Physicians Lead the Way at America's Top Hospitals

Formerly known as St. Olaf Hospital, Johnson's Austin Medical Center had ranked among the nation's top 20 small hospitals in terms of clinical quality and financial stewardship based on analysis of 1999 all-payer and Medicare cost reports to the Health Care Financing Administration. The statistical comparisons--and the prestigious 100 Top hospital ratings--have been publicized annually since 1993 by Solucient, of Evanston, Illinois.

Solucient, a health care information repository and benchmarking company composed of recently merged HCIA-Sachs and HBSI, renders its verdict after assessing seven critical parameters for each of the 6,200-plus U.S. hospitals with 25 or more beds. They include the previous year's risk-adjusted patient mortality and complication rates, severity-adjusted average patient lengths of stay, expenses, profitability, proportional outpatient revenue, and asset turnover ratio (a measure of facility and technological pace-keeping ability).

Solucient singles out the best in five comparable size groupings: 20 from among small hospitals with 25 to 99 beds in service; 20 from among medium community hospitals with 100 to 250 beds in service; 20 from among large community hospitals with more than 250 beds in service; 25 from among teaching hospitals with fewer than 400 beds in service, and 15 from among major academic medical centers. In all, 3,092 institutions qualified for inclusion in the national study in 2000--1,322 small, 1,130 medium, 242 large community, 297 teaching, and 101 large academic hospitals.

overnment, specialty, and long-term care facilities are excluded from the survey, as are those with so few admissions or deaths per discharge (under 1 percent) as to skew the samples. Hospitals operating in the red, no matter how well they fare on other measurements, are kicked out of the 100 Top running too. That's because, says Solucient Senior Vice President Jean Chenoweth, this award is designed to identify "hospitals that provide high quality care, operate efficiently, and produce superior financial results." The 100 Top is a management award, she emphasizes, conceived to "offer the health care industry a direction for positive change."

Physicians at the fore

Conspicuous among the winners at every level are physician-led organizations like Austin Medical Center, which is part of the Mayo Health System. Even in the majority of hospitals headed by non-physician administrators, however, "the managerial capabilities of medical directors" are the key to success, observes Chenoweth. "They have to have well-honed skills to produce these kinds of results."

The most common characteristic of award-winning hospitals, she continues, is that the leadership is "working together and communicating effectively to all levels of the organization what the goals of the institution are." Those goals, she suggests, can be boiled down to an essence of two: "growth, for which it's absolutely essential that physicians be in touch with the leadership, and that's where the medical director can bring the medical staff together; and continuous performance improvement, which you won't get very far at if the medical staff and the nursing staff are not in synch. So once again, the medical director plays an absolutely crucial role.

"Personally, I would be floored," she adds, "if most of the medical directors at the 100 Top hospitals hadn't had some kind of management training. But whether they've had it or not, they've got to cope with a very difficult job. In all organizations there are prima donnas. Sometimes they're high performers and sometimes they just think they are--but in either case they're barriers to change. And the 100 Top hospitals tend to react to the environment much more quickly than their peers. That's because their physicians are partners in and supporters of continuous performance improvement--meaning improvement of clinical quality and reduction of cost. And those are not independent of each other."

A look at the numbers posted by the 100 Top hospitals as a group offers corroboration. In 1999, mortality at the award-winning institutions was 14 percent lower than at U.S. hospitals overall. They saw 13.6 percent fewer complications. Patient stays at the benchmark hospitals were 7 percent shorter. Yet not only did these institutions spend 20 percent less while delivering superior care--$3,509 per patient versus $4,365 by hospitals nationwide--they also turned a 6.75 percent higher profit (16.4 percent against 9.7 percent on average).

And this despite earning 3.5 percent less on outpatient services than their run-of-the-mill peers, for whom outpatient revenues represented 42.5 percent of operating income. Finally, they created sustainable capital for renovations, equipment upgrades, and expansion into new service lines at an 18.5 percent stronger clip than their competition; net patient revenue divided by total assets at the 100 Top institutions was 1.09 percent, versus 0.92 percent at U.S. hospitals in general.

There were other clear distinctions. Hospitals across the board saw their finances worsen in 1999 in the wake of the Balanced Budget Amendment; nearly half are now operating in the red, notes Chenoweth. At the benchmark hospitals, however, the median cash flow margin last year was 7 percentage points higher, at 16.4 percent, than the median for their peers--the widest gap since 1994. And although total profit margin is not a criterion for the study, Solucient's analysis shows the 100 Top Hospitals did almost 7 percent better on this gauge than did their peers--8.71 percent versus 1.88 percent. A look at the recent past is instructive, Chenoweth suggests.

"Between 1996 and 1997," she observes, "award winners showed a downward trend in profitability (from 11.8 percent to 9.5 percent) while average hospitals were gaining (from 5.06 percent to 5.34 percent). Then in 1997 and 1998, there was an increase in profitability of almost 2 percentage points by the 100, while average hospitals saw a decrease of nearly a point. Between 1998 and 1999, the 100 Top experienced a drop again (from 10.5 percent to 8.7 percent) but it was less than that at average hospitals, where profitability fell from 4 percent to under 2 percent--or by more than half! So there's a very different trend evident here in outcomes during negative times. The management teams at the 100 Top hospitals have found ways to react earlier and more effectively. As a result they were only winged a little bit in 1999."

Solucient's benchmark hospitals aren't thriving by skimming off the cream, either. Their median Medicare case mix indices (a measure of the complexity of patients' conditions) were 14 percent higher than average. Yet through tactics like greater reliance on special care units (which account for 12.3 percent of 100 Top patient days, versus 10.5 percent elsewhere), award-winners consistently run leaner than their peers. In 2000, wage- and case-mix-adjusted full-time equivalent staffing per 100 patients discharged from award-winning institutions was 3.73, as against 4.94 at U.S. hospitals overall. At the same time--and another important element--the 100 Top don't stint on wages.

"We've noticed that the 100 usually pay their people at least a couple grand more than do other hospitals," notes Chenoweth. (The median salary and benefits expense at 100 Top facilities rose $1,446 per FTE in 1999 compared to $856 for the average hospital.) "So while they have fewer staff, they compensate them very well." (Overhead expense as a percentage of operating expense is always higher at 100 Top hospitals than at run-of-the-mill facilities.)