Three Rivers Health Uses Analytics to Accomplish Financial Turnaround

One not-for-profit regional medical center leverages its data to conquer increasing costs.

Three Rivers Health, a 60-bed, multispecialty, community-owned, not-for-profit regional medical center in southwest Michigan, faced a financial crisis resulting from changes in utilization and payer mix as well an influx of Medicaid patients who sought urgent and non-urgent care in the emergency department (ED)—with much of these changes being driven by the Affordable Care Act (ACA). An organization that also offers home care, hospice, and a comprehensive wellness facility, Three Rivers Health had too many IT tools generating disparate and disconnected data points. As a result, finance leaders lacked the insights they needed to understand the costs of delivering care.

Like many rural health systems, the organization had come to rely upon manual processes and extensive spreadsheets, a time-intensive process that sometimes resulted in errors that required even more time to investigate and resolve. Leaders at Three Rivers Health wanted to integrate their disparate financial management systems and empower their service line managers with real-time information.

“We were standing at the precipice of the shared-savings conundrum,” says Steve Andrews, CFO. “With our ACO [accountable care organization] arrangement, [the Centers for Medicare & Medicaid Services]basically gave us a three-year scholarship to learn how to do population health management. But we had to get our arms around our costs quickly.”

New Processes and Solutions

These challenges led the leadership team at Three Rivers Health to investigate new processes and a new technology solution that would allow them to identify issues while there was still time to intervene.

Leaders identified several workflows that needed to change. For example, they automated some of the organization’s manual financial reporting processes. Leaders also implemented a business intelligence tool that provides real-time access to data, which helps leaders make important business decisions more quickly. “Prior to implementing the solution, our monthly reconciliation process was a major effort,” Andrews says. “Today, I can literally build a report in 45 seconds.”

As part of their efforts, leaders also measured quality across all service lines and developed strategies to optimize both case mix and payer mix.

The leadership team also focused on improving conversion rates from the emergency department (ED) to inpatient stays and preventing unnecessary ED admissions. They identified frequent fliers—patients who use the ED as their primary source of healthcare for both emergent and non-emergent conditions—so they could direct these individuals to more appropriate care settings when possible.

Three Rivers Health Targets ED Use

Quantifiable Results

These efforts had a significant impact on the organization’s bottom line, with the most impressive results seen in wound care, orthopedics, and the ED.

Wound care. Three Rivers Health is known throughout the region for its high-quality wound care at its Center for Wound Healing, which offers comprehensive wound, surgical, and hyperbaric oxygen treatment. The center treated 1,650 cases in 2014, 2,171 cases in 2015, and 2,181 cases in 2016. By using analytics to improve management and processes, the center achieved the following results over this two-year time period:

• 78 percent increase in average contribution margin per case
• 44 percent increase in average reimbursement per case
• 29 percent decrease in average direct costs per case

Orthopedics. Orthopedics is traditionally a profitable service line for medical centers. However, it also is an area of significant variability in cost and quality, which can derail revenue if costs are not carefully managed. Leaders at Three Rivers Health drilled down into detailed line items and used the information to educate surgeons and ancillary staff on ways to reduce variation in devices and supplies. The results for FY16 greatly exceeded expectations. Leaders achieved an outpatient surgery cost-to-reimbursement margin of 28.3 percent and an inpatient surgery cost-to-reimbursement margin of 38.4 percent from 2014 to 2016.

ED. EDs are scrutinized more than ever to make sure they are admitting only those patients who truly meet admission criteria. Three Rivers Health improved its ED conversion-to-inpatient-stay rates, which had the following impact on revenue from 2014 to 2016:

• 50 percent increase in contribution margin per case
• 21 percent increase in reimbursement
• Length of stay (LOS) decrease by 4 percent
• 1.6 percent reduction in 30-day ED 
revisits and 8.72 percent decrease in total ED readmissions

Lessons Learned

Leaders at Three Rivers Health offer the following insights for other hospital leaders rolling out new business intelligence processes and technology.

Improve visibility and productivity.  Healthcare providers have a dire need to improve productivity and reduce costs as both commercial and governmental payers move toward value-based payment and away from fee-for-service models. Although across-the-board staff reductions present one option to reduce expenses and are often temporary, they can negatively impact the quality of patient care.

The solution to this challenge is daily management of productivity to established staffing standards. This includes enhanced visibility into the financial performance of every aspect of one’s business, including service line costs, labor productivity, and healthy revenues. For most institutions, the data required to enable dynamic workflow and staffing changes (including patient accounting, general ledger, practice management, and time and attendance) is housed in multiple and disparate silos rendering it impossible to perform the real-time, ad-hoc analyses needed to manage day to day productivity.

Furthermore, having a better grasp on service line margins, including trends over time, is necessary to inform decisions to expand a hospital’s scope of operations, add new service lines, or form new collaborative alliances with other health systems.

Align management incentive programs. When leaders can more effectively tie performance to financial results, the entire team can focus on metrics that matter, so the organization can remain financially viable and provide better care for patients. It is vital to focus on transforming business operations to thrive in today’s challenging, competitive environment, where value-based purchasing and increasing costs are putting margins at risk.

Measure and manage costs. Most hospitals do not know how their service lines are performing because they lack timely and reliable information on their volumes, costs, and contribution margins. One-off analyses are inaccurate and time-consuming. As a result, service line metrics are neither measured nor managed. Business intelligence tools can inspire systemwide innovation by providing a more complete picture in real-time.

“With rapid access to data at the service line and physician level, we were able to increase standardization and minimize variation for our wound care and orthopedic service lines,” Andrews says. “We also improved our retail pharmacy inventory management to better track and anticipate demand while understanding our costs in real time.”

Focus on standardization and improvement. The ability to capture data from multiple source systems allows analysis in a variety of ways and at the population level—all the way down to the individual patient. With business intelligence tools, organizations can identify revenue enhancement opportunities and support cost and revenue improvement initiatives at any time. One key is to focus on optimizing LOS reductions through standardization and improvement, down to the CPT code level.

A Healthier Financial Future

“Leveraging business intelligence was a key part of the systemwide operational effort that effectively turned Three Rivers Health’s finances around and put them in the black,” Andrews says. “We received more rapid and efficient access to insights, which has led to opportunities for sustained growth and an aggressive strategy to increase involvement in our ACO and other accountable care initiatives.”

Interviewed for this article:

Steve Andrews is CFO, Three Rivers Health, Three Rivers, Mich., and a member of HFMA’s Western Michigan Chapter.