For more than a decade, the managers of North Shore-LIJ Health System have been working toward integrating all aspects of their operations to gain efficiencies and deliver better care. The result of more than a dozen mergers, the North Shore- LIJ network today includes 15 hospitals, two clinical affiliate hospitals, 300 physician practices and 19 long-termcare facilities, most on New York State’s Long Island. It has grown to become the second largest nonprofit secular
healthcare system in the United States, with an annual operating budget of more than $6 billion. But in healthcare, bigger isn’t automatically better, and to accomplish such a monumental consolidation required not only a sound master plan but also blending employees from diverse organizations, persuading independent-minded physicians to work together, and identifying and nurturing a core group of future leaders. Michael Dowling, president and CEO of North Shore-LIJ Health System, describes the process and what may change as healthcare reform takes hold.
What were your goals in pursuing consolidation?
In the early 1990s, North Shore University Hospital was one of the first organizations on the East Coast to begin creating an organized system out of multiple independent hospitals. While each merger was unique, they all involved a single strategy: integrating services and finding efficiencies through consolidation.
The reason was an issue that continues to drive change — concern about a decrease in Medicare [the U.S. government health insurance program covering everyone age 65 and older] reimbursement that would hurt inefficient organizations. Back then, neighboring hospitals were duplicating services — two facilities a mile apart might each do 400
deliveries a year when you needed to do 1,000 to have a good program. Thanks to the pressure to become more efficient, there are very few freestanding hospitals left. There is also much more pressure to be accountable for patient outcomes and to be more focused on managing communities and dealing with chronic illness, on keeping people out of the hospital who shouldn’t be in the hospital.
What are the first things you do after a merger, to set the stage for change?
It starts with the people. One reason we have done better than most at integrating facilities is that I personally spend a lot of time on personnel. You begin by making it clear:
“We will be reducing redundancy, and we will put everyone on the same metrics to measure outcomes.” Then you work with the people to make sure they understand. And if they can’t get it and don’t want to, you change them out. Few of the people who were running our facilities 10 years ago are working in the same capacity here today. I want people who are looking forward, not back. You can’t get anywhere with people who think it is the 1980s.
Next, you educate everyone on the front lines that this is how we will move forward. Then you begin combining services. It quickly becomes obvious which integrations are hard and which are easy, and so you start with the easy ones. But even though we’ve gone through this many times and we know how to do it, a merger is still very hard. It is all about relationships. You have to get them right.
What is the biggest challenge?
Dealing with clinicians. For a merger to succeed, physicians need to work together, but their training doesn’t prepare them for that. They are very bright, but very competitive, and you have to spend an awful lot of time getting them to trust you and to trust other physicians. That requires face-to-face communication — you don’t do this by sending a text message.
Because this part is so challenging, there’s a tendency to focus on human resources and back-office finances and to shy away from bringing clinical functions together. But we have managed to integrate physicians across multiple hospitals and facilities. We have a single administrative system, a single clinical leadership and a single board structure. Everything is transparent, and all the metrics are standardized. We hold people very accountable.
How do you engage physicians?
The best way is to focus on quality and safety. If you talk about saving money, they will never work with you. Because when you put two doctors in a room and say, “I’m going to save $100 million,” they’re both thinking, “Which one of us is going to lose that money?” And so they start hiding their expenses so the savings won’t come out of their budget. But if you bring them together around the idea of improving quality, no one will disagree with that goal. And then, as part of that process, they will begin saving money. You also need to make sure you put the right people in leadership positions.
They may not be the ones with titles, but they can be informal leaders and use their influence to bring others along. You also need to build future leaders. We have a program now that has provided two years of training for 100 physicians. I expect that five years from now we will have a whole cadre of new clinical leaders. But to make that happen, you have to start working on it today, and you have to acknowledge that it is a never-ending job.
What does it take to make a merger work financially?
You have to become more efficient. But when you take out costs, you want to make sure you change the process so that the money that comes out, stays out. You have to set up processes to eliminate waste. To do that, it helps to have outside expertise from an organization such as FTI Consulting.
In working on our supply chain management, FTI Consulting gave us an honest evaluation of what we needed to do to become more competitive. Because they work with healthcare organizations throughout the country, they understand both the complexity of our business and the opportunities, and they have been able to help us incorporate industry best practices. We are now working with them to develop a distribution center for all of our supplies and to create a group purchasing organization. They have also collaborated with us on staff evaluations, management and leadership scenarios. We have achieved supply chain savings of $100 million, and we have seen improvement in every metric that we use to measure ourselves. We are now among the best in the country in a number of areas, such as purchasing expenses, patient discharge practices, staff turnover, patient satisfaction and employee engagement.
How does the healthcare reform legislation affect your plans?
I don’t worry a lot about healthcare reform. My view is that we should be promoting change, not moaning about why the federal government wants to measure performance and pay us accordingly. No one should have to tell me that I need to be transparent, to have a safe hospital and to reduce mortality.
The fee-for-service method of payment is archaic; it has all the wrong incentives. So we have to shift to getting paid for performance. We should not just be in the sickness business. We should be in the wellness business. Providers should become advocates for reform. We have to get out in front and say, “This is the way we should be doing it.” We are doing that in our part of the world.