Hospital execs must lead charge into value-based reimbursement changes

The shift from volume- to value-based reimbursement is an ongoing, difficult process for all hospitals, so leaders must develop and enact strategies to not only survive, but create positive operating margins, according to Chip Caldwell, a consultant and former healthcare executive.

"How do we break even just on the reimbursement for Medicare and Medicaid?" Caldwell asked a room full of hospital administrators during his presentation at the American Hospital Association (AHA) Annual Membership Meeting in Washington, D.C., Sunday afternoon.

After meeting with various hospital leaders across the country, Caldwell found organizations generally stick with three different strategies to transition to a value-based reimbursement system:

  1. Retain the same business model, but produce higher quality care at a lower cost

  2. Change the current business model completely to account for value-based reimbursement

  3. Create, buy or partner with other facilities to for a comprehensive health system with horizontal and vertical integration of other services to achieve optimal economic size

Hospitals must also match community inpatient surgery and outpatient service prices, decrease inpatient costs by 15 percent, eliminate market leakage and declare war on operational waste and idle capacity if they want to thrive in the new reimbursement system, Caldwell said.

Caldwell found what separated top margin improvers from lower-margin improvers was that hospital managers at top-performing agencies made 2.3 changes per manager per month, with a "change" meaning the leader exerted some sort of effort to make a change which resulted in cost savings in a department. Leaders at lower-improving hospitals only averaged 0.1 changes per month, which shows hospitals must adapt and be proactive in looking for and implementing cost-saving initiatives, Caldwell said.

Hospitals leaders must also:

  • Build an efficient system across organizational boundaries

  • Understand what population health management means

  • Possess transformational change management skills

  • Build collaborative relationships and sustainable models in the organization

  • Examine operations efficiency, capacity optimization, and clinical utilization and integration.

To learn more:
- here's the AHA website