What is our Medicare Margin?

We have often discussed the power of the board asking questions.  With the current focus on reducing the federal debt, a critical question for boards to ask is: What is our Medicare Margin?    In other words: do we make money; lose money; or break even treating Medicare patients?  Currently, the vast majority of hospitals lose money on Medicare, with a negative margin of about 13% (i.e., for every dollar they spend treating Medicare patients, they get reimbursed 87 cents).  With the Baby Boom generation about to swell the Medicare ranks it will be impossible to reduce the federal debt without significant cuts to the Medicare program.  In fact, several financial experts go so far as to say that the federal debt IS Medicare.  As the Medicare population grows and as hospital’s ability to cost-shift decreases due to increasing numbers of uninsured and a variety of other reasons, it will be impossible for hospitals to generate positive margins unless they can at least break even on Medicare.  It may well be true in the near future that if you can’t make money on Medicare, you can’t make money.  To be able to survive in that future, the board must start the difficult journey now by taking honest stock of the challenge by asking: what is our Medicare margin?

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Get a grip on reality

The boardroom is a long way from the bedside, and there is often a large gap between what senior executives think is happening, and what is actually going on at the front lines. In safety, for instance, the senior executive team might believe that key safety practices such as pre-procedural timeouts, infection control bundles, and safety briefings are in place, simply because they’ve held a number of educational sessions on these matters, and are now receiving reports that say the practices have been implemented. But it takes far more than some “inservices” to eliminate the numerous operational and cultural obstacles to these new safety practices, and to embed them deeply into daily work. One key way to close the gap between the boardroom and the bedside is to make a regular practice of “reality rounds” by leaders. For a major new process such as the implementation of surgical checklists, I recommend that the CEO spend one hour a month doing scripted observations in the operating room. (The CMO might do this an hour a week, and the VP of Surgery an hour a day.) The executive team would quickly learn whether the new practices are simply another “tick the box” exercise, or whether they’re really changing the culture. Most importantly, the team would have many opportunities to say “attaboy” and “attagirl,” and would learn about all the operational obstacles that stand in the way of your frontline staff when they try to implement these practices. If you want to learn more about this sort of scripted rounding, take a look at this paper that I wrote with Kerry Johnson of Healthcare Performance Improvement.

Rounding to Influence Reinertsen Johnson

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Measure important indicators “two time units faster”

One of the key lessons I learned as a CEO was to develop and use a weekly set of key financial measures. Monthly or quarterly reports were much too slow to allow the executive team to respond to problems, adjust strategies, and steer execution of financial plans. The same thing is true for clinical quality and safety data. If the senior executive team and board are serious about improving safety performance, they need to measure the important things—the number of patients harmed, for instance—every week, not every quarter. Don Berwick once said “The rate of improvement of anything is inversely proportional to the time between measurements.” A good rule of thumb is to speed up your measurements by two units of time i.e. if you’re currently measuring annually, begin to measure monthly. If you’re currently measuring quarterly, get weekly data. If your reports are monthly, go to daily measurements. You can’t do this for everything you measure—but you can do it for many key indicators of quality and safety. In the British NHS, even risk-adjusted mortality reports are available to hospitals daily! So don’t settle for your current pace of measurement. Go “two time units faster.”

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Set a FEW High Aims

Last week’s tip advocated for boards to insist on high quality and safety aims, rather than “achievable” ones. But how many high aims can you hope to achieve? The experience of organizations in and out of healthcare is that no matter how many aims they have, they’re unlikely to achieve more than 2 or 3 breakthrough company-wide aims in any given year, So this week’s tip is to set a FEW high aims. If the best organizations in the world can only achieve 2 or 3 big breakthroughs at any one time, what makes you think your hospital can aim at 19 quality “targets?” The next time you’re reviewing the hospital’s quality dashboard, try to figure out how many truly ambitious system-wide aims you have (system-wide means not about any one disease, department, or specialty). If it’s more than 2 or 3, you might need to reconsider.

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Aim High

When considering quality aims, leaders often argue that staff will be demoralized if they fail, and therefore advocate for goals that are achievable. (And, of course, if achievement of the aims is part of the executive team’s “variable incentive compensation” system, that’s another factor that leads toward low aims.) As a result, many boards adopt relatively tepid aims such as “reduce the incidence of infections by 10% in FY 2011.” Unchallenging aims of this sort allow those responsible for them to think “If we just do what we’re doing now, a little bit better, we can achieve the aim.” They don’t push staff to innovate. And they don’t inspire, because even if the aims are achieved, few regard the improvement as meaningful.

A better way to aim is to consider the gap between current performance and the theoretical ideal level of care, and then to frame the aim aggressively. For health care acquired infections, the theoretical ideal level is zero. So an ambitious aim would be to “Close the gap between the current level of infections and zero by half, within a year.” Achieving such an aim would require real change in practices and culture. And even if the aim is not fully achieved (e.g. a 40% rather than a 50% reduction) staff will recognize that they have made real, rather than token, progress.

The next time you are faced with the task of adopting aims for quality and safety, ask “what would the theoretical ideal performance level look like, and why don’t we set our aims in reference to that?”

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Not So Fast! Don’t Make Quick Decisions.

Often, boards and medical leadership groups will find themselves making “rushed” decisions, where the group must make a decision at the same meeting where the issue has been first presented.  While emergencies and opportunities may make this occasionally necessary, it should be the rare exception and NOT the rule for decision making.  To address this, best practices boards and leadership groups develop a “decision sequencing” policy:  they inform their executive management, committees, and others who report to them that they always want to be informed of a recommendation or proposed decision several meetings before the decision will actually be voted on.  This provides the board with the opportunity to discuss it, sleep on it, and ask for additional information or formulate other options.  It helps generate better discussion and decisions, and greater ownership of the decisions – and their consequences.

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Board Chair Job Descriptions

A significant part of a board’s effectiveness depends upon the quality of its leadership: the board chair.  Unless the position, duties, roles and responsibilities, and authority of the board chair are clearly defined the effectiveness of the board tends to fluctuate as a function of changing board chairs:  personality, not principle and policy, dictates board culture and functioning.  To prevent this, a best governance practice is the development and use of a written board chair job description.   This will answer basic questions such as: Is the board chair accountable to the board; or, does the board chair control the board?  Who is the boss of the CEO: the full board, or the board chair? From the answers to such foundational questions a full written job description can be developed that then serves as the basis for the recruitment, orientation, and performance evaluation of the board chair.

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Balance the Power Structure of the Board

Great boards are effective teams that share the work load and balance decision-making responsibility. Such boards avoid consolidating power among a few members; they consciously attempt to preclude the development of an “inner circle” of power.  Great boards make a conscious and recurring effort to balance the power structure of the board.  They reserve most decision-making authority to the board as a whole and they make certain that critical functions and delegated decisions are distributed among several different board committees.   Executive committees, if they exist at all, have clearly defined – and limited – authority and scope of responsibilities.  The important task of board member recruitment, board development, and board and board member evaluation is assigned to a separate committee, such as the governance committee.  Who is in charge?  The right answer is: The Board. To get to the right answer, balance the power structure.

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Start the right legends

The people in an organization watch, and talk about, the people at the very top. Peter Drucker said “Leaders are highly visible, they therefore set examples.” One way to harness this attention is to create legends around certain events and decisions. For example, one board, upon learning of several near-misses caused by defect in the “crash carts” used in cardiac arrests, asked for a corrective plan to be brought back to them. A month later the plan was presented, with a 12 month timetable for rollout. “Why so slow?” was the board’s question. “Because it will cost $800,000 and it’s not in this year’s capital budget.” “It is now,” said the board. And an immediate buzz went out throughout the organization: “This board really cares about safety.” Whether you’re conscious of it or not, you are creating legends at every meeting. What are they? What could they be? Are they taking your organization in the right direction? Start the right legends.

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Ask “How were patients and families involved in making this recommendation?”

The next time your board committee reviews a proposal for a new facility, or a new service, or a revised care process, or virtually any other change to the system, ask the proposer to explain how patients and families were involved in the design process.  If patient and family involvement has been a token effort, you’ll hear answers like “Well, we held a focus group after we’d come up with the design, and the patients gave us a lot of good comments.” True involvement will produce answers such as “Three patients were voting members of the design committee from day one. They held numerous design review meetings with currently active patients, and have brought many innovative ideas forward into the final plan.” Too many “patient involvement” programs are thinly disguised marketing efforts rather than a genuine sharing of power and control. Boards need to know whether patients and families were really involved in designing their care systems.

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