Center for Medicare and Medicaid Innovation,” the ATA explored connecting doctors to patients via telehealth instead of traditional office visits, and the significant savings in Medicare spending that could result.  In this memo, the ATA used the example that Medicare spent over $4.5 billion in 2009 on ambulance rides for patients. While it was not argued that this entire amount was wasteful or unnecessary, the memo pointed out that the Center for Information Technology Leadership analyzed this line item and determined that leveraging telehealth would result in $500 million of annual savings.

We haven’t yet seen the reply by CMS to the ATA memo, but it seems that any past reservations about telehealth should be reevaluated to reduce the friction of pursuing the ACO model.  As the ATA’s Administrator ironically points out in his memo to CMS regarding the CMS ‘definition’ of an ACO: “An ACO will be innovative in the service of the three-part aim of better care for individuals, better health for populations, and lower growth in expenditures.  It will draw upon the best, most advanced models of care, using modern technologies, including telehealth and electronic health records, and other tools to continually reinvent care in the modern age.”

Let us know what you think and have a great week.

Jamie Lockhart

Jamie Lockhart is a Vice President with TripleTree covering healthcare software and service providers with a focus on consumer directed healthcare.  You can contact him at jlockhart@triple-tree.com

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A Big Week for ACOs

Given that this Friday is the deadline for applying for CMS ACO “Pioneer” status and is also the assumed release date for the final ACO regulations, this is sure to be a busy week for ACO news.

And as if we needed more proof that still no one knows how ACO adoption is going to shake out, we took note of the following last week:  on August 19^th, Forbes published a blog post titled “How ObamaCare is Destroying Accountable Care Organizations.”   (This was based on a post by noted healthcare policy analyst John Goodman: “Health Care Schizophrenia” )

As a key argument, the post cites how an innovative medical group in Texas called IntegraNet wouldn’t qualify for CMS ACO status, despite all the good work they are doing around measuring practicing evidence-based medicine and driving down costs because they rely on a Fee-for-Service model.

One week later, on August 26th, guess what happens?  IntegraNet became one of the first groups in the country to formally apply for ACO designation.  (To be completely fair to Goodman and to Forbes, IntegraNet clearly states that they are applying early in order to have some influence on the “burdensome rules” imposed in the regulation).

However this drama plays out, we here at TripleTree have been thinking a bit about the broader picture.  While most of the drama and headline news (and criticism!) is happening at the federal level of the CMS ACO program, there are a number of hospitals and physician groups that have quietly undertaken their own shared savings and bundled payments experiments.

In fact, Modern Healthcare published its first survey of accountable care organizations this week, identifying 13 ACOs respondents around the country (this despite the fact that CMS ACO program does not launch until 2012). To us, these experiments are the real market opportunity for ACOs, and one that has finally gotten some deserved attention on the back of the government’s healthcare reform legislation.

In fact, a great example can be seen here in our backyard with Fairview Health System’s developing relationship with the payer Medica.  A case study can be found here, but in short:  Fairview, a seven-hospital system with 49 clinics and 450 employed physicians, and Medica, with 1.6m members in the upper Midwest, decided that they could seek a more mutually beneficial relationship.  In 2009, they entered into a contract that pays Fairview based on the achievement of defined outcomes for quality and total risk-adjusted cost of care based on Fairview’s performance on certain diabetes and vascular care measures.  Essentially, if Medica members have better outcomes and lower costs than the community at large, Fairview shares in those savings.  Preliminary data is encouraging, though the relationship is requiring a “total cultural transformation” on the hospital system’s part, including a total redesign of workflow, compensation, and responsibilities. (Just think of what kind of transformation will be required to measure and achieve CMS’s 65 proposed quality measurements!)

While these quiet moves will never get the attention that Highmark’s acquisition of West Penn Alleghany that we profiled recently, this the real story of the ACO debate going on right now.  These experimental relationships between providers and payers are the ones that will prove if shared savings and bundled payments can truly bend the proverbial cost curve.

Let us know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

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