Johns Hopkins Gazette: November 18, 1996 Form

Special Section:
Johns Hopkins
Medicine Town

On Oct. 9, William R. Brody, Edward D. Miller Jr., Ronald R. Peterson and John D. Stobo held their first Johns Hopkins Medicine Town Meeting. Open to all faculty and staff, the meeting in Hurd Hall provided the Hopkins leaders a forum to describe the global issues facing academic health care centers, the challenges facing Johns Hopkins Medicine and strategic imperatives for Hopkins' future.

After their talks, they fielded questions. Following is an abridged version of their presentations.

William R. Brody, president, The Johns Hopkins University; interim chief executive officer,Johns Hopkins Medicine

I'm delighted to be back at Hopkins. An extraordinary number of positive things have happened since I left. Looking from afar, I gained an insider's outside view of Hopkins. I've come to appreciate a number of things that you really recognize when you go to another institution. I highly recommend that everyone spend a sabbatical away at another university, hospital or health system to get a perspective on Hopkins.

The bottom line is, I'm very bullish on the potential for us and the ultimate outcome. That's not to say we're going to be saved from the turmoil that's plaguing all academic health centers. We're going to go through very tumultuous times. We can't avoid being thrown into the chaotic phase of the managed care marketplace. But we have to stay true to our objectives and mission.

As health care is evolving, each market is different. When you've seen one marketplace, you haven't seen them all. You can't necessarily extrapolate from what's happened in San Diego or Sacramento or Seattle or Minnesota or Boston to what is going to happen in Baltimore. Nonetheless, some things are common to each. It's a bit like children growing up: although each child has a unique personality, they go through certain milestones. I think the health care milestones are a guide to what's going to happen in our marketplace and what I'm pretty certain we need to do to adapt to this new order.

What have I learned from the Minnesota experience?

I had a brief experience with what's going on in Minnesota, the land of health care reform.

In 1992, the Minnesota marketplace was fairly orderly, and the University of Minnesota was doing extremely well. By 1994, there had been a massive consolidation of almost all the hospitals and providers into one of four systems or networks. Today, 90 percent of patients in the Twin Cities are in managed care. When you get your options every year for benefits, there's no indemnity plan, no fee-for-service option at the University of Minnesota. There are three or four options--all managed care. Unfortunately for the University of Minnesota, it was not in one of the four systems.

And another thing happened. Payments to hospitals and specialist physicians plummeted and still continue to fall. It's estimated that during the next four to five years, health care reimbursements will decrease 25 percent to Minnesota hospitals and physicians. And this is in a marketplace that's already quite mature and has already demonstrated some of the cost savings from being in managed care. Even more scary, in the Twin Cities, it's projected that 40 percent more hospital beds will close during the next five years. University of Minnesota Hospital has 750 beds. Last year, the census was hovering around 300 patients. This is a process that's going to go on and on, and it's not particularly kind to academic health centers.

Before 1992, the University of Minnesota adopted a strategy that it would deal with tertiary and quaternary care patients (it's one of the leaders in bone marrow transplants). But the strategy didn't work because a large fraction of any academic health center's patients come for services that can be done at a number of centers in the local area. Most Hopkins Hospital patients come from zip codes in the Baltimore area and the same thing was true in Minnesota. Those who need highly specialized care do come to centers like Hopkins and Minnesota and Harvard and Stanford, but to maintain the financial integrity of the hospital and have enough patients for education and research, we rely largely on patients who can move just as easily to other local hospitals and clinics.

So what went wrong? First, the university misread the market, thinking it would evolve more slowly and that they could have a "most favored nation" status dealing with all the providers. Second, they didn't decrease hospital costs fast enough. When the market begins to contract and managed care becomes the dominant provider, HMOs channel patients to hospitals with lower costs. If your costs are lower, you accumulate more and more patients, and with a larger volume you can drive your costs down. If your costs are too high, you lose volume, it's harder to bring your costs down and you get into a vicious spiral. And that's what happened to the University of Minnesota. Even though while I was there we cut costs by more than $40 million and became fairly competitive, it was very difficult to do with a base of only 300 patients.

Third, the university has the largest family practice residency program in the country, but primary care faculty physicians--the family practice physicians in particular--were not viewed favorably by the specialists at the university. Although they were full-time faculty who'd gone through the same promotion process, they were viewed as second-class citizens in the University of Minnesota system. So family practice ended up having satellite clinics all over the city that acted as feeders for the competing hospitals when the marketplace contracted, and the university lost the ability to use its primary care base as a source of referrals to capture patients under a managed care model.

Fourth, the faculty practice organization was too slow to respond to the need for an integrated practice. The tradeoffs needed to gain capitated contracts could not be made easily because the contracting had to be done with multiple departments and there was no way to share the risk across departmental lines.

What are the lessons for Hopkins?

Getting back to Hopkins, I think the most important thing is to be true to our mission--discovering knowledge, educating our physician leaders and scientists, and providing health care services for a large population, many of whom reside in the local community. We've always provided education and patient care through the fabric of this discovery of knowledge. That's what makes Hopkins unique. That's our wonderful heritage, and we have to try to continue it. At the same time, we've cross-subsidized medical education and research by using clinical practice dollars--whether the dollars were for professional fees or the hospital. It's this subsidy that is most in danger as reimbursement for both hospital and physician fees declines.

Yet competitive marketplace reform could move us in a direction that in some sense is counter to our mission. The paradox is that while we must remain true to our mission to provide patient care within the fabric of research and education, if we do only that, we may fail to attract patients because of the way they're being bundled. We have to become a competitive, market-driven health care delivery system with all the challenges that entails. We may have to establish affiliations, mergers or alliances with hospitals and physicians who don't participate directly in research and education, don't share our mission and our heritage, and may not be "Hopkins quality." Whom should we appoint? Should we have groups of primary care physicians out in practice in the community? Should they have academic appointments? What's the role of education and research if we affiliate with hospitals in suburban Washington? We're stuck between Scylla and Charybdis: no mission no margin, no margin no mission. How do we balance our focus on academic medicine and research while maintaining the vitality of our enterprise?

That's the challenge all academic centers are going to face. And there are no answers except to say if we don't do something, the outcome isn't going to be highly favorable.

Managed care unfortunately doesn't recognize the unique role played by academic health centers. Had President Clinton's health care bill survived, moving us to a regulated model, we'd have fared much better. In a regulated model, you can carve out academic health centers because we do something different in research and education. But in this highly competitive marketplace, there's no carve out for academic centers, and we have to find a way to survive on a basis that's equal to some of the Beltway hospitals. I think many things can give us that competitive edge, but unless we figure them out, we'll be less successful than we've been in the past.

Another problem is over-supply at all levels--hospital beds, specialist physicians (some people even think we have too many primary care physicians), hospital-based nurses, dispensing pharmacists. We also have too many HMOs and too much fragmentation of the industry. And of course, there's a shift from fee-for-service payments to paying for overall responsibility for care (the capitation system). Finally, we're seeing bulk purchasing of patient care services.

These are the four major trends I think are occurring all across the country. Whether you're in California, Minnesota or Maryland, those trends are going to drive the changes. Exactly how the changes occur in the marketplace will be different in each, but they'll be driven by these four driving forces.

What are the implications?

The first is competitive marketplace reform. Without carve outs for academic medical centers, there's no safe haven, even though we do research and education as well as patient care. Carve outs may occur in the future, but it's not at all clear that it's feasible to legislate them for academic health centers. And at least in Minnesota, we detected no appetite among the business community (which ultimately pays a lot of the bills) or the government for supporting academic health centers to the extent we now enjoy through our patients' subsidies.

Patients increasingly will be sent to the lowest-cost providers unless one can demonstrate substantial differences in quality and outcomes. If consolidation is rapid, the implications of over-supply are massive at all levels. In Minnesota, the market consolidated in 18 months from multiple hospitals, HMOs and physician groups to basically four major networks. That appears to be the driving force in each marketplace, with two to four major players integrating hospitals, physicians and sometimes insurance companies or HMOs.

The second implication in the changing marketplace is that purchasers and payers are gaining power in two ways. Smaller HMOs are merging into larger HMOs, like United Health Care, that can control a marketplace. And employers are creating purchasing cooperatives. There are several purchasing cooperatives in California, for example, that can buy health care for tens of thousands or hundreds of thousands of patients. They wield a large stick, and a small group of physicians or an individual physician or a single hospital can't compete. There are too many hospital beds and too many physicians, so there's always somebody willing to discount services.

Hospitals and physicians have become commodity priced when faced with large HMOs or purchasing cooperatives that basically can dictate terms. On the other hand, providers, physician groups and hospitals can consolidate to counteract the power of the purchasing cooperatives or large payer groups and make negotiations more even-handed.

The shift to capitation implies that to deliver care efficiently, a physician group must span the spectrum from primary care to tertiary or quaternary care and have the ability to share incentives through that group. For example, when University of Minnesota physicians bid on a contract for patients with acute myocardial infarction, they figured out how many cardiologists they'd need. Their competitor, an integrated group practice through one of the competing networks, figured out how many primary care physicians could manage most of patients' care and therefore come in at a lower cost.

In an integrated group practice, the thinking is very different from that in an academic health center. And integrated practices often shift from using specialists to primary care physicians or nurse practitioners or physicians' assistants. The goal is to deliver care at the most cost-effective level. These groups develop incentives to share financial responsibilities. In our case, that will align the physicians in the School of Medicine and the hospital because as we bid on contracts to take care of patients, we needn't care whether more dollars go to the hospital or to the Clinical Practice Association, as long as the entire organization benefits and we all have a share in the overall benefits. Currently, it may not be advantageous for one department to bid on a certain contract because reimbursement for the department is low, even though reimbursement to the hospital may be high, or vice-versa. We have to find ways of equalizing this through shared financial incentives.

The third implication of the trends driving changes in health care is that, having a preponderance of tertiary care providers or specialists, we end up at the bottom of the managed care "food chain." Capitated dollars to care for patients go to the HMO, which takes its share of the profit, then spins some dollars off to pay to the primary care physicians. By the time it gets down to the specialist, a lot of the profit has been taken out of the dollar. In markets like California and Minnesota, specialists really have ended up with the short end of the stick. To get around that, you put together an integrated hospital-physician group to share all the incentives and capture much more patient care than just the physician service component. Controlling the total capitation payment is the most desirable place to be on the food chain.

Finally, we need an integrated delivery system so we can meet with a Westinghouse or a Lockheed Martin and say, yes, we'll take care of your 10,000 or 20,000 employees in the Washington/Baltimore area. To provide that care, we clearly need a number of provider sites with hospitals and physicians covering inpatient, outpatient, transition or step-down, rehabilitation and home care services. We have many of those pieces and we're acquiring more. We have considerable strengths that can move Johns Hopkins Medicine toward the top of the food chain, where we can dictate the terms of how the care will be delivered and at what price.

Where do we go from here?

Taking all these factors together, there are several things we have to do. First, we must reduce cost while continuing to improve patient service. The hospital now is at a competitive disadvantage, not with other academic centers, but with "Beltway" hospitals that can provide services less expensively than Hopkins. As more patients are captured in HMOs, they'll be channeled to the lowest-cost hospitals, a critical factor we must address vigorously throughout the organization. This is where everyone can participate and make major strides. I believe academic health centers should be among the lowest-cost hospitals, even allowing for things we do differently, such as research and education and uncompensated care.

Improving the quality of our patient services is as important as reducing cost_the two must go hand in hand. Not only does the medical component of care need to be high, but we must ensure that we are patient-friendly and referring physician-friendly. Being attentive to the needs of patients for prompt, friendly and effective service in all respects is critical, as is the need to maintain good communication with our referring doctors.

The second thing we must do is continue to develop innovative services. The third is to link closely to buyers, a brilliant strategy with great potential that's exemplified by the Employee Health Plan (EHP), which essentially links employers in a purchasing cooperative in partnership with the health system. The fourth is to participate as the market consolidates. As the market contracts, it's like a game of musical chairs. If we don't play, we'll find ourselves isolated as other integrated systems develop, enlarge and get more powerful.

There are several risks. One is losing focus on our mission. We have to remember why we're here and what we're trying to accomplish. Here's the balance question. It's not that we're going to abandon our mission, but we have to pay attention to the marketplace to preserve the mission. If we expend too much energy on the marketplace and not enough on our mission, we risk losing our focus.

The second risk is the large financial exposure in developing an integrated delivery system outside the traditional Hopkins campuses. During the next three to five years, we may have to forgo some investments we'd otherwise make in our campuses. We'll need partners because we can't, and shouldn't, do it alone.

The third risk is the potential loss of subsidy for research and education from patient care activities. With a large enough system, we'd have the resources to generate a larger total, so that even if we took a smaller percentage, we'd still be able to continue our excellent research and education.

Of course, by developing large networks and affiliating with non-Hopkins physicians who aren't necessarily involved in education and research, we risk diluting the perception of Hopkins quality. How do we bring them on and present them, and how does that affect the overall perception of Hopkins? We don't have the answers and we need to work with you all to find solutions.

Johns Hopkins Medicine offers a wonderful opportunity to bring together the two institutions that have been so strong and powerful for over a century in order to make these kinds of integrated decisions. My experience working with both the health system and the School of Medicine during the last several weeks has been extremely positive. People are working together very well. And, although we have many interim positions, we're making decisions and moving forward.

Filling the CEO position is challenging, because we want someone who's a demonstrated leader in academic medicine, who's a visionary leader and good communicator, and who also understands the business of medicine and managed care and has proven ability to manage a complex organization with fiscal responsibility. Most important, we need someone who understands our unique mission and culture of shared values and consultative leadership. We're scouring the nation, interviewing candidates to find the right person to lead us into the 21st century. I think it's the best job in medicine, probably in the world, but certainly in the United States. It does require someone with extraordinary skills. We're still open to suggestions.

We are moving forward in addressing the challenges of the marketplace. At the same time, we must move forward on the research and education fronts, as we always have, and continue our mission of discovery. But we've got to get the cost structure of the hospital down, improve patient services, move to an integrated group practice, establish an integrated delivery system and develop the financial incentives that will bring the School of Medicine and the health system together.

Ronald R. Peterson, acting president, The Johns Hopkins Hospital and Johns Hopkins Health System

The financial status of the hospital is very good. For fiscal year 1996, our profit was almost 3 percent of our gross revenues, or about $21 million. That's not bad. But to earn that profit, which is necessary to meet our many financial obligations, we had to keep prices higher than we'd like. As Bill pointed out, we're within 25 to 30 minutes of several aggressively priced Beltway competitors. But we're priced about 30 percent higher on a case mix-adjusted basis, a position that has not improved markedly in the last year or two. Although the market heretofore has shown some grace, we can't expect continued immunity from market forces.

In my opinion, our goal should be to halve that difference during the next 18 to 24 months. I think we'll be able to enjoy some differential due to the value the market will ascribe to us as a major academic center. But as Bill suggested, we probably have to cut deeper sooner to avoid getting into that vicious downward spiral from which it's very difficult to recover.

Maintaining competitiveness, however, isn't just a matter of reducing costs. It's also a matter of enhancing volume and improving service quality. We need a mantra that speaks to those three issues simultaneously.

We're now seeing opportunities to partner between the hospital and the Dean's Office to address many of these issues. As Bill said, we need uniform incentives or commonality of incentives across the medical school and the hospital so we're not vying against each other. That's also important for those in departmental leadership positions, because 70 to 80 percent of hospital resources are controlled by our functional unit directors, not central administrators. Here we have a model in which the chiefs of the respective services not only are responsible on the medical school side of the business, but are truly the officers--the product managers--on the hospital side as well. We need to make sure that at both the departmental level and the individual level, there's an appropriate incentive structure and also accountability for achieving results as we move forward. I believe accountability has to be re-established for the corporate officers and central administrators as well as for the unit directors. We do have to look at cost reduction, but we need not think of it only as taking expenses out of what each of us does. Instead, we should determine ways together to manage care at a lower cost per case, enabling us gradually to lower the price per case.

In the hospital, we've historically thought about three major markets. A substantial part of our business comes from the local neighborhoods around the hospital. We're also important regionally, in central Maryland and the mid-Atlantic area. Finally, we're a center of excellence in many disciplines not only nationally but internationally. Each market is changing, and we have to position ourselves more competitively.

In the local market, the State Health Department will convert most medical assistance recipients to a capitated managed care program shortly after Jan. 1. We're planning to sponsor an MCO, an organization able to receive capitation directly from the Health Department. We'll probably do that with a partner; the details are being worked out now. If we receive a capitated, per-member-per-month payment, however, we'll have to live within that boundary, even though our costs in the hospital are a lot higher than those of many others who also will receive similar payments. So we have a compelling reason to address our cost structure.

In the regional market, we must be able to present competitive prices to get contracts. To be a player, to really get business to the hospital, we need an integrated delivery system and network development. Otherwise, we'll see channeling away of our patients by commercial HMOs and others. Notwithstanding our objective of developing some of our own products, for some time to come we'll need to rely largely on contracts with other commercial payers.

As for national and international markets, I agree with Dr. Brody that we're priced more competitively against a large number of other academic medical centers. But they're also working to improve their situation, so I wouldn't relax on that one either. It's a moving target. We need to improve our overall position in each of our three markets. To reduce unit costs and thus reduce prices, we not only have to take out costs, but look at ways to enhance volume and still keep our eye on quality--a factor that I predict will re-emerge in three to five years as a differentiating feature in the health care economy. Today it's price, price, price, but that will change. Although our technical quality is excellent, perhaps one of our major goals should be to make our service as superb as our science.

We're making progress with our physical facilities. The beautifully renovated Wilmer Nursing and Trauma Center, opening in early November, will accommodate the Wilmer inpatient rooms, Emergency Room and pre- and post-operative care. The Comprehensive Cancer Center, slated to open in the fall of 1998, is now under construction. It will include medical and surgical oncology disciplines, offering 62 medical oncology beds, 72 surgical beds, 20 ICU beds principally devoted to surgical needs and 16 new ORs. We're also finalizing plans for the General Services Building to be built on Orleans Street. It will serve the Comprehensive Cancer Building, the Cancer Research Building and the new nursing facility, enhancing the chilled water capacity for the medical campus, centralizing our receiving and distribution capabilities, and consolidating some of the compounding work for the pharmacy.

The CCU on Nelson 5 is being renovated now and is scheduled to open in late December. Then we immediately begin major renovations on the MICU. Also in the final planning stages is a comprehensive, 14-bed, inpatient rehabilitation unit, which will enable us to offer a full continuum of rehab services right in the hospital. It's slated to open in approximately one year. Finally, we're in the midst of adding 550 badly needed parking spaces to the McElderry garage.

Edward D. Miller Jr., interim dean, The Johns Hopkins University School of Medicine

During the eight months I've been in this role, probably one of the most important things has been the reorganization of the Clinical Practice Association. Several months ago, a group met in the Dean's Office and started working on how to make the CPA more of an integrated group practice rather than just a billing operation. In large part due to the hard work of Dr. Elias Zerhouni, who's been appointed vice dean for the CPA, a few weeks ago we put in place a total re-organization. The previous governing structure had 18 chairmen--all little silos in a row--and it was very hard to get people off the dime. We all agreed it wouldn't work in the future. We now have a much smaller group that includes chairmen as well as three non-chairmen on the executive committee. We also have a risk pool so we can put monies aside to drive strategic initiatives to make our practice work as one. And, we're sorting out the issue of the part of the dean's tax that goes to the CPA. We'll divide that out so we can cut the cost, and we're looking at ways to do that. I think we're moving to build a truly integrated group practice.

Another important thing is that we have a new class of medical students. They're a wonderful group, very diverse, very eager. I met with them in September, and we had a kind of Donahue show for about an hour and a half, talking about changes in health care. They're very educated on this topic.

In the basic sciences, we have an ongoing search in Biological Chemistry that's working very quickly. We've received a $15 million award through a variety of sources to renovate many of the basic science labs, making us state of the art. I've met with the basic sciences chairmen singly and as a group, and it's obvious that the old department lines are falling apart and the basic sciences becoming more seamless. People are very cooperative. There's now a development officer, one of the few in the country, to help raise funds for the basic sciences. We continue to do extremely well at NIH, and we've received numerous awards. For example, Pat Walsh won the GM Kettering award for cancer, a significant award that not only speaks to Pat but to the institution.

Cooperation between the hospital and the School of Medicine has been superb. Ron Peterson and I work extremely well together. He's a very able administrator, as you know, but probably more importantly, he's committed to education and research. We've been able to retain some leaders because the hospital and university have worked together, and that will help us move forward. For example, we recently recruited a new head of Gynecology and Obstetrics, Harold Fox. He comes from George Washington, but had been the vice chairman at Columbia Presbyterian in New York, when I was there. Dr. Fox was identified as a possible candidate in late August. The search committee recommended him, and the hospital and university worked diligently to recruit him. We signed a contract a few weeks ago, and he started Nov. 1.

The School of Medicine is very healthy financially. We've done well. We've been able to support a variety of activities and I think we've been able to move things forward.

John D. Stobo, chairman and chief executive officer Johns Hopkins HealthCare

As Bill Brody indicated, Johns Hopkins HealthCare has been challenged with the opportunity of developing and coordinating an integrated delivery system. An integrated delivery system provides care that extends over a large geographic area, and it's integrated both horizontally and vertically. Vertical integration means that health care delivery in the hospital is integrated with ambulatory care, home care and care at other sites. Horizontal integration means that it's integrated among primary care providers, specialists, nurses and others. To maintain its access to patients, Hopkins is developing an integrated delivery system to address the health care needs of people in the mid-Atlantic region. Contributing to the development of this system are three recent Hopkins ventures--our association with Suburban Hospital, our Patient First venture and the Employee Health Plan.

The integrated delivery system has three components. First is a network of providers and facilities such as urgent care centers, hospitals, freestanding facilities and ambulatory facilities like Green Spring. Second is a care management system--an infrastructure of machines, information systems and people that allows the network to take on financial risk while providing affordable, high quality, accessible care. Third is product development and financial vehicles that allow the network and its management system to access large segments of the population.

In developing our network, particularly as it relates to the Baltimore-Washington corridor, we looked for partners with existing providers and facilities in the communities where we wanted the network. Knowing we'd need a hospital partner close to the Washington area, we looked for one that understands what Hopkins is all about, has attractive facilities, is cost-effective, and has strong medical leadership and quality physicians. Suburban Hospital, a community hospital in Montgomery County just across the street from the National Institutes of Health, met our criteria.

We've arranged with Suburban to form a joint development organization to pursue four activities. First, we'll work together to expand a delivery system in Montgomery County that will link with Hopkins' integrated delivery system in northern Virginia, Baltimore County and Baltimore City. Second, we'll work to see if it's reasonable to develop an ambulatory center in Suburban's catchment area. Third, Suburban will offer the EHP to its employees. Fourth, we've agreed to enter into a tripartite relationship with NIH to develop programs at Suburban, NIH and Hopkins.

The affiliation with NIH and Suburban does several things. Because NIH is highly specialized, its trainees and faculty aren't exposed to the breadth of care they need for full training; the new arrangement allows NIH faculty and trainees to spend time at Suburban to get that full breadth of exposure. Starting next year, trainees in the Institute of Allergy and Infectious Disease will spend part of their clinical rotation at Suburban. We'll also make available clinical services that don't exist at NIH.

Another benefit is enhanced research opportunities for NIH faculty who, working with Suburban physicians, can access larger segments of the population. The agreement also enhances Hopkins' opportunities to interact with NIH. We want to continue our existing close relationship while increasing opportunities for rotations of fellows and faculty from the NIH.

Another part of our provider network is our interaction with Patient First, a Virginia-based corporation that develops urgent care and primary care centers. We've worked with Patient First at Green Spring for the past year and a half. Our relationship has been excellent--they understand us and work very closely with our physicians. We've carefully monitored the satisfaction of patients treated there, and we've had universally high compliments. Based on that experience, we've arranged with Patient First to develop 11 other urgent care centers in the central Maryland area. We'll work together to select the community physicians who'll work in the centers, but Patient First will own and run the centers, which will carry the Patient First name. We think Patient First is as good at what it does as Hopkins is at what it does, and we feel very good about our relationship.

If you have a network and can effectively manage care, you need a way to access large segments of the population. We recently started a program to do that called the Employee Health Plan (Jerry Gotthainer is the chief executive officer). EHP is a system that provides fee-for-service health care to employees of self-insured employers. For cost reasons, many large employers have chosen to self-insure their employees. So we've gone to them and said, let us work with your human resources people to develop a benefits package--not one that we want--but one that you and your employees want. Once you've decided, we'll provide the care within that package and manage the system that provides it. We've been doing this since January for employees of Hopkins Health System, BGE and Equitable and now have almost 19,000 enrollees. We've developed the infrastructure to do all the claims processing and other administrative work, and we've adopted an effective care management system.

We view EHP as a test center or fitness center that allows us to get into the care management mode. To compete successfully in a managed care environment, we must be able to manage high quality care effectively in our own network. Since January, we've been looking at quality, cost, utilization and patient satisfaction, and I think we're doing well. We have a medical policy and standards committee that regularly addresses issues related to quality. We've tracked cost of providing care in the EHP, and for each of the past nine months, our costs have been less than predicted and less than employees previously had paid. We've effectively controlled hospital utilization. A recent, large survey showed that more than 85 percent of EHP-treated patients thought the care they received was either very good or excellent.

William Brody:

We'll be happy to take questions.

Question: How will the incentive system work?

Answer: We're still in the initial planning phase, but I think we want to view revenues as being equivalent. Take patient care, for example. Although we haven't decided what the incentives might be for research or education, a patient care dollar shouldn't be discriminated against because it comes to the medical school or the health system--it should be viewed in the context of the entire organization. If a given patient financially benefits the hospital more than the provider, or vice versa, we need some mechanism to recognize the whole. Exactly how that will work is still being debated. I see it as viewing the "bottom line" of the institution as common to all. Everyone--physician, department chair, director--should have an incentive to maximize the bottom line of the whole as well as the performance of the department. We need to optimize the performance of the entire organization.

Right now we're optimizing the performance of subunits, but not necessarily maximizing the overall performance. I think we need to do that but at the same time preserve the entrepreneurial spirit of Hopkins. That will be the challenge.

We're looking at various formulas and hope to have a first step in the next few weeks. Rich Grossi and Ron Werthman are charged with trying to come up with a model. It could be incentive compensation or rewards for departments or just sharing the bottom line. A lot will depend on the model we adopt. Of course, it will be modified every year at budget time as we look at what needs to be done. I didn't answer your question specifically because we don't have the proposal on the table yet, but if you have some ideas we'd love to hear from you.

I would like to recognize Ron Peterson, Ed Miller and Jack Stobo, each of whom has really signed up to work, either as an interim or under interim management, under what some people might view as extraordinarily challenging conditions. I think you can see that each is doing a superb job in moving us forward as fast as we could possibly move, and I ask you to join me in a round of applause.

The next Town Meeting will be Thursday, Dec. 5, from noon to 1 p.m., in Hurd Hall.

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