by Jon Saxton

Rather stoic by nature, Emory Healthcare is by all appearances the same busy center of excellence that for decades has been Emory's hallmark. But, beneath that exterior, the signs of pain and distress fester. Though not mortally ill, Emory Healthcare suffers from a complex set of "market challenges," some chronic. But ours is not an isolated case. Experts, from economists to biostatisticians, have identified a widespread, insidious epidemic that stretches across the nation.

Symptoms here first appeared in the mid-1980s and, despite years of expert intervention, have been growing progressively more troublesome: Anemic and unsteady payments for service. Departmental reserves wasting away. Gaunt budgets. Bloated costs for new drugs and medical devices. Constricted flow of skilled nurses and other essential health and hospital staff. Rising temperatures among clinical faculty burdened with stagnant or falling incomes and increased patient care loads. Elevated blood pressure among administrators charged with managing ever-increasing demands and ever-constrained resources needed to fulfill clinical, research, and educational goals.

The system's long-term prognosis is positive, but as John Fox assumes his CEO responsibilities, Emory Healthcare faces an operating budget shortfall in the millions of dollars next year, with the following three or four years looking equally difficult. It's a tough spot -- even for a superb strategist with a national reputation for healing health care bottom lines.

"Emory Healthcare is in the midst of a really tough middle game," says Fox, an avid chess player, referring to the point in a chess game between the often stylized and predictable opening and the end-game sequence of moves. The middle game is where tactics, strategy, creativity, and the ability to manage and dominate amidst complexity and time pressures are paramount.

"We are a few important pieces down in a game that matters to the health and future of a whole lot of people. But still, I like our chances," says Fox. "I think we can improve our position with some key moves."

And just what would constitute "success" in this complex middle game that Emory Healthcare finds itself in? Fox is quick to answer: grow clinical revenues 25% over the next three years.

"I am convinced," he says, "that Emory Healthcare is an underdeveloped brand in our market. We're not nearly as big and powerful as we could be." And with the spark in his eye of a player who has thought through a powerful combination of moves, he says, "We need to grow our brand, but even more important, we need to grow our product into the brand."

In that quick synopsis, Fox articulates the three goals of his strategy -- much like a complex "combination," a series of planned chess moves that anticipate or even force the moves of the other player.

That's partly because Emory Healthcare must do more than just provide care. EHC is an integral part of a university also dedicated to teaching young professionals and to conducting groundbreaking research that can improve health care. It is also about maintaining clinical services and specialties that are not profitable -- ones that a purely profit-driven business would not maintain, but that are important to our clinical or academic missions.

The high overhead also has to do with significant factors beyond Emory's control, which especially worry Ronnie Jowers, the WHSC's chief financial officer. This includes everything from the costs of medical supplies, drugs, and devices to Medicare cuts and labor shortages.

"The nursing shortage alone," explains Jowers, "has cost us about $10 million in temporary staffing over what we had budgeted. Medicare cut physician payments by 5.4% last year and may do so again this year. That's a $2.6 million cut annually."

Also looming are the next wave of Balanced Budget Act cuts, mandated by Congress in 1997. In the next fiscal year, Emory could lose $4 million in funding that supports the costs of resident training in our hospitals. And then there are malpractice insurance rates, slated to rise nationwide next year anywhere from 30% to more than 100%. At Emory, initial estimates were for an astounding $6 million increase, though this has been reduced to "only" $3 million by an aggressive underwriting reassessment.

Another source of unanticipated costs will result from the almost completed $270 million redevelopment of Emory Crawford Long Hospital (ECLH). "Projections we made when the project was approved showed the hospital in the black in the first year after the rebuild through patient volume growth and cuts in staffing because of better engineered facilities," says Jowers. "But in a changed environment, we've already seen a big jump in volumes and have already made and accounted for the cuts. It now may take several years to further increase the patient base and revenues necessary to offset depreciation, interest, and other related expenses."

And when questioned whether Emory's seemingly overloaded clinical system can handle more patients, he is quick to point out what he believes is a lot of underutilized capacity.

"Frankly, I think that underutilized capacity is one of the big, not-so-well-kept secrets around here," quips Fox. "Mondays and Fridays, the clinic feels like a ghost town. And we have a team studying operating room capacity as well.

"Capacity utilization at this point is as much about lifestyle and tradition as it is about systems and organization," he says. "That's why it's critically important that we approach and deal with these issues as a team, bringing all of the stakeholders together with the facts and the numbers and the choices to be made. We have to make choices, both individually and organizationally, that work for the whole organization, and most important, for our patients and our other missions."

Fox's first move to address overhead costs is the consolidation of administrative functions and human resources policies of Emory Hospitals, The Emory Clinic, Wesley Woods Center, and the Emory Children's Center. These four operational units have separate and often incompatible administrative systems and human resources plans. The existence of these four "silos" has kept expenses high compared with our competitors and created confusion among patients, families, visitors, and even staff. They have impeded the hiring and movement of staff and resources necessary within and between these organizational units.

The announcement of this consolidation, known as the One Emory Healthcare initiative, was sent out to all staff of these organizations in early June. The roll-out of One Emory Healthcare this year will be explained in educational sessions and a new Emory Healthcare in Action monthly newsletter. Each of the four "silos" will retain its name and identity, but starting January 1, 2003, all health care staff will be employees of Emory Healthcare and will receive their paychecks and benefits from Emory Healthcare.

Also factoring strongly into Fox's overhead strategy is the need to deal aggressively across the board with operating costs and resource consumption.

"A huge headache and drag on our clinical system is clinical documentation," he says. "The regulatory burden has literally exploded over the last decade, and the documentation load just gets in the way of patient care. It's a huge paper mess, and most of our docs will tell you that most of the clinical record is superfluous."

The solution is twofold. First, Emory Healthcare must make the transition from paper to electronic records. EHC has contracted with the Cerner Corporation to create an Emory electronic medical record (EEMR) system (see "Paperless"). Second, in the transition to electronic records, the records system must be reorganized to function for clinicians, staff, and patients. The new EEMR will not succeed if it simply reproduces the current mess electronically.

"In this transition," Fox explains, "we must challenge the existing records system so that we transform it into something that is actually useful to the care professional, whether physician, nurse, or whoever."

Also important is the same transition for the transmission and use of the tens of thousands of images that are produced and handled every month. Emory Healthcare loses significant time and incurs major costs in transporting, waiting for, and accessing x-rays, CT scans, and other images and studies of patients. A new Picture Archiving and Communication System (PACS) now being installed by Siemens will have an important impact in increasing the speed, efficiency, and use of diagnostic imaging.

Fox sees the redevelopment of Emory Crawford Long Hospital as an important opportunity to reposition ECLH in the market as the newest, most modern, premier private hospital in the metro Atlanta area -- and as a major Emory asset.

Una Newman, senior director of marketing for EHC, would like nothing more than to put together a major market awareness program around the new ECLH. However, with few marketing dollars currently available, it remains unclear whether or how such a campaign (which could cost hundreds of thousands of dollars) will be carried out. Short of a major market campaign, alternatives include careful niche marketing of particular specialties and services. This has been the preferred model in recent years and has helped cardiovascular services, orthopaedics, and other services improve their market shares.

Perhaps Fox's biggest challenge is the third dimension of his strategy, which he describes as the need to grow the product into the brand. What that means becomes clearer as he further describes his middle game strategy.

"Overall, we still have a lot of room to improve both our financial planning and our clinical efficiency," Fox explains. "We need planning and business operations that don't get in the way of patient care, but we also need a better sense of partnership with our physicians -- both Emory faculty and our community physicians at Emory Crawford Long."

That means Emory Healthcare needs to function as a patient-centered system. This requires responsive administration and a strong sense of responsibility among all members of that system for its success.

For an academic health center, this is a monumental challenge. Academic health centers have always been primarily aggregations of clinical and academic departments, often referred to as "silos." Culturally, they have been about supporting the relative autonomy of the "star" faculty performers and the opportunity for faculty to achieve professional success.

The new reality is that academic medicine must now compete with all other provider organizations and so must be organized to achieve higher productivity and efficiency with a stronger focus on teamwork, sacrifice, and patient service as core values.

"The realities that we see today are not what most physicians and other health professionals signed up for when they entered the academic health track in their youth," says Fox with characteristic directness. "They went in under one set of rules, and then the game got changed on them. It's a tough break, and no one is real happy about it. But if you still want to play, you have to do it by the new rules, or you can't be in the game."

Beginning in August 2001, Brunn put together a team that conducted a complete audit of the clinic's revenue cycle. That audit revealed an astounding 267 process problems in an organization that was running a negative revenue balance. By October, nine groups were working to resolve the most pressing revenue cycle issues, while intensive planning began on how to address the remainder.

Brunn developed three goals that serve as guiding principles for all work going forward:

• With our physicians, create an outstanding patient experience.
• Make The Emory Clinic the best place to practice medicine for our physicians
• and the best place to work for our staff.
• Achieve excellence in the stewardship of clinic resources.

"When I arrived here, there were definitely a lot of problems to address, and we quickly identified a great many of them," says Brunn. "But perhaps the biggest problem was simply that the organization was polarized: it was "us versus them," where the communication and trust necessary to the success of a complex organization such as this just wasn't there."

With characteristic modesty, Brunn describes the process he put in place, not only to fix the business operations, but also to improve the climate and to restore the trust necessary to move the organization forward. "We clearly had to get our arms around not just the process, but the people. We had to establish a sense that order could come from chaos and distraction if everyone knew how to solve our problems and just did their part.

To date, perhaps Brunn's biggest priority has been to fix the clinic's billing and collections problems. Charges are denied or rejected for many reasons, ranging from coding and registration problems to incomplete information on billing forms and treating patients not covered by the plan that was billed. This amounts to thousands of denials each month and tens of thousands of denials each year that must be followed up, corrected where necessary, and resubmitted for payment. Through April of this fiscal year, insurers have denied an average of $22 million in charges to Emory Clinic physicians each month -- nearly 40% of all Emory Clinic charges.

"Many of our denials and subsequent write-offs are avoidable," Brunn says. "As a clinical enterprise, we are only now beginning to execute a clear game plan to organize our workflow to avoid denials and rejections and to map out processes to follow up on each and every denial and rejection that comes from payers. We know from colleagues around the nation that establishing this foundational work takes time, involves a lot of hard work, and needs the active involvement of key staff and physicians. We're determined to have physicians informed and involved in the work that needs to be done.

"Meanwhile, the opportunity for improvement is staggering," he says. More than $12 million is expected to be written off this fiscal year due to the lack of follow-up to payer denials within 60 days of notification. Another $4 million is likely to be written off because bills were not filed in the first place within contractually prescribed timely filing limits, usually within 60 to 120 days of the patient encounter.

"In each of the past six months, over $500,000 per month in charges have been submitted well in excess of 60 days of the patient's encounter, often because certain physicians have not adopted a discipline of submitting their charges promptly. All these patterns must change."

This failure to submit bills for payment or to rework and resubmit initial denials is frustrating both for physicians and their patients, but Brunn takes an analytical approach.

"I know our situation looks very bad, and it is," he admits, "but where people are willing to change and where sections are willing to organize processes that work, we're seeing steady improvements. Already, our collections are up overall, and our work is only beginning. The potential is there, and each day I see more willingness to put aside defensiveness and finger-pointing and engage in finding solutions that will make our situation better. I'm convinced that soon our physicians and staff will be as proud of our business processes as they are of the exceptional clinical care they provide."

In addition, the charge capture process itself is complex and time-consuming, starting with often mandatory precertification of the patient's eligibility to see the particular physician, through registration of the patient, to the physician's careful notes of the encounter, the proper recording and coding of the encounter notes on required forms, and all the way to sending out a bill. All these steps must be completed in a timely and careful manner, with information gathered from a variety of different sources and systems. It is a daunting process in the best of circumstances.

"We are setting very clear goals for each section as we work with them and for the clinic as a whole, and we are beginning to see good results," says Brunn. "For instance, in November of 2001, only 69% of clinic charges were being billed within 10 days of service. As of April 2002, that number had risen to 76%. The goal is 85%, and we're going to get there."

No one used to systematically track or deal with another serious problem: underpayments by insurers. Through April, Brunn's group had identified more than $6 million worth of underpayments that have now been presented to managed care companies for resolution. Some $300,000 of that has been collected, and Brunn expects about $1 million to be recouped by this fall.

John Fox can't say enough good things about Brunn's operational management and leadership. "Don has just done a terrific job in both identifying and addressing the revenue cycle issues in the clinic," says Fox. "He has a real feel for the complex issues that have to be addressed in getting paid for clinical work. It's not as easy at it looks," Fox adds. "Combine that with Don's enormous and obvious respect for the physicians and staff and the incredible work they do, and you can once again have hope that the clinic can be profitable, while providing a great patient experience and being a rewarding place to work."

"The end game is when it is generally acknowledged that Emory is the place to go for care. Any care. We don't need to be the largest. But given who we are and what we are capable of, we need to be the provider of choice."

What will it take, finally, to heal the bottom line? Fox goes back into contemplative chess player mode.

"It's going to take concrete financial goals and better financial plans. It's going to take better productivity and bringing underutilized capacity down. It's going to mean having to work through 18 to 36 months of tough fiscal discipline as we weather continuing reimbursement issues and the ramping up of the renewed Emory Crawford Long Hospital."

Then Fox stops and considers his chessboard once again. "Pride," he says finally. "Pride and heart. People have to feel pride in the place they work. And they have to have enough heart to work through the tough times. Emory Healthcare has to give them what they need to do that and to feel that pride."

John Saxton is special assistant for health policy and executive editor of Momentum.

This is the second in a series of articles examining the strategic planning process. Future articles will deal with additional aspects of Emory Healthcare's strategy, including the redeveloped Emory Crawford Long Hospital, as well as strategies being developed within the academic units. The first article in this series is "Dropping Pulaskis."

An environmental assessment conducted for the Woodruff Health Sciences Center (WHSC) in 1997 predicted that emerging federal and private-sector health care payment policies would reduce Emory Healthcare's revenues by more than $105 million over five years. The study warned that additional revenue reductions of equal magnitude could follow in ensuing years, depending upon developments in public policy and the choices Emory made in responding to changing conditions.

This assessment emerged as part of the strategic planning process, led by Michael Johns, executive vice president for health affairs, which concluded that Emory's then loosely organized health system was going to need some strong medicine. Out of that process a consensus emerged for treatment involving some major interventions to increase faculty and operational productivity, while at the same time significantly cutting costs.

Over the past five years, a series of major procedures and new operations have cut out system malignancies, trimmed excess fat, and repaired key EHC organs. An estimated $52.8 million in costs have been removed from the budgets of Emory Healthcare. These "costs" have included everything from hospital personnel to medical supplies, marketing, and entire clinics and nonproductive facilities. At the same time, all Emory's clinical units have been administratively consolidated within the newly created Emory Healthcare. Emory University, Emory Crawford Long, and Wesley Woods hospitals now have one president, John Henry. And new management at The Emory Clinic has brought a new level of operational sophistication to the outpatient enterprise.

In addition to administrative reorganization and strengthening over the past five years, strategic investments totaling several hundred million dollars have funded new clinical, education, and research facilities and helped attract top-tier physicians, scientists, and clinical investigators. These transfusions will pay off over many years in better patient care, new discoveries, stronger educational programs, and higher productivity. Already sponsored research funding has risen by more than 60% in the medical school since 1997. Gross charges and revenues both continue to rise. The clinics and hospitals are busier than ever.

As Emory Healthcare strives to heal its bottom line, the steady, strategic, hand of John Fox seems to be just what the doctor ordered. "He has proved to be a pivotal change agent for the past three years as president and chief operating officer of Emory Healthcare," says Michael Johns, who promoted Fox this spring. "His new position as president and CEO will give him a chance to build on that role. John Fox understands the variables impacting today's health care marketplace, and he has the experience, knowledge, and ability to deal with marketplace challenges while enhancing the many opportunities within Emory Healthcare."

From the Director  /  Letters

Banking on benevolence

Healing the bottom line

Moving forward  /  Noteworthy

On point: Tell Congress what's at stake

Stopping the AIDS cycle