Why Are Such Large Health Systems Failing?

While this question is nearly impossible to answer globally as healthcare is local, there are several similar behaviors and strategies that link the failing health systems in markets that have competition.

Here are several things hospital leaders do that ultimately lead to failure.

1. Physician Alignment

Hiring a doctor is not enough, they are people with wants, needs and expectations. Failing systems lose sight of this and make decisions without aligning physician stakeholders. Whether it is as simple as buying a piece of equipment or as large as the closing of a service line, not compromising/negotiating the decision with them is a notch in the coffin. The physicians live in the community and most decision makers in large “corporatized” health systems do not. When a decision is made that impacts them, it also impacts their families and friends and everyone they talk to. One decision may not be big enough, but the recurrence of such behavior will. 

In one health system I worked with, we implemented “EDID”, Every Decision Includes the Doctor. It worked like this…whenever a non-payroll transaction required a sign off form or capital expenditure (per policy limits), the physician stakeholders were listed and asked to sign off on it. This had 3 major impacts, it put the executive and management teams in front of the physicians a lot more, it gained the trust and partnership of the physicians, and lastly, led to more profitable decisions. The health system listened to them and gave several of them a seat at the board because of their strategic thinking. Many wanted nothing to do with it, and that also gave management good information. Just this past year, the CEO left the system without a hitch…that’s the sign of a system built to last.

2. Listening Skills

Even the best and brightest leaders only know, what they know. After many years running a health system, fresh and outside thinking becomes necessary to ensure what “you know” is enough to sustain the future. A common characteristic for failing systems is that the corporate leaders stop listening to the boots on the ground. Whether it is regional or completely centralized, the corporate body gets so wrapped up in their initiatives, they forget that local communities, vendors and competitors are making plans too. When the strategies of the central body don’t cascade and/or matter locally, the health system will become irrelevant and the competition will benefit. 

I had the opportunity to work with a large health system that was creating an ACO. The plans were laid out perfectly by the Corporate VP and resources were pouring in to help get it off the ground (hence my consulting engagement). As I was working with the local physicians on membership, a recurring question was popping up, “Is this affiliated with Dr. X’s ACO?” In discussing this with the CEO, he shrugged it off saying that theirs is going nowhere and Corporate doesn’t want to hear it. I continued assisting with the formation of the new ACO but continued to monitor the competing ACO member’s activities. I noticed that they seemed to be very active with a surgery center affiliated with the competing health system and ancillary volumes began to slip. Although I almost got kicked off the engagement, my position with the Corporate VP finally sunk in (the stats spoke for themselves). Why compete with 40 of your most powerful primary care physicians if you can find a way to compromise with them. After all, the ACO and quality care strategy was common on both sides, it was only a matter of the cash flows that needed to be negotiated. We essentially merged the two ACOs and the impact was tremendous. While this health system did not fail, it was heading in that direction until the merger. Too many times hospital executives forget that more input (so long as it does not stall decision making) will open your eyes to better possibilities and outcomes.

3. Communication

I never quite understood why so many talented executives become messengers. The purpose of communication is not to message, but to engage. CEOs of corporatized health systems take orders from above and message it out to the employees. It is “one way” and there are few opportunities to make it bidirectional because of the forum in which strategies and decisions are discussed. For example, in one health system, each year the employee engagement scores were horrible, over 40% of employees strongly disagreed with these statements:

I am excited about the way in which my work contributes to the Health System

I feel energized by my job

In response, the CEO started to hold monthly meetings with all directors in a large auditorium and attend adhoc departmental meetings. A year into this, I was called in to look at why their net to gross ratio was diminishing.

After spending a month with their revenue cycle departments, interviewing and documenting processes, I found the following:

1)   The accounting, finance and rev cycle departments were not included in most meetings and only found out about changes through transactions coming through the ledger or after the change was implemented. Including the CFO, who buried herself in the finance and accounting departments

2)   Managers, directors and employees were not comfortable speaking up about flaws or issues with the “message” in public forums and as such reluctantly followed orders. Many strategies fizzled out or failed

3)   New technology was not adopted properly due to lack of training and engagement (the surprise factor created dissention)

I asked the CEO to go weekly with the CFO to her departments for ? hour and not talk, but rather just ask employees how they are doing and what they are working on. I then asked the CEO to stop messaging and start engaging. He was not willing to change his forums, but he did change his communication style. He paused more and asked questions to specific individuals that he knew his message impacted. In fact, after the meetings, he would call in the directors he called on to ensure they (and their staff) were up to speed.

After about 3 more months with the system, we learned of several factors causing receding margins, the largest was their denials/contract manager who did not feel engaged enough to monitor her staff’s work ques or update the payor contracts in the system. We uncovered this by interviewing the staff who complained about too many “false positives”. They felt that using the system that was built to make their job easier, wasted their time. The staff started their own home-grown processes that unfortunately allowed many significant denials and underpayments to fall through the cracks. This had a .15% impact on their net to gross margin (or $550,000 annually).

Changing how the CEO spoke to his employees and improving communication with the CFO’s departments (and within them) helped to not only improve the employee engagement scores, but also increased their net to gross margin by over .4%. Needless to say, all contracts were entered into the contract management system and work flows were tightened up.

4. Ignore your patients and vendors

I never quite understood this, but when a health system is failing, many limit vendor interactions and reduce services to patients. I have yet to see an entity cut themselves to success. Sure, keeping costs to a minimum is important especially when times are tough, but successful entities still engage their constituents. Patients and vendors are constituents and they are impacted by the ebbs and flows of the health system.

Two years ago, I had the pleasure to engage a health system as their CFO consultant. The current CFO retired, and they needed someone to help fill the gap. I was asked to find out why their margins were only 1%. It was a 300-bed facility with a history of strong Heart and Cancer services. They needed a “war chest” as their competitor was growing in those areas and they were shrinking.

I found that their flagship programs were being flooded by Medicaid patients and their payor mix shifted (over 30%) from Medicare and Commercial to Medicaid and Exchange products. I interviewed 4 doctors (2 Oncologists, 1 OH surgeon and 1 cardiologist), 5 of the cancer patients and 5 of the heart patient’s families (that were Medicare and/or Commercial). I found out the following:

1)   The lobbies of both centers were viewed as “old”

2)   The administration implemented a new protocol in the prior year that required high cost drugs to be put through a committee

3)   Medtronic was being “blocked” by the GPO the hospital was part of

4)   The cancer center was “Hospital Based” and required double payment of copays from many payors

5)   The front desk clerk at the cancer center “was not nice”

6)   Wait times are far too long in the OR and at the Cancer Center

Over the 6 months the CEO and I did the following because of my findings:

1)   Remodeled both centers making it more patient friendly

2)   Updated the cancer center’s EHR to allow for at home registrations and communication

3)   Replaced the front desk clerk

4)   Worked with Medtronic and the Open Heart Surgeon on a “bulk purchase” that was permitted under the GPO. Medtronic not only lowered our per unit pricing, but worked with us to implement a “patient centric” process for patients with home monitoring

5)   Contracted with the Oncologists “Under Arrangement” such that the double copays were eliminated.

6)   Built a “Heart” team that walked patients through the process and ensured on time OR starts.

7)   Carved out cancer drugs from the high cost drug approval process and moved it to a sub committee in the cancer center. The Oncologists were part of this committee.

The payor mix quickly came back and costs went down. Margins were up to 4% when I left.

Get up and walk around; talk to as many constituents as you can. You will find things that cause patients, vendors, visitors, employees, etc. to draw conclusions about your hospital, both good and bad. These conclusions will impact your business. Taking the time, listening, interacting and compromising makes a positive difference. Once you create a culture of "You Matter", it becomes easier for you to back away from it as others take up the cause.

You can all think of an issue your organization is facing right now, yet you hesitate. It's fraught with political peril, it involves too much of your time, and it requires going against the institutional "we do it this way" mentality. Call me to discuss.