How Lahey Health's merger spree boosted its population health programs
"You have to match the growth rate to the decline in the utilization rate," says Chief Financial Officer Timothy O’Connor.
Photo of Lahey Clinic from Wikipedia.
For many hospitals, growth through mergers and acquisitions is simple economics. Cobbling provider organizations together allows hospitals to add patient volume when population health strategies are keeping patients healthy and out of the hospital.
It’s that view that has put Burlington, Massachusetts-based Lahey Health on a merger spree since 2012. It’s merged with four community hospitals since then.
“Many of us believe that population health management is likely to continue. That means utilization of healthcare services will continue to go down,” said Lahey Health Chief Financial Officer Timothy O’Connor. “As a result, hospitals want to care for a larger population of patients at the lowest utilization rate in order to sustain their financial viability.”
About 20 percent to 25 percent of Lahey Health’s revenue comes from shared-risk contracts in which it uses population health strategies to care for about 120,000 members, said Allen Danis, Lahey Health’s VP of contracting. In a Medicare Accountable Care Organization, Lahey Health has 35,000 members. It also has 40,000 Harvard Pilgrim members, about 20,000 Tufts members and 30,000 members in the alternative quality contract with Blue Cross Blue Shield of Massachusetts, Danis said.
[Also: Tracking 2015 mergers and acquisitions]
“Each of those contracts allows us to share in some of the savings if we lower the costs of care,” O’Connor said. “But unless you have 100 percent control of the premium dollar and you are sharing risk, you can’t sustain yourself without growth. You have to match the growth rate to the decline in the utilization rate. If there’s a 10 percent reduction in utilization of care, you need a 10 percent growth rate to stay whole.
Growth is a key factor until there are no more hospitals or physician groups to acquire. Then, provider organizations will need other ways to increase revenue, such as higher payments for improved quality, which is what Lahey Health has received from the AQC since it signed the contract in 2012. Under the AQC, BCBS pays hospitals and physicians more if they meet specific quality goals, and it shares the savings if costs at year-end are under budget.
Follow Healthcare Finance on Twitter and LinkedIn.
O’Connor said the AQC contract is well designed because it includes a variety of incentives. “If there is a surplus because we have lowered the cost of care, we can get some of that surplus back if quality is at a certain level compared with the network average,” he says. “The better you perform on quality measures the more surplus you keep if your medical costs are below the budget. If your costs are above budget, you pay a penalty but the penalty is lower if your quality is good.”
By addressing costs and quality, the AQC is unlike earlier managed care contracts. “Blue Cross has aligned costs, which they call the efficiency measures, with the quality measures so that the program focuses on both elements,” O’Connor said. The key is to do better than the network average on the AQC’s quality scores, he said.
Since signing the AQC contract, Lahey Health has pursued a strategy designed to increase care coordination and lower costs. In January 2012, Lahey Health consisted of the Lahey Hospital & Medical Center in Burlington, Mass., which is a 317-bed teaching hospital; and the Lahey Medical Center in Peabody, Mass., which has 10 beds, an ER and some diagnostic and treatment services. It also included the Lahey Clinic, a group of more than 500 physicians.
Since then, Lahey Health added four hospitals. In May 2012, it merged with Northeast Health, which consists of Addison Gilbert Hospital in Gloucester, Beverly Hospital in Beverly and BayRidge Hospital in Lynn. In July 2014, it merged with Winchester Hospital.
Along with Northeast Health and Winchester Hospital came assisted living, rehabilitation, home health and ambulatory behavioral health care services. “That allows us to push the care back closer to the community so that patients get care closer to home at the lowest possible cost,” O’Connor said. Patients needing complex care are treated in the main hospital in Burlington while patients needing less critical care are treated in the other hospitals.
“The combination of the coordinated care along with the addition of the community hospitals and other providers in our network allows us to do things other organizations can’t do,” he said. In this way, Lahey Health hopes to keep costs low and quality high so that it can out perform the competition.
Twitter: @HFNewsTweet
