1. health and fitness

Spring 2015
Kaufman, Hall & Associates, LLC. Advisors to the Healthcare Industry Since 1985
Achieving an Aligned Post-Acute
Network: What’s Your Strategy?
Patrick Allen
Managing Director
Post-acute care (PAC) services are of significant interest as hospitals and health systems look to reduce costs,
improve quality, and develop their clinical delivery networks under value-based arrangements.
Hospitals typically have many PAC providers to which they refer patients in need of continuing care after
discharge. But the development and management by hospitals and health systems of a “network of PAC
providers” has not been a focus or required under traditional care and reimbursement models.
New payment models emerging under a population health/value construct are now incentivizing
closer relationships between acute and post-acute providers. The goals are to:
• Reduce costs related to uncoordinated care transitions between acute and post-acute care
• Eliminate avoidable readmissions and their associated penalties
• Increase the efficiency and quality of post-acute care
Mark E. Grube
Managing Director
Partnering with and/or managing a network of PAC providers better positions hospitals and health systems
for success under risk- and value-based payment models, such as shared savings, and bundled and
capitated payment.
Scope of Post-Acute Care
Andre Maksimow
Senior Vice President
In This Issue
Achieving an Aligned
Post-Acute Network
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The Centers for Medicare & Medicaid Services (CMS), which is the primary payer for a significant portion
of post-acute care,1 defines PAC to include:2
• Skilled nursing facilities (15,000+ SNFs in the U.S. participate in Medicare and Medicaid)
• Home health agencies (12,600+ participating entities)
• Inpatient rehabilitation facilities (1,100+ participating entities)
• Long-term acute care hospitals (400+ participating entities)
Due to their importance in improving end-of-life care and reducing its considerable costs, we include also:
• Hospice care, which has approximately 3,700 participating entities, including freestanding, and
hospital-, home health-, and skilled nursing-based businesses
• Palliative care, which is a care practice designed to provide, through trained professionals, specialized
comfort and support for individuals with a life-threatening illness; such care may be covered by
Medicare Part B and Medicaid
We believe that these six services or
businesses are essential elements of the
post-acute care continuum required of
health systems to effectively manage a
population’s health and reduce the nation’s
healthcare costs (Figure 1). Following a
brief description of the current spending
environment and the government’s
approach to meeting Triple Aim goals,
we offer five strategies hospitals and
health systems can use to ensure high
performance of their PAC network.
Figure 1. Overview of Post-Acute Care Services within
Healthcare’s Value-Based Business Model
Source: Kaufman, Hall & Associates, LLC
Employers
Medicare/
Medicaid
Patients
Revenue Sources (e.g., PMPM, Bundled Payments)
Healthcare Company
Hospitals
Ambulatory Post-Acute
Ancillaries
Virtual
continued on page 2
Home
Health
Skilled
Nursing
LT Acute
Care
Inpatient
Rehab
Hospice
Palliative Care
KaufmanHall Report Spring 2015
continued from page 1
Current Spending Environment
Concerned about the high cost of U.S. healthcare, the federal government
views post-acute care as an important focus for increased quality and
reduced costs. Similar to acute care, direct reimbursement pressure
will be significant for post-acute care, with CMS placing increasing
emphasis on the assessment of each setting’s efficiency. The Medicare
Payment Advisory Commission (MedPAC) cites the “exceptionally
high average margins in most PAC settings” and the unnecessary
spending growth resulting from “very different CMS payment rates”
across settings for the care of patients with similar conditions.3 For
example, per-stay payments for patients recovering from strokes and
hip replacements in inpatient rehabilitation facilities are 40 to 50
percent higher than payments for patients with the same conditions
receiving care in skilled nursing facilities.
The Improving Medicare Post-Acute Care Transformation (IMPACT)
Act, passed in 2014 and effective in October 2016, could result in a
new prospective payment system that would set PAC payment rates
based on the clinical characteristics of the patient, rather than on
the care setting. This “site-neutral policy” likely would affect the
hospital discharge process and post-acute utilization patterns,4 and will
presumably shift care to the most efficient settings as appropriate based
on patients’ conditions.
A Carrot-and-Stick Approach
CMS is using rewards and penalties to improve quality and reduce
post-acute costs and hospital readmissions. The agency’s focus is on the
30-day period post hospitalization, which represents 43 percent of total
Medicare spending per beneficiary.5
The three major “sticks” for hospitals are penalties for preventable
readmissions and hospital-acquired conditions, and a reduction in base
payments through the value-based purchasing program. The combined
effect of these penalties exposes hospitals to 5.5 percent Medicare
payment reductions in FY2015, with as much as 6 percent exposure
starting in FY2017 if certain quality measures are not met.6
For PAC providers, payment reductions are intended to:7
• Better align reimbursement with the actual costs of providing
services, thereby reducing profit margins
• Ensure that beneficiaries receive medically necessary, high-quality
care in the least costly setting appropriate for their condition
On the reward side, providers can participate in new programs or payment
mechanisms that are intended to shift Medicare reimbursement from
volume to value, and reward providers for high quality, lower-cost services.
These include the Medicare Shared Savings Program Accountable
Care Organizations (ACOs), the Bundled Payments for Care Improvement
Initiative, and other models. Alternative payment approaches are
targeted to represent 30 percent of CMS payment by the end of 2016
and 50 percent by the end of 2018.8 Twenty major providers and
commercial insurers also recently vowed to shift 75 percent of their
business to contracts with incentives for quality and lower-cost
healthcare by 2020.9
In addition, hospitals and health systems providing care under a Medicare
Advantage (MA) plan have the opportunity to better manage cost and
quality of inpatient and post-acute care, and to receive more of the
capitated premium dollars. Thirty percent of Medicare beneficiaries
(16 million) were enrolled in an MA program in 201410 and enrollment
is expected to reach 22 million by 2020.11
2
© Copyright 2015 by Kaufman, Hall & Associates, LLC
Improving the Performance of a Post-Acute Network
Broad strategic thinking about the care patients receive after they leave
the hospital’s four walls is required of health system leadership to ensure
the right care in the right place, at lower costs and better quality.
Efficiency will be critical for health systems that want to be included
in value-based delivery networks forming nationwide. Network
arrangements will “tier-out” or otherwise exclude higher-cost providers
by steering patients to competitors that can offer quality services at a
lower cost. Hospitals and health systems that are participating in MA,
traditional Medicare, bundled payment, ACOs, and other models, will
need to work closely with PAC providers to deliver value.
The specifics of alignment strategies will vary based on the organization
and its market, but the five overall strategies described next should be
implemented by all hospitals and health systems.
Strategy 1. Focus on Post-Acute Care as a Key Component
of Your Integrated Delivery System
Hospitals and health systems should consider post-acute services within
the broader continuum, and integrate PAC within their strategic-financial
planning process. Because PAC is not a homogeneous industry, but a
collection of very different businesses, consideration of each of the six
PAC components is recommended.
Key strategic questions to answer include:
• What is your health system’s strategy and timing regarding
risk-based reimbursement, particularly with traditional Medicare
and Medicare Advantage programs?
• Does a particular PAC service provide an important strategic
advantage for your organization with payers and other
contracting entities?
• What are the local market dynamics of each PAC business?
• Can the PAC service significantly improve health system
economics, either through direct contribution margins, cost
avoidance, or quality benefits?
An organization’s overall strategy for improving its post-acute network
should be shaped by competitive dynamics in its local market and
the organization’s relative “essentiality” in that market. Essential
organizations bring to population health-based contracts an
“attributable population”—usually tied to their primary care physician
network—and a competitive (or at least minimum threshold) cost and
quality profile for services that can be provided as part of a delivery
network. The larger the population captured or covered by an
organization, the more essential it likely will be in the new value/
population health management paradigm.
The organization should assess the strategic-financial impact of improving
its PAC network through alignment strategies in comparison to the
impact of other strategic goals. Comparative analysis of investment
in different pieces of the network is critical. Desired contracting
arrangements should be considered with these investments in mind.
Hospitals/health systems operating under capitated contracts can avoid
significant costs through strong performance of their PAC network.
Strategy 2. Assess Alignment Options and Develop the
Business Case for Viable Alternatives
As with integration or partnership arrangements in all industry sectors,
a range of alignment options exist with PAC providers. Hospitals and
health systems may consider:
• General outreach/marketing/support (for example, IT integration
for record sharing)
KaufmanHall Report Spring 2015
•
•
•
Preferred provider agreements (if certain quality, service, cost, and
other metrics are achieved)
Joint ventures through an equity or other type of investment
Ownership
The potential degree of integration and alignment desired by the
partnering organizations ranges from low to high (Figure 2).
For example, a health system’s consideration of hospice providers might
involve:
• An exclusive agreement to use a specific regional hospice provider
for its PAC network, or to lease space to a hospice provider for
inpatient hospice services
• A minority interest acquisition of the hospice provider, and the
joint development of care protocols
• An acquisition of a hospice provider
Palliative care relationships with hospice partners could involve
a spectrum as well—from providing services to a health system’s
inpatients, patients at outpatient clinics, and/or patients in community/
home-based settings (including skilled nursing facilities).
Health systems can pursue multiple options simultaneously, depending
upon the post-acute business. Owning everything typically is not a
desired or viable option. Whether joint venture, acquisition, or another
option is selected, the selection criteria are the same. The business case
must be based on quantitative and qualitative analyses of the strategicfinancial impact (as described earlier), geographic coverage and access,
ability to provide the required care, and management factors.
Geographic Coverage and Access
Analysis of a PAC entity’s ability to provide meaningful geographic
coverage and access includes the identification and comparison of
market participants, quantification of historical discharges to each,
and assessment of the scope of current and proposed contracting
arrangements. Skilled nursing facility and home health agency
ownership is fragmented in many markets. Additionally, certificateof-need restrictions and other regulatory factors may prohibit any
one player from expanding capacity in the short term, thereby
limiting patient access.
Geographic location plays an important part in patients’ choice of
facilities. Patients typically prefer to receive treatment near their homes
for services that extend beyond a short-term stay. Average length of stay
in “relatively efficient SNFs” for Medicare patients is approximately
33 days,12 so location is critical for this population. Projected increases
in the age 65+ demographic segment need to be considered in planning
PAC network access. Additionally, hospitals contracting with MA plans
need to ensure that their preferred skilled nursing and home health
providers are “in network.”
Ability to Provide Care
A PAC entity’s ability to care for the target patient population and the
fit of services covered are particularly critical. Assessment of its clinical
and operational capabilities occurs through a review of its performance
against quality and cost benchmarks described in the next section.
Management Factors
Finally, management factors such as the stability of the post-acute
entity, its financial condition, and the depth and breadth of the
management team are assessed through evaluation of capabilities,
financial reviews, site visits, and leadership discussions.
Figure 2. Alignment Continuum
Source: Kaufman, Hall & Associates, LLC
Low
Leverage
Existing
Arrangements
Degree of Integration
Joint
Venture
Minority
Interest
50/50
Partnership
High
Full
Acquisition
Strategy 3. Consider Multiple Providers for
Preferred Arrangements
Through preferred arrangements, hospitals tighten the strategicfinancial connection with their PAC providers to ensure that care
consistently meets quality, utilization, and cost targets. PAC providers
will need to appropriately reduce excess utilization, and share with
hospitals any savings generated by new payment systems. Preferred
PAC partners could make up for revenue losses through increased
referrals from the health system.
Medicare patients will be able to go to any PAC provider they want,
but hospitals and physicians have considerable influence over patients’
decisions. With financial responsibility for readmissions—through
Medicare penalties and under bundled payment programs—hospitals
will need to exert that influence.13
Due to the high degree of fragmentation in skilled nursing and home
health businesses in particular, health systems should develop relationships
with multiple entities. Most skilled nursing facilities are small, with
a national average of only about 110 beds,14 so it is not unusual for a
multihospital health system to have 60 to 75 SNFs in its service area.
Additionally, many skilled nursing and home health agencies, while
branded locally, are managed as part of a larger operating company.
Local PAC management may not be authorized to have substantive
discussions regarding partnerships. Discussions at the corporate level
may be required.
Using Comparative Data
Comparative data on PAC performance that can be useful in evaluating
potential partners are available for Medicare-certified home health
agencies (medicare.gov/homehealthcompare) and skilled nursing facilities
(medicare.gov/nursinghomecompare). CMS recently announced that
it will change the way it measures nursing homes, affecting its “Nursing
Home Compare 5-Star Quality Rating System.”15 Verification and
auditing of self-reported data on staffing levels and quality indicators
will now occur, making the rating system more accurate and valuable.
Financial performance of “relatively efficient” SNFs is available for
comparison through MedPAC.16
Health systems should develop a preliminary “facility scorecard” based
on solid criteria. Financial and sensitivity analyses are recommended
to assess the system-level financial impact of improvements based on
intended contracting arrangements. Antitrust issues related to market
share should be considered, although these are less likely to be a
problem due to small SNF or home health agency size. With other
PAC businesses, a disproportionate referral pattern to a single PAC
provider could draw scrutiny.
continued on page 4
© Copyright 2015 by Kaufman, Hall & Associates, LLC
3
KaufmanHall Report Spring 2015
continued from page 3
The economic model for the preferred arrangement must create value
for both parties. To ensure equitable economic terms, health systems
should quantify the value of higher occupancy for post-acute partners.
Proactive hospital leaders have developed or are implementing plans
for a PAC network based on sound strategic-financial analyses of
potential partnerships.
Strategy 4. Enhance Discharge Planning and
Post-Discharge Transitions
Hospitals are focusing on enhancing patient transitions to appropriate
post-acute care, whether to patients’ homes or facilities. Top reasons
to improve the discharge process include problems related to delayed
transfer of discharge summaries, unknown test results, lack of followup by patients, and confusion about medications.17 Patients may be
cognitively impaired at discharge and often don’t remember details
communicated by their physicians. Also, discharge instructions may be
overly complex, particularly for those with low health literacy.18
Hundreds of articles in industry journals cover best practices or
protocols for integrated care transitions that will help prevent hospital
readmissions, better manage utilization and cost, and ensure patients
are discharged to the right setting. Strategies include:
• Re-engineering the discharge process
• Improving discharge tools
• Enhanced communication/coordination with the patient, family,
and receiving facility
• Placing care-coordination professionals in PAC facilities
H
ealth systems should consider how to achieve
interoperability with their post-acute network
A lack of common patient assessment data and the absence of shared
quality-reporting requirements for post-acute facilities are significant
barriers to the effective transition. The IMPACT Act, which mandates
common data and reporting requirements for post-acute providers,
will take effect in October 2016 and aims to facilitate the flow of
patient information to the next healthcare setting.19
Technology also typically represents a significant barrier. Health
systems should consider how to achieve interoperability with their
post-acute network on a common (or any) electronic health record
platform. Meaningful Use financial incentives, as provided to hospitals
under the High Tech Act, were not available to skilled nursing
and other post-acute facilities. However, technology-enhanced
communication with PAC business partners must increase in order
to share health information for coordinated care.20
New modalities providing lower-cost care and more convenient
access are improving care outcomes. For example, telemedicine
services provided by physicians and other clinicians have reduced
hospitalizations of nursing home residents. To reduce emergency
department visits, SNFs can be encouraged to switch from on-call
clinicians to telemedicine services during off hours.21
Sidebar 1 provides two examples of recent efforts by health systems
to improve care transitions.
4
© Copyright 2015 by Kaufman, Hall & Associates, LLC
Sidebar 1. Care Transitions
Providers are using new clinical staff to enhance patient
transitions. For example, Western Maryland Health System,
one of 10 primarily sole community providers participating in
a state value-based care demonstration project, established
partnerships with more than 10 skilled nursing facilities in the
region. Its eventual goal is to place registered nurses, advanced
practice professionals, and physicians in those facilities. “Nurse
‘transitionists’ accompany discharged nursing home residents
to help with such things as medication reconciliation,” describes
the system’s CEO, Barry Ronan.(a) “The care delivered in the
nursing facilities has dramatically improved.” To help with the
transition from traditional FFS to a capped revenue model, the
state provided the system with a $5 million grant. The system
used the funds to enhance IT and hire additional staff. The system
implemented a community health worker program to assist
patients in their homes, and helped to meet social needs in the
community, such as providing transportation, housing, food, and
clothing. “It’s increasingly up to us to safely discharge patients and
keep them healthy beyond our walls,” says Ronan.
Advocate Health Care in the Chicago area assigned “SNF-ists”
to round two to three times per week with patients discharged
to the 35 non-owned skilled nursing facilities and owned and
non-owned home health agencies in its PAC network. Advocate
manages 33,000 Medicare Advantage lives and 122,000
Medicare ACO lives. Early results are encouraging: average
length of stay in the PAC facilities in 2014 was 17.3 days,
significantly less than the average Medicare ALOS of 27 days.(b)
Given risk-based reimbursement models, such clinicians
represent a sound investment.
Sources: (a) Ronan, B., as quoted in Society for Healthcare Strategy & Market
Development: Redefining the “H”—How Health Systems Must Evolve to Grow
and Thrive. Report from the SHSMD Thought Leader Forum, Oct. 12, 2014; (b)
Englehart, M. presentation in panel, “Wolves in Sheep’s Clothing: Who Decides the
Business Model for Long Term and Post-Acute Care?” National Investment Center
for Seniors Housing & Care Conference, Oct. 2, 2014.
Strategy 5. Ensure that Clinicians Are Part of the Solution
Whether employed or independent, physicians and supporting clinical
staff in post-acute settings, hospitals, and doctors’ offices must be part
of a health system’s PAC strategy.
A successful PAC strategy includes arrangements—whether through
employment or contracts—that align or incentivize physicians and
allied clinicians to ensure that patients receive care in the lowestcost setting appropriate to the patient’s condition. The hospital’s
goal should be to encourage/reward behavior that helps to reduce:
unnecessary admissions and readmissions; emergency department
visits; and discharge to PAC facilities that provide a higher level of care
than a patient requires.
KaufmanHall Report Spring 2015
ACOs and clinically integrated networks are engaging physicians who
care for SNF patients to align with the network to reduce unnecessary
care and spending. For example, if a nursing home patient fell or
had complications from a urinary tract infection, his or her physician
typically might have called a hospital emergency department without
considering whether it was part of a complex medical center offering
a higher level of care than the patient required. In an aligned network,
the physician would consider an ED in a lower-cost community
hospital, or perhaps even a physician visit at the nursing home.
Physicians also are responsible for ensuring that the PAC patient doesn’t
“bounce back” as a readmission due to infection or other complications.
Physicians may not always decide where their patients go for post-acute
care, but they need to be engaged in the development of the most
appropriate solution.
Hospitals may wish to consider the following approaches:
• Employing the lead physician(s) practicing in the preferred skilled
nursing facility(ies), or making arrangements to provide coverage
by hospital-employed physician(s), particularly for patients at high
risk for readmission
• Educating clinicians in physician-support/extender roles
(including nurse practitioners and physician assistants) about
preferred PAC options in the community
• Ensuring that case/discharge planning managers who work
with the patient and family understand the patient’s social
infrastructure, know the PAC options in the community, and can
refer patients to preferred home care agencies and PAC facilities
Referrals to hospice and palliative care typically come from oncologists
or physicians who have patients with such conditions as end-stage
liver disease, chronic obstructive pulmonary disease, and heart failure.
Hospitals must encourage and incentivize doctors to have much earlier
conversations with patients about end-of-life care than they typically
do. Increased use of hospice and palliative care will be critical to
improving patients’ quality of life and reducing care costs.
Concluding Comments
Post-acute services must be included in the strategic-financial plans
of hospitals and health systems going forward. Organizations should
determine where they can have a material effect on the quality and cost
of post-discharge patient care in their communities, and focus on those
areas to develop and maintain an aligned post-acute network. Building
a sustainable managed PAC network involves detailed analyses and due
diligence in evaluating potential partners, and exploring an appropriate
range of alignment options. Partnerships with home health agencies,
skilled nursing facilities, hospice agencies, and other PAC entities likely
will be the most viable option pursued by proactive health systems.
Your comments are welcome. Please feel free to contact the authors
Patrick Allen ([email protected]), Mark Grube
([email protected]), and Andre Maksimow
([email protected]) at 847.441.8780.
References and Notes
Medicare and Medicaid paid for nearly 80 percent of the $78 billion national
health expenditures for home health care, and 53 percent of the nearly
$152 billion of expenditures for freestanding and government-operated
nursing care facilities (Source: National Health Expenditures by Source of
Funds and Type of Expenditures, data available at CMS.gov).
1
MedPAC: A Data Book: Health Care Spending and the Medicare Program.
June 2014.
2
MedPAC: Report to Congress: Medicare Payment Policy. March 2014.
3
American Hospital Association: Private-Sector Hospital Discharge Tools.
January 2015.
4
Note: Includes Part A and B expenditures (post-acute care, hospital
readmissions, and others); skilled nursing represents about 37 percent
of the 1-30 days post-hospitalization costs. Medicare Hospital Compare
website: “Medicare Hospital Spending by Claim.” www.medicare.gov/
hospitalcompare/Data/spending-per-hospital-patient.html.
5
Analysis by Kaufman, Hall & Associates, LLC, January 2015.
6
MedPAC (March 2014), p. 169.
7
U.S. Dept. of Health and Human Services: “Better, Smarter, Healthier: In
Historic Announcement HHS Sets Clear Goals and Timeline for Shifting
Medicare Reimbursements From Volume to Value.” Press Release,
Jan. 26, 2015.
8
Rappleye, E.: “20 Major Health Systems, Payers Pledge to Convert 75% of
Business to Value-Based Arrangements by 2020.” Becker’s Hospital CFO,
Jan. 28, 2015.
9
Kaiser Family Foundation: Medicare Advantage. Fact Sheet, May 2014.
10
Neuman, T., Jacobson, G.: “Medicare Advantage: Take Another Look.”
Kaiser Family Foundation, May 7, 2014.
11
MedPAC (March 2014), p. 199-200 (Table 8-9). SNFs qualified as “relatively
efficient” if they were in the best third of the distribution of one measure and
not in the bottom third on any measure for three consecutive years.
12
Mechanic, R.: “Post-Acute Care—The Next Frontier for Controlling Medicare
Spending.” NEJM, 370(8): 692-694, Feb. 20, 2014.
13
Kaiser Family Foundation: “Overview of Nursing Facility Capacity, Financing,
and Ownership in the United States in 2011.” June 28, 2013.
14
Centers for Medicare & Medicaid Services: “Nursing Home Compare 3.0:
Revisions to the Nursing Home Compare 5-Star Quality Rating System.”
Press Release, Feb. 12, 2015.
15
See MedPAC (June 2014) p. 117 for metrics of “relatively efficient SNFs.”
16
Agency for Healthcare Research and Quality: Re-engineered Discharge
Toolkit. March 2013.
17
Alper, J., Hernandez, L.M.: “Facilitating Patient Understanding
of Discharge Instructions.” Institute of Medicine, Workshop,
Mar. 17, 2014.
18
American Hospital Association (Jan. 2015).
19
American Health Information Management Association: “Electronic Health
Record Adoption in Long Term Care.” Journal of AHIMA, 85(11),
Nov.-Dec. 2014.
20
Grabowski, D.C., O’Malley, A.J.: “Use of Telemedicine Can Reduce
Hospitalizations of Nursing Home Residents and Generate Savings for
Medicare.” Health Affairs 33(2): 244-250, Feb. 2014.
21
© Copyright 2015 by Kaufman, Hall & Associates, LLC
5
KaufmanHall Report Spring 2015
Staff Notes
Please join us in congratulating…
Three executives have been promoted to Managing Director:
Patrick Allen, who joined Kaufman Hall in 2009,
is a member of the firm’s Mergers and Acquisitions
practice. He has more than 20 years of healthcare
experience advising on partnerships, mergers,
acquisitions, divestitures, joint ventures, valuations,
fairness opinions, and related transactions,
representing not-for-profit and for-profit
providers, as well as private equity firms.
Patrick is a regular speaker at industry events and conferences for The
Governance Institute and American College of Healthcare Executives,
among others. His articles appear frequently in healthcare journals,
with topics including partnership structuring, evolving healthcare
services models, and consolidation trends.
Daniel Majka joined the firm in 1998, and is a
member of Kaufman Hall’s Financial Planning,
Financial Advisory, and Strategy practices. Based
in Los Angeles, he consults on a national basis
for clients, including regional healthcare systems,
academic medical centers, and community
hospitals. His areas of expertise include the
preparation of integrated strategic and financial
plans, development of capital allocation processes, financial advisory
services for debt transactions, and merger and acquisition-related
financial analyses. Dan also is actively involved in development of
Kaufman Hall’s software suite.
He is a frequent speaker at industry events, such as for the Healthcare
Financial Management Association and the American College of
Healthcare Executives. His topics include, among others, financial
planning and capital allocation for healthcare organizations.
Anu Singh, who joined Kaufman Hall in 2006,
is a member of the Mergers and Acquisitions
practice. His expertise includes the evaluation,
structuring, negotiation, and execution of
mergers, acquisitions, partnerships, joint
ventures, and other forms of transactions for
healthcare clients nationwide. He also leads
projects involving the assessment of strategic
options, growth strategies, and business unit/segment viability.
He has advised on or evaluated more than 100 healthcare
transaction-related engagements.
Anu has presented at various industry and professional events and
seminars, including those sponsored by The Governance Institute,
Healthcare Financial Management Association, Volunteer Hospital
Association, and the National Federation of Municipal Analysts.
He also has authored articles and been quoted in a number of
industry publications.
6
© Copyright 2015 by Kaufman, Hall & Associates, LLC
Promoted to Senior Vice President were Sarah Dawkins, who joined
the firm’s Financial Advisory practice in 2009, and Andre Maksimow,
who joined the Mergers and Acquisition practice in 2011. In the
Strategy practice, Andrew Cohen, who joined Kaufman Hall in 2012,
and Tim Shoger, who joined in 2011, also were promoted to Senior
Vice President.
Promoted to Vice President were Dan Clarin in Strategy, Ashish Shah
in Mergers and Acquisitions, Gordy Sofyanos in Financial Planning,
and Mary Katherine (M.K.) White in Software. Susan Asby, Marek
Kowalewski, Conor McCaw, Joe Morrison, Saba Noorali, Erik Swanson,
and Orlando Ramos were promoted to Assistant Vice President. Hunyah
Basathia and Jonathon Gali were promoted to Senior Associate.
In the Software division, Olga Samaras was promoted to Senior
Support Analyst, Kelly Suga to Support Analyst, and Luke Taylor to
Manager of Client Technical Services.
Other promotions include Jennifer Bruenning to Staff Accountant, John
Darland to Network Administrator, and Mike Gornik to Controller.
At Axiom EPM, Jeff Baker was promoted to Senior Technical
Consultant, Brandon Bloomquist to Senior Implementation Consultant,
Mike Gurnee to Lead QA Engineer, Wendy Hunter to Senior Technical
Writer/QA Specialist, Mike Rossi to Technical Training Manager, and
Jennifer Wilson to Director of Marketing.
Please join us in welcoming…
Nick Long joined Kaufman Hall as a Vice President in the Higher
Education division of the Financial and Capital Planning practice.
Susan Santoro joined as a Vice President in Strategic Cost
Management. In the Strategy practice, Jeff Kilpatrick joined as
Vice President and Plamen Todorow joined as a Senior Associate.
At Axiom EPM, Gene Whiteley-Ross joined as a Software Implementation
Consultant for Higher Education, and James Kattinge, Sr., joined
as Graphic Designer. For the General Industries, Kevin Severson
joined as Director of Strategic Accounts, and Harris Googe joined as a
Software Implementation Consultant. Roy Berelowitz and Beth Sutton
joined as Directors of Strategic Accounts for Financial Institutions.
Susan Vargo joined as Business Development Representative, also with
Financial Institutions.
KaufmanHall Report Spring 2015
Kaufman Hall Presents
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and more.
Mr. Silver is the author of “The Signal and the Noise: Why Most
Predictions Fail—But Some Don’t.” His book was a New York Times
bestseller in 2012 and was named Amazon’s No. 1 Best Non-Fiction
Book that year. Data-based predictions underpin a growing sector of
critical fields, so it’s important to ask questions such as: What kind
of predictions can we trust? What methods do the most reliable
forecasters use? What sorts of things can be predicted, and what can’t?
In his book, Mr. Silver describes modern prediction science, uncovering
a connection among humility, uncertainty, and good results.
In January 2014, Mr. Silver was named to Advertising Age’s “40 Under
40” list of “the Bright Young Stars of Marketing.” Fast Company
named him No. 1 of the “100 Most Creative People in Business 2013”
and Creativity magazine listed him in its “Creativity 50 2013.” He also
has appeared in Time magazine’s “100 Most Influential People of 2009.”
Farzad Mostashari, M.D., is the CEO of Aledade,
a start-up to help primary care doctors form
accountable care organizations. Dr. Mostashari
served from 2011 to 2013 as the National
Coordinator for Health IT at HHS where
he coordinated U.S. efforts to build a health
information technology infrastructure for
healthcare reform and consumer empowerment.
During his tenure, he led the implementation of the Health IT for
Economic and Clinical Health (HITECH) Act. Since that time,
Dr. Mostashari was a Visiting Fellow at The Brookings Institution in
Washington D.C., where he focused on payment reform and delivery
system transformation.
Prior to his 4-year tenure with the federal government, Dr. Mostashari
served as Assistant Commissioner at the New York City Department of
Health and Mental Hygiene, held posts with the Centers for Disease
Control and Prevention, was a lead investigator in the outbreaks of
West Nile virus and anthrax in New York City, and was among the
first developers of real-time, nationwide electronic disease surveillance
systems. Forbes cites him as the ultimate “patient advocate.”
Dr. Mostashari did his graduate training at the Harvard School of
Public Health and Yale University School of Medicine, and his internal
medicine residency at Massachusetts General Hospital. Additionally,
he completed the CDC’s Epidemic Intelligence Service program.
Robert Pearl, M.D., is Executive Director
and CEO of The Permanente Medical
Group, the nation’s largest medical group.
Providing healthcare to 3.4 million
Kaiser Permanente members, it includes
approximately 8,000 physicians and 33,000
staff members, and operates 21 medical centers
in Northern California.
In addition, Dr. Pearl is the President and CEO of the Mid-Atlantic
Permanente Medical Group, which serves 500,000 members in
Maryland, Virginia, and the District of Columbia. Over the past
decade, he has been a leader in implementing advanced information
technology systems across Kaiser Permanente.
Board certified in plastic and reconstructive surgery, Dr. Pearl received
his M.D. from the Yale University School of Medicine. He completed
his residency in plastic and reconstructive surgery at Stanford
University and currently serves on the faculty as a Clinical Professor
of Plastic Surgery. In addition, he is on the faculty of the Stanford
Graduate School of Business and teaches courses on strategic thinking
and strategic change.
Selected by Modern Healthcare as one of the most powerful physician
leaders in the nation, Dr. Pearl has published more than 100 articles in
various medical journals and has contributed to many books. He has
made more than 100 presentations at national meetings and is an advocate
for the power of physician-led, integrated medical delivery systems.
Kenneth Kaufman is Chair of Kaufman Hall.
Since 1976, Mr. Kaufman has provided
healthcare organizations with expert counsel and
guidance in areas including strategy, finance,
financial and capital planning, and mergers,
acquisitions, and partnerships.
Recognized as a leading authority and
committed to industry education, Mr. Kaufman
has given more than 400 presentations at meetings such as those
organized by the American College of Healthcare Executives,
American Hospital Association, Healthcare Financial Management
Association, The Governance Institute, and others. He has authored
or coauthored six books and his articles regularly appear in major
healthcare publications.
Mr. Kaufman has an M.B.A. with a concentration in Hospital
Administration from the University of Chicago Graduate School
of Business.
Stay tuned for further information about the 26th annual Healthcare
Leadership Conference.
Save the date! October 21st to 23rd
© Copyright 2015 by Kaufman, Hall & Associates, LLC
7
KaufmanHall Report Spring 2015
Developing an Effective Cost Accounting Model
Dan Seargeant, Dr.P.H., Vice President, and Jay Spence, Vice President
of Product and Industry Solutions
Having an effective and efficient cost accounting system is essential
for hospitals and health systems as they face unprecedented pressures
to decrease costs and increase care quality. Healthcare finance
professionals need a cost accounting model that enables them to view
volume, cost, and margin analytics across patient populations and
clinical service lines. They also need the ability to assess cost-of-care
processes at the patient or activity level to understand the true costs of
care and support decision making.
Many organizations have outdated costing models that are either
too simplistic or too complex and resource intensive. More than
50 percent of respondents to a 2014 Kaufman Hall survey of a
sample of U.S. hospitals and health systems said they lack valid and
reliable procedures for gathering patient-level, activity-based costing
information. More than two-thirds said developing such procedures is
a high priority for their organization.
As demand intensifies to integrate comprehensive performance
reporting in strategic and operational planning, organizations need
reliable cost accounting models that can be easily maintained and
adapted, and that reflect changes in care processes. By focusing on six
key areas highlighted here, healthcare leaders can implement a cost
accounting model that balances organizational resources and effort
with the appropriate level of detail needed to ensure accuracy.
Implementing an Enhanced Data Model
Unlike many older models, modern cost accounting systems support
a consistent level of granularity across financial and patient views. For
example, whereas an older model might have a broad category for
“direct supply costs,” a newer system would break them down into
components such as medical supplies, surgical supplies, pharmacy, and
other categories.
The costing system should be flexible and allow finance professionals
to tailor cost categories across different departments and cost types
(i.e., labor, supply, and overhead), and to carry those categories within
the financial and patient data models. Establishing unique categories
for high-cost items such as certain medications, medical devices, and
implants also allows for greater precision in assigning costs.
More detail provides greater insight into cost-of-care trends. The
resulting data support meaningful cost projections for strategic forecasting.
Reconciling Data Efficiently
The flow of data through cost accounting systems must be transparent
and easy to understand. Healthcare leaders should be able to validate
data at different points during the process, enabling them to attest to
the accuracy of the results reported to stakeholders.
The goal is to ensure consistency between cost and profitability
analytics used for strategic planning and the organization’s financial
statements. Efficient data reconciliation allows healthcare leaders
to easily compare financial results with cost data and identify
inconsistencies in patient-level costs.
8
© Copyright 2015 by Kaufman, Hall & Associates, LLC
Accommodating Multiple Modeling Techniques
Absorption costing has been the dominant cost accounting method
for decades. With this approach, historical expenses are summarized
into cost groups or pools to provide department and category totals,
including whether costs are associated with direct patient care or
overhead expenses.
To meet current and future costing needs and further ensure the
validity of data, cost accounting systems should accommodate multiple
costing methods simultaneously—such as relative cost-to-charge
ratios, direct or micro-costing of items, reverse markups, and
time-based estimates for creating relative value units.
Incorporating multiple methods allows organizations to supplement
the chargemaster as the primary determinant of cost, and allows
for more efficient and refined modeling of patient-level costs.
Organizations then can integrate data from multiple sources (e.g.,
materials management and surgical systems) allowing for more
precise data on higher-cost supplies and procedures.
Improving Transparency of Cost Allocations
Many older cost accounting models did not allow individuals to
see how calculations were done. Modern systems should provide
transparency into how costs are assigned both from traditional
operational views (e.g., cost of labor in the lab) and from the
perspective of the patients who consume those services.
Healthcare leaders should be able to trace data back to its source
efficiently and intuitively. This is increasingly important as more
people across the organization access and use costing data for strategic
and tactical planning activities. Transparency allows decision makers
to clearly understand how data are derived, which enables them to
best apply the data for strategic-planning initiatives.
Securing Department Manager Participation
Department managers should be involved in the development and
implementation of the organization’s cost accounting model. Their
expertise in day-to-day operations and clinical care equips them to
offer valuable insights regarding how to enhance internal processes
and improve patient-level cost data. For example, department
managers can help to better identify high-cost patients.
Having the support of senior leaders is essential to gaining the
involvement of department managers. The engagement of department
managers also is critical to building trust in the cost accounting model
among clinical staff. If managers trust the data, they will support the
model and be better stewards and users of costing information.
Providing Staff and Stakeholder Education and Training
A concerted effort to educate staff and stakeholders is important in
building a trustworthy cost accounting model. Members of the cost
accounting team should be well educated and experienced. They
should be provided regular professional development opportunities
to build their expertise and promote confidence in such expertise
among stakeholders.
KaufmanHall Report Spring 2015
Education and training opportunities also should be extended to other
stakeholders to keep them informed of ongoing improvements, such as
data model enhancements, improved transparency and flexibility, and
department-level participation. Such initiatives help build trust in cost
accounting processes and the resulting initiatives and strategies.
Focusing on Accuracy, Efficiency, and Transparency
The transition of the U.S. healthcare system from a volume- to a
value-based business model has increased the need for hospitals
and health systems to have a trusted source of service line cost and
profitability analytics. Having reliable costing data equips healthcare
leaders to make sound decisions for their organizations. With the
strong support of executive leadership, progressive organizations are
ensuring the accuracy and efficiency of costing data through new
technologies and the implementation of transparent and valid cost
accounting processes.
Your comments are welcome. Dan Seargeant ([email protected])
and Jay Spence ([email protected]) can be reached at 847.441.8780.
For more information on Kaufman Hall’s cost accounting software, please
contact Russ Anderson at [email protected] or 847.441.8780.
2015 Calendar of Events
The Governance Institute
Fast and Furious and
Playbook 2015 for the Retail/Outpatient Imperative
Kenneth Kaufman
March 17, Dana Point, CA
ACHE Congress
Meeting the Retail Healthcare Imperative
Mark Grube and Dan Clarin
March 17, Chicago, IL
HFMA Massachusetts-Rhode Island Chapter
Integration: State of the Art and State of the States
Ryan Gish
March 20, Norwood, MA
HFMA Region IV
Strategic Cost Transformation: The Mary Washington Story
Kristopher Goetz
March 23, Baltimore, MD
HFMA Western Pennsylvania/Three Rivers AAHAM
Population Health Management and Retail Health
Robert York
March 25, Pittsburgh, PA
Illinois Hospital Association
Embracing Risk in Evolving Value-Based Payment Models
Debra Ryan
April 8, Naperville, IL
Healthcare Roundtable
The New Retail/Consumer Strategy Imperative
Mark Grube
April 9 and April 12, Houston, TX
HFMA Colorado Chapter
Leveraging New Business Models to Improve Value
Robert York
April 16, Westminster, CO
HFMA
Value-Based Financial Planning
Jason Sussman
April 16, Virtual Conference
VHA Inc.
Healthcare’s Disruptive Competitors
Mark Grube
April 23, New Orleans, LA
Missouri Hospital Association
Managing Risk Arrangements: Getting from Here to There
Robert York
April 29, Columbia, MO
VHA Georgia
Reform Becomes Reality, Disruption as the New Normal
James Pizzo
May 1, Amelia Island, FL
HFMA Georgia Chapter
Ensuring Successful Integration: The Real Work Begins
Before the Ink Is Dry
Tim Shoger
May 6-8, Young Harris, GA
Western Regional Trustee Symposium
Leadership and Governance to Support Population Health
Robert York
June 10, Sun Valley, ID
Iowa Hospital Association
Healthcare in Transition: Fast and Furious
Kenneth Kaufman
June 10, Coralville, IA
Wisconsin Hospital Association
Managing Risk Arrangements: Getting From Here to There
Andrew Cohen
June 18, Wisconsin Dells, WI
HFMA ANI
Competing in the Emerging Retail Healthcare Environment
Mark Grube and Dan Clarin
June 24, Orlando, FL
Georgia Hospital Association
Where Have All the Inpatients Gone?
Mark Grube
July 17, Amelia Island, FL
Missouri Hospital Association
Creative Affiliations for Success in the New Era
Speaker TBD
August 12, Jefferson City, MO
The Governance Institute
Fast and Furious and
Playbook 2015 for the Retail/Outpatient Imperative
Kenneth Kaufman
September 1, Colorado Springs, CO
© Copyright 2015 by Kaufman, Hall & Associates, LLC
9
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CHICAGO • ATLANTA • BOSTON • LOS ANGELES • NEW YORK • PORTLAND
Kaufman Hall Was the Top Financial Advisor
for New Debt Issues in 2014
Software Training
Kaufman Hall again ranked No. 1 as the top advisor in the country in new healthcare debt for
combined long-term municipal public offerings and private placements. Thomson Reuters’
year-end 2014 Municipal Market Analysis indicated that Kaufman Hall supported
$4.35 billion in debt transactions on behalf of client hospitals and health systems in 2014.
Budget Advisor®
General System and Reporting (Skokie, IL)
March 17 and 18
May 12 and 13
According to the report, Kaufman Hall advised on the issuance of more new long-term
municipal healthcare debt than any other firm. The company was ranked first by supporting
$2.93 billion in tax-exempt debt issues through 26 new healthcare long-term transactions,
representing a 22.5 percent share of activity in this debt market. Kaufman Hall was third in
private long-term municipal issues, supporting $1.41 billion through 40 transactions solely to
healthcare providers, representing an 11.9 percent share of the total private issue activity that
Thomson Reuters tracks.
Budget Administration
April 13 (Online)
April 14 and 15 (Skokie, IL)
June 9 (Online)
June 16 and 17 (Skokie, IL)
Kaufman Hall has achieved the position as the No. 1 financial advisor to the nation’s
healthcare providers in 11 of the past 12 years. The firm is the only independent financial
advisory firm providing services exclusively to healthcare borrowers. This allows Kaufman
Hall’s consultants to provide completely conflict-free borrowing recommendations and to
vigorously advocate for clients’ interests throughout the financing process.
Reporting (Online) March 24 (Introduction)
April 21 (Reporting II)
May 7
May 26
June 23 (Reporting II)
For more information on Kaufman Hall’s financial advisory services, please contact Therese Wareham
at 847.441.8780 or [email protected].
Provider (Online) April 17
June 11
Kaufman Hall Launches Redesigned Website
Hospital Advisor® Enterprise Edition
Product Training (Skokie, IL)
March 19 and 20
April 16 and 17
May 14 and 15
June 18 and 19
Launched in March, the redesigned kaufmanhall.com features a bright and contemporary
appearance. It offers intuitive navigation and convenient access—from your desktop
computer, smartphone, or tablet—to valuable information and resources related to our
management consulting, software, and thought leadership.
(March—June 2015)
System Administration (Online)
May 5
Capital Advisor®
Capital Allocation (Online)
March 26 and 27
May 28 and 29
Capital Management (Online)
April 23 and 24
June 25 and 26
Training for other Kaufman Hall software
products is available upon request. Registration
is limited. Class dates and availability subject
to change based on client demand. For the most
current class schedule and to register for a class,
please visit http://education.kaufmanhall.com.
For more information, call 847.441.8780 or
email [email protected].