Creating the Information-Powered Healthcare Enterprise

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1 Creating the Information-Powered Healthcare Enterprise Surviving the Present and Building the Future of Accountable Care with Integrated Performance Management

2 Hospital and health system executives are driven by unrelenting financial concerns: declining payer rates, rising interest rates on outstanding variable-rate debt and surging spending on the uninsured. And with finances in critical condition, executives must prepare for the largest health reform since Medicare. In the coming era, preparedness and the right tools are key contributors of post-reform success.

3 Creating the Information-Powered Healthcare Enterprise Contents Drivers of Change Environmental Era of Health Reform...3 Integrated Performance Management...4 Forecasting and Modeling: Doing the Right Things...5 Actionable Analytics: Doing Things Right...6 Client Outcome: Controlling Presurgical Costs...6 An Information-Powered Culture...7 Autonomy...8 Accountability...8 Client Benefits from Integrated Performance Management...8 Technology Considerations...9 Conclusion...9 About Allscripts and Integrated Performance Management...10 References

4 Drivers of Change Environmental U.S. hospitals and health systems are operating in an unprecedented period of financial stress. Emerging from the worst recession in a generation, revenues are suffering from declining payer rates and reduced elective spending among financially wary consumers. On the cost side of the equation, rising interest rates on outstanding variable-rate debt, nursing ratio mandates, escalating supply costs and surging spending on the uninsured have all contributed to provider woes. And with hospital finances in critical condition, healthcare executives must prepare for the largest health reform since Medicare. The Patient Protection and Affordable Care Act of 2010 begins a fundamentally restructuring of the incentives and penalties in health delivery system while planning to bring millions of uninsured into public or private insurance. In the coming era of Accountable Care, hospital executives have identified that leader preparedness and the right tools are the key contributors to post-reform success. 1 Experts suggest that recent changes are not just a cyclical downturn but represent fundamental change that will cause new normal as health reform becomes reality. All aspects of this new normal are not yet known, but some of its outlines are already clear: Pressure on operating and nonoperating cash flows will limit capital availability. Organizational consolidation and the integration of physicians into larger health systems will change provider dynamics. 2 Returns will be lower from investments while philanthropy dwindles as a share of long-term funding options. Based on industry estimates, reform will remove $155 billion of Medicare payments to health systems and physician organizations over the coming decade (Figure 1). 3 Noncompliance with clinical standards and preventable readmissions will reduce future revenues through the introduction of quality adjustments to payments. These pressures will set new strategy for health systems as they redouble efforts for improve efficiency, reduce waste and achieve clinical excellence. Health Reform and Accountable Care On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act. While more than 2,000 pages are likely to receive scrutiny and revision in upcoming legislative sessions, the law enacts several reforms of health delivery for which health leaders can now prepare. Those reforms are the introduction of Accountable Care Organizations in January 2012, Value-Based Purchasing in October 2012 and Bundled Payments in January Even if future elections change leadership within the American government, those initiatives are likely to remain in place given their near-term introduction from the legislative timelines. For Medicare, Accountable Care Organizations (ACOs) will be systems of health care providers that agree to be accountable for the quality, cost, and overall care of Medicare beneficiaries assigned to them who are enrolled in the traditional program. 4 This management of cost and quality is intended to span three years and to serve a population of beneficiaries of greater than 5,000. Medicare will reimburse patient services enrolled in the first ACOs according to existing fee-for-service methodologies, but if an ACO reduces total Medicare outlays over time, shared savings will be disbursed as a bonus. ACOs must have formal legal structures with the ability to distribute these savings while maintaining standards on the delivery of quality care. While Medicare is anticipated to lead many health systems to create ACOs, other public and private payers are expected to participate under similar arrangements over time. Medicare Payments Years $155,000,000,000 Figure 1: Industry estimate of Medicare reimbursement removed as part of health reform from

5 Value-Based Purchasing (VBP) is an assortment of changes to payment methods that encourage the achievement of high quality care by health providers. The earliest form of VBP began with non-payment for hospital-acquired conditions (HACs), like pressure ulcers or patient falls, by Medicare in October The Affordable Care Act, however, accelerates the adoption of VBP initiatives by connecting Medicare rate updates to quality metric performance beginning in October Based on quality measure and patient satisfaction performance, eventually 2 percent of the total Medicare payment update for a hospital is likely to be at risk based on quality performance. In addition, reform advances the use of VBP to create penalties for providers with excess rates of 30-day readmission and HACs. Overall, Medicare is rapidly advancing a model where providers and systems are reimbursed differently relative to the quality of care provided, which departs from the conventional fee-forservice model. With the introduction of Bundled Payments, the government intends to foster coordination between physicians, hospitals and post-acute care providers. The means to do so will be distribution of a single payment for all health services associated with a specific episode of care, such as the 30 days surrounding a cardiac surgery. This single payment would be similar to an inpatient diagnosis-related group but would include physician management, consultative and ancillary services normally distributed under the outpatient Medicare reimbursement program (Part B). 5 Bundled Payments could lead to a more packaged, comprehensive price paid for health services in contrast to the fragmented and numerous bills that a patient may receive after an acute illness. In the new model of health reform, total cost management begins to replace fee-for-service incentives. Future profitability will be determined by operating efficiency and information-driven care, not just the quantity of services rendered. Underlying inefficiencies rooted of disconnected people and processes will no longer be an option given scant margins and reduced revenues. Leadership readiness and the right information technology will differentiate the successful organizations that prosper from those that do not. Integrated Performance Management Both the recession and health reform highlight the need for performance knowledge, which could be used for effective management, but often remains siloed in disparate systems. The operation of multiple vendors, interfaces and software packages create information technology environments that are perpetually chaotic and conflicting. Leaders lack integrated data on performance and therefore cannot be confident where to make cuts in staffing, infrastructure or technology. Nor can an organization assess the financial consequences of passing up on new personnel or technology that could be an engine for future growth. In this environment, long-range planning and strategic objectives fall out of alignment with individual executive and departmental goals. This lack of alignment has multiple causes: Budget targets aren t aligned with strategy and value creation Long-range planning doesn t take into account realities in reimbursement, cost and utilization Resources have been committed to projects that aren t strategic priorities Time-consuming budget processes don t produce budget targets that are realistic and gain manager buy-in 3

6 No clear accountability has been assigned to operational managers for budget targets Multiple performance reporting tools have provided different answers in assessing manager performance Despite these challenges, hospitals need to be more agile than ever before. To be successful, health systems must gain visibility into their financial, clinical and operational performance. With this information, leadership can begin to answer two vitally important questions: Are we doing the right things? and Are we doing things right? Yet, to date, enterprises are failing to capture the value of their information resources and therefore do not have a clear, panoramic vantage point from which to assess actual performance and inform strategic direction. Given the new financial and industry realities, a hospital s leadership team and board members require an accurate picture of the organization s strategic and financial footing prior to jumping in new strategic directions. With little help from capital markets to fund strategic plans, cautious and conservative financial planning is required. Financial projections created just three to six months ago may no longer be relevant, so prudent leadership needs to assess and reassess the viability of strategic plans to keep their organizations on course. Despite massive investments in enterprise systems, many hospitals still struggle to make these informed business decisions. Their systems are nonintegrated and disjointed with multiple representations of patients, encounters, products and service lines. Business intelligence (BI) dashboards and reports are expectantly acquired but fail to adequately inform healthcare leaders several factors account for this shortfall. BI often centralizes access to data at the executive level, limiting the ability to allow individuals to create, analyze and model potential solutions in a timely way across the enterprise. Also, BI s retrospective approach to dashboards with predetermined key performance indicators are based on static assumptions. BI and data warehouse approaches are not built to accommodate dynamic prospective analysis, address what-if modeling, or facilitate rapid cooperation between multiple departments across an enterprise. Readmission & Clinical Performance Patient Financials & Profitability Strategic Planning Labor Productivity Managed Care Contracts Performance Reporting & Measurement Patient Financials & Profitability Managed Care Contracts Operations & Capital Budgeting Integrated Performance Management Strategic Planning Labor Productivity Operations & Capital Budgeting Cost Accounting Readmission & Clinical Performance Cost Accounting Figure 2: Left, disparate information systems which don t provide unified performance data to executive leadership. Right, the Allscripts Integrated Performance Management (IPM) solution offering enterprise-wide perspective. 4

7 While useful in measuring progress, BI does not provide the clarity users need for nimble decision-making and timely action. Instead, decision makers require a solution that vets truly useful insights hidden in terabytes of data assets. A practice called integrated performance management (IPM) a holistic approach to performance management from planning, budgeting and forecasting to reporting, and performance measurement offers a new path to this insight (Figure 2). IPM combines decision support software, automated reports, knowledge management, alerts and human analytics to enable organizations to pull, customize and integrate data from different systems into one place for timely analysis and response. IPM provides an up-to-date view of what is occurring enterprise-wide, enabling organizations to clearly visualize how financial, clinical and operational areas perform in relation to each other. As compared to BI solutions, IPM employs a decentralized approach to data, knowledge and accountability, enabling action at multiple levels of the organization to change existing processes, manage risk, capitalize on performance improvement opportunities, and adjust planning, budgeting and forecasting on the fly. Powerful model-flexing capabilities enable users to factor in variables that can affect strategic plans, such as treatment patterns, payer mix, rates, market share or cost structure. The result is faster identification of fundamental service-line business issues to help avoid costly missteps and to achieve improved operational and financial outcomes. Hospitals guided by IPM tools can identify and anticipate patterns, strengths and weaknesses, and make informed interventions to continually calibrate their trajectory toward strategic objectives. Forecasting And Modeling: Doing The Right Things The pace of change associated with fluctuations in patient volumes, the rise of healthcare consumerism, reimbursement reform, and the turbulent economic environment is making it increasingly difficult to know whether an organization is doing the right things to be successful. Healthcare organizations must become adept at rapidly adjusting to market forces and seizing opportunities to make gains and stem losses. Market-based drivers and organizational factors necessitate constant reforecasting and dynamic assessment of projections and performance. To be agile, organizations need to be able to model what-if scenarios impacting the current service line mix and other factors affecting investment. But knowing which course of action is the right action requires consolidation of data resources from all parts of the organization. An IPM approach brings together information from all organizational units and provides a single view of operational, clinical and outcomes metrics to forecast how market changes will affect performance over the next month, next year and several years from now. This level of prescience enables leaders to manage expectations and respond to change by allocating and reallocating resources intelligently to realize strategic goals. IPM modeling allows leadership to simulate the effects of changes in market demographics or services in a very precise way. For example, IPM analysis may help evaluate the optimal manner in which to increase revenue of a particular service line by a target percentage, thus illuminating a path from data to actionable knowledge. Within hospitals and health systems, high-level strategic initiatives must be modeled down to the department and/or cost center level if they are to be successful. 5

8 As alternative business-condition scenarios are modeled and financial statements projected, performance is dependent on the operating department s ability to manage and adjust to expectations across the enterprise over time. IPM tools enable an organization to translate strategic forecasts into operational budgets. IPM modeling accounts for actual volumes and results, so budget variance analysis can be tracked for volumes, expenses, labor allocations and charge items. Unlike traditional static plans developed from snapshot data and unsubstantiated assumptions, IPM budgeting draws data from strategic planning seamlessly into the operating budget. Any subsequent operating budget updates are likewise synchronized back to the strategic plan. The result is alignment of budget and strategic plans at all times. In this way, product-line analysis and business objectives are integrated with long-range planning. A final but important feature of IPM systems is the capability to measure the organization s performance against relevant benchmarks. IPM is facilitated when organizations compare their clinical and financial performance against their peers, both locally and nationally. Several knowledge management firms such as Thomson Reuters, the Institute for Healthcare Improvement, the Advisory Board Company, SG2, Premier Inc., the Studer Group, and VHA Inc. and other 3rd party sources provide benchmark data that may be integrated into an IPM process to identify performance improvement opportunities and confirm success. Actionable Analytics: Doing Things Right In an industry that pays for performance and mandates concessions for substandard care, success calls for managing not just finances, but also the clinical and operational factors that affect them. Manual approaches to merging quality, clinical and financial data to assess organizational performance will not withstand the demands of reform. While payers are establishing a flood of new measures, providers must work to establish accurate and timely datasets reflecting patterns of performance. Establishing an accurate price in relationship to cost in the new normal will be even more difficult than under the traditional environment of fee-for-service payments. Though few hospitals employ adequate tools, the Healthcare Financial Management Association anticipates that a bundled payment system will require hospitals to: 6 Estimate how many cases of a given condition are likely to occur during a year based on an analysis of the population covered and statistical averages Use the evidence-based protocol for that condition to determine the treatment activities related to the condition For each treatment activity, determine: The resources (e.g., equipment, facilities and supplies) needed to perform the treatment activity; the practitioner most likely to use these resources; the location where the activity most often is delivered; the length of time needed to deliver the care Use this information to estimate the total cost for an episode of care related to the treatment protocol. Multiply the cost by the estimated number of patients who will require this treatment pathway over one year Add the required margin to the cost and adjust the result to take competitors pricing positions into account. IPM becomes requisite to effectively determine the actual risk of sustained financial loss on bundled payments and hence the pricing of the bundle Likewise, IPM tools assist in measuring quality of care, emerging as a critical determinant of Medicare reimbursement levels and ensuring that factors such as HACs do not reduce payment. IPM becomes a platform to integrate financial, 6

9 operational and clinical impact, and demonstrate performance against The Joint Commission and CMS quality measures. Additionally, IPM empowers improvements in operational efficiency. Consider a hospital seeking to identify the root cause of declining revenues through an IPM analysis, the organization can assess stratify and examine actual versus expected revenues by payer and service. CONTROLLING PRE-SURGICAL COSTS A 500-bed medical center uses IPM to alert executives whenever pre-surgical costs exceed an assigned threshold based on analysis of historical data. When monthly costs exceed the target, IPM notifies management to explore the data for the cause of the variance. In 2008, the analytic dashboard alarm went off. Management first examined data across the enterprise and discovered that pre-surgical costs for patients scheduled to receive pacemakers exceeded the cost of other comparable procedures by $200,000 monthly. Management then drilled into the data to scrutinize pacemaker cases according to level of service (LoS). Further analysis at the procedure level evaluated individual physician performance, revealing the true causes of the cost overrun: Physicians not prescribing the proper procedure or using unnecessary pre-op resources Scheduling and capacity issues Surgeries that were delayed because of the patient s condition Armed with this knowledge, the medical center sprang into action, scheduling surgeries at appropriate intervals to ensure operating rooms were available and making sure surgeons arrived on time. Understanding that surgeries were justifiably postponed when patients were too ill set the proper expectations and increased the perceived value of close patient monitoring prior to surgery Our mistake was building a warehouse to support the 20 percent of users with the most complicated needs. When we switched to a tool that only had 70 percent of the functionality but was useful to 80 percent of our users, we saw an unbelievable increase in the number of users who produced reports from our warehouse. Data Warehouse Manager University of Utah Hospital An Information-Powered Culture IPM creates value by combining the power of technology, information, people and process through all stages of the management cycle, from planning and budgeting to measuring and evolving over time. Unlike complex data warehouse solutions, which serve a small number of power users, IPM is designed to turn data into insight at all levels of the organization. Our mistake was building a warehouse to support the 20 percent of users with the most complicated needs, said the data warehouse manager at the University of Utah Hospital. 7 When we switched to a tool that only had 70 percent of the functionality but was useful to 80 percent of our users, we saw an unbelievable increase in the number of users who produced reports from our warehouse. Indeed, the value of an IPM approach is intrinsically tied to the autonomy with which individual users at various levels of the organization may pursue answers to financial, quality and efficiency issues. Secondarily, IPM strategies employed within a culture of improvement create a solid foundation for instilling performance accountability. Autonomy The strength of an IPM approach is that any authorized user can investigate a critical question or problem on an impromptu basis. Reporting modifications can be created 7

10 almost immediately, without submitting a request to the IT department to create new queries or a new report, which may require days or weeks to deliver. Organizations that use IPM empower users to take ownership and act autonomously, which helps them to navigate the complex inpatient environment more skillfully over time. As individuals incorporate IPM in their daily work, institutions learn what they should do differently to save money, enhance margins, improve operations and optimize the quality and cost effectiveness of care. Accountability With greater self-awareness, an IPM-empowered organization can begin to determine whom to hold accountable for any given strategy. CFOs and other senior executives are able to conduct monthly operations reviews at each facility to assess progress on strategic priorities. The data-driven executive sessions require managers throughout the hospital or across the health system to use IPM tools to evaluate and improve clinical, financial and operational results continuously. Resources are allotted to managers demonstrating data-evident needs. When a department or team identifies and successfully increases revenue or reduces costs, these best practices are shared with counterparts in other areas of the organization during routine operations reviews. Ultimately, individual compensation may be objectively tied to performance supported by IPM outcomes. Demonstrable results of IPM use have been associated with margin improvements of $25 million for large health systems. REALIZING THE BENEFITS OF IPM Each year at an annual user s conference, leading health systems throughout the United States share examples of how the tools of Integrated Performance Management (IPM) have been applied to their organization. These presentations highlight how IPM unites clinical and financial knowledge and prepare systems for the upcoming demands of health reform: Measuring Readmissions and Preparing for the Payment Stick (2010) Leveraging Patient-level Data and Costing Results to Drive the Operating Budgets (2010) Managing Productivity with a Performance Management Solution (2010) Using Performance Management Data to Assess Impact of Healthcare Reform (2010) Measuring Hospital Acquired Conditions Using Sunrise EPSi (2009) Realizing an Enterprise Vision: Consolidating Disparate Systems with Standard Methodology (2009) The organizations that realize IPM s benefits vary in size and geography but share a common commitment to use data for informed business decisions. Demonstrable results of IPM use have been associated with margins improvements of $25 million for large health systems. 8 Case studies and presentations are available to user conference attendees and available upon request. 8

11 Technology Considerations Tighter integration among disparate data sources will be mandatory to support strategic business planning and its alignment with operational performance. To be effective and lower the cost of ownership, an IPM solution requires a high degree of data integration, using a single-database solution to deliver one consolidated view of information for all executives, managers and analysts. Consolidated views of data enable discovery and analysis that can immediately provoke action. A single-database solution also provides an integrated approach to terminology and data consistency. Cleaning and standardizing data from disparate information systems presents significant challenges in coordinating hospital-wide and systemwide performance comparison and improvement. A single database enables care organizations to conform terminology used in product-line definitions, outcome measures, general ledger expense line items, and revenue models. Database consistency translates into uniform reporting, and fewer data-synchronization issues exist with the single database. Interface development is kept to a minimum and there is little duplicative effort required for report writing, model building and data loading. The IPM platform offers customizability in addition to the single, standard database schema representing the core elements to measure and report on performance. Users can import and manage data elements unique to their organization through IPM technology and report on this data through the same reporting engine. This approach to IPM provides common look and feel across all modules making it easier to cross-train users, especially in the face of employee turnover. Budgeting, capital management, strategic planning, service line profitability, productivity, daily dashboards, cost accounting, and departmental financial statements all share the same interface. This consistency significantly reduces the strain of disparate reporting engines and reduces the complexities of multiple licensing agreements. The unifying technology becomes the acknowledged source of data for informing business decisions and is why IPM users have expressed vendor-leading satisfaction with the solution. Conclusion The stakes are high. Uncertainty and change are a given for the foreseeable future. However, a difficult financial environment means that care organization executives cannot afford to take a wait-and-see attitude. To succeed in the new normal, leadership teams must commit to in-depth strategic and financial analyses and continual reassessments and updates of these analyses. IPM boils down to a continuous process of planning, measurement and intervention that supports better, more informed decision-making. This dynamic process offers users access to detailed clinical, financial and operational data in near real time, helping them run their business better. IPM positions organizations to be agile as market pressures and reform escalate. The reality for most healthcare systems is that most information is scattered in silos throughout the enterprise, while departments and service lines use different data in different ways. In such disconnected scenarios, it is next to impossible to understand how strategic planning and operating performance align. 9

12 IPM solutions that provide an unprecedented single-database approach are available, integrating business planning and forecasting, operational and capital budgeting, cost management, reimbursement, productivity, reporting, and executive dashboard-driven analytics. These tools enable organizations to decide where to invest capital and how to effectively manage costs, develop long-range business plans, and accurately optimize service-line mix and performance. An integrated architecture, database and functionality enable the linking of the strategic plan to the operating budget to provide the vision needed to navigate the future. About Allscripts Allscripts (Nasdaq: MDRX) provides innovative solutions that empower all stakeholders across the healthcare continuum to deliver world-class outcomes. The company s clinical, financial, connectivity and information solutions for hospitals, physicians and post-acute organizations are the essential technologies that enable a connected healthcare community. To learn more about Allscripts, please visit Twitter, Facebook and YouTube. About Sunrise EPSi Sunrise EPSi provides integrated analytics, budgeting and knowledge-based decision support designed to bring together all the major components of financial management strategic planning, product line budgeting, cost accounting, and operational and capital budgeting to more effectively and accurately plan for the future and address the financial challenges facing healthcare organizations today. A fully integrated, web-based solution that can load and process data from virtually any healthcare or business software or system, Sunrise EPSi has been awarded peer-review status by the Healthcare Financial Management Association (HFMA). For More Information To learn more about Allscripts, Sunrise EPSi and other Allscripts solutions, please visit our web site at to contact us. Important Information about this Document This document (and related information provided by Allscripts) contains Allscripts current business views and opinions on certain current and anticipated rules and laws. It is intended as an informal guide only, designed to assist our clients and prospective clients in their evaluation of whether our products and services can meet their business needs. You should not rely on any of this information in making business decisions. None of the information constitutes legal advice or a legal opinion on how any of the referenced rules or laws apply to you or your organization or any other matters. We encourage you to seek your own legal counsel and conduct your own analysis on the matters raised if you feel they are important to you or your business. Although we believe the factual information we are providing to be accurate, we are disclosing it (and related information) without any representation or warranties of any kind (such as those relating to accuracy, currency, completeness or suitability to your business). 10

13 References 1. Eclipsys Executive Forum Whitepaper. Recommendations for Accountable Care Organization from 17 hospital leaders. October New York Times, More Doctors Giving Up Private Practices. March 26, AHA Press Release. Statement about Agreement with White House and Senate Finance Committee on Health Reform. AHA Joint Press Release with Federation of America Hospitals and Catholic Health Association. July 9, Medicare Accountable Care Organizations Shared Savings Program New Section 1899 of Title XVIII Preliminary Questions & Answers. October The Advisory Board. Thriving Under Bundled Payments. December Healthcare Financial Management Association. Healthcare Payment Reform: A Call to Action. June The Advisory Board. The Information-Powered Health System: Leveraging Analytics to Achieve Breakthrough Improvement. February Eclipsys White Paper. Mastering Root Cause and What If Analysis with Integrated Performance Management. Case Study of Memorial Hermann. November EPSi13_Whitepaper_5_9_11 11

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