The recent oil and gas boom, which is driving Houston's population growth, is to some degree masking the declines in admits per thousand, Alexander says. That affords Memorial Hermann an opportunity that can't necessarily be duplicated everywhere—right-sizing its inpatient facilities not necessarily by downsizing them, but by growing its market share.
"Even if the overall total inpatient population is falling, we'd like to grow our market share relative to our peers," he says.
At least at Memorial Hermann, filling inpatient beds, ironically, depends on the success of the outpatient and population health strategy. Three years ago, system CEO Dan Wolterman and Memorial Hermann's board decided to dramatically change the organization's business strategy from a fee-for-service–based structure to one based on a fixed payment, or population health strategy. That kind of work takes time for a $4 billion health system with 20,000 employees in 145 locations in southeast Texas.
Alexander says that the private sector will lead the change and that the federal agencies—the Centers for Medicare & Medicaid Services and the U.S. Department of Health and Human Services—will follow.
"We're seeing that here in Houston as some of the large employers wanted a shift toward more of a fixed payment," says Alexander.
Instead of getting a 10% rate hike from their insurance company each year, such employers are joining ACO structures—a partnership involving health systems, physicians, and insurers or third-party administrators. Critically, such structures feature financial risk-taking from healthcare organizations. Employers reason that by participating in an ACO, they can cap their health insurance costs for the next two to three years.
"That's enormously appealing to a large employer," says Alexander.
John Haupert, president and CEO of 953-licensed-bed Grady Health System, the safety-net health system in Atlanta, says the same thing is going on in his market, but that the ways systems are approaching a changing business model are widely different even in the same market. For example, he mentions WellStar Health System, a Marietta, Ga.–based organization that includes five hospitals and more than 12,000 employees.
"There's a great example of that occurring here, in that WellStar Health is building a whole network of medical malls—multipurpose broad-based clinic-type places," he says. "Those are based on wellness, prevention, and primary care—dealing with the front end. And they're minimizing the investment they're making on the hospital side. These are beautiful, aesthetically pleasing medical malls—all so we can avoid needing that hospital bed. They're doing the best job in the local area here."