2 Healthcare Entrepreneurs Describe How They’re Changing the Traditional Provider Model: An HCE Original Report

by webadmin on September 4, 2014

by Pete Fernbaugh

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Historically, healthcare has been dependent on the innovations of entrepreneurs to help move the industry into the future. With that in mind, we’d like to highlight the contributions of two healthcare entrepreneurs who are working hard to change and advance the traditional provider model.
HCE had the privilege of speaking with these entrepreneurs over the past summer. Here’s what they had to say.

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Edwin H. Cooper Jr., Chief Executive Officer of AcuityHealthcare headquartered in Charlotte, N.C.

Edwin H. Cooper Jr. has been in healthcare since 1976, when he first started his career in hospital administration. Cooper founded AcuityHealthcare, a privately owned Long Term Acute Care (LTAC) hospital company, in May 2001.

He chose to establish the company without any outside investment, even though he was surrounded by numerous naysayers who declared such a venture to be impossible.

Fourteen years later, he has proven his detractors shortsighted, for Acuity Healthcare is thriving and successful. Key to this success is a painstaking attention to detail, Cooper said, and a culture that emphasizes exceptionalism in the way care is provided.

“In our business, everything is a detail. Nothing can be overlooked,” he said. ““We brought on very experienced leaders with extensive backgrounds who knew where potential pitfalls were and could anticipate them and could focus on clinical delivery of services and focus on financial management of the company. That sets us apart from others. Mediocre doesn’t work when you are talking about the quality of clinical care that is delivered to a patient.”

Because Acuity’s patients are dealing with protracted illnesses, the family members need almost as much support as the patients do. Acuity must also show physicians that its hospitals are a better setting for recovery than the ICUs in large tertiary hospitals.

“Those physicians are accustomed to the ICUs of the world and where they’ve got full confidence that everything that can be done to a patient is available,” Cooper said. “We have to convince them that not only sending their patients to us is a safe thing to do, but it is a better thing to do because that’s our expertise, our specialty to provide care to medically complex patients. When you have the confidence of a physician, you have an awful lot.”

Earlier this year, AcuityHealthcare once again set a precedent when it announced in March that it was implementing the Employee Stock Ownership Plan (ESOP), transforming the organization into an employee-owned company. With this announcement, Acuity became the first 100 percent employee-owned long-term acute-care hospital company in the United States.

According to the press release from May 27, “An ESOP is a special kind of retirement benefit plan, in which employees are rewarded for their service and receive ownership through the granting of shares of stock.”

Cooper said implementing ESOP prepares the organization for the uncertain future of healthcare. He added that this move is actually rooted in the founding of the company, when AcuityHealthcare had granted ownership to its senior leaders as a means of recruiting the best minds to the organization.

“As we really got to thinking about ESOP, we wanted to expand the ownership to everybody in the company and ESOP was a way of doing that,” he said.

Four years ago, Cooper began researching ESOP and a year ago gained approval from his senior leadership. The last year has been spent meeting the regulatory requirements for the model and developing the mechanism to implement the ESOP.

Since the move was technically a change of ownership, there were some states to which Acuity had to submit applications for approval of ownership. Furthermore, in financial terms, an ESOP is basically a leveraged buyout. The ESOP borrows the money to buy out the previous owners.

Cooper and his executive board had to find the financing to achieve this. Acuity also had to convert from a Limited Partnership to an S-Corp, since federal regulations governing ESOP require it to be structured as a corporation.

Closing on the transaction occurred on March 31, 2014, and Acuity is now working on fully engaging the employee population in the program.

“As involved as everything we went through prior to closing was, what we’ve now learned is, in order to have employees fully understand what was done and how they can benefit from it, we’ve got a significant amount of training and education to do among our employee base,” Cooper said. “The training involves: What is an ESOP? How do they enroll? What is their eligibility? What does it mean to them? How do we take them from simply having a mindset of being an employee to thinking like an owner? And that’s a big step and it doesn’t occur overnight.”

Acuity has 850 qualified employees for the program, which puts them in the Top 100 of all 11,000 ESOPs in the country. This level of employee engagement in the company’s operations demands a high measure of transparency with all financial information, Cooper said.

“Just like any owner of any publicly traded company, the stockholders are provided performance info on how the company is doing. In this case, the employees can take the information and collaborate with management towards the benefit of the entire company.

“And that’s the beauty. Management and the board and all of the employees are working toward accomplishing the same thing. And that is continuing the excellent delivery of care, running a very effective and efficient organization, and being able to respond in a nimble fashion to any changes that occur in the market or in healthcare.”

He predicts the next three to five years will see an incredible jump in Acuity’s performance benchmarks.

“We will just be delivering a level of care and service that others will very rarely achieve,” Cooper said. “It is another level of commitment to the employees. I think the bigger our company gets, the more it is my responsibility to take care of management and our employees. If I am able to create a culture in our company where the employees know that they are being cared for, then they are going to be well-prepared to take care of the patients.

“Prioritizing the employee needs is a very important ingredient in the ultimate success of any healthcare provider,” he concluded.

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Dr. Tom X. Lee, Founder and Chief Executive Officer of One Medical Group based in San Francisco, Calif.

Called a healthcare disruptor by Forbes magazine, Dr. Tom X. Lee was originally trained as an internist. During the course of his training, he became obsessed with the oft-repeated question, “Why is the healthcare system, especially the physician practice model, broken?”

Lee told HCE that most of his career has involved digging into the practice model to find the answer to this question.

“Obviously, everybody points to the economics of it, but independent of the economics, can a new delivery model be built?” he asked. “That’s at some level the premise of One Medical.”

Tantamount to Lee’s mission is the delivery of high-quality care at a lower cost. He said, boiling it all down, everybody is essentially focused on waste in the system, puzzled over how it can be engineered out.

“I think for the most part healthcare is traditionally doing what has been done before,” he said. “And we wanted to take really a clean approach to reexamining everything and challenging all assumptions and rebuilding something from scratch that had a different design vision of quality service and affordability.”

One Medical Group wants to show people that a new practice model is possible, and this new model doesn’t have to extract more from the system.

The company’s promise is simple, yet bold: “The doctor’s office. Reinvented.”

“The system has enough money within the system,” Lee said. “The question is: How do you repurpose those dollars and rethink through the creativity to drive that innovation? How do we design something more thoughtful? What we’re trying to do is show people that there is a better way and a different way and to challenge the traditional barriers and constraints that people have.”

Lee said he was originally motivated by the frustration providers and patients alike were feeling.

He observed that the solutions were all outside of healthcare. Consumers could have great, affordable experiences and services in every other industry but healthcare. Why then was healthcare so inflationary and so antithetical to what people imagined healthcare should be?

The problems with the traditional practice model, he said, revolve around “a slow accumulation of incremental change.”

The most fundamental of these changes was the way in which financing switched from being based on an exchange of payment between patient and provider to being insurance-based.

When the practice model became insurance-based, this added a level of administrative complexity that inhibited healthcare’s ability over time to control costs, simply because the cost of healthcare was no longer in the hands of the ones providing it.

However, trying to control the inflationary trend of third-party reimbursement has only served to bastardize the system even more, Lee said.

He originally founded Epocrates, a mobile health software applications company specializing in scaling software quickly. Lee took this experience in software and applied it to One Medical Group, which promises to deliver care in the doctor’s office quickly.

A recent article by Leena Rao at TechCrunch concisely explained the One Medical approach: “Instead of waiting for hours on the phone or in an office, patients can schedule appointments online, request prescriptions, get lab results digitally, and see their personal health summary online. Doctors can access medical records electronically (One Medical designed its own electronic medical record with doctors and patients in mind, not administrators). And patients can visit any office since every doctor has access to their records.”

One Medical Group is now in six markets—the San Francisco Bay Area, New York, Washington D.C., Boston, Chicago, and Los Angeles—with a total of 30 offices nationwide.

Although Lee said One Medical is still in the earliest innings of the game, he feels “really good about the foundation we built and our ability to scale this across new markets nationally.”

Just as he built his career on not accepting certain premises as being true, he grows his company by defying conventional wisdom. Most people, he said, believe that healthcare is behind the times technologically when compared to the financial industry.

“But the reality is the financial industry is very concrete. There are very simple data elements and a much easier system to automate.”

However, he said, “the degree of difficulty with regulations and provider dynamics is at a much higher level.”

It’s this understanding of the multiple dimensions of healthcare that has made the One Medical practice model initially successful.

“It’s not just about the physicians equation,” Lee said. “It’s not just about the administrative equation. It’s not just about technology. It’s not just about design. All of these pieces need to work and interact thoughtfully to innovate through such a complicated system as healthcare.”

He also believes One Medical brings a different attitude to the practice model, an attitude that is consumed with the vision of possibility and a keen understanding of the level of intensity and effort needed to produce the elegant and simple design at the core of his vision.

At Epocrates, he said, people would talk about the simplicity of the company’s software applications without realizing the tremendous amount of effort it took behind the scenes to achieve that simplicity.

“The simplicity actually is the difficulty,” he said, “and taking something as complex as healthcare, and primary care specifically, that is a much higher degree of difficulty to make it simple, elegant, thoughtful, and affordable.”

In fact, a major building block in Lee’s mission is educating people on how healthcare is organized and how it can be improved as a whole, which is why he has become a fixture in media.

And he hastened to add, physicians who encounter it love the One Medical practice model, because it demonstrates that a more rational, more patient-centered, more provider-oriented model is possible.

‘We’re still neurotically focused on the individual provider caring for populations in neighborhoods thoughtfully with local expertise, and we still believe in that hyperlocal model with national standards of care that improve the quality systematically across all localities.

“The delivery model is broken, the system is broken, but the people are actually good and well-intentioned,” he concluded. “They’re just not working in the right system.”

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