Members of the group exploring the future of New Hanover Regional Medical Center learned about the massive transformation of the industry and how it is impacting local healthcare at their second meeting Wednesday, November 13. The session featured presentations by David Burik, a healthcare strategist from Navigant, and NHRMC President and CEO John Gizdic. The two described the trends that can lead to higher quality care, lower costs and improved health, but pose substantial risk to healthcare organizations that aren’t able to withstand cuts to reimbursements while changing their business models.
The New Value Model
The most significant challenge is the shift from an industry model that focuses on payments for every procedure, test, and visit to one in which the healthcare provider is paid a flat rate for managing a person’s health, regardless of how many procedures, tests and visits they need.
Under this model, the health system has more financial risk. If the patient’s condition requires more care and services than is covered under the flat rate, that cost must be absorbed by the health system. Value-based payments accounted for 36% of hospital payments in 2018 and are expected to be much higher in the coming years.
The change means that every provider needs to bring down the overall cost of care while also addressing factors that can impact health, including whether a person can afford their medications, travel to their appointments, or buy healthy food.
Focusing on better supporting each person’s health and well-being has tremendous potential to improve the health of the community, but also takes tremendous investment. Additional staff, technology, and service locations are needed to connect consumers, providers, and community resources.
As an example, Gizdic pointed to a pilot program to help reduce hospital readmission rates for malnourished patients. These patients often get treated and released from the hospital only to return within 30 days because they are not getting the nutrition they need to recover. Nationally, 23% of malnourished patients are readmitted within 30 days of a hospital discharge. With grant funding, NHRMC hired a clinical outreach dietitian to make home visits to malnourished patients after their discharge from the hospital. By working with the patients to reinforce their nutritional care plan and connect with food resources, the dietitian helped bring down the pilot group’s readmission rate by 17% over an eight-month period.
“This is successful, but it is labor intensive, and that labor is not reimbursed by any form of insurance,” said Gizdic. “We need to find a way to scale that to serve a much larger population and successfully lower costs and improve outcomes across many conditions. That will take both staff and the technology that will allow us to identify where we can have the greatest impact.”
While working toward this shift in payment models, healthcare systems are also challenged with lower reimbursements from their primary payment sources. Government payers comprise more than 60% of hospital costs and that percentage is growing as more individuals become eligible for Medicaid and Medicare. But these programs do not pay rates necessary for hospitals to break even, and more cuts are coming. Managed Medicaid will cost NHRMC an estimated $20 million the first year it’s implemented in NC.
The days of private payers making up the difference are nearing an end, as well.
Private payers are cutting reimbursements and passing along more costs to the consumers, who are enrolling in health plans that have deductibles that far exceed what most Americans have saved and are able to pay. That deductible then becomes bad debt for the health system.
Other challenges include a shift from inpatient to outpatient procedures, which have much lower reimbursements, and the need to invest more in staff and medical providers who are in short supply.
Possible legislative changes can also have a deep impact on NHRMC’s bottom line. The elimination of the 340B drug discount program could cost NHRMC $50 million in one year. Reimbursement decreases tied to NHRMC’s role as a Sole Community Hospital could cost $37.5 million, and a cap on the non-profit sales tax exemptions could cost $12.4 million.
“These changes may not all happen, and they may not come all at once,” said Gizdic. “But any combination could change NHRMC from having a sustainable margin or not, very quickly.”
The challenge of having enough financial backing to withstand the cuts to reimbursements while investing in a new business model is what is driving many organizations to look for ways to share both resources and risk. Some providers are doing this by partnering with payers to better control expenses and offer new services. Others are expanding their networks and entering creative partnerships.
Part of the charge of the Partnership Advisory Group is to determine if there is an alternate model or partner that can help bring NHRMC more resources to achieve its mission and vision for the community.
“Unfortunately all the conversation in the community has been about sale,” Gizdic said. An outright sale is the furthest option on a spectrum that would include many other partnership options. As an example, Gizdic mentioned the possibility of a joint venture centering on a single hospital or a particular service line.
The PAG will also examine the options for maintaining county ownership.
PAG Co-Chair Barb Biehner underscored the need for further exploration in a TV interview after the meeting.
“We don’t have an endpoint yet,” she said. “We don’t know how it’s going to turn out. We had some great questions from the members of the advisory group about options and how relationships can happen, and partnerships, and joint ventures, and there’s so many different things we have yet to explore.”
NHRMC Strategic Plan
NHRMC is being proactive to be prepared for changes as they come and seize opportunities.
“We can just react to these changes, or create our own future,” said Gizdic. “I choose creating the future we want.”
NHRMC introduced a strategic plan in 2017 that addresses both the industry challenges and the factors unique to Southeastern North Carolina. Areas of focus include expanding access to care, improving the value of care, and achieving health equity. Employee and provider engagement, and innovation are among the key elements supporting the initiatives, as is evaluating the organization’s structure.
“This is something we identified as important two years ago,” said Gizdic. “It’s a conversation we have been having around how best to structure an organization that is growing and changing.”
In addition to responding to changes in the industry and working toward a new model of care, New Hanover Regional Medical Center is challenged to keep pace with the current medical needs of a rapidly growing population. The medical center’s inpatient occupancy rates in the main patient tower average above 90% and demand will continue to grow for both inpatient and outpatient services.
Gizdic highlighted initiatives underway to support this growth and the objectives of the strategic plan while explaining where there were opportunities for advancing them more rapidly with additional resources. “We’re strong today,” said Gizdic. “We have great people working together to improve the health and well-being of our entire community. To succeed in the future, we need additional resources.”
Finding a way to support the people, technology, expanded services and financial security required in the new era of healthcare is crucial to the exploration of options going forward.
The Partnership Advisory Group will hold their next meeting on Wednesday, November 20 at 5:30 p.m. During that meeting, they are expected to begin defining priorities and objectives that will become part of the Request for Proposals.
Agendas, meeting minutes, and presentations are all shared on the website, www.nhrmcfuture.org. Those interested in staying informed can also sign up for regular email updates through the site.