According to the late management guru Peter Drucker, being the chief executive officer of a hospital is one of the most difficult jobs in America. And with the unprecedented changes brought on by healthcare reform, the growing demand for service, a continuing squeeze on payments, and evolving technology, the job isn’t getting any easier.
D CEO recently gathered together the heads of five major Dallas-Fort Worth hospital systems to discuss the challenges they face—in an economic sector that comprises about 17 percent of the local economy. Combined, these top executives oversee nearly 70,000 North Texas employees. Participating in the discussion were Joel Allison, president and CEO, Baylor Health Care System; Robert Earley, president and CEO, JPS Health Network; Douglas Hawthorne, CEO, Texas Health Resources; Stephen Mansfield, Ph.D., president and CEO, Methodist Health System; and Daniel Podolsky, M.D., president, University of Texas Southwestern Medical Center.
In the following discussion, they address the impact of the Affordable Care Act, the importance of workplace wellness programs, emerging changes in healthcare delivery, and the upcoming presidential election. (Note: D CEO magazine published an abbreviated version in its October 2012 issue.)
D CEO: Although the five of you seem to be bucking the trend, the average tenure for a hospital CEO is about four years. What makes this job so challenging?
DOUGLAS HAWTHORNE: It’s the diversity of the role. It’s really all about the variety of relationships we deal with every day.
DANIEL PODOLSKY: Part of it is the inherent complexity of healthcare, and how you are going to manage that complexity with an unprecedented dimension of uncertainty about the future.
ROBERT EARLEY: Healthcare touches everyone. You have many constituents who are concerned and, like Doug said, and you have to respond to your different constituents because healthcare is so personal and it has a huge impact on everyday life. Some view it as a right. Others view it as privilege. That’s what makes this so complex.
STEPHEN MANSFIELD: It’s really a lifestyle, not a job. You don’t have an off-on switch. You’re pretty much on all the time. If you aren’t careful, it can consume you just like any of those jobs you mentioned. It’s also a great joy.
EARLEY: To Doug’s comment, there is a diversity of issues. I have a 9:00 meeting where I’m debating about the thread count of bed sheets. Then I’ll go into the next meeting about how we advance neurosurgery. As Joel said, we deal with life- and-death issues that are compounded by money. If you look at every issue that we deal with: Money, life, death and complexity, and you have a formula for challenge.
D CEO: Healthcare is subject to a high level of government regulation. Doesn’t that add a layer of complexity in the sense that you’re not driving your own boat because you have to answer to different regulatory bodies?
EARLEY: Government regulation is like August in Texas. You really don’t like August in Texas, you have to deal with it. Those of us who just want to complain about government regulation are the ones who are run over. The issue is how do you influence it and interact with it, not how you complain about it.
HAWTHORNE: I think it’s all that we’ve known. As a group here, I don’t think any of us entered healthcare before 1965 when Medicare began, which was really the first major government intervention into healthcare. It’s been a part of that complexity that we deal with every day. It’s there. It’s a given. Therefore, we work with it as it comes.
PODOLSKY: Changes in government regulation are a forum for political ideology and political debate. It’s a matter of how you effectively deliver the care you need to deliver rather than get caught up in political philosophy.
JOEL ALLISON: It’s our responsibility that we put systems in place that allow us to meet those regulations. You’re dealing with a very complex industry. You’re dealing with life-and-death situations so it’s appropriate that we’re in a very transparent environment. Healthcare is so vital to everyone and it touches everyone’s lives. We have to make sure we meet and even exceed those regulatory requirements. It becomes a way of life for us.
D CEO: Hospital CEOs face a number of challenges these days including, declining government reimbursement, strategic investments in health information technology, clinical innovation programs, and physician shortages. What are the biggest challenges you’ll face in the next year or so?
PODOLSKY: Dealing with the value proposition is front and center. That is, ensuring rising quality and improving outcomes in a diminishing reimbursement environment. That’s the challenge.
ALLISON: We need to demonstrate better quality in a very transparent world. We are investing in information technology to manage population health across the full continuum of care, improving quality, lowering costs, and improving the health of individuals as well as population health.
HAWTHORNE: Accountability goes well beyond the four walls of the hospitals, which have been the focus for so many years. The challenge and opportunity is how we keep the population well. How do we keep them out of our hospitals? Keeping people out of most expensive place to get health care, which is not sustainable under the current system that we have. It’s a major effort to look at the individual from birth to end of life. That full continuum of care will be the focus at Texas Health.
ALLISON: At Baylor, we’re trying to create models of care to deliver the right care, at the right time, and the right way, in the right place, at the right price, and be able to prove it. That’s a model of care that’s really about getting out of sick care and really getting into healthcare.
D CEO: In what ways is healthcare changing, and how much impact do you think the Affordable Healthcare Act has on that?
ALLISON: The Affordable Healthcare Act is more about insurance reform than about healthcare delivery. We will create delivery models that give the right kind of care. It’s not going to be because the Affordable Care Act was passed.
PODOLSKY: When the future of the act was in limbo pending the Supreme Court ruling, we really took the view that much of what the future would look like was irrespective of what happened with that decision. We need to deliver value at a lower cost and one way or another. We’re trying to reinvent our systems so that you reward the most effective use of resources at a time when the model hasn’t yet changed and we still get paid on a piece-meal basis.
EARLEY: The act and other initiatives are trying to get to a preventative healthcare model. Our challenge is we don’t live in a preventive care world. We’re trying to figure out how take on chronic diseases and obesity. But people are being bombarded by advertisements to eat unhealthy food. So I’m competing against that. I can’t think of another industry where you’re trying to work with a consumer base that doesn’t want to do anything that you’re trying to tell them to do.
HAWTHORNE: The real question with the Affordable Care Act is what will that health insurance really mean. Will it mean health insurance or will it be a continuation of sickness insurance? Real reform happens in our communities, not Washington or Austin. That’s where employers, payers, physicians and healthcare systems work collaboratively to find solutions on how we deliver health services.
MANSFIELD: I agree with Doug. It’s a local proposition. It’s local employers, insurers and providers working together to reform healthcare. But I do think we’ve got more to work with under the Affordable Care Act than we had in the past. For example, being able to align with our physicians in ways we could not. It gives us a chance to change healthcare in a way that will be better for consumers and better value.
ALLISON: There are two important things missing in the Affordable Care Act. First, it didn’t address access. It talked about getting more people covered, but it didn’t talk about access. We have a shortage of physicians. We have people on Medicaid and Medicare who can’t get a physician. Second, as Robert mentioned, it does not address patient engagement. How do you get the individual accountable and responsible for his or her own healthcare? The opportunity is to do prevention and wellness.
D CEO: To follow up on that point, hospitals and healthcare companies often have the most sophisticated and aggressive employee wellness programs, because they understand their value and they want to be seen as health-promoting companies. For example, Methodist is giving up to $1,700 on premium discounts based on health risk assessments. Baylor no longer hires smokers. Do you recommend these kinds of aggressive measures to other CEOs trying to control healthcare costs?
MANSFIELD: Absolutely. In the employer setting, you have the tools to provide employees incentives to take an interest in their health and disincentives if they fail to. Methodist is using both of those and having phenomenal results with our medical home project that we offer to about 20 percent of our employees who we felt would benefit from that the most. If employers will really engage with their employees in a meaningful way, we can make a difference. This is a battle that’s going to be won over in a generation by making small steps forward with small groups, and employers can play a huge rule in that.
PODOLSKY: We’ve had a real gratifying impact of wellness programs at UT Southwestern. We have a worksite weight control program that includes healthier eating, how to jump start physical activity and motivational reinforcement. One of the greatest drivers of healthcare costs worldwide, and especially in Texas, is the growing obesity epidemic.
HAWTHORNE: We need to be an example of good health. “Be Healthy THR” is 10 years old and we’ve seen remarkable results. Normally, healthcare workers are not the best at taking care of themselves despite where they work. Dallas-Fort Worth employers lose about $17 billion in productivity costs annually because of health issues.
ALLISON: For Baylor, we really believe that we are role models. We have a very robust wellness program called “Thrive.” We’ve eliminated trans fats in the cafeteria and offer many healthy food items. We’ve taken sugared drinks out of the vending machines. And most aggressively, we no longer hire nicotine users. There are four basic things you can do to have good health. Don’t smoke. Eat a moderate, healthy diet. Exercise moderately, and manage your stress. That’s what we’ve built our program around. And we have 16,000 employees and 20,000 dependents participating in that. As incentives, they receive cash and premium reduction. Since we’ve had this program, we’ve lost 24 tons through our weight control program, which is important because of Type 2 diabetes and chronic diseases. And we’ve seen more employers offering this as well. And we’ve had engagement with other employers as we’ve taken this not only through our own employees, but to other employers to offer wellness and prevention programs. I still believe the key is to lowering healthcare cost is prevention and wellness.
D CEO: According to “Thrive’s” director, people in that program have annual healthcare cost increase of 1.1 percent, compared 9.9 percent for those who do not participate. Is everyone seeing a similar ROI from your wellness programs?
HAWTHORNE: Absolutely. It’s a more productive workforce. Wellbeing is more than just personal health. It’s the ability to deal with stress and to take on added responsibility. So absolutely, when we look at our cost of providing health insurance for our employees, it continues to stabilize costs. That’s a good sign of what these programs can do.
EARLEY: At JPS, we’re going to open up an employee clinic. There’s another aspect of managing chronic disease and becoming healthier. I really want the employees to use the system they work for so they understand what that patient faces when they come in the front door. Maybe I have a 30-year smoker telling a patient that they have to quit smoking. What’s it like to kick that nicotine habit? I want the caregiver to understand what we’re asking our patients to do. I think that empathy and, in some cases, sympathy results in far better healthcare delivery if we know exactly what that feels like to hear those words or get on that program or lose that weight.
ALLISON: In fiscal year 2012 that ended June 30, every dollar we invested in our wellness program had a $3.40 return. We expect that to continue to go up. We spend $152 million a year on our employees’ healthcare. That’s $10,330 per person. Helping them manage their health and lowering costs has been a very, very positive for us.
PODOLSKY: Many of these wellness programs build cohesiveness among the employees and enhances their connection to the organization. They see that the organization is concerned about their welfare and extending itself to provide benefits. That translates into reduced staff turnover. That’s another benefit to the organization doing well by doing good.
HAWTHORNE: Healthier people are happier people.
ALLISON: We would like to get the Congressional Budget Office to score wellness and prevention as a savings. Right now, they still score it as a cost. That makes no sense because I truly believe it will be a savings
D CEO: Healthcare costs have gone up 2 percent faster than the economy since 1960. This is a huge concern for all businesses. For example, Starbucks spends more on healthcare for its employees than it does for coffee beans. Why is it that healthcare cost have continued to faster than the economy and do you expect that trend to continue?
MANSFIELD: One factor is demographics. The statistics are phenomenal on the growing obesity epidemic and the growth in Type 2 diabetes, particularly with our children. The growth is massive. Two-thirds of Americans are overweight and over a third are obese. That places tremendous pressure on the healthcare system as they become ill. It goes back to the theme that’s been expressed around this table, and the old adage that an ounce of prevention is worth a pound of cure. All of us have spent most of our careers delivering of healthcare to those who are ill, and we have to shift the focus to win the war for wellness and prevention. I think it’s going take a generation to turn it around. I’m looking for that first year where fewer overweight and obese–and fewer Type 2 diabetics–in our schools as an indicator that we’re starting to go in the right direction. We have not had that in decades.
PODOLSKY: There’s many factors that feed into rising costs. Certainly, a factor is the cost of innovation. Clayton Christensen from the Harvard Business School has pointed out that half of that increase is increased technology and capability. As a society, we can decide what that’s worth.
ALLISON: We have to address the uninsured. When you live in a state that has the highest uninsured rate, that creates a huge cost shift back to those who pay. People access healthcare incorrectly today. They wait too long and then they show up in the emergency department (ED).
EARLEY: We’re now able to detect chronic disease earlier and extend lives and that also extends the cost of care. If you look at the chronic diseases we’re handling today, we couldn’t extend life like that 20 years, 30 years, 40 years ago. The same holds for psychiatric and behavioral services. Those conditions aren’t fixable, they’re maintainable. You keep somebody in a system to help them deal with life. That’s something that our society wants to do. There’s also a cost to that as well. But when you or a loved one is diagnosed with a chronic condition at 40 years old, you want to live a relatively good rest of your life and that takes maintenance, time and cost.
HAWTHORNE: Therein lays a real element of this continuum of care. It’s what happens to the left and right of the hospital. The hospital has been the focus in the system today, and we often see the same people for the same reason multiple times. So they are returning, as Robert said, and many of them have chronic diseases. Are they better cared for at a different location? Are there other elements in this continuum that can help bring down the cost and put the person where they need to be at the right time for the right reason? The sick care system of America is built around diagnosis and treatment. Right now, it’s people coming to us vs. us going to them, and we have to change that model. How do we put more into the arsenal of our physicians to think disease prevention, rather than just diagnosing and treating as they do so well today?
PODOLSKY: At UT Southwestern, in addition to being focused on how we deliver care, we have the responsibility of education and training of physicians and other healthcare providers. There’s an evolution now in providing them the skills for what healthcare delivery will be like in the future, and what society will expect of its physicians. It is beyond what I would have expected when I was in medical school more than 30 years ago about being part of team, and about the continuum of care. But that will be one of the necessary elements to a better-quality healthcare system at a cost that we ultimately can afford.
ALLISON: One opportunity we see is the redesign of chronic disease management. The 5 percent of people who have four or more chronic diseases account for 50 percent of healthcare costs. You can get them into the right setting to manage their care, rather than repeat visits to the ED. It goes back to what Dan said. The medical schools are working in this direction. It’s team-based care. It’s being able to use mid-level providers so we can let the physicians practice at the highest level of their licenses. And Robert is right, we’ve extended life. When they passed Medicare in the 1965, what was the age that you were going to end life.
D CEO: An accountable care organization (ACO) is a network of healthcare providers that accepts the responsibility of the cost of coordination and accepts patients. The goal is to improve quality and access while reducing cost. That’s been talked about. But so far, ACOs have been created to treat Medicare patients. However, it seems like a promising model for commercial insurance plans and large self-insured employers. Can this model help companies control their healthcare costs?
MANSFIELD: Absolutely. You’re managing the patient expediently, but also less costly. I think you will see an increasing number of commercial insurers interested in ACO models, and I agree that large self-insured employers can benefit from that as well.
ALLISON: We created our vision for 2015 before the Affordable Care Act was passed and in that was to create a model for managing care. We created Baylor Quality Alliance. That’s our response to the ACO. That’s a network of physicians and hospitals clinically integrated to manage care. We’re self-insured like everyone else around the table, and we’re putting our employees into that model Jan. 1, 2013. We believe that’s the future, and what better way to start than with our own employees and their dependents.
HAWTHORNE: Collaboration will be the key here. There’s no one system that’s going to be able to do it all. There are a couple in this room that are working with the THR to look at the community’s wellbeing and the full continuum of health. THR is one of the 32 Pioneer ACO projects to treat a segment of the Medicare population to see if the model makes a difference. We believe we will have an opportunity to take to that model to commercial payers to improve their outcomes.
D CEO: High-deductible plans have been rapidly increasing in employee-sponsored insurance. Some see them as beneficial because patients have skin in the game. Others say they discourage patients from seeking care. In other words, the studies say that people tend to self-diagnose themselves and they forego needed and unneeded care equally. About 1 out of 3 employees in PPO plans now have a deductible of $1,000 or more, which used to be called a high deductible plan. It isn’t anymore. From the healthcare industry’s standpoint, you have to market yourself to patients who don’t want to come in because they have to pay out of pocket. How do you counteract that?
ALLISON: I think you’re going to see a lot more consumer-directed plans. I think you’re going see more quality and price transparency. And I think as those high deductibles increase, people will be asking where they can get the best quality care at the appropriate price.
EARLEY: I hope the healthcare industry, as a whole, will see this as an opportunity to educate and not just to market. Part of that education is how you use the system.
HAWTHORNE: The electronic health record will have a great deal of influence on one’s health. Knowing exactly what’s going on and being able to transfer that information from place to place, I think, will have huge influence on one’s own health.
D CEO: Several of you have talked about the shift to population health, and I think CEOs in other industries will find it interesting that in some respects you’re attempting to move your organization away from the most profitable thing that you do, which is hospitalize people. Isn’t that difficult?
ALLISON: It’s very difficult because how we’re being reimbursed today versus the way we should be reimbursed going forward and treating prevention wellness. For all of our careers what we’ve done is to maximize that reimbursement to pay for all the services that we offer. The opportunity is to see if we can change that dynamic.
MANSFIELD: In our hospitals, the chronically ill are the repeat visitors. And part of the reason is because our systems of care are not well coordinated. Most of us don’t generate an income off the treatment of the chronically ill. They’re actually a cost. If we take care of them in a better setting hat works better for them and us as well, it will create a more intuitive system and you create capacity. I have a concern about what the future looks like if we’re not able to get the chronically ill medical care somewhere other than the hospital.
PODOLSKY: I think this is a very special time because you’re trying to live in two worlds, and the models are in conflict. As we talk about the hospital being the focus, the more overriding thing is looking at value and ultimate outcomes, and being paid for that person vs. piece work.
D CEO: The Affordable Care Act significantly cut funding for what they call “disproportionate-share hospitals.” In other words, those that treat a significant portion of indigent patients get this funding. The vast majority of that funding goes to large hospitals in urban areas and teaching hospitals, which includes pretty much everybody at this table. Those cuts assumed Medicaid was going to be expanded and the health insurance exchanges would mean most of the uninsured would become insured. However, Gov. Rick Perry has chosen not to allow Texas to expand Medicaid. Does this increase your financial burden because you must treat these uninsured patients without receiving this supplemental funding?
ALLISON: We have the largest uninsured population. That group is growing faster than our regular population. The poverty rate is rising. Just because we don’t give them insurance coverage doesn’t mean they don’t show up. We’re going take care of them. That’s part of our mission for everyone around this table is seeing those patients whether they are covered or not. With the Affordable Care Act, U.S. hospitals gave up $500 billion in reimbursement to get the people covered, that was the intent. The disproportionate share cut is significant in Texas, and particularly in Dallas, because we have such a high uninsured population.
HAWTHORNE: There are implications for North Texas employers. The fact is that those who are paying for coverage are paying for those who don’t, and that number keeps getting bigger. The implications are significant for small, middle and large employers who, in many ways, are footing the bill. This is an issue that we have to find a solution for. We will not turn people away, but there will be many longer lines and the impact will be significant economically.
D CEO: The presidential election will soon be upon us. Whether Barack Obama is reelected or Mitt Romney is elected do you think that has a little, some, or a large effect on the healthcare industry going forward?
PODOLSKY: If the election result is a Republican president, maintaining Republican control of the House and a filibuster-proof majority in the Senate, then you would have the possibility of major revision or revoking the Affordable Care Act. President Obama remains in the White House or a minority of Democratic senators can prevent a filibuster, I don’t see significant legislative action that it would take to massively change.
ALLISON: I don’t think it matters. We have to change how we’re delivering care. (The current system) is not sustainable. Whoever is president, we still have to address the issue of how do we deliver higher quality care at a lower cost. I’m concerned about the funding that they put in place. That’s one thing to pass a law, but then to appropriate the funds and we’ve already seen some of those funds be taken away from certain programs. It’s up to us as providers to create solutions. We can’t wait on Washington to do that.
EARLEY: The thing that hurts the healthcare industry the most is uncertainty. You’ve trying to make financial decisions. You’re trying to figure out the number of doctors you need bring in, the amount of nursing staffing you need. I think all of us around this table hope there’s not a lot of volatility no matter who’s elected.
HAWTHORNE: It gets back to the critical nature of collaboration among not just those of us in this room and those who work with us, but certainly the business sector has to be in this as well. The payer sector has to be in this and the government has to be in this to find a common solution. Readers need to know that the relationship among the Dallas-Fort Worth healthcare organizations is remarkably strong. We spend a lot of time together and we understand each other’s roles and missions. We welcome the words and wisdom of the business community to step in as we try to solidify and stabilize an uneven situation and find better solutions for better health.
ALLISON: To underscore what Doug said, we’ve been blessed. We’ve got a wonderful business community here to work with. To Doug’s point, we are working together in the best interest of the communities we serve and the patients of Dallas, and we have to keep the employers and business community in this discussion.
PODOLSKY: I think there are all on target in thinking about the more direct focus on healthcare. I think we would be remiss in not acknowledging the context in which we are going to solve these problems. It’s against the macroeconomic environment of the country. What Washington does do about deficit reduction and what happens to the economy may depend on who’s in that White House. Those could massively compound or facilitate our ability to solve this problem. If there’s a real serious deficit reduction in the next administration, it’s hard to imagine that doesn’t come with greater pressure on healthcare given how significant a part of the federal budget it is.
MANSFIELD: We have an obligation to continue to reform healthcare regardless of what happens in Washington and in Austin. What happens there can make it more difficult. Because Texas leads the nation in the rate of uninsured, I’m more concerned about the decisions being made at a state level over these next couple of years and then at a federal level for the reasons that Dan mentioned. I think it’s going to be very hard to roll back healthcare reform. I do think it’s possible to underfund it and design it in such a way that it makes it very difficult for us to accomplish what we would like to accomplish.
ALLISON: We spend $2.8 trillion on healthcare today. That’s 18 percent of the gross domestic product. And we still don’t have the outcomes that we see in other countries. We’ve got enough money being spent in healthcare. We’re just not spending it the right way. I think if we can, as providers, with the business community help create those new models and a way to pay for the healthcare and do it in the right way, I think we can be successful.
D CEO: During the last legislative session, Medicaid funding to hospitals was cut by 8 percent. That was on top of two percent from the previous session. About 31 percent of Texas physicians accept new Medicaid patients. In Dallas County, that is down to 21 percent and 19 percent for Dallas County primary care physicians. Is it possible to underfund Medicaid to the point where hospitals will say that, other than emergency room, we cannot afford to take Medicaid patients anymore?
MANSFIELD: Medicare and Medicaid are kind of tied together and those decisions have to be made together. I think it would be impossible for our board to decide to turn its back on that population. And so it’s a conundrum because what we’re paid only a portion of our cost for treating Medicaid patients. And those who have commercial insurance pick up a part of that cost and others do indirectly. But as that becomes more intense and as commercial payers and employers look at their P&Ls and realize that healthcare is consuming an ever-larger portion of their expenses, it is challenge for us.
PODOLSKY: I certainly would agree with Steve, and at UT Southwestern, we do and will take care of whoever comes to us in need of care. I feel deeply as a physician there is a moral hazard as colleagues decide that they are not going to see patients, or see just a limited number in a special setting such as concierge medicine. What’s left is for the remaining healthcare system to be responsible for an even larger demand.
HAWTHORNE: It’s a total healthcare issue. It has to be a combination of all of us taking on this responsibility. We are working with the governor’s office today knowing that the 2013 legislative session will be a difficult one. The governor has said we won’t expand Medicaid, nor will we support a state healthcare exchange. We have to find solutions that work for Texas. When the federal government steps in to provide the exchange, that’s going to be a difficult situation. Collectively as an industry, with the business community and the payer community, we can find some solutions. To Steve’s point, we’re owned by the community. Therefore, we must care for the community regardless of payment.
PODOLSKY: I would come back to the very first question posed to us this morning. There’s the challenge, if it’s correct that hospital CEOs are the most difficult jobs. You are responsible for a business and that has to be financially viable and robust. The business is providing something that is moral, and that is healthcare. And that’s what any one pays attention to. We’re putting a dollar value on something that we think is an inherent right to us. As much as people will debate that, it’s not discretionary.
MANSFIELD: The Dallas County Medical Society created a program called Project Access, which we fund, and then the medical society identifies physicians that are willing to take care of Medicaid patients and uninsured. They’ve done a wonderful job. The challenge for physicians is that they are not a not-for-profit business they’ve got to cover their overhead and have a salary. Unfortunately, they can’t do that in this state with Medicaid. One of the biggest challenges we have with our free clinics is we can provide the cost of the primary care. But it is very difficult to find a specialist that will take care of a Medicaid patient.
D CEO: Thank you for joining us this morning. We certainly appreciate your insights.