The Chartis Group’s Vision of the Emerging Health System World: Five Imperatives for Change

May 5, 2020
Following the release of a report on hospital system financial and operational issues following the emergence of the COVID-19 pandemic, the Chartis Group’s Greg Maddrey discusses the demands of that new world

As everyone in healthcare knows, the COVID-19 pandemic has had an enormous impact on the healthcare delivery and payment system in the United States. Even as clinicians and staff members of hospitals, medical groups, and health systems continue to strive valiantly to provide optimal patient care to individuals with the COVID-19 virus, their patient care organizations are often struggling tremendously to maintain their financial equilibrium.

Late last month, the Chicago-based Chartis Group consulting firm published a new report entitled “After the Surge: Five Health System Imperatives in the Age of COVID-19.” As the report’s authors—CEO Ken Graboys, director of the firm’s academic health system segment Steve Levin, and principal Michael Tsia—note in their introduction, “With the arrival of the COVID-19 pandemic, the future of healthcare delivery fundamentally changed. In mid-March, as cases began to surge in regional hotspots from Seattle to New York, almost every U.S. healthcare system hit the “pause” button on normal operations. Now as providers look to “restart,” few will return to their prior clinical operating or business models.”

Indeed, the report’s authors note, “While the COVID-19 curve of the first surge has flattened in some regions, the crisis is far from over. Beyond that, health systems may find that the aftermath of the current crisis will be more challenging than the initial surge itself. The post-COVID-19 surge landscape will be characterized by a materially resized and reshaped patient and consumer base. This landscape is paired with a pressing provider need to substantively reduce costs, while refining clinical operations to provide coexisting dual systems of care for both COVID and non-COVID patients.”

The authors emphasize that, “As health system leaders prepare to ‘restart’ broad-based care delivery, they must put in place a careful, coordinated, timely and comprehensive plan. They must manage the concurrent short- to mid-term challenges of recapturing volume and restructuring their cost base and supporting operations. Additionally, they must strategically position themselves for the long-term as care delivery leaders in their community. Without such an approach, it is not a stretch to contemplate that a $1 billion revenue health system emerges from the post-COVID-19 surge as an $850 million one.”

The five imperatives referenced in the title are the following:

1. Providers must engage consumers and other referral sources to recapture patients.

2. Providers must fundamentally reduce their cost base.

3. Providers must restructure the physician enterprise.

4. Providers must transform their clinical operating model.

5. Partnerships, both horizontal and vertical, traditional and non-traditional, must be closely evaluated.

Drilling down below those five key headlines, the report’s authors emphasize, among other things, that providers must take the following actions:

Ø  In most markets, providers should expect to see a distribution of customers… where despite a small defined number of high-need patients, the great majority will be hesitant to return to the care delivery setting. Another cadre will be even more reticent to return, and some will have exited the market. Providers must profiles, size and segment their market by clinical service to understand volume recapture potential and requirements.

Ø  Health system leaders should apply a disciplined analysis to their portfolio of assets to determine which are both critical to their future strategy and also contribute to sustainable economic performance.

Ø  Among other actions, provider leaders will have to “conduct a zero-based review of all fixed costs from programmatic to third-party service providers to administrative and management structures”; “assess performance of all programs and operating units against absolute best practice productivity standards”; “definite the optimal approach to patient and site of/modality of care management”; and “develop and deploy a corresponding workforce management plan” that can “flex” with evolving volume levels.

Ø  Provider leaders will have to deploy the provider workforce “in a fundamentally different manner to enable to new care models that more effectively leverage physician time.”

Ø  They will need to provide “coexisting systems of care for the COVID-19 and non-COVID-19 patients they will simultaneously serve.”

Ø  They will have to assess their partnerships portfolio and determine where affiliating with other organizations can help them enable tor accelerate their action plan.”

The full report can be downloaded here.

Shortly after the release of the report, Healthcare Innovation Editor-in-Chief Mark Hagland spoke with Greg Maddrey, Chartis’s president of consulting. Below are excerpts from that interview.

This is a very rich report, with a lot of dimensions to it. Starting at the 40,000-feet-up level, what was the origin of thinking driving it?

So as we thought about what’s happening, and this is borne out of our purview in consulting—I spend half of my time directly consulting with clients, and half of my time directing consulting projects. And we are working with more than 100 customer organizations, and have a pretty good nationwide vantage point.

And in mid-March, everyone shut things down to prepare for a surge; and that meant shutting down elective procedures and trying to prepare for a COVID surge and trying to acquire PPE [personal protective equipment] and ventilators and all the rest. One of my clients said, we were a $2.1 billion healthcare system on March 10, and now we’re a $1 billion healthcare system on April 10—everything has to be rebuilt.

And everything was focused on preparing for the surge. I think people were focused on it as an event rather than on something we’re going to have to live with for numerous months. And you’re going to have COVID and non-COVID patients at the same time. And that’s a realization that’s challenging for most providers. How do you make safe an environment where people are scared? And how do you bring back volume? In our paper, we talk about recapturing demand, and at the front end, there are surgeries where I’ll come back into care because I have to; but that’s probably 10-20 percent of the volume. For people who have a chronic disease but don’t necessarily need to come back in and isn’t necessarily acute, we think they’re going to sit it out and will have to be coaxed back into the healthcare system. Or, their jobs aren’t secure, and they may delay procedures because of that. So the economic fears and the fears of getting sick, will be a fundamental issue that providers will have to deal with.

So you have to think about your assets differently. Do you develop COVID and non-COVID hospitals? COVID and non-COVID floors? One of my clients just put out branding saying, “We are COVID-safe, this is COVID-safe care.” And there’s been so much focus on New York. And so we think that this consumer fear will be something you’ll have to wrestle with, for a long time. The way we put it is, there are some thresholds. When will we have sufficient numbers of tests, and cycle time, to actually know that patients and caregivers are safe to interact with? And when will we have the right amounts of PPE, and approaches to manage the safety of acute-care settings? Those are all gates to getting back to business as usual. But as the CFO sits there and says, we’ve just turned the spigot off, and we have a gigantic hole to get out of, from the last six weeks, and need to move as quickly as possible. So how do we attract those 80 percent of patients who could see you, but don’t necessarily have to?

How do hospital executives somehow recreate their relationships with physicians to create a win-win?

Hospitals have been huge employers of physicians for the last 15 years, and so they have these big groups, and almost all of them are paid on a work-RVU model. So even some employed physicians have been sitting idle, especially the proceduralists, the orthopedic surgeons, etc., sidelined, so they’re making almost no money except for professional fees. And the independent proceduralists are really in bad shape, as they’ve been shut off almost completely, and physicians are notorious for not maintaining financial reserves. And now they’ve gone for six weeks without income, and have a big problem and are looking for salvation. But you’re right, hospitals are sitting there, saying, we learned nothing from the 1990s, employed them, put them on salaries with work RVU models with high coefficients, and they’ve made a lot of money and have increased losses for us, so as we’re in this financial hole, we really need to rework this model completely. So how do I drive quantum performance improvement in the physician organization?

And the only ambulatory care that happened other than sick care in the last six weeks was telehealth care. And patients liked that, and said, hey, I could get what I needed from a Zoom call; why couldn’t I always do that?

And the rate-limiter for adoption of technology has been an reluctance among physicians, hospitals, and health systems, has been how to create a blended virtual and in-person care model. But they’re going to have to think about that now. So after I’ve diagnosed you with a chronic condition, I don’t actually need to see how, and you could get your labs drawn at Quest, and that would be a much safer way to care for you than for you to come every time. So we think that that restructuring of the care delivery model will be imperative. And it’s not an either-or proposition. There isn’t a virtual care model that is used 100 percent of the time, because there are times when a physician does need to lay hands on you. But we do need to rethink our physician enterprises, no longer as a doctor seeing a patient, but as a care team that includes doctors, some NPs, some MAs, some social workers, takes care of a larger population of patients in a team-based environment. You have to move towards that optimal model; and quite

Frankly, studies have shown that the care is of higher quality.

What do you think will happen in the next year or so?

I hope that we do fundamentally go back and rethink things. We can ask, how could we get five visits instead of four, with the same doctor and MA? But what if we had to do it differently and didn’t have the patient sitting in the waiting room when we want them there? How do we rebuild the care model, and create some opportunities? So using video to do wound care or dermatology works well. Or is it really necessary to have a pregnant woman to come into the office every week, in the third trimester? Or, if they’re generally healthy, could you coach them to use devices to monitor the fetal heartbeat, for example?

So let’s take of the strictures of how we’ve done it the past 30 years, because we need to make it safer, and we’ll probably have a couple more [COVID-19] surges this year. And looking at the cost base of these health systems—if you thought about the financial statuses of hospitals along a spectrum, everyone kind of shifted left. I have some really, really successful clients that are very big, and they’re focused on cost reduction in a way you’ve never seen, because they’ve taken a hit, and are maybe butting up against some of their covenants. And before we get into some of the political hurdles and complications, let’s say, what would we do if we had to save $700 million? What would we do? And I think that opens people up a bit. Maybe we wouldn’t build another hospital in this area, but instead, an ambulatory center with a helipad. It makes you rethink your asset configuration, and other issues. And it makes people think about their technology investments as well. And there’s a conversation that will come up soon around the long-term reimbursement issues. It probably won’t be parity, but maybe close.

We have to invest in data analytics, and use the analytics to determine what will be effective strategies, correct? In the past, so many hospital senior executives were so focused on the physical plant, on building that next new pavilion with the huge chandelier in the soaring atrium, right?

Yes, your comment about physical construction was right on. There’s been such a focus on doing a rundown of their assets. Going forward, I think that’s just not the way consumers view healthcare. They need to think about their doctor and problem.

So it won’t be the chandelier in the atrium, but how consumer-friendly a particular health system is, is what will matter to consumers, right?

Exactly that. Health systems will have to rethink the business their in and say, you know, if I’m catering to these folks who have these types of chronic illnesses, what will my health system need to provide, versus, I have all these assets? Many health systems almost go into it in the opposite order.

Do you think that some of the policy and payment changes that have just occurred, particularly around telehealth, will be maintained semi-permanently, going forward?

I think so. From a payer perspective, when you look at the spend in care, primary care is 6 percent, specialty care is another 11 percent or so; it’s not driving the cost. We may not get to parity, but we’ll get close, and there’s a convenience factor that consumers will demand, now that it’s clear that virtual care is not a bogeyman, so the healthcare system will have to shift. And for a healthcare system, your going in to see the doctor—there’s a professional charge, and an E&M charge, a lab charge, etc.

So people will have to wrestle with, if we convert some of these things long-term to virtual, some of those ancillary charges will go down, and probably should. And I’m not suggesting that people are doing unnecessary care, but they’re done routinely. And this will be challenging, going back to the physician enterprise, because irrespective as to whether it’s a virtual or in-person visit, you do need a provider available. So I need a provider available for the visit, I need to bill for it and document it, and if a prescription order or lab order has to happen, that needs to happen. So we’re talking about a fundamental redesign. And if 30 percent of our visits in cardiology are going to be virtual, how do I staff that, with a physician, with nurses, with other people, how does that workflow happen. Someone gave me a statistic where they went from 50 virtual visits to 500. When it’s 50, you can kind of work around it; when it’s 500, you cant; you have to have a process. And that’s a lot of work that has to be done to say, this is the new model of care, and this is how we staff that new model of care, and how that fits into our overall care landscape, and there’s a lot of real work to be done there. I think the technology is a minor component of that; I think the cultural shifts are bigger issues there.

And we’ll have to rethink why we’ve been so inpatient-centric in the healthcare industry until now, correct?

Yes. I had done some work on the payer side, and before I came to Chartis, one of the last things I did as to run groups in Chicago that took primary and specialty capitation. And if I were a betting person, I would bet on an aligned and motivated physician group to save healthcare. They know where the waste is in the system, and control it, and if properly motivated, and in their economic interests, I think physicians, hands down, will be more successful in value-based care than hospitals, because they’re not focused on high-cost facilities. We kind of gravitate to the hospitals because they’re the most visible.

And hospitals have the strategic planners, right?

Yes, and it’s interesting in upstate New York; the primary payers in 2018-2019—the two biggest payers in the market shifted primary care physicians from FFS into a hybrid capitation model—capitated based on the panel, with additional payments from preventive care. Blue Cross and a plan called IHA, Independent Health Association. The big players in the Buffalo region. So they fundamentally shifted primary care into capitation. So overnight, all of these independent primary care organizations now have a different set of incentives. So now it’s not, I want my schedule filled from 7 in the morning to 5 in the evening, but instead, I want to see how I can handle my patients differently. They don’t have to come back in for a routine prescription refill check. But a lot of these groups are very small, and didn’t have the capacity to make the shift of models on their own. And you have to really rethink everything now.  And maybe even through email with patients. That may be the most efficient thing to do.

Those are the physician groups that are well-positioned in the context of COVID-19, right?

Yes, they’re well-positioned if they can make the transition. The hard part is stepping back from running the machine while you’re in the middle of everything.

That speaks to that classic metaphor that’s often referenced, about rebuilding the plane while you’re in the air, correct?

Yes, exactly. And as an independent medical group, I have the leanest staff I can have, because everything I spend, down to chairs in the waiting room, comes out of my compensation. So the question is, who funds the transformation? In the net-net, it will be better for patients and somehow has to happen; and the physicians say, I recognize that that has to happen, but how do I get there? The thing that heartens me about this whole period is that there are really interesting innovations coming out. And there’s that old adage, necessity is the mother of invention. And it’s pretty incredible, some of the things that have happened over the last six weeks, and the resourcefulness that has been brought to bear And we’ll need to apply that level of inventiveness and thinking to, not a post-COVID world, because I don’t think we have a post-COVID world for some time, but how do innovate our way out of this?

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