A partnership formed by some of the biggest health care organizations in Arkansas expects to save its members millions of dollars, but the details on how it plans to do that haven’t been released.
The Partnership for a Healthy Arkansas was formed as a “shared services organization” at the end of October and is owned equally by Arkansas Blue Cross & Blue Shield, Baptist Health and the University of Arkansas for Medical Sciences, all in Little Rock, St. Bernards Healthcare in Jonesboro and Washington Regional Medical System in Fayetteville.
Service organizations are becoming common across the country as hospitals and other providers attempt to save money by agreeing to share services such as human resources and information technology, said Anil Kaul, who is an adviser to executives in the health care industry for Strategy&, which is PwC’s strategy consulting group. Kaul is a principal with PwC U.S. in Chicago.
“They have all these redundant costs sitting in each facility,” he said. “I think a natural thing for hospitals to do is say, ‘Hey, can I just share between facilities?’”
A long-term goal of the Partnership for a Healthy Arkansas is to reduce operating expenses of each organization by 1 to 2 percent, according to an Arkansas Shared Services Organization document dated Aug. 19 and obtained by Arkansas Business from UAMS under the Freedom of Information Act. That savings could translate to millions of dollars in total savings for the companies in the SSO. Baptist Health, Washington Regional and St. Bernards have combined annual spending of almost $1 billion, according to their most recent Form 990 filings with the IRS.
The cost savings generated by the SSO are expected to be used to reduce the cost of health care for patients and to buy equipment for hospitals, Washington Regional President and CEO Bill Bradley, who also serves as the chairman of the PHA, said in an email response to questions from Arkansas Business.
“Certainly operating cost savings will aid in efforts to mitigate health care costs for all involved, as well as promote our abilities to reinvest in the delivery of quality health care,” he said.
Kaul, though, said he didn’t think the patient would ultimately see a lower bill as a result of the SSO’s efforts. “While their intentions are always good to reduce the bill for the patient, invariably … all the savings get absorbed in other expenditures,” Kaul said. He said hospitals end up using any savings to make other purchases.
The PHA cited potential cost saving initiatives that included combining IT services and customer call centers and sharing expensive medical equipment. Bradley said he doesn’t anticipate any job losses as a result of the SSO.
The Arkansas Shared Services Organization document obtained by Arkansas Business has eight pages of initiative summary descriptions for the SSO, but all the information in that section was redacted. A UAMS spokeswoman cited a competitive advantage exemption to the FOIA.
R.T. Fendley, UAMS Medical Center’s chief strategy officer, said last week that the initiatives aren’t final.
“If we’re doing something that’s unique and sort of leading edge, … we need to hold that as confidential and proprietary,” he said in a conference call with Arkansas Business.
Dr. Roxane Townsend, chief executive officer of the UAMS Medical Center and vice chancellor of clinical programs for UAMS, said during the conference call that once PHA approves the initiatives, they would become public.
“So anything that we outsource, the group anticipates that they’re going to get bids just like any prudent business person would,” she said.
Bradley said that other Arkansas health systems have asked about joining the SSO, but he declined to say how many or to identify them.
The organizations said they have no intention of merging.
“A basic tenet of this organization is to facilitate each organization’s ability to remain independent and focused on the needs of its community,” according PHA media material.
Shared savings organizations are a variation on group purchasing organizations in which hospitals banded together to get better prices on items such as surgical supplies, said Peter Urbanowicz, managing director at the management consulting firm Alvarez & Marsal Healthcare Industry Group in Washington and a leader of the firm’s health care compliance practice.
Now, hospitals are getting together and forming organizations to share services such as laundry or billing or environmental services.
“Within various organizations, if they team together they can extract savings and reduce costs,” Urbanowicz said.
Kaul, of PwC, said the move to SSOs is evitable because in-surance companies and the government have reduced re-imbursements to hospitals.
“They need to do something,” he said.
Mark Finucane, a managing director with Alvarez & Marsal Healthcare Industry Group, said most of the hospitals have “exhausted pretty much all they can get out of their internal changes and they need an accelerant,” he said. “One of the accelerants is the shared service strategy.”
Some Arkansas health care providers began considering forming an SSO about three years ago. UAMS said it began looking at creating an SSO about 18 months ago.
“Our financial operating model is severely challenged here by having the combination of the healthy system and then the entire scope of the activities of the university to support,” UAMS Chancellor Dan Rahn told Arkansas Business in the conference call last week. “We must manage our costs.”
Arkansas Blue Cross & Blue Shield agreed to join “because of our interest in continuously enhancing the quality of care for our members,” Max Greenwood, a spokeswoman for ABCBS, said in an email to Arkansas Business.
She said the rising cost of health insurance was another reason to join the partnership.
“The very significant changes in laws and regulations have created a vastly different environment which requires payers and providers to work together in order to succeed,” Greenwood said. “Additionally, public programs are changing incentives for providers so that they are encouraged to work together and also to work with payers to redefine value in the delivery and financing of health care.”
Urbanowicz said that in an SSO an insurance company and hospitals can work together on the management of patients’ care.
Finucane said it was a “smart” move for hospitals to partner with insurance providers in an SSO. “There’s a natural collaboration that’s going to occur,” he said. “There’s also a natural tension that’s going to emerge between payer and payee. The right governing structure [of the SSO] can lubricate that a bit.”
Kaul said he hasn’t seen too many SSOs in which an insurance company is involved. “But I could see synergies,” he said, especially in the medical management of patient care.
Bradley said that the SSO will protect against anticompetitive concerns by “being fully compliant with all applicable federal regulations … and where appropriate, seeking advice from external legal experts in this area.”
In North Carolina, three hospitals formed an SSO in December 2014 as a way to reduce costs while improving health care, said Terry G. Williams, executive vice president of strategy and administration at Wake Forest Baptist Medical Center of Winston-Salem, North Carolina, which is a member of Socius Health Solutions, an SSO.
Williams said an initial focus of shared services organizations commonly is the supply chain. He said Socius initiatives included IT services and printing costs.
“We believe that this kind of shared services organization can help deliver substantial value that’s not linked to merging,” he said. “And that was one of the things that we desired. This is a way to drive additional saving that you just can’t do on your own.”
Mindset Called Key
The key to making the partnership work is the mindset of the leaders of the organizations, said Kaul, of PwC.
“It’s a mindset around … I don’t need everything to be done my way for my facility,” he said. “When you’re sharing, you have to make compromises, or there’s no value to sharing.”
UAMS’ Rahn said that he could only speak for UAMS, but its purpose hasn’t changed.
“We are a public entity that exists for public benefit to improve health and health care,” he said. “We are consciously being as flexible as we can with regard to how we go about accomplishing that purpose for the public good.”
Bradley said that he didn’t think the SSO would have a problem setting priorities and working together. “While there are always complications with multiple-organization goal setting, the fact that our like-mindedness brought us together makes me believe we will not have problems in this regard,” he said.