February 29, 2016

With the changing healthcare landscape, many large health systems are strategically partnering with industry solutions providers to leverage their expertise and resources in order to meet their objectives around quality improvement and population health. Strategic partnerships serve to enhance health system capabilities, particularly in non-core business activities, and potentially provide health systems with a competitive advantage to emerge as leaders in the post-reform healthcare environment. In contrast to transactional relationships, strategic partnerships involve both organizations having a shared vision and working closely together to drive innovation and create value. Kate Vitasek, faculty at the University of Tennessee and creator of the Vested Business Model, cites five key criteria necessary for a successful strategic partnership: 1) outcome based business model; 2) focus on the what, not the how; 3) clearly defined and measurable desired outcomes; 4) pricing model with shared incentives; 5) insight versus oversight governance structure. (1)

Through conducting 20 interviews with senior health system executives, The Academy examined how the largest health systems are forming partnerships as a result of the evolving transformation in healthcare (e.g., volume-to-value-based delivery of care). This report presents two case studies describing strategic partnerships that seek to improve quality, reduce costs, and enhance the customer experience through capitalizing on intellectual property (IP).

Key Findings

  • With the continued success of these partnerships, the largest health systems expect their number of strategic partnerships to increase (84%) or remain the same (16%) over the next two years.
  • Through working closely with Strata to create and leverage a jointly-licensed integrated software solution, Yale New Haven Health System has successfully identified potentially avoidable clinical variation and waste, resulting in the near elimination of ventilator-associated pneumonia at one hospital and $150 million in annual savings.
  • Northwell Health and Optum360—with similar innovation-driven cultures—recently formed a 10-year partnership to develop an operational model to simplify and integrate patient registration, claims, billing, payment, and reporting and analytic functions.

Health Systems Highly Interested in Strategic Partnerships

The largest health systems are very interested in strategically partnering with industry solutions providers and insurers with 85% ranking their interest as a 4 or 5 on a 5-point scale.

“It is a priority in our strategic plan. We see it as key from both a growth perspective as well as innovating the care delivery model.” – Administrative Executive

Nearly all responding health systems (95%) have engaged in at least one strategic partnership with the majority participating in 1-5 partnerships (average: 7; range: 3 – 25). These partnerships were often driven at the system-level with most health systems (65%) reporting that corporate executives pursue these partnerships.

Yale New Haven Health System A Unique Partnership With Strata Decision Technology to Improve Quality and Save $150 Million

Recognized for its commitment to excellence in patient care, teaching, and research, Yale New Haven Health System (YNHHS) is the largest health system and the third largest employer in Connecticut. Comprised of three hospitals and a physician foundation, Northeast Medical Group, YNHHS has more than 20,000 employees and 6,300 physicians. (2) In 2014, YNHHS’s revenue exceeded $3.4 billion from nearly 1.8 million outpatient encounters and over 109,000 inpatient discharges. (2)

Dedicated to using innovative technologies and processes to enhance patient care, YNHHS’s commitment to innovation is integrated in its mission statement and infused into all areas of the health system. (3) A multidisciplinary council drives YNHHS’s corporate innovation strategy to bring in technology through partnering and investing in companies that help drive clinical, operational and financial transformation. Based on over ten years of working with Strata Decision Technology and using Strata’s products, YNHHS’s innovation council decided to partner with Strata on its analytics-driven performance improvement initiatives. In April, 2015, YNHHS and Strata announced a long-term partnership designed to reduce clinical variation and costs through the joint development and integration of quality measures created by YNHHS into Strata’s cost accounting and continuous improvement application. (4)

Developed by clinical and financial staff at YNHHS, Quality Variation Indicators (QVI®s) are measures designed to provide a comprehensive definition for quality—linking clinical, operational, and financial data—with the goal of identifying opportunities for standardizing protocols and reducing case variation. YNHHS observed that about 7% of patients developed potentially preventable complications, and due to longer hospital stays and higher utilization of services, the cost of care for these patients was 3-4 times higher. (4) QVI®s help to align clinical and financial leaders by elucidating how potentially preventable adverse events may be related to quality variation and enabling clinicians to improve protocols and integrate these changes into their Epic EHR. Strata and YNHHS worked closely together to incorporate 27 QVIs into Strata’s StrataJazz® application and create a jointly-licensed product that could be utilized by other health systems. (4, 5)

“There needs to be a strong relationship between financial and clinical professionals and a common language that tells us about what happens with our patients. We at Yale New Haven Health System believe that nesting QVI®s in our cost accounting system can help improve overall patient care.” – Steve Allegretto, VP of Analytic Strategy and Financial Planning, Yale New Haven Health System

By utilizing the integrated software solution, YNHHS has been able to measure costs associated with potentially preventable complications and engage physicians and nurses in identifying potentially avoidable clinical variation and waste, resulting in significant quality improvement, including the near elimination of ventilator-associated pneumonia at one hospital. (6) YNHHS has used this quality-first approach to drive over $150 million in cumulative annual sustained savings through 2015 representing combined labor/non-labor/clinical improvements of over $122 million and benefits/human resource savings of close to $28 million.

“Our responsibility to enhancing the lives of those we serve requires us to deliver better care at lower cost.  Our ability to measure our improvement in preventable complications while at the same time eliminating unnecessary tests and procedures provides better value to our patients and their families.” – Tom Balcezak, MD, Chief Medical Officer and SVP, Yale-New Haven Hospital

Through collaborating with Strata to innovate and continuously improve care processes, YNHHS is furthering its mission and commitment “to innovation and excellence in patient care, teaching, research and service to [its] communities.” (3)

“We want this technology to be used at other institutions to drive similar quality and patient safety improvements and increase efficiency.” – Pat McCabe, SVP Corporate Finance, Yale New Haven Health System

Northwell Health An Innovative Partnership With Optum360 to Improve Revenue Cycle Efficiency

With an annual operating budget of almost $8 billion and more than 61,000 employees, Northwell Health—formerly North Shore-LIJ Health System— is one of the largest health systems in the United States and the largest private employer in New York. (7) Northwell is comprised of 21 hospitals and 450+ ambulatory clinics and physician practices and operates North Shore-LIJ CareConnect Insurance Company, Inc. (7) Highly committed to innovation, Northwell has a corporate arm, North Shore Ventures, focused on identifying potential partners and growth opportunities around innovation and performance improvement. (8)

In early 2015, seeking to improve the customer experience and reduce administrative costs, senior leadership at Northwell began looking for a partner to work with them on redesigning their revenue cycle. Because of their similar innovation-driven cultures, Northwell considered collaborating with Optum360 in creating an operational model that simplified and integrated patient registration, claims, billing, payment, and reporting and analytic functions. (9, 10) The two organizations discussed their objectives and established clear milestones and targets for key metrics (e.g., days in accounts receivable, expected collections versus net collections).

In May, 2015, Northwell and Optum360 announced their 10-year partnership in which Optum360 would be responsible for revenue cycle management at 14 of Northwell’s hospitals. (9, 11) Within the terms of the agreement, Northwell has an 8% equity stake in Optum360, and Optum360 has access to part of Northwell’s revenue cycle intellectual property. (12) To facilitate cultural alignment for redesigning Northwell’s revenue cycle and installing Optum360 technologies at Northwell hospitals, 1,000 Northwell employees converted to Optum360. (9, 11)

Given the early stages of this partnership that went into effect in July, 2015, Northwell and Optum360’s goals are to continue to refine and establish the strong communication channels necessary to address challenges in integrating information systems and managing the workforce transition. With substantial savings and financial benefits anticipated over the life of this partnership, this model is goal-oriented to demonstrate long-standing outcomes and to therefore serve as a model, inspiring other activities and future partnerships to drive innovation and increase efficiency at Northwell. (11)

Key Factors to Successful Strategic Partnerships

Figure 1 shows the key characteristics of strategic partnerships that The Academy identified after conducting interviews with Kate Vitasek, industry executives, and 20 health system executives. Through these interviews and a literature search on strategic partnerships, The Academy, using Kate Vitasek’s work as a foundation, developed this criteria for successful strategic partnerships in healthcare.

References

1. Vitasek K. Vested Outsourcing, Five Rules That Will Transform Outsourcing. New York, NY: Palgrave Macmillan; 2010.
2. Facts and Figures. Yale New Haven Health Website. https://www.ynhhs.org/about/corporate-overview/system-statistics.aspx
3. Our Vision, Mission and Values. Yale New Haven Health System. Web. https://www.ynhhs.org/about/corporate-overview/mission.aspx. Accessed 23 Nov 2015.
4. Strata Decision Newsroom. Strata Partners with Yale New Haven Health System to Reduce Cost by Improving Quality. [Press Release]. 9 Apr 2015.
5. About Us. Strata Decision Technology website. https://www.stratadecision.com/our-company/about-us. Accessed 8 Jan 2016.
6. Letourneau R. ‘$125M Value Initiative Pays Off at Yale New Haven Health System’. Health Leaders Media. 16 Mar 2015.
7. North Shore LIJ At-A-Glance. North Shore LIJ Website. https://www.northshorelij.com/sites/default/files/19324%20NSLIJ%20At-A-Glance%2026Aug15%20V9%5B1%5D.pdf
8. North Shore Ventures. North Shore-LIJ website. https://www.northshorelij.com/about/our-organization/north-shore-ventures/about-north-shore-ventures. Accessed 6 Dec 2015.
9. Cain Brothers. North Shore-LIJ and Optum360 Partner to Create Revenue Cycle Efficiencies and Improve Experience for Patients. [Case Study]. 17 June 2015.
10. Optum360 Revenue Cycle Management. United Health Group website. http://www.unitedhealthgroup.com/Programs/Optum360.aspx. Accessed 8 Jan 2016.
11. Ochs R. Outside Firm to Manage Billing for NSLIJ. North Shore-LIJ Newsroom. [Press Release]. 26 May 2015.
12. Herman B. North Shore-LIJ’s insurance company posts massive growth. Modern Healthcare. Web. 31 Aug 2015.

Advisory Committee
Jennifer Mitzner, SVP & CFO, St. Joseph Hoag Health
Dominic Nakis, CFO & Treasurer, Advocate Health Care
Jim Newman, Director of Finance & Divisional Controller, Hospitals & Clinics, Vanderbilt University Medical Center
Mike Kotzen, EVP, Population Health Management, Virtua
Joseph Schulman, Executive Director, Care Solutions, Northwell Health
Greg Wojtal, VP/CFO AZ West Region, Banner Health

The Health Management Academy, “The Academy”The Academy is a leading research and analysis company serving the largest 100 health systems that own or operate 1,800 hospitals. The Academy provides services to the C-suite, including research, analytics, health policy, consumer research, fellowship programs, and collaboratives.

JLL
JLL is a Fortune 500 global professional services firm offering services to clients seeking increased value from real estate. JLL operates in 80 countries and has a workforce of approximately 58,000. JLL’s Healthcare Solutions group supports healthcare providers’ missions through the stewardship of real-estate assets. The group taps the unrealized potential of real estate to produce cost savings, manage risk and improve the overall physician, patient and provider experience.

Abbott
Abbott is a global healthcare company devoted to improving life through the development of products and technologies that span the breadth of healthcare. With a portfolio of leading, science-based offerings in diagnostics, medical devices, nutritionals and branded generic pharmaceuticals, Abbott serves people in more than 150 countries and employs approximately 73,000 people.