iThink® and Simulation Associates Help Health Care Executives Test Business Strategies
"Implementing change inside a health care institution is like redesigning a bicycle while you're riding it," says Bruce Gresh of Simulation Associates. For the past 15 years, Gresh has been working with senior executives to model and evaluate their organizational strategies, an exercise that has been made even more challenging by the Patient Protection and Affordable Care Act (PPACA) of 2010. With its details and rules still to be determined, the PPACA is forcing trustees, administrators, physicians, and nurse executives to think through potential changes and what they will mean for their organizations.
"There is growing realization that the longstanding pay for volume model isn't sustainable and it's going to eventually go away," says Gresh. "Hospitals and other health care facilities have become good at delivering more care in order to make more money, but the PPACA begins to change incentives from pay-for-volume to pay-for-health. Senior health care executives and physicians need tools that can help them think about the future, play strategies out over time, and build alignment around change," says Gresh. "Systems Thinking and simulations that include a whole system perspective help them step away from their immediate day-to-day concerns and help them think about the future and build alignment to support change."
Similar issues, different strategies
As health care organizations search for strategies that will help them improve quality of care while decreasing costs, Gresh sees them also grappling with a set of emerging issues including Accountable Care Organizations (ACOs), bundled payments, and employer response to health exchanges.
ACOs, organizations that bear risk for a specific patient population, are a big part of the PPACA. The goal of an ACO is to ultimately improve the health of a population while decreasing the cost of health care delivery. While it's still unclear how ACO implementation will play out, emphasis will be on managing patients in a more cost-effective way.
Implementing an ACO strategy will be a big shift for most hospitals. "Right now, hospitals are geared to deliver as many big ticket procedures like cardiac and orthopedic surgery as possible but that might not be improving the health of a population," explains Gresh. Under the ACO approach, it might not be profitable either. "For example, an insurer might give a health system 85% of the premium dollars for a certain population and allow the health system to manage the population as best they can. If the health system can manage those patients for less, it will make a profit – but that means they can't just be a fix-it shop anymore." Finding competitive advantage in ACOs and other risk arrangements will require executives to develop new business models for the future while also understanding how the new strategies will impact short term financial performance.
As health systems become responsible for managing population health, executives will need to pay more attention to the continuum of care that's required by various patient populations. For example, patients with chronic diabetes need constant testing and drug treatment but at times they also require nutrition counseling, hospitalization, or even emergency care. "Executives have to ask ‘How can we use a whole array of services - primary care, ambulatory services, sub-acute care, rehabilitation, home care, long-term care – to keep people healthy and minimize costs," says Gresh.
Of course, integrating all those services into a manageable, effective care continuum, impacts organization cultures, IT, wage schedules and more. Identifying changes that support the coordination of care becomes very important. "In the future, executives might determine that new IT systems and outreach programs are better investments than building new bed towers," says Gresh
Bundled payments are also receiving attention for their potential to align hospital and physician incentives. "In some cases, hospitals and physicians may want different things," explains Gresh. "The hospital may want to use the most cost effective artificial hip joint, but the surgeon may prefer a much more expensive device." Typically, separate bills are issued by the hospital, the physician, and other providers. A single bundled payment which is then shared by all providers has the potential to align provider financial incentives. Most bundled payment systems also provide incentives for good outcomes, so they can encourage all providers to work together to achieve good results.
Some health care providers are concerned that the PPACA-mandated insurance exchanges may lead to "dumping"; some employers may stop providing health insurance and may "dump" their employees into the public insurance exchanges. The PPACA appears to create a large financial incentive for employers to stop providing health insurance. "In 2014, health insurance benefits will probably cost employers about $12,000 per employee per year," says Gresh." If they fail to provide insurance, they'll be penalized $2,000 per employee per year. " Fiscal pressure will almost certainly drive down payments for patients who receive subsidized insurance through the exchanges, and this could have a significant impact on provider revenues. Providers will need to develop a good understanding of the way in which insurance exchanges will impact their financial performance.
Using iThink models to test strategies, challenge assumptions, and anticipate problems
Examining the effects of the emerging issues listed above usually starts with the development of a model that represents the existing system and incorporates assumptions about the way the system works currently. The model then simulates the effects of changes such as bundled payments, risk arrangements, insurance exchanges, and so on.
Teams develop strategies to deal with the emerging issues, and then simulate how those changes might play out over time in a complex and dynamic organizational system. For example, they may try to deal with decreasing revenue by cutting costs through staff reductions. However, they may find that a decrease in staffing compromises quality and patient satisfaction. "Especially in times of financial crisis, people apply what they think they know and make decisions that can compromise the system over time and lead to unintended consequences," says Gresh.
Gresh uses iThink, Systems Thinking software from isee systems, to build models that help executives see how complex organizational dynamics may play out over time. Building assumptions into the model and testing them through simulation paves the way for new insights and successful solutions.
"I worked with one organization that was very concerned about days cash on hand," says Gresh. "We built salary expense into an iThink model that included the organization's financial plan and then simulated the way in which different changes in salary expense would influence days cash on hand over a five year timeframe. One team decided to ratchet salary increases down to 1% per year. The simulation showed that by doing just that, they could meet their days cash on hand goal. But, as someone else pointed out, no one was going to want to work at an institution that only gave 1% salary increases for five years in a row. The group understood what a powerful driver salary level was and had a great discussion about how they could, and couldn't, use it to meet their financial targets."
Executives also benefit from using iThink to model "fixes that fail." "Health care management culture is driven by thinking about key success factors," says Gresh. "Executives are used to thinking about what they need to do to succeed. But sometimes they need to pay more attention to what might cause them to fail. Causal loop diagrams that help them anticipate what can go wrong are a really powerful tool." Gresh also uses iThink models to explore the tendency of solutions in one part of a system to shift the burden to another part of the system rather than really solve the problem.
Adding simplicity to complex issues
When he was introduced to iThink 15 years ago, Gresh recognized it as a tool that would be particularly useful for executives dealing with complex planning and management issues. "iThink models can put a fine point on the trade-offs that organizations make all of the time," says Gresh. "For example, hospitals may cut staff to save money but, at some point, cutting staff impacts quality of care, and many pay for performance programs are designed to reward good quality of care (and penalize poor quality)."
He's also used iThink models to illustrate the dynamics and tradeoffs in systems that executives interact with every day, but often do not think about systemically. For example, he recently used published research to create a model illustrating the relationships between nurse staffing, mortality, and wage expense. "Nurse executives have the staffing/mortality relationship in their heads but the model makes the tradeoff explicit which has lead to some really thoughtful discussions," says Gresh. "They can use an interactive model to illustrate the relationships and become mindful of the tradeoffs as they are making decisions."
Given the complexity of the emerging issues facing health care institutions, it's important to employ tools that help executives think about the future. "iThink models allow executives to put their systems in motion and play out changes over time," says Gresh. "Interacting with the models increases their engagement in discussions of challenging issues. Interactivity is an incredibly powerful way to juice up small group discussions and help people gain new insights."
About isee systems (www.iseesystems.com) — isee systems is the world leader and innovator in Systems Thinking software. Founded in 1985, isee released STELLA®, the first software application to bring Systems Thinking to the desktop. In addition to STELLA which is primarily used by educators, isee offers iThink® for business simulation. Thousands of individuals and organizations in over 80 countries use isee software to gain insight and shared understanding of environmental, financial, organizational, biological, chemical, mathematical, humanistic, and other systems.
About Simulation Associates (www.simulationassociates.com) — Simulation Associates specializes in strategic thinking simulations that are used by organizations to provide a whole organization perspective, integrate information, build teamwork, and play out the effects of business environment changes. With a special focus on the health care industry, Simulation Associates has developed strategic simulations for hospitals and health systems, health insurance companies, multispecialty physician practices, and safety net provider organizations.
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