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A system built on healthy competition
RBJ 75 interview with Mark Clement

Rochester Business Journal
July 29, 2011

(This is the full edited transcript of the RBJ 75 interview with Mark Clement.)

As the area’s economy moves away from its traditional manufacturing base, non-profits  increasingly are coming to the fore, accounting for an ever-larger slice of the region’s employment base.

Health care organizations lead the non-profit sector. Eastman Kodak Co., ceded its position several years ago as the region’s top employer to the University of Rochester, whose rise has driven by the university’s sprawling medical center.

This year, Kodak was edged out of the No. 3 slot by another major health care player, Rochester General Health System. With some 7,500 employees, it now is the Rochester area’s third-largest private-sector employer.

Five years ago, RGHS ranked as the area’s fifth-largest private employer. Since then, its work force has seen a 9.2 percent increase, growing from 6,878 to its present size. Virtually all of that growth has taken place under the health system’s current president and CEO, Mark Clement, whom RGHS recruited from a Boston hospital in 2006.

In a wide-ranging interview, Clement recently spoke with Rochester Business Journal health care reporter Will Astor and RBJ editor Paul Ericson about factors that have contributed to the rise of his organization, challenges it faces, and what might lie ahead for RGHS and health care in Rochester.

An edited transcript follows:

ROCHESTER BUSINESS JOURNAL: When you started at RGHS five years ago, you were taking over a system that was in many ways still in the throes of a turnaround, which has been largely achieved. What were the challenges?

MARK CLEMENT: It’s been an exciting journey. I have not quite had my fifth year anniversary. It really has been an exciting time for me professionally and, I think, for the organization.

I’ve had the experience of turning organizations around in my career. But I think by the time I got here, my predecessor, Sam Huston, had done a very capable job of returning the system from a very, very difficult financial situation to financial stability. I think we’ve built on that to an even higher level.

I didn’t come here to manage a turnaround. Certainly during the first year there was a lot of work to be done to build on the capable efforts of my predecessor. So we’ve taken an organization that was a little bit better than break even, which was remarkable considering where it was five years before that. I think they had lost nearly $90 million.

We’ve been successful through a number of initiatives in achieving a very healthy financial performance. I think by New York State standards most experts would agree that we are very healthy organization, last year achieving an operating margin of 2.4 percent and this year on track to do better than that, which as a not-for-profit provides us with the financial resources to reinvest in our system, in our plant, our people to better serve our community.

RBJ: Now we are moving into a reform environment. In addition to requiring things like electronic health records, the Accountable Care Act rewards things like bundling of services and cooperation between systems and providers. How is RGHS positioned for that?

CLEMENT: We thing we’re well positioned for health care reform. (Let me talk) about some of the work that’s taken place over the past four or five years in improving the financial health of the system.

Really the most important thing for our system is the way in which we serve our community. We do that by being a financially healthy organization. But some of the most important measures of our effectiveness and how well we carry out our mission aren’t necessarily financial. You have to be financially healthy to be the kind of high-quality health care organization that we are. But for the past five years we’ve been able to improve the financial health of our organization by improving our health care system.

We’ve made investments of over $200 million in modernizing Rochester General Hospital, in acquiring really state-of-the-art technology for other affiliates of the system. Our system consists of two acute care hospitals, three long term care facilities and a large employed physician practice.

One of the ways we’ve been able to improve the financial health is by making important investments in improving our system in terms of quality and patient safety, creating new clinical programs and services, expanding access for our community.

On the Rochester General campus, for example, we’ve invested nearly $90 million over the past five years to implement a major master facility plan, which ranges from construction of a 2,000-car garage to creating a more convenient access point into the hospital, the Polisseni Pavilion, and continues through to the modernization and expansion of our emergency department.

Five years ago, our ED treated 75,000 to 80,000 patients. This year, we’ll treat more than 110,000 patients. That makes us the largest emergency department not just in the region but the largest emergency department in Upstate New York.

The master facility plan continued through major modernization and expansion of our Rochester Heart Institute, which is the largest cardiac-service provider in the region and consistently recognized as one of the leading cardiac and heart programs in the state and nationally.

We have as well worked very hard to improve the quality and safety. That has resulted in our system being recognized as a leader nationally around clinical quality. One of the national health care ranking organizations, it’s called CareChex, (a division of the) Delta Group, rated Rochester General Hospital number one in New York State for delivery of overall medical care, number two in New York State for surgical care, number one in New York State for delivering cardiac services and number two in the country—the entire country—for delivering cardiac services.

So we’ve worked very hard over the last five years to take a really good system and make it great. I think there is a lot of credit that goes to our 7,000 team members including 1,500 physicians and 1,000-plus volunteers that shows we’re making really good progress in our vision to become the most trusted health care provider not just in the state but in the world. Our ambitions are large.

RBJ: Can you give a few specific examples of how that investment has translated into improved financial performance?

CLEMENT: We talked about the emergency department investment, the B. Thomas Golisano Emergency Department. We will complete that project in about two months. It’s been phased because we’ve had to take care of patients in the same spaces that we’re renovating.

By creating a larger, more state-of-the art facility, we have been able to accommodate really unprecedented growth. From fewer than 80,000 patients we’ve seen a year, and really that’s a very big emergency department, to this year when we are on track to care for more than 110,000 patients. That’s more than 40 percent growth.

I will tell you that (other) EDs are not growing at 40 percent over a three- to four-year period. This year our emergency department volume is up about 14 percent compared with last year. Last year it was up 10 percent. That growth translates into improved economics. Similarly, we’re seeing growth in our cardiac services, where we’ve made investments.

Five years ago we went through a process with our board, our management team and our physician leadership to develop a strategic plan that would allow us to best serve this community. We concluded then that the current health care financing and delivery system needed to be changed. So we anticipated health care reform and went to work on preparing for reform in payment and reform in delivery. One of the things we really focused on and continue to focus on is improving quality and patient safety and improving the efficiency with which we deliver care and clinically integrate our health system.

The business units I talked about a moment ago—two acute care hospitals, three long-term care facilities, a large employed physician practice and our behavioral health—(our focus has been) clinically integrating them, operating as one system with one set of high clinical and patient safety and service standards (as) a system that is able to deliver a full continuum of services.

Here is an example of why that’s important: We have a rural hospital in Wayne County. It’s a 125-bed community hospital. It does not have the capabilities that a large tertiary care teaching hospital like Rochester General has. Residents of Wayne County deserve the same access to care that a resident of Monroe County deserves. So we’ve clinically integrated Newark-Wayne Community Hospital into our system. We have common leadership of all of our clinical functions. The chief of emergency medicine for our system is the chief at Newark-Wayne; the chief of cardiology for our system is the chief of cardiology at Newark-Wayne.

Let me give an example of a case from about a year ago. A gentlemen presented at Newark-Wayne in acute myocardial, essentially with a heart attack. He needed to be resuscitated shortly after presenting to the emergency department, which means his heart had stopped. 

The ED physicians were the same physicians who practice at Rochester General. They quickly determined that this patient needed a primary angioplasty procedure, which is a procedure that’s performed only in a cardiac catheterization lab. They take the patient into the lab and with a catheter, they open the blocked or occluded artery. This allows for the heart to be supplied with blood, which keeps the heart muscle alive.

If you don’t open the artery within 90 minutes, the heart muscle begins to die. Newark-Wayne is 50 miles away. That patient was immediately transferred to Rochester General and taken to our cath lab, where his artery was opened by Dr. Tom Stuver, which immediately returned him to almost a normal state.

They determined that he had two other blocked arteries. He was taken to surgery the next day and his arteries were repaired. He was discharged in four days and is living the good life back in Wayne County.

Now, that wouldn’t have happened if we did not have clinically integrated system. What might have happened is that he would have gone to the (intensive-care unit) and he would probably not have done as well.

By clinically integrating our system and clinically integrating Newark-Wayne, which is a rural hospital, that has resulted in new services being developed and provided at Newark-Wayne. It has resulted in investments in technology in that facility. We are actually poised to invest $15 million in a new emergency department and an ambulatory facility on the campus of Newark. We’ll be breaking ground in just a month or so.

As we’ve clinically integrated, as we’ve made new investments at Newark-Wayne over the past five years in technology, in services, in recruiting new physicians, in asking our physicians at Rochester General to spend time seeing patients at Newark-Wayne, inpatient admissions have grown more than 35 percent. We’re caring for more patients because those patients are being cared for in their local community and not having to come to Monroe County.

Emergency department volume has grown by more than 25 percent during that period. That’s not growth that you will find in any other hospital. It’s occurring there because we’re developing our capabilities and causing patients to stay in their community to be cared for.

Today we have an eight-bed ICU at Newark-Wayne. Five years ago the ICU was closed because we didn’t have the medical and surgical specialties to appropriately manage those critically ill patients in Wayne County. ICU occupancy has increased by 40 to 50 percent. It’s never closed because now we have the physicians, the nursing staff and the technology to care for critically ill patients out there.

All of those things, the growth that we are experiencing translates into improving economics.
RBJ: Clinical integration also positions you to be financially rewarded under health care reform?

CLEMENT: I think it’s widely recognized that clinically integrated organizations that integrate their institutions but also integrate their system with their practicing physicians have achieved high care quality and patient safety for lower costs. There are a lot of examples, Intermountain (Healthcare in Utah) and Geisinger (Health System in Pennsylvania) to name a couple.
We’ve done that with our physicians.

RBJ: You’re referring to the Greater Rochester Independent Practice Association?

CLEMENT: Yes, it’s called GRIPA. It’s a partnership between our health care system and our physicians.

GRIPA really allows us to work in collaboration with our physicians, to manage the system more efficiently and to deliver care in the most appropriate, most efficient setting in the community, in long-term care, a post-acute setting or in a hospital or an intensive-care setting. By partnering with our physicians, we are able to really deliver the best care in the right way. That’s really what most experts believe health care reform is going to require and how it’s really going to reward (health) systems.
Sixteen months post-health care adoption there are three interesting trends occurring around the country. One is clinical integration. You didn’t see much of it before health care reform. It’s what every health care system is scrambling to do: figure out how to partner with their docs.
The second is that we’re seeing an increase of mergers and acquisition activity around the country. 
The third is that we’re seeing payment reform beginning to occur. The way in which private payers and even government and states pay now for hospital and health care services is beginning to evolve from fee-for-service to pay for value.
That’s what we’ve really worked very hard to do over the past five years: to improve the value proposition we offer this community. That value proposition is the quality of care we deliver, the patient experience and the cost of that care.

RBJ: Insofar as they make for more efficient use of your facilities, the physical plant, the increases in volume have contributed to financial stability. But that’s a two-edged sword, isn’t it? You have enough volume to pay your overhead, but your occupancy rates as well as the other city hospitals’ are virtually always higher than desirable.

CLEMENT: Health care reform is being phased in over a 10-year period and is intended to do three things: expand access to Americans who don’t have it now; eliminate some of the more egregious insurance practices, denial of coverage because somebody is sick or has a preexisting condition; and to change the way hospitals and health systems get reimbursed, moving away from fee-for-service.

Starting in late 2013, hospitals will no longer be paid for Medicare patients who are readmitted within 30 days of being discharged. Today, if a Medicare patient leaves Rochester General Hospital and gets readmitted in 23 days, we get paid for that. Nationally, about 20 percent of the Medicare patients that are in hospitals were readmitted within 30 days.

RBJ: And you would expect the private payers to adopt the Medicare standards?

CLEMENT: That’s been the practice in the past. Yes, I would expect the private payers to follow suit. And I think this a good thing. It will create incentives for health care providers like Rochester General and Unity and the University of Rochester Medical Center to care for patients in the community. We aren’t going to get paid to care for them in the hospital.

So as health care reform is implemented, we expect the demand for acute care services to decline. Why do we now have 20 percent of our Medicare patients readmitted within 30 days? We get paid to do that and we don’t get paid to support care in the community. It’s a product of the reimbursement system. What health care reform begins to do is to change the reimbursement system to encourage and to reward providers who care for patients in the most cost-effective setting. And because of this, we think that in coming years, the capacity issues we face will moderate a bit.

RBJ: In 2008, you and other local systems were approved for extensive expansion projects in order to cope with your occupancy problems. RGHS planned to build a six-story addition to Rochester General but had to back away when the economy went south. Where do you stand on that now?

CLEMENT: In the investments we’ve already talked about, we invested between $170 million and $180 million over the past five years. As we look forward over the five-year horizon, we expect that we will invest that much or more.

RBJ: Is the addition still part of the plan or are you looking at other alternatives?

CLEMENT: It’s still part of the plan but it’s farther out. We had developed plans for bed modernization and expansion that were approved by our board and approved by the state three years ago. The economy tanked and as a result, the federal government adopted a piece of legislation commonly referred to as the stimulus package.

In the stimulus package are dollars specifically targeted to incentivize hospitals and physicians to invest in electronic medical record technology and the stimulus package put that on a finite time frame. To be able to access those stimulus dollars, health systems have to have made the investment, implemented their electronic medical record technology and to have demonstrated meaningful use. We can’t just implement it. We have to show that we are using it in a meaningful way as defined by the government. A system can choose not to make that investment, but in the longer term, it affects your Medicare payments. To this system, those stimulus dollars represent about $28 million.

We made a decision to change the timing of two key projects: to move our medical record technology up and to move our bed tower out.

So we are now four months away from going live with our $65 million electronic medical records investment, which we see as an essential part of the work that’s under way to not only prepare for health care reform but to improve the quality and the care we deliver to our patients. That pushes the bed tower project out to 2014, 2015, which will give us the opportunity to complete enterprise-wide implementation of electronic medical records. It goes into Rochester General in November of this year and to Newark-Wayne in the first quarter of next year. We will be phasing in our physician practices. That will take about a two-year period.

That’s not the only capital investment our system is making. The ED and ambulatory facility at Newark-Wayne, as I’ve mentioned, is a $15 million project. We’ve broken ground on the first phase of a modernization project for Hill Haven, which is one of our very large long-term care, post-acute facilities. That’s about a $14 million project that will span the next 24 months.

We are also making investments in the new Riedman Campus, formerly the ESL (Federal Credit Union) building on Kings Highway and Ridge Road. We’ve already relocated 600 of our team members to that facility. Phase two and phase three involve relocating some of our clinical programs to that 300,000 square foot facility.

So while we’ve pushed the bed tower out, there are still many, many capital projects we are moving forward with.

RBJ: There was a period before you came here of very intense competition and strained relations among the health systems in Rochester. That certainly has improved quite a bit. What place do you see for competition in health care market?

CLEMENT: I think there are at least two kinds competition. There is healthy competition that makes us all better and there is less healthy competition.

One of the things that has been refreshing for me and unique in my career, having spent six years in Boston and 12 years in Chicago before that, is in coming to Rochester, I’ve found a unique community. I can’t speak to what existed before I got here, but what I can tell you is that there is a very high level of collaboration on the part of the health care providers. We work closely with our counterparts at Unity (Health System). We have clinical and teaching relationships with the University of Rochester Medical Center. I spoke to (URMC CEO) Brad Berk (M.D.) yesterday. I talk to (Unity CEO) Warren Hern regularly. I saw Warren last week.

I think the kind of competition we have in this community is healthy competition. We have a health care delivery system that really provides the community with choice. I think competition around quality and safety and access—that’s all healthy competition and that makes us all better.

RBJ: The growth you’ve talked about has also made RGHS into the area’s third-largest employer. How has that affected the system and do you see that growth continuing?

CLEMENT: Our growth as an employer reflects the growth in the provision of health care clinical services to our community. As we care for more patients in our emergency department, we have to add staff. We think the growth in care we provide is a function of the community increasingly choosing us, choosing our health system. It’s also in part a function of this being an aging community. The community is not growing, but it is aging and aging population cohorts tend to utilize health care services in a greater number.

As to future growth, we are making investments in the expansion of our ambulatory network. When I arrived here five years ago, this was really a good organization. But it was very clear that we were a pretty inpatient focused, inpatient-centric system. Most of the care we provided and most of the revenue we generated occurred on the inpatient side of the system. Health care is moving from expensive inpatient settings into less expensive, post-acute or non-acute, ambulatory settings.
We developed, for example, a comprehensive satellite for the Lipson Cancer Center at the Linden Oaks Medical Campus. We have acquired an ambulatory surgery center, the Lattimore Surgery Center. We will be relocating Lattimore to the east side of Monroe County, which is really more consistent with our natural market. We just received regulatory approval to create an imaging center, an outpatient imaging center at Alexander Park, the campus of the previous Genesee Hospital. We’ve acquired the Wilson Center located on the Rochester General campus.

These investments are creating an ambulatory network that provides improved access to care that will not necessarily require people to come to Rochester General for surgery or for lab or for an endoscopy procedure, all of which, we think, is not only the right thing to do to create better access for our community, but it positions us for the changes we know are coming with health care reform.

RBJ: The growth that you’ve experienced is part of a broader picture, the growth of non-profits, the only sector in which we’ve seen consistent employment growth in recent years. What are your thoughts on that?

CLEMENT: Well, I’m not an economist. Although I’ve taken lots of economics courses, I won’t opine on the economic implications of that. I will leave that to your economic experts.

RBJ: Fair enough.

CLEMENT: I do think, though, that when you contrast and compare the economic base of Rochester with other areas of Upstate New York or other areas around the country, we are faring better than many communities. I think that’s a good thing. Certainly with the university, the University of Rochester Medical Center and to a lesser extent with our system, we are bringing dollars into this community from outside this community.

I think the worry you might have about not-for-profits is that you are not necessarily bringing economic activity into the community. The partnership we now enjoy with Rochester Institute of Technology has created an Institute for Health Sciences that is resulting in expansion in their health sciences teaching programs. The collaboration between Ph.D. researchers at RIT and physician researchers and clinicians at Rochester General Hospital and our system is bringing in new grant dollars, federal and private grant dollars.

And then also we are a regional referral center. I recently had an email shared with me by one of our physicians from a former patient in our Rochester Heart Institute, an individual who actually works in the Obama administration in D.C. He came up here for his cardiac surgery and we see that not infrequently.
RBJ: Do you have a sense of what the revenues are coming in to the community?

CLEMENT: I do. In terms of our clinical activity, 20-plus percent of our nearly—knock on wood—our $900 million revenue base, 20 percent of it comes from outside of Monroe County. And that number’s growing.

The lion’s share of the research dollars that are flowing into the Rochester General Research Institute and to physician researchers here are from outside this area. There are private grants as well as (National Institutes of Health) grants.
RBJ: What would you say are the differences and similarities between running an organization like RGHS and running a private business?

CLEMENT: Well, Peter Drucker once said that hospitals are the most complex organizations he’d ever seen and the most difficult to run. I have not had the opportunity to run anything other than hospitals, so I don’t know whether he’s right or wrong.  I do know that Peter Drucker is regarded as the father of modern management theory.

Hospitals are complicated organizations. Historically they have been organized around a triumvirate: board, management, medical staff. Medical staffs are self governing. It reflects the professionalism and the autonomy of the medical profession. They govern themselves under the corporate structure, but they are self governing.

So I don’t control medical staff. The majority of physicians who practice here and at many community hospitals around the country are still private. They work for themselves and they enjoy clinical privileges at a hospital. They apply for privileges; they are granted privileges to treat and care for their patients in a hospital setting. That creates a complexity in running an organization that you don’t find in a traditional business.  I can’t issue orders or edicts. We have to be able to influence physicians and really, I think, lead as opposed to manage, because they really work for themselves.

I’ve had the opportunity to work in two large communities, Boston and Chicago. And I will tell you that the quality of the medical community here is equal to or better, I would say better that what I experienced in Boston and Chicago. We have not only clinically expert physicians but physicians who are motivated for all the right reasons. And we’ve enjoyed a really very positive relationship with our medical community over the years.

One of the things I’m proud of is the progress we’ve made with our physician confidence in the care that we deliver to our patients here. At Rochester General, we are now at the 93rd percentile compared to other hospitals and health systems around the country. We survey our physicians, all of our physicians every year. I won’t tell you where we were five years ago, but we are now at the 93rd percentile at Rochester General. At Newark-Wayne, we are at the 96th percentile.

That specific question is: (What) is my overall confidence in and satisfaction with the care that my patients receive? And (our physicians) have helped us to make it better; it’s really been a collaboration.

RBJ: What other metrics would you have that indicate how the system is doing? What are the things you really focus on?

CLEMENT: We really define our effectiveness around what we call our five pillars. Those five pillars are:
First, people—that is the climate of our organization, the degree to which our people are engaged.

Second is—and these are not necessarily in order of importance. Actually, I probably should have started with quality and patient safety. 

Third is patient satisfaction, patient experience.

Fourth is growth, not just for growth’s sake but growth as a reflection of how well we are progressing in achieving our vision of becoming this community’s most trusted health care provider, the provider of choice.

And then finally our financial performance.

We think financial performance is really a lagging indicator. If we do all the others well—great quality and safety, great service, a terrific culture for our physicians—that will drive improved financial performance.

So for each of those pillars we have hard, objective metrics. What I will tell you is that we’ve made really remarkable progress in all five areas.

We’ve seen amazing improvement in our mortality index. There is expected mortality, which is predicted based on a patient’s condition when they present. Then there is actual mortality. Over the past five years, our mortality index has gone from approaching one, which is that actual mortality equals predicted mortality, to below 0.75. One is the average mortality. So if you averaged every one of the 5,000 hospitals in the country, it would be one. We are below 0.75. That means patients coming here have a much higher probability of leaving this organization than the average hospital.

We’ve seen our infection rate drop dramatically. The Department of Health and Human Services recognized our system as one of 37 leading health systems in the country for the work that’s being done in reducing hospital and health system acquired infections.

You can go to ( and you can see how Rochester General and Newark-Wayne perform against the state average in terms of patient satisfaction, how they compare against others. I’m happy to share with you that we lead the region; we’re ahead of the state.

You know there are really good hospitals here. That’s not to take anything away from the those two hospitals.

Team member engagement has improved to the 88th percentile. When compared with the industry, our growth is really occurring at an unprecedented level. This year our inpatient admissions are up by more than 10 percent; our ED admissions are up by more than 13 percent.  

We are a metrics driven organization.

RBJ: You have experienced great growth. Your facilities are spread across the community. How does size affect your mission as a community hospital?

CLEMENT: Our mission is about improving the health of the immediate community. But it’s also about partnering with other providers within the region to assist them. Whether it’s a United Memorial Medical Center in Batavia or a Cayuga Medical Center in Ithaca that we have significant clinical relationships with, we see that as part of our mission as well, to help those hospitals in the same way that we help Newark-Wayne, through clinical integration, even though they are not part of our system corporately.

RBJ: What sort of relationships do you have with those hospitals?

CLEMENT: Our mission is to partner with them to help fulfill their mission within their communities. At United Memorial Medical Center, we provide pathology services. We provide urology services. Our pathologists are out there. Our urologists are seeing patients in that community. We’re not bringing those patients back to Rochester. They’re caring for those patients in that community, providing all of the care that hospital has the ability to provide within that community, tertiary and quaternary care that you wouldn’t expect to be provided. If you had a (kidney removal) or a robotic procedure, those kinds of operations would, of course, come back (to Rochester General).

We’ve just reached agreement for one of our senior surgeons to be providing a clinic, caring for patients and providing surgery, in Batavia. Dr. Tony Benedetto is going to provide clinical leadership for the surgery service at United Memorial.

At Cayuga, which is a little further away, it’s about an hour and half away, we are their tertiary care partner in cardiology. We have enabled that hospital to put in a cardiac catheterization lab. Through the clinical support we provide to them, they have developed a primary angioplasty program. We trained their techs; we provide clinical oversight. Now when a patient presents with cardiac distress requiring primary angioplasty, opening the blocked vessel in a cath lab, they can do it right in Ithaca. That’s because of the relationship with Rochester General.

RBJ: To circle back to where we started, asking about the toughest challenges you faced, I’d like to turn it around and ask: Looking ahead in the next five years, if there is one thing that keeps you up at night, what would it be? What is the biggest risk factor, the biggest potential challenge you face over the next three to five years?

CLEMENT: Well, I will say that I sleep pretty well. One of the reasons that I do is because all of what I’ve shared with you is less about me. It’s really all about our 1,500 physicians, our 7,500 team members and our 1,000 volunteers. I’ve never worked with as dedicated, as capable, as committed, as engaged a team as we have here. We’re really blessed to have the team we have here.

We’ve made a lot of changes over the past five years. When the economy melted down, we had to adapt. We took $35 million out of this operation. We did it in partnership with our team members. We moved people around; we redeployed people. We found in almost every case other jobs within the system. As we had to get leaner, we created a very healthy, aligned, team member engaged culture. What you’re hearing from me today, you could hear from any of the 7,000 team members.

We’re building an organization in our journey to go from good to great that, I think, is going to be able to adapt and change and adjust to what I think the next five years is going to bring.

I think the biggest challenge for us and, I think, the biggest challenge for most health systems over the next five to 10 years is that fee-for-service is going to go away. I don’t know when it’s going to happen, I don’t know when it’s going to flip in the next five years or 10 years, but I do think it’s going to occur within 10 years, fee-for-service is going to go away.  

(Fee-for-service) is an outmoded, unworkable payment system that rewards and incentivizes the wrong behaviors. It incentivizes volume versus value and I think that’s going to change. I think it’s already beginning to change. Some of the provisions of health care reform are going to require that change.

I think we’re in the very early stages of this. I think it’s going to be embraced by private payers. We’re going to see it embraced at the state level. Gov. Cuomo was able to very skillfully close the budget deficit this year by taking significant billions of dollars, $3 billion or so, out of the Medicaid program. He’s done that with certainty because he’s imposed a cap on Medicaid spending. What that means is that every one of the health care providers within the state is now capitated on Medicaid. If we spend more than $15.6 billion in the state on Medicaid, then the state’s going to stop paying claims.

So fee-for-service is going to go away. That doesn’t keep me up at night.

Continuing the work that’s been under way for the past five years to reinvent and redesign and reengineer in partnership with our physicians how we can deliver even better care—we’ve putting technology in place that will help us with this, electronic medical records, we’ve spared no expense. We purchased absolutely the best system available anywhere in the world. It’s called Epic. 

Fortunately for this community, (URMC) has made the decision that we’ve made and we’ve collaborated with them to a high degree and we’re going to have open systems. That system will help us as we work with our physicians and caregivers to evolve our system, to continue the evolution of our system from one that was built on a fee-for-service payment model to one that will be paid and reimbursed and incentivized around and rewarded for great quality, great safety at the lowest possible cost.

RBJ: I’ve heard the opinion voiced that the movement away from fee-for-service is really not dependent on the health care reform law, that they were in motion before the Affordable Care Act and that they would continue even if the courts overturn reform.

CLEMENT: I think that is absolutely correct and I think you could make a case that health care reform has catalyzed it and may accelerate it. But I think it’s likely that payment reform will occur first in the private sector, with private payers.

RBJ: There is a Blue Cross in Michigan that is doing this now?
CLEMENT: It’s actually in Minnesota, but yes. We’re seeing it in Massachusetts with (alternative quality contracts). I think it’s inevitable. Virtually every health care economist would agree that fee-for-service reimbursement doesn’t work.

Somebody once said that every system is perfectly designed to deliver the results it delivers. Our nation’s (health care) delivery system is producing are the result of the reimbursement system we now operate under.

7/22/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail

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