Value is the health care industry's buzz word for 2018, and with good reason. The concept is in the process of reshaping the health care industry as leaders look for ways to increase efficiency and performance while also controlling costs. With health care costs on the rise — national health care spending reached $3.3 trillion in 2016, accounting for 17.9 percent of Gross Domestic Product (GDP), and the projections for the next 10 years continue at an upward trend — the shift toward value is unlikely to change anytime soon.
According to a report from HealthLeaders Media, 66 percent of health care leaders say their organizations are fully committed and actively transitioning to value-based care or have pilot programs in place. Similarly, 55 percent of hospital executives say it's likely that by 2022 their hospitals will have achieved improvements in value metrics. As Warren Buffet said, "Price is what you pay, and value is what you get." Today's health care leaders are trying to determine what, exactly, value looks like for their organizations, their patients and, more importantly, how to achieve it.
One reason for the increased focus on value is that reimbursement models are shifting. The U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services are moving toward value-based payment systems that would reward hospitals and providers based on the quality of outcomes achieved. The focus on fee for value rather than fee for service means that Medicare and Medicaid reimbursements will increasingly be based on the quality of care provided, as opposed to the volume of services provided. Private insurers are also moving toward value-based payment models to incentivize providers to maximize quality and reduce inefficiency in care. In view of this shift, improving patient outcomes becomes a high priority to ensure a higher rate of reimbursement.
Demographic changes are also prompting many organizations to re-evaluate their approach to patient care and how to achieve better outcomes. According to the Pew Research Center, 10,000 baby boomers turn 65 every day, becoming eligible for Medicare. That trend will continue until 2030 when a full 18 percent of the U.S. population will be at least 65 years old. This swell in the number of aging adults and their more complex medical needs will require hospitals and long-term care facilities to be increasingly efficient and effective in how they deliver care to provide positive patient outcomes and get reimbursed in a quality-based payment system.
Given these factors, it's more important than ever for health care organizations to closely track and manage how they provide care – how care is resourced, monitored, coordinated and measured – and strategically assess where they can do better.
Getting Ahead of the Game
Leaders at Adventist Health realized in 2012 that they would need to rethink their operational strategy to position themselves for future growth. The Roseville, California-based health system includes 19 acute care hospitals, 280 ambulatory care clinics, 13 home health agencies and seven hospice clinics. Operating primarily in California, Oregon and Hawaii, Adventist Health employs a workforce of more than 33,000, including 5,000 physicians. Looking at forecasted economic, regulatory and demographic shifts for the health care market, Adventist Health President Bill Wing said it was clear the organization needed to take a targeted approach to remain competitive.
"We ran a five-year financial model that looked at all the impacts from the Affordable Care Act and state and federal regulations," Wing said. "If we did nothing, there would be a $500 million margin erosion. We set a target of having a $500 million operating margin improvement by 2017, with some of that coming from growth and some coming from cost cutting in the form of clinical and operational performance improvement. We also set a goal of being in the top quartile in clinical performance and operational performance."
Adventist Health created what's known as a Value Creation Office, or VCO, to help initiate and drive projects that would help the organization achieve value and hit its goals. The VCO is composed primarily of Adventist Health's C-suite leaders and functions as a steward for a disciplined, data-driven approach to strategy and project development, business analysis and project execution. Its core mission was created out of a recognition that a well-honed data analytics strategy would be central for future development.
"There were three things the VCO was set up to do," Wing said. "The first was to help with data management. We were going through a process of looking through our data analytics strategy, and we knew investments would be needed to move us forward in that space. The second was to create insights, and the third was to accelerate our performance through project management, performance improvement and change management principles."
With these goals in mind, Adventist Health created the VCO with a matrix of leaders from across the organization. Adventist Health, like many other organizations, was often siloed and did not promote cross-talk among different departments, so organizers tried to bring together leaders in a way that would support the sharing of information and strategic alignment.
Toward this end, the organization created the VCO with several layers of leadership governance to support initiatives at every level. There is a group dedicated to day-to-day monitoring of front-line operations; a performance group which meets monthly to review strategic initiatives; and a C-suite governance board to drive the direction of the VCO. Having layered, multidisciplinary representation in the VCO was important to ensure that it could take on the scope of projects that would have an impact on Adventist Health's financial targets.
"In the 2013 timeframe, we were sitting at $2.7 billion in revenue, which represented a 1 percent margin, and we wanted to grow to $4 billion, which would put us at a 4 percent margin," Wing said. "In order to do that, we needed to raise the performance of the system in its entirety."
Adventist Health leaders defined three areas of focus for the VCO that would support its larger performance and financial targets. The first, mission expansion, focused on strengthening Adventist Health's presence in the community and expanding its reach to serve more people. Secondly, care transformation focused on delivering excellence in the coordination of social, behavioral and medical care to improve patient outcomes. Finally, business transformation was designed to standardize, modernize and consolidate business services to add value and minimize variance.
These three goals serve as the guiding force for the VCO, dictating the projects, or charters, they pursue.
Most recently, Adventist Health's VCO pursued a project born out of the discovery of inefficiencies within its pharmacy department. Workflow assessments revealed that much of the pharmacy's work wasn't being tracked appropriately. This led to an effort to identify better ways to measure pharmacy operations and recalibrate workflows to eliminate unnecessary work. The VCO developed a charter for this project that assessed the risks, rewards, financial opportunity and methodology around doing the work, and targeted $5.8 million of value by 2017. The actual value achieved was $12.4 million.
Adventist Health's pharmacy charter, along with other charters set up for clinical documentation integrity and sepsis, made up $29.12 million of value achieved in 2017, in the form of reduced cost or net-new revenue. The sepsis charter, like the pharmacy charter, focused on assessing the workflow of emergency department nurses and physicians, while also developing new ways of gathering data around sepsis and new ways of tracking sepsis patients.
For Wing, this represents a piece of Adventist Health's ultimate goal.
"We started our journey back in 2012 with the need to make about a $500 million cumulative run rate improvement," he said. "We finished 2017 at about $480 million, and we believe that there's at least that much out ahead of us."
Creating a Framework
At Genesis Health System in Davenport, Iowa, the road to a VCO started in June of 2015 when leaders there decided that they wanted to get more from their data.
Comprised of six acute care hospitals and 642 beds in Iowa and Illinois and a primary care physician base of nearly 250 providers, Genesis has the largest home health agency in the state of Iowa, as well as multiple nursing homes. Like Adventist Health, the organization has seen its margins tighten in recent years, and with the wave of new government regulations and reimbursement policies, leaders like Genesis Vice President and Chief Information Officer (CIO) Rob Frieden were looking for ways to get additional value out of their system.
"We realized that we needed more than just software to see the real changes that we needed," Frieden said. "By putting together a team of diverse roles, we felt we could better leverage the technology we had in place to reach our targeted outcomes."
The Genesis VCO includes a cabinet-level governance layer that includes Genesis Health's chief executive officer (CEO), chief financial officer (CFO) and CIO. A VCO performance group — comprised of the chief medical officer (CMO), chief nursing officer (CNO), director of post-acute care services and the president of each of the six hospitals within the system — recommends to the cabinet which projects the VCO should pursue. Next, the cabinet creates a charter for the project, investigating in detail its potential return on investment and whether it will yield worthwhile results. For Frieden, this aspect of the VCO has allowed the organization to make real progress on its goals.
"With the VCO, we can look at things that we believe we can get value in, but we weren't certain how we could do it before," he said. "It creates a discipline around the chartering process when, as a cabinet, we have an opportunity to scrutinize the numbers. Before we agree to start the work, we go through all the metrics and determine where the real value can be and how big the opportunity is."
Genesis has also pursued value in its pharmacy solutions, specifically financial value. Seeing its pharmacy spend increase by 35 percent between 2013 and 2015, the Genesis VCO established a charter to help bring down those costs. Through the VCO's assessment, the organization discovered part of the reason for the cost increase was the volume of antimicrobials being prescribed and the use of higher cost antimicrobials. The overuse of antimicrobials is known to cause higher rates of C-diff, a digestive tract infection. At Genesis, this practice was leading to longer hospital stays for patients receiving antimicrobials. In addition, at the time, Genesis did not have access to true medication costs or ordering patterns by physicians for specific diagnosis-related groups, leading to medication costs being reverse-calculated from charges to a patient.
The VCO helped initiate a multistep Pharmacy Spend Control program, which helped Genesis accurately track the cost of its medication inventory daily and reduce the rate of hospital-acquired infections and the associated costs to treat those infections. The VCO also helped revamp Genesis' antimicrobial stewardship program, which helps the organization make needed changes to its governance committee and the system's electronic health record (EHR). By mid-2016, the organization had saved more than $710,000 through the VCO's efforts. By the end of 2016, the project had yielded a total of more than $2.5 million in annual cost savings.
A charter to improve the organization's processes around sepsis also yielded strong results, with a total cost savings and/or revenue improvement of roughly $740,000 between April 2017 and March 2018. These savings, in combination with the pharmacy charter and other projects the VCO has pursued, has yielded approximately $3.5 million in net savings or net-new revenue.
For Frieden, the financial results are only part of the total value that the VCO has delivered.
"Not everything around the VCO is about dollars," he said. "It's about asking what is our input, and are we getting an output of improved patient safety, staff efficiency or reduced cost. In the case of the anti-microbial stewardship program, we were putting patients on the right medication, which improved patient safety and helped drive down length of stay. Similarly, with the sepsis charter, we were able to see a reduction in sepsis and we can now identify patients sooner in the sepsis process, which affects patient safety."
Value of the VCO
The value of the VCO approach is that it provides an overarching governance structure that can drive multidisciplinary, enterprise wide initiatives in a way that more narrowly focused leadership groups might not be able to. Having a resource dedicated to these initiatives also helps with what Frieden calls "relentless follow-up," or the process of continual refinement and improvement until the organization achieves its desired results.
"Historically we have done a lot of IT projects, but they might be owned by pharmacy or nursing, and we can only push so much to get the value in those cases," Frieden said. "The VCO is the only organization that puts numbers in front of everyone, every month. We keep following up until we get the results we expect."
Executive-level representation from across the organization allows the VCO to focus on collaborative, potentially more impactful projects that require the collaboration of IT, clinical and financial resources. Getting input of different groups also helps to ensure projects focus on value in as many areas as possible.
"The VCO allows for a greater level of collaboration, and it allows for different perspectives on what we are trying to achieve," Frieden said. "Prior to the VCO we were more siloed. Having the multi collaborative team allows us to ensure that all interests are met regarding the factors that can drive success."
Creating a holistic understanding of project imperatives is important when trying to enact changes that are intended to have broad-reaching effects. For larger health systems, this holistic approach can also create a sense of cohesion and streamline disparate parts of the organization. For Adventist Health, the value of eliminating data siloes was especially evident when it came to the VCO's mission to help the organization become more data-driven.
"We used to operate as 20 different federated markets," Wing said. "We had data that existed in 20 different instances, and the VCO helped bring the clinical and operational data into one view. Bringing in claims data has set us up to move on data in a more action-oriented way, and we're better positioned to create insights based on data."
Wing also emphasizes the importance of the VCO in helping to create a sense of oneness for large health organizations, where the breadth and scale can create challenges for collective action.
"It's important to get on a journey toward 'systemness,' and to have a willingness to take big swings in order to move the enterprise collectively," Wing said. "Having the right data and the right teams that can facilitate the end goal is important. Start with the end in mind — establish your destination, and re-engineer backward to find a way there."
It is important for the success of the VCO that it works in conjunction with other performance improvement groups within an organization. At Genesis, the VCO works with the Lean performance improvement team and with other internal IT teams to determine who should be responsible for heading up which initiatives. Having this vetting structure helps ensure the VCO maintains a collaborative — versus a competitive — relationship with other performance improvement groups within the organization.
"We have strategic annual planning sessions where we look at all possible projects that Genesis is interested in, and we look at which ones align with VCO capabilities and which can be done by IT and those which organizations can do on their own," Frieden said. "The leadership team helps vet this in terms of what we are looking to get out of the project."
Looking to the Future
Now that its VCO is firmly in place, Adventist Health is turning its eye to the future and how the organization will integrate the VCO into long-term growth. Part of this process is to build upon the success the organization's leaders have already seen in performance and financial value.
"We reset our targets in 2016 to extend them out to 2020," Wing said. "On the patient experience and engagement side, we want to get to the top decile and try to achieve $400 million more in financial improvement."
Initially, Adventist Health's VCO spent a great deal of time creating a foundation for the organization to become data- and analytics-driven, and Wing believes the organization is better positioned to glean insights from its data because of this work. Going forward, Wing sees the VCO more heavily supporting Adventist Health's care transformation initiative, which includes a focus on clinical leadership, patient engagement and experience, care redesign, population health and clinical workforce. The VCO will identify and develop charters that can support these initiatives.
"Our largest swing for 2020 is care transformation," Wing said. "Eighty percent of the VCO's time will be spent on the care transformation journey. For us, care transformation puts us at the top decile for clinical experience and engagement."
At Genesis, the VCO has also provided direction for the future, as well as a blueprint for how to get from the idea stage of a project to realizing tangible results. Frieden sees the rigor around the charter process and the relentless follow-up to get results among the most valuable things the VCO has provided, and he hopes these practices will become the norm going forward.
"It is unique to have a team that is dedicated to only a few projects at a time, and the focus is to get results," he said. "The VCO has set a new bar in terms of how we go forward with measurement and metrics with everything we do."