Change will continue to be the rule

Before taking the reins of Care New England, Dennis D. Keefe took two weeks of vacation. The former CEO of the Cambridge Health Alliance likely won’t see vacation of that length again for quite some time. On Aug. 1, Keefe became CEO of the state’s second-largest hospital system, which operates Women & Infants, Kent and Butler hospitals along with the Visiting Nurses Association of New England.
The 61-year-old Massachusetts resident sees plenty of challenges ahead for the system.

PBN: How are you settling in?
KEEFE: It’s going very well. … I’ve been meeting with all the board members, the administrative leaders, the clinical leaders. I’m very used to working with some very talented, well-educated people and all of that is here. … It gives me great confidence in terms of our challenges, because you’re going to need great people to help us deal with what I think is coming down the road.

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PBN: What is coming down the road?
KEEFE: I think people are anticipating some real challenges in the future in health care. Health care reform, different models of payment, different approaches even to the delivery of care. … I was the CEO at Cambridge Health Alliance since 2002 and lived through health care reform for five or six years.
People are really thinking about changing from a fee-for-service system to either a global budget or a capitation system, in which a hospital and maybe a group of physicians come together and form an accountable-care organization. Then that accountable-care organization would be paid either by the government or by the insurer a set fee per member per month and within that set fee all the costs for the care would need to be absorbed.

PBN: Have you seen it work elsewhere?
KEEFE: In Massachusetts, Blue Cross was a leader in this area. They have what’s called the alternative quality contract, which is a global budget capitation agreement between both hospitals and physician groups. There are also outcomes groups would have to meet in terms of quality targets. It’s not just about saving money; it’s also about making sure people are healthy. … The first time capitation was tried in this country, the argument was that there was actually too much of an incentive not to treat, because if you don’t spend the money, you get it anyway.
Now it has to be a pretty robust system that not only caps the expense but ensures that there’s really good quality and patient safety and patient experience and care outcomes that are defined pretty clearly.

PBN: Do you see Rhode Island insurers getting on board with the concept?
KEEFE: I think they’re going to look at what’s been working, and I think it will be adopted here in Rhode Island. … I know Tufts in their planning is already thinking of going in this direction. I had one meeting with the new CEO of Blue Cross [& Blue Shield of Rhode Island], Peter Andruszkiewicz. … He’s certainly looking at alternatives.
The continuance of the fee-for-service system in its current form I think honestly has seen its day.
Clinical integration is the future … so you can provide the full continuum of care for patients.

PBN: Do you see Care New England having that full continuum?
KEEFE: There are gaps. I think the majority of what is required is here. Certainly, we have the full spectrum for women’s health, including tertiary and quaternary care. We have strong primary care across the system, particularly in the area of Kent … . We have a piece of the continuum that few people talk about but that’s critical to global budgets, capitation, treatment of the whole patient, and that’s behavior health at Butler.

PBN: What do hospitals need?
KEEFE: Where hospitals are really being squeezed is access to capital. Margins are depressed. I come to Rhode Island and people are talking about a 2 percent margin like that’s some kind of embarrassment of riches. That is barely making it in health care. If you go outside of New England … that’s a very low margin. It’s barely sustainable in terms of your future. Hospitals across the country are seeing more 3 to 5 percent margin routinely. When you’re only making a 2 percent margin, you’re not making enough to reinvest in your future and a lot of hospitals are making far less than 2 percent.

PBN: Why are margins lower here?
KEEFE: A combination of things. Reimbursements are not what I would call favorable in general, expenses, salary expenses, housing expenses in particular are much higher here, so labor expense – which is really 65 to 70 percent of a hospital’s expense – is higher here. So that in and of itself squeezes margins. … So it is challenging in New England to do really well.
Your access to capital to grow, to expand, to even sustain yourself as an organization tends to really dry up over time and that’s where a lot of hospitals are finding themselves.
So what’s their only recourse? To go out and find a deeper pocket that has cash and capital. … That’s why private equity firms that people kind of held their nose at for years are coming in, and they’re being received because they have that access to capital.

PBN: Does private equity coming to Rhode Island change Care New England’s strategy?
KEEFE: I think in the short term it doesn’t change how you react. You’re trying to run the organization in a way that serves the community, meets our mission, meets our vision and generates a positive bottom line. [But] no margin, no mission. So you want to really stay focused on that.
I think as you look longer term though, where the challenge comes in is, it doesn’t necessarily end up being a level playing field. They can bring in dollars that can really allow them to invest in ways that the average nonprofit today cannot. •