Peeling Off a Service Line How Hoag Reinvented Orthopedics

If Richard Afable, MD, MPH, president and CEO of Hoag Memorial Hospital Presbyterian, Newport Beach, California, told you he was closing down one of the largest orthopedics programs in California and entering into an orthopedics specialty hospital joint venture with his physicians, you might think about sending him job leads. Yet, not only has Afable’s decision resulted in safer, more effective interventions, it has done so at a lower cost, he told an audience at The 8th Annual Health Care Congress, December 5-6, 2011, Anaheim, California.

“If the alternative was to keep doing it like we always did, and just hope that we could sell that product in a market that is now very much sensitive to value and price, we thought that was riskier than discontinuing our orthopedics service line.”

—Richard Afable, MD, MPH, president and CEO, Hoag Memorial Hospital Presbyterian

Afable undertook the joint venture after becoming a student of Michael Porter’s shared health care value theory: Health outcome achieved per dollar spent. The theory suggests that if health care professionals and institutions invest in their own outcomes, they will be more personally invested in treatment, and more likely to deliver improved outcomes, improved patient experience, and fewer redos and readmissions. To date, Hoag’s demographics have enabled the hospital to be profitable by cost-shifting to the private insurance world, Afable says, while other less fortunate hospitals are straining to reduce costs to make a margin on Medicare. “But there is very little attention being paid to the outcomes that are created,” he asserts. “I would say—and so would Dr Porter—that if we get the costs down, but the outcomes still aren’t good or acceptable, we really haven’t done very much. It’s dangerous, self-defeating, and leading to false savings.” The Deal In November 2010, Hoag Orthopedic Institute (HOI) was established, a joint venture that brought together several leading medical entities in Southern California’s Orange County, including a hospital (Hoag), two medical groups (Newport Orthopedic Institute and Orthopedic Surgery Center of Orange), two independently owned ambulatory surgical centers (ASCs) (Orthopedic Specialty Institute and Main Street Specialty Center), 35 orthopedists, and a 70-bed, nine-operating room facility that was designed as a specialty orthopedic hospital (Hoag Orthopedic Institute). The venture created the largest orthopedic specialty hospital and specialty center west of the Mississippi River. Ownership is split 51% to 49% so that Hoag can retain its not-for-profit status, but governance is 50/50. All of the entities (hospital, ASCs, imaging) are in the joint venture, but the operating responsibility of the organization goes 100% to the physicians. “Essentially, Hoag has become a silent investor, if you will,” Afable explains. Afable provides a list of the results of the first year of HOI’s operations, which included 16,193 cases. Of those, 3,400 took place at the HOI hospital. The majority of those were knee and hip replacements, and about 20% were spinal surgeries. Another 12,732 surgeries were performed at the ASCs, most of which were arthroscopic. The most significant cases were handled at HOI, where there were 2,900 discharges, at an average length of stay of 2.4 days (the national average is 3.9 days). Before and After After the first year, HOI boasted a deep vein thrombosis (DVT) protocol compliance rate of 100%, with every patient receiving the same DVT prophylaxis. The infection rate at HOI is 0.1%, which is significantly lower than the national average at 2%. Afable attributes this success to several factors: the hospital was a de novo build, designed by and for orthopedics, and a standing rule that keeps the door closed on the operating suites after the surgery begins. “Once the case begins, no one leaves, no one enters, and it’s a standing rule,” he explains. Hoag also is one of the few health care organizations that is measuring functional status after joint replacement, but results are premature. Comparison of results before and after the introduction of the new model were impressive: Prior to opening HOI, infection rates were at 0.9%; turnaround time in HOI’s OR is 22 minutes versus 40 minutes before; and cost of care decreased 20% to 25%. “The new shared value business model can really make a difference,” Afable says. “For every 1,000 patients, one would expect 20 readmissions for infections and redo of joint replacements, for a cost of $1.1 million. For 1,000 cases, Hoag expects one infection, and the cost will be $58,000.” Before the joint venture, Hoag Hospital was at the 90th percentile in its Hospital Consumer Assessment of Health Plans (HCAHP) scores, and the orthopedic service line was in the same ballpark. “Our first HCAHP scores at HOI have us at the 98th percentile for patient satisfaction—willingness to recommend,” he shares. “We were pretty darned good at Hoag, at the main campus, and we can’t even come close to the patient satisfaction that is happening at HOI.” Bundled Payment Participation As health care moves away from fee-for-service payments and toward more value-based payments, the HOI is better positioned than most to participate in these experiments. “It became very clear to us early on that we were going to be able to do a bundled payment in a much more predictive way than any organization that has wide variation in how care is provided,” he says. Based on improved values and clinical outcomes, decreased cost of care, and improved patient experience, Hoag is participating in a bundled payment project that is sponsored by the nonprofit Integrated Healthcare Association, Oakland, California, and has contracts with Aetna, Blue Shield, and CIGNA for total knee replacement. “We are also in the Anthem Preferred Network Provider, and we are one of 16 hospitals in California that have been chosen by CalPERS and by Anthem to provide a voucher system, by which patients are given a $30,000 voucher to have a knee or hip replaced. We will take that $30,000 all day, because we know that we can do a pretty good margin on that number, and create better outcomes,” Afable says. Hoag also provides a warranty concept for care that contracts a 90-day period of time. If there are any complications that are related to the joint replacement for 90 days, it is covered by Hoag. “We know that for every 1,000 patients, we are going to need to do a knee redo,” Afable remarks. “We have built that into the business model. We don’t have a problem with that, it’s not failure of care, it is a predictable event in one of 1,000 cases. If it happens five or 10 times, then our model doesn’t work.” Afable admits that launching the new model of HOI was not without problems. Resistance in hospital culture was significant and came from physicians who were not part of the joint venture, and not necessarily orthopedists. “The biggest resistance came from physicians who thought in some way that they were being left behind, as the hospital and a group of physicians moved forward,” he says. “We saw a lot of that early on, but not that much anymore.” The number of cases HOI is handling has increased by about 30% to 40% over the previous (first) year of operation. It also has added more physicians to the original number in the venture (they are not all owners, but they are all participants), and that number continues to expand. Afable predicts HOI will have as many as 70 to 80 orthopedists in the future. Orthopedists believe in this model—a specialty service line that enables them to practice in a safe and very effective way. “Giving to get may be the best process means to future success. We at Hoag had to give with service line, and give with our physicians,” Afable concludes. “What we got was a tremendously valuable new model of care that we believe can, and will, pay off—not only for Hoag and its community, but for the patients we care for.”Rogena Schuyler Silverman is a contributing writer for HealthCXO.com.