Physicians Lead the Way at America's Top Hospitals.

LIKE AT LEAST 35 other hospital chief executives across the country, Timothy Johnson, MD, found an unfamiliar packet on his desk one afternoon early last December. Although ACPE member Johnson bustles between administration, the emergency room, and his family medicine practice, he stopped to slit the package open and "took a second to read the cover letter." The news was startling and gratifying. His 99-bed facility in Austin, Minnesota had just been named one of the 100 best hospitals in the United States.

Formerly known as St. Olaf Hospital, Johnson's Austin Medical Center had ranked among the nation's top 20 small hospitals in terms of clinical quality and financial stewardship based on analysis of 1999 all-payer and Medicare cost reports to the Health Care Financing Administration. The statistical comparisons--and the prestigious 100 Top hospital ratings--have been publicized annually since 1993 by Solucient, of Evanston, Illinois.

Solucient, a health care information repository and benchmarking company composed of recently merged HCIA-Sachs and HBSI, renders its verdict after assessing seven critical parameters for each of the 6,200-plus U.S. hospitals with 25 or more beds. They include the previous year's risk-adjusted patient mortality and complication rates, severity-adjusted average patient lengths of stay, expenses, profitability, proportional outpatient revenue, and asset turnover ratio (a measure of facility and technological pace-keeping ability).

Solucient singles out the best in five comparable size groupings: 20 from among small hospitals with 25 to 99 beds in service; 20 from among medium community hospitals with 100 to 250 beds in service; 20 from among large community hospitals with more than 250 beds in service; 25 from among teaching hospitals with fewer than 400 beds in service, and 15 from among major academic medical centers. In all, 3,092 institutions qualified for inclusion in the national study in 2000--1,322 small, 1,130 medium, 242 large community, 297 teaching, and 101 large academic hospitals.

Government, specialty, and long-term care facilities are excluded from the survey, as are those with so few admissions or deaths per discharge (under 1 percent) as to skew the samples. Hospitals operating in the red, no matter how well they fare on other measurements, are kicked out of the 100 Top running too. That's because, says Solucient Senior Vice President Jean Chenoweth, this award is designed to identify "hospitals that provide high quality care, operate efficiently, and produce superior financial results." The 100 Top is a management award, she emphasizes, conceived to "offer the health care industry a direction for positive change."

Physicians at the fore 

Conspicuous among the winners at every level are physician-led organizations like Austin Medical Center, which is part of the Mayo Health System. Even in the majority of hospitals headed by non-physician administrators, however, "the managerial capabilities of medical directors" are the key to success, observes Chenoweth. "They have to have well-honed skills to produce these kinds of results."

The most common characteristic of award-winning hospitals, she continues, is that the leadership is "working together and communicating effectively to all levels of the organization what the goals of the institution are." Those goals, she suggests, can be boiled down to an essence of two: "growth, for which it's absolutely essential that physicians be in touch with the leadership, and that's where the medical director can bring the medical staff together; and continuous performance improvement, which you won't get very far at if the medical staff and the nursing staff are not in synch. So once again, the medical director plays an absolutely crucial role.

"Personally, I would be floored," she adds, "if most of the medical directors at the 100 Top hospitals hadn't had some kind of management training. But whether they've had it or not, they've got to cope with a very difficult job. In all organizations there are prima donnas. Sometimes they're high performers and sometimes they just think they are--but in either case they're barriers to change. And the 100 Top hospitals tend to react to the environment much more quickly than their peers. That's because their physicians are partners in and supporters of continuous performance improvement--meaning improvement of clinical quality and reduction of cost. And those are not independent of each other."

A look at the numbers posted by the 100 Top hospitals as a group offers corroboration. In 1999, mortality at the award-winning institutions was 14 percent lower than at U.S. hospitals overall. They saw 13.6 percent fewer complications. Patient stays at the benchmark hospitals were 7 percent shorter. Yet not only did these institutions spend 20 percent less while delivering superior care--$3,509 per patient versus $4,365 by hospitals nationwide--they also turned a 6.75 percent higher profit (16.4 percent against 9.7 percent on average).

And this despite earning 3.5 percent less on outpatient services than their run-of-the-mill peers, for whom outpatient revenues represented 42.5 percent of operating income. Finally, they created sustainable capital for renovations, equipment upgrades, and expansion into new service lines at an 18.5 percent stronger clip than their competition; net patient revenue divided by total assets at the 100 Top institutions was 1.09 percent, versus 0.92 percent at U.S. hospitals in general.

There were other clear distinctions. Hospitals across the board saw their finances worsen in 1999 in the wake of the Balanced Budget Amendment; nearly half are now operating in the red, notes Chenoweth. At the benchmark hospitals, however, the median cash flow margin last year was 7 percentage points higher, at 16.4 percent, than the median for their peers--the widest gap since 1994. And although total profit margin is not a criterion for the study, Solucient's analysis shows the 100 Top Hospitals did almost 7 percent better on this gauge than did their peers--8.71 percent versus 1.88 percent. A look at the recent past is instructive, Chenoweth suggests.

"Between 1996 and 1997," she observes, "award winners showed a downward trend in profitability (from 11.8 percent to 9.5 percent) while average hospitals were gaining (from 5.06 percent to 5.34 percent). Then in 1997 and 1998, there was an increase in profitability of almost 2 percentage points by the 100, while average hospitals saw a decrease of nearly a point. Between 1998 and 1999, the 100 Top experienced a drop again (from 10.5 percent to 8.7 percent) but it was less than that at average hospitals, where profitability fell from 4 percent to under 2 percent--or by more than half! So there's a very different trend evident here in outcomes during negative times. The management teams at the 100 Top hospitals have found ways to react earlier and more effectively. As a result they were only winged a little bit in 1999."

Solucient's benchmark hospitals aren't thriving by skimming off the cream, either. Their median Medicare case mix indices (a measure of the complexity of patients' conditions) were 14 percent higher than average. Yet through tactics like greater reliance on special care units (which account for 12.3 percent of 100 Top patient days, versus 10.5 percent elsewhere), award-winners consistently run leaner than their peers. In 2000, wage- and case-mix-adjusted full-time equivalent staffing per 100 patients discharged from award-winning institutions was 3.73, as against 4.94 at U.S. hospitals overall. At the same time--and another important element--the 100 Top don't stint on wages.

"We've noticed that the 100 usually pay their people at least a couple grand more than do other hospitals," notes Chenoweth. (The median salary and benefits expense at 100 Top facilities rose $1,446 per FTE in 1999 compared to $856 for the average hospital.) "So while they have fewer staff, they compensate them very well." (Overhead expense as a percentage of operating expense is always higher at 100 Top hospitals than at run-of-the-mill facilities.)

The Mayo model

Like all award-winners, Austin Medical Center performed better on some measures than others. Johnson--who'd headed the 55-doctor Austin Clinic when it joined with local St. Olaf Hospital in 1995 to create an integrated medical center led by physicians under the Mayo aegis--had no question his institution was headed in the right direction. Two years earlier it had been named one of the 50 best non-teaching hospitals in the nation by the Center for Healthcare Industry Performance Studies (CHIPS), a clinical and financial benchmarking subsidiary of the Ingenix Provider Group of Westerville, Ohio. But when the envelope from Solucient predecessor HCIA/Sachs showed up on his desk, Johnson paused to open it "because I realized it might be a big deal." What he read as he glanced over the cover letter, he recalls, was "a very nice surprise."

Austin Medical Center was one of just 36 hospitals to make the 100 Top list for the first time in 2000. Johnson's big-league colleagues Jeff Otten, President and CEO of Boston's Brigham and Women's Hospital, and Mark Neaman, CEO of Evanston Northwestern Healthcare in Evanston, Illinois, might be excused if they were less than astonished to find their facilities ranked among the 100 Top again. Brigham & Women's is the only hospital to have made the cut in each of the eight years since the study's inception. Evanston Northwestern comes in second, having missed out only the first year.

Seven organizations have racked up six awards. One of them is the Cleveland Clinic Foundation, another Mayo-patterned enterprise whose physician-led hospitals--all CEOs are doctors--have won the most awards as a system. In 2000, the flagship facility was joined on the 100 Top chart by sister Hillcrest Hospital, in Mayfield Heights, Ohio. One of eight acute care institutions in the Cleveland Clinic Health System, Hillcrest was also listed among the nation's top 25 teaching hospitals of under 400 beds.

For Austin Medical Center, it was a remarkably low mortality rate and a high percentage of outpatient revenue--both better even than the scores posted by the best quartile of other small 100 Top hospitals--that provided a major boost. As well as outperforming ordinary small hospitals by a wide margin in every category except expense per adjusted discharge ($611 more at Austin than the median among U.S. hospitals), Johnson's facility exceeded the median performance of its own benchmark group on four of the seven assessment criteria.

"I don't know that winning this award implies that we've achieved excellence," Johnson reflects. "I suppose if you're on it ten times in a row it starts to say something. But you're always struggling, and you're always focusing on your own problems, so this is a nice honor to get. It's especially important for your staff, to see that good things are happening. And there are some things we're doing here that do put us in an advantageous perspective."

Foremost among them, he suggests, is "the Mayo model of medical leadership." When Austin Clinic doctors voted to integrate with St. Olaf Hospital and join the Mayo Health System in the mid-1990s, it was with the understanding that the facility's then-CEO, Don Brezicka, would have to yield primacy to a physician. Brezicka readily accepted the subordinate title--but expanded duties--of Executive Vice President of the new organization.

"Becoming part of the Mayo system was a step we'd hoped for for many years," Brezicka explains. "Austin is about 90 miles from Minneapolis, straight south. It's mainly an agricultural environment. Hormel is the largest employer--they have their corporate office, an R&D facility, and a big processing operation here. But we're only about 40 miles from the Mayo Clinic, in Rochester, so it's relatively easy for people to go there. Our clinical performance is critical to our success."

Johnson nods. "We decided to take on the risk of the hospital because, basically, we want to practice in a town that has a good hospital," he says. To be sure, there were plenty of brass-tacks arguments for the three-way alliance--"concerns about managed care, large HMOs, and our inability to negotiate as a small medical center," he recites them. "And Mayo was looking to protect its referral base. But I believe the only real reason to do the merger was that in the long run patients would benefit. That was true five years ago, and it is true today."

As professional associates in the Austin Clinic, physicians were shareholders--owners. As part of a single unified corporation, with a single board and a single balance sheet, they are now employees. And to many local doctors, especially of the old school, that status shift has been uncomfortable, Johnson acknowledges.

"We were always on a production-based salary system," he muses, "so I'd hope they'd say that on a day-to-day basis things haven't changed much. But I think if you asked them a lot would say it feels very different. 'I don't feel I have as much say. I don't feel as much an owner any more.' If they'd step back, though, they'd find that physicians actually have a bigger say over the operation of the medical center than we ever had before. There's an operations committee that's responsible for all clinical and non-clinical functions of the medical center, and that ten-person committee includes seven physicians. So the voice of the physician has, if anything, increased." "Traditionally," he continues, "the hospital has been led by experts in administration, and physicians have viewed themselves as, I guess, independent professionals--to say the least! They were not interested, in the past at least, in being employees--and they were certainly not interested in being held accountable to non-physicians. But Mayo has a rich tradition of partnering physician leaders with administrators and tapping the business-management techniques and expertise the non-physicians bring."

"Before," he admits, "I had no sense of responsibility for whether the hospital had a healthy bottom line. Now I do. And that creates a model that can be very efficient. There is no duplication of services. Everybody is working toward the same goals."

Physicians are pivotal

The Cleveland Clinic, whose founders consciously adapted the Mayo template, "is very much a staff model of medicine," notes Executive Director for Business Development and ACPE member Melinda Estes, MD. Physicians--all employed by the organization-"are involved in every aspect of the business. That's one of the keys. In everything we do, physicians are pivotal."

Indeed, she says, in the early 1990s the Cleveland Clinic Foundation began sponsoring its own in-house mini-MBA program for doctors in leadership roles, taught through Case Western Reserve University's Weatherhead School of Management. "They learned the fundamentals of management, the fundamentals of marketing, all of it. The theory was," she explains, "that everyone needed to be conversant with the business principles by which we were going to go forward."

Although very different in structure from the Mayo or Cleveland Clinic foundations, both Brigham & Women's and Evanston Northwestern hospitals place equal emphasis on--and pay equal homage to--physician leadership as a cornerstone of excellence, according to their CEOs.

Brigham & Women's chief Otten has put at least a dozen of his medical staff members through the Harvard Business School to groom them for high-level, part-time, often non-traditional management positions--like, for example, spearheading an initiative to reduce pharmacy costs. (Thanks to a $1.9 million investment in a computerized pharmacy order entry system under project principal David Bates, MD, the hospital has cut costly medication errors by 86 percent and adverse patient reactions by 17 percent, The Washington Post recently reported. [1])

Brigham & Women's and equally eminent Massachusetts General hospitals are, in fact, exemplars of one of the most successful mergers of academic medical centers in the nation--the Partners HealthCare System. Since 1994, the alliance has saved the two institutions more than $250 million, according to The New York Times. [2] Partners is headed by a physician, internist Samuel Thier, MD.

"We want physicians at every level of leadership," asserts Evanston Northwestern's Neaman, "from chairing departments to sitting on the board of directors. They're extraordinarily integral to this business--by its very nature, by its clinical nature. As an institution we set up teams and provide lots of data...but it's the physician leaders who come up with best practices."

"We think having an MD after your name rather than an MBA is an asset rather than a liability," he goes on. "Although we do have some doctors here with MBAs. We don't hold that against them. But we're not asking the physician leaders at Evanston Northwestern to be accountants. They should be able to read a balance sheet, though, and an operations statement."

Better management = better medicine

Solucient weighs efficiency and financial indicators along with clinical outcomes to determine the best managed hospitals for its 100 Top award. But in a series of allied studies, the spotlight has been focused more specifically on the quality of care delivered at the benchmark institutions. And in this crucial arena too, says Chenoweth, "these hospitals perform differently from their peers."

For example, she reports, when it comes to treating breast cancer, significantly more breast-conserving surgery is done at 100 Top hospitals than at competing facilities--"despite National Institutes of Health standards of care that were published ten years ago! So the slow rate of adoption of breast-conserving surgery at hospitals nationwide is a puzzle. But in any case, it's very clear that the 100 have embraced the standard more rapidly than other facilities."

By the same token, significantly more radiation follow-up of breast cancer is done at 100 Top institutions than at peer hospitals, according to Solucient analysts. And finally, says Chenoweth, "the 100 have been much more rapid adopters of reconstructive surgery performed concurrently with total mastectomy." That, she explains, spares women who've had a mastectomy the unnecessary anguish and inconvenience of having to be readmitted to the hospital later for the reconstructive procedure.

Curious as to how hospitals were implementing the extremely short pediatric length-of-stay guidelines published by the actuarial and consulting firm Milliman & Robertson--which are often enshrined in the coverage and reimbursement policies of health insurers--Solucient in another study found there was "very little tie with real practice at any hospital," according to Chenoweth. Indeed, nearly two-thirds of uncomplicated pediatric patients were hospitalized for longer periods than the controversial Milliman & Robertson guidelines recommended. Children with bacterial meningitis, for instance, would be authorized only three days of inpatient treatment under an M&R regime.

Interestingly, the best hospitals do, in fact, discharge pediatric patients more quickly than average hospitals, the study confirmed. But where Milliman & Robertson "wanted kids with bacterial meningitis out in three days, the 100 sent them home in a little over eight days;" so, Chenoweth draws the conclusion, "these benchmark hospitals do not blindly follow the dictates of managed care."

Neither do they pinch pennies through the false economies so prevalent in U.S. health care. Angioplasty patients at 100 Top hospitals were significantly more likely to be treated with stents and expensive new drugs like Reopro and Integrelin than their counterparts at average hospitals, Chenoweth quotes still another Solucient data analysis. "Yet they had overall lower costs than other hospitals. What's more over a three-year period the 100 had lower rates of repeat angioplasties."

The moral

"In trying to identify differences in clinical practices to see if there's an impact in having good administrators--including the medical directors--who are really functioning as a top management team," says Chenoweth, "the answer is unequivocally 'Yes!' There will be a tendency in the organization to adopt new clinical techniques more rapidly, and they'll have better outcomes."

For his part, Johnson is not at all sanguine about Austin Medical Center's chances of making the 100 Top for a second consecutive year. The problem, he expects, "will be related to the economic aspect." (Unlike the US, News & World Reports' America's Best Hospitals rankings, which are significantly dependent on reputation among a panel of 150 board-certified specialists, the Solucient list is anchored in hard cold HCFA data. (The criteria for the former are listed at the U.S. News website, "How We Selected the Best Hospitals," www.usnews.com/usnews/issue/ 000717/nycu/ methodology.htm.) "You can't," says Chenoweth, "try to win this award."

That, of course, doesn't mean Johnson isn't hopeful. "Here at Austin Medical Center," he declares, "our model is excellence. It's not easy to get to--but when you do, there's not a better way to deliver health care.

"The frustrating thing for physicians today," he continues, "is that they're being hit with what seems to be an overwhelming array of demands--in clinical care, patient satisfaction, reimbursement, quality initiatives...demands are coming down on them from absolutely every angle. But I find the younger physicians who are coming out of medical school are much more at ease with this climate. They take it in stride. Which to me is very hopeful and refreshing."

"I think we've only begun to scratch the surface of the practice of medicine and what the role of the physician is going to be like," he observes. "Especially," he adds, "when patients start to take the reins and manage their own health care. This is all very exciting."

David O. Weber is a health care journalist living in Mendocino County, California.

References

(1.) Brown, David. A New Prescription for Medical Errors. The Washington Post. March 18, 2001.

(2.) Steinhauer, Jennifer. Hospital Mergers Stumble as Marriages of convenience. The New York Times. March 14, 2001.

KEY CONCEPTS

* Physician Leadership

* Top 100 Hospitals

* Benchmark Hospitals

* Medical Director's Role in Hospital Success

* Continuous Performance Improvement

The 100 Top hospitals are selected annually based on seven critical parameters For each of the 6,200-plus U.S. hospitals with 25 or more beds. They include the previous year's risk-adjusted patient mortality and complication rates, severity-adjusted average patient lengths of stay, expenses, profitability, proportional outpatient revenue, and asset turnover ratio (a measure of facility and technological pace-keeping ability). The winners are selected from five comparable size groupings--small, medium, large community, teaching, and large academic hospitals. Conspicuous among the winners at every level are physician-led organizations. Even in the majority of hospitals headed by non-physician administrators, however, the managerial capabilities of medical directors are the key to success. The most common characteristic of these award-winning hospitals is that the leadership is working together and communicating the institution's goals effectively to all levels of the organization.