Intermountain Health Care

Increased bottom line through clinically-managed

practice

Brian Zias, MGMT 503

6/6/2012

Zias 1

Executive Summary

As of 2001, “the $1.3 trillion healthcare industry accounts for approximately 13% of the

nation’s economic output, and . . . is expected to jump to about 16%” (McCue). Additionally,

“dynamics of the commercial and managed health insurance marketplace” are leading to soaring

costs as “individuals continue to demand more services, and physicians continue to be offered

incentives to provide more services” (Healthcare Financial Management). Intermountain Health

Care must continue to fulfill its vision of being the nation’s top-quality health provider while

simultaneously remaining solvent in an external environment of growing demand for services,

increasing cost pressures, and decreasing reimbursements from insurers. Balance must be

achieved between cost-savings and investment in resources such as integrated technology that

ultimately enable employee knowledge-capture. The organizational resources of IMHC must be

aligned with a strategy that enables successful growth in scale, cost structure, and demand.

Completion of Clinical Integration is one opportunity to reduce costs. Therefore the

opening of remaining Clinical Programs and PCMS should be a top priority, as increasing

clinical quality has already led to demonstrable cost savings. Digitally-captured knowledge and

expertise from field practitioners represents IMHC’s unique competitively valuable resources.

Organizational support and investment in strategic technology that enables physician knowledge-

capture should be congruent with practitioner culture. IT-tethering and personal data I/O devices

should speed adoption of the clinical management system and will provide the language for

interactive practitioner controls. Early adopters of clinical practices should be strategically

placed in specialty group leadership roles to facilitate chasm-crossing. For this strategy to

succeed, balanced focus between technology and patient care must be achieved. Emphasis must

be placed on practitioner-technology integration to further support this strategy.

Zias 2

Key Issues

IMHC was born in 1975 when the Church of Latter Day Saints divested 15 hospitals

“with the understanding that [IMHC] would modernize them and become a nationally recognized

model of not-for-profit health care” (Larson). By April 2000, IMHC’s integrated healthcare

network topped industry survey scores, measuring highest on levels of technology integration,

hospital utilization, financial stability, services and access, contracts, physicians, overall system

integration, and outpatient utilization (Managed Healthcare Source). To fulfill its core purpose,

IMHC must remain the best provider in the nation while simultaneously managing increasing

cost pressures. IMHC’s near-term success relies on achieving the vision of a clinically-managed

health delivery system that has already demonstrated significant cost savings. This will require

influencing practitioners’ behavior, properly incentivizing and capturing practitioner tasks and

decisions, and leveraging knowledge-sharing as a key competitive capability.

On average, top-performing integrated healthcare providers saw profit margins shrink

from 11.5% in 1999 to 5.0% in 2000 (Bellandi). This was partly due to significantly increasing

care-delivery costs and partly by reduced government reimbursement rates1 coupled with

competitive, market-based pricing in commercial contracts (Figure 2). Increasing capital

expenditures on IT also contributed to a decline in profitability across the industry (Bellandi).

Further contributing to a lower bottom line could also be inefficiencies in typical non-profit

organizations, as the average annual operating cost for a nonprofit is 60% higher than a for-profit

hospital (Herzlinger and Krasker). Opportunities for cost savings must be seized while

simultaneously investing in long-term strategies such as information integration.

1 Medicare reimbursement rates were cut 5.4% in 2002 and are projected to be cut again by 4.4% in 2003 (Atkinson).

Zias 3

By 2002, Intermountain Health Care was quickly transforming its organizational

processes and augmenting its technologies to support an evidence-based clinical management

and integration strategy. Cost-savings was one demonstrated result of increasing quality. Studies

in 1995 had indicated over $20 million in total savings from 11 pilot Clinical Projects;

furthermore, clinical quality was on the rise. By 2000, patients were being discharged with

appropriate medication at rates far exceeding both prior benchmarks and national averages.

Additionally, mortality and readmission rates decreased significantly after new care protocols

were established.

It appears that IMHC was successful in becoming the pinnacle of integrated healthcare,

but with growing demand and shrinking margins, it must adapt to a new paradigm of clinical

management. This initiative is currently recognized as part of the Clinical Integration project,

headed by Brent James. The keys to improving quality of health care delivery – and thereby

lowering costs – are (1) influencing the decision-making and capturing the knowledge of

practitioners in their day-to-day jobs, and (2) fostering a very high level of integration between

practitioners and technology.

Supporting Arguments

In April 2002, IMHC CEO Bill Nelson explained that the firm’s core purpose was to

“ensure excellence of service to those who depend on us” (Healthcare Financial Management).

Nelson then outlined IMHC’s valuable resources: “One of our competitive strengths is our

integration and our focus on clinical processes and clinical quality improvement” (Healthcare

Financial Management). Integration, functionally and longitudinally, of systems such as billing,

administration, patient monitoring, reporting, and medical records reduce redundancy and errors

Zias 4

in data-entry tasks while also allowing swift access to master patient databases. Processes such

as computerized diagnosis protocols allow efficient and reproducible practitioner decision-

making, lowering variance in treatment and improving quality. Combining these systems would

allow practitioners to make better decisions more quickly, ultimately increasing clinical

performance and lowering cost of delivery (Figure 3).

While highly-integrated information technology is indeed a critical resource, it is not

durable or inimitable beyond a short time frame (Collis and Montgomery, Competing on

Resources). The background and clinical experience of its 400 direct and 2,000 affiliate

physicians and thousands of medical support technicians are IMHC’s competitively valuable

resources. The value of protocols is realized only when they are refined, corrected, and polished

by the on-the job experiences of practitioners. This refinement is possible through capturing

unique, subjective, or creative non-programmed decisions made by practitioners, which in turn

“depends on tapping the tacit and often highly subjective insights, intuitions, and hunches of

individual employees” (Nonaka). If IMHC can capture in its protocols both the implicit and

explicit knowledge of health care workers, the valuable resource of individual knowledge can be

distributed and leveraged for the benefit of the entire system (Nonaka).

To successfully capture this resource, a majority of practitioners must be able and willing

to communicate and share their decision-making processes, as well as to utilize the systems in

ways that benefit their practices. This is a two-fold challenge, since practitioners must be able to

access their patient data in a manner that is not disruptive to their current process while providing

data in an efficient way. Today, the primary I/O interface for physicians to the integrated data is

the Clinical Workstation (Figure 1).

Zias 5

Increasing participation requires proper design of controls that take into account

practitioner culture. The compliance of doctors to a rigid, programmed decision-making process

is in dissonance with a culture of individualism and tolerance for uncertainty. Medicine is a craft

that is independent, rugged, and individualist. Practitioner culture takes root within the first days

of training, as “students and residents are not taught how to function as members of a team”

(Welch). As such, James concluded that “[t]he key to engaging physicians in clinical

management was to make it meaningful by aligning data collection to work processes.”

Physicians, particularly affiliate physicians, may be viewed as related to hospitals and

health care organizations in a divergent interdependency (Dabholkar and Neeley). That is, the

hospitals and physicians tend to have long-term relationships and equal power but individual

goal orientations. When doctors choose with whom to affiliate, they generally consider how

much freedom in decision-making they will have in their practice:

The nonprofit hospital’s role . . . enables these doctors to practice their profession and

earn the bulk of their income in an institution free of market discipline . . . allow these

professionals to attain their career goals most easily . . . and give their professional

employees a perfect environment in which to practice (Herzlinger and Krasker).

In essence, the way to shift from a divergent to a coordinative interdependency is to gain

the willing participation of both practitioners and IMHC staff. As one doctor noted, “I use this as

a guide. I generally make my own decisions, but the great thing about it is the drug information.”

Therefore the attitude of pragmatists is that the integrated data systems are simply a tool from

which to get patient information or conduct medical research. It is not yet revolutionizing how

the majority of care is delivered. As of 2002, only a handful of enthusiasts of quality had become

early adopters (visionaries) of the clinical mentality.

Zias 6

Alternative Strategies

1. Plan on realizing significant savings by increasing clinical quality. Emphasize the current

implementation of Clinical Integration. The opening of the four remaining Clinical Programs

and PCMS is the top priority. Once these programs are out, practitioners will naturally begin

to conform.

a. Risks: Results from CI require too long to realize. Other costs overwhelm the savings

from quality. Dependent on practitioner participation in knowledge-sharing. Lack of

participation from and control of practitioners.

2. Focus on the integration of technology and care delivery. This will enable knowledge-sharing

and refinement of diagnosis and treatment protocols. Increase funding in IT and create tether-

like interdependencies between employees and data I/O devices. Forcing engagement with

the clinical management system will provide supervisory practitioner control.

a. Risks: Computer-based treatment may lead to higher quality and consistency, but this

may not increase overall creativity or satisfaction. If practitioners increasingly follow

pre-programmed diagnosis, care, and task procedures, does the ability to handle

unique cases diminish? Possible commitment or cultural barriers.

3. Follow Nelson’s lead and recognize that results come from “just continuing to tighten all the

bolts” and not rely on one strategy (Healthcare Financial Management). Initiate task forces to

investigate other cost-cutting opportunities in the organization.

a. Risk: Increased staff and research headcount results in higher expense per patient.

4. Since the quality improvements are actually lowering the bottom line, focus should be on

strategic choices of health care financing and negotiating advantageous shared-benefits

contracts.

a. Risk: Pricing pressures in the external environment, such as government fee

schedules and commercial provider contracts, will ultimately drive the overall

financial success.

5. Initiate an accelerated structural re-organization to realize James’ audacious 10-year goal of

“a final toppling of the parallel administrative/clinical management structure” (Collins and

Porras).

Zias 7

a. Risks: Collapsing the structure results in less integration, collaboration, and

communication. Overlaps of company information, business activities, and

managerial responsibilities encourage “frequent dialogue and communication” and

“building a redundant organization is the first step in managing the knowledge-

creating company” (Nonaka).

Recommendations

Given the one-year timeline for rolling out the CI programs, a combination of strategies

(1) and (2) should be implemented. Bolster support for clinically-managed systems by using

technology and physician culture to IMHC’s advantage and capture practitioner knowledge.

Provide a functional tether between employee tasks and the hospital environment. This will be

enabled the use of technology such as wireless networking and compact portable console

interfaces that do not interfere with a practitioner’s craft. The last requirement is the most

challenging but the most critical. For example, a cardiac physician cannot wait days or weeks in

order for a digital record to be retrieved, organized, and reported when they are faced with time-

sensitive demands such as beginning medication or wheeling the patient into an OR.

Doctors are scientifically-minded, inquisitive, and data-driven, yet they are also

competitive and driven by performance (Welch). For example, requiring a practitioner to type in

a reason to justify his diversion from the protocol could be perceived as an annoyance or even an

intolerable intrusion into the decision-making process. Therefore, doctor perception must be

shifted to one of participation in a scientific study and by all efforts this program must not

threaten physicians’ perceptions of expertise. Additionally, doctors can be incentivized to

contribute their knowledge to the protocols by setting numeric goals for protocol-enhancing

submissions each year. The idea of clinical-based management must become believed in as part

Zias 8

of practitioner vision of how health care should be delivered (Nonaka). In fact, the doctors who

do deviate from protocol may end up contributing the most new data as protocols mature.

The disruptiveness of integrating technology into practice must be commensurate with

the practical advantages that participants realize. This will be critical to adoption of Clinical

Integration. For example, a simple extra mouse-click caused “physicians [to rail] at yet another

required computer interaction, but once they realized they were performing better operationally

than under the old method, compliance quickly reached 90 percent” (Welch). Indeed, often “the

benefits of a CIS do not accrue to those entering the data . . . the cost benefit goes to the payer,

while the clinician who is doing the data entry and analysis may see his or her reimbursement

decline” (Narus and Clayton). Such risks must be taken into account with the implementation of

this strategy.

Adoption can be further encouraged by strategic placement of early adopters of clinical

and quality management to influence the perceptions and behaviors of other practitioners. The

framework of Crossing the Chasm suggests that the next step is to demonstrate productivity

improvements to win over the early majority. In IMHC’s bell-shaped distribution of process and

technology adoption among the practitioners, the early adopters will need to become change

agents to assist in compelling those who are willing to learn. However, these agents must be

aware of four ways they could alienate the pragmatic early majority: 1) lack of respect for the

value of colleague’s experiences, 2) taking a greater interest in technology than in their industry,

3) failing to recognize the importance of existing product infrastructure, or 4) overall

disruptiveness (Moore).

Zias 9

Implementation

1. Early adopters should be re-organized into strategically-placed change agents to

influence the early majority (see Figure 4).

2. New roles, organized by clinical specialty, responsible for integrating technology

with practitioner function.

3. Enable physician access to data and stress clinical performance trends both over time

and across practitioners (Welch). “With awareness, and the physician’s intrinsic

desire to perform well, improvement in clinical and practice metrics will follow the

dissemination of performance data” (Welch).

4. Create task force to provide recommendations on how Step 3 can be congruent with

HIPPA.

5. Incentives for practitioners that will drive contribution to protocols should be

investigated.

6. Challenge each employee to “reexamine what they take for granted” at each step of

medical care and encourage them to notate this in the data system (Nonaka).

7. Interactive system of control focused on clinical data should define the language used

when discussing performance and success. Diagnostic and interactive control systems

based on patient-care outcome may enable doctors to manage other doctors

successfully.

8. Senior management should reinforce the message of quality through symbols,

metaphors, and context for the strategy (Nonaka).

9. Regularly reevaluate the level of at burden is placed on practitioners to change their

ways? Is there an intrusion/disruption on the practice? Focus on technology vs. care.

Zias 10

Figures

Figure 1 – IMHC’s Information Technology System Tolopogy

Figure 2 – Mix of Insurance Providers admitting to IMHC facilities

Zias 11

Figure 3 – Technology-enabled clinical encounter, adapted from Narus and Clayton

Figure 4 – Strategic placement of early adopters at all organizational levels

Zias 12

Works Cited

Bellandi, Deanna. "Intermountain Tops List of Best Systems." Modern Healthcare 2000.

Collins, James and Jerry Porras. "Building your Company's Vision." 74 (1996).

Collis, David and Cynthia Montgomery. "Competing on Resources." July-August 2008 (2008).

—. "Creating Corporate Advantage." Harvard Business Review n.d.

Dabholkar, Pratibha and Sabrina Neeley. "Managing Interdependency: A Taxonomy for Business-to-

Business Relationships." 13.6 (1998).

Healthcare Financial Management. "Nelson: Clinical Improvements Hold Key to Reducing Cost

Pressures." Healthcare Financial Management (2002): 30-34.

Herzlinger, Regina and William Krasker. "Who Profits From Nonprofits?" Harvard Business Review 1987,

January-February ed.

Larson, Laurie. "M. Gordon Johnson: Building His Community's Future." n.d.: 28,32.

Managed Healthcare Source. "Top 25 Integrated Healthcare Networks." Managed Healthcare 2000.

McCue, Michael. "The role of health plans is to serve however they can." Managed Healthcare Executive

2001.

Moore, Geoffrey. Crossing the Chasm. New York: HarperCollins, 2002.

Nonaka, Ikujiro. "The Knowledge-Creating Company." Harvard Business Review 1991.

Shinkman, Ron. "Intermountain Set to Exit Wyoming." Modern Healthcare 1999.