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March 20, 2017

Lessons from a CEO: How Geisinger turned its business around—by becoming 'less integrated'

Daily Briefing

    The former CEO of Geisinger Health System, Glenn Steele, led a remarkable turnaround at the health system by finding a "sweet spot" between clinical integration and physician independence, according to an analysis of his memoirs published in Health Affairs.

    When Steele took the helm in March 2001, Geisinger was facing "daunting operating losses in both its hospitals and physician group," according to Jeff Goldsmith, who recently published an analysis on Steele's memoirs in Health Affairs. But by the time Steele retired as Geisinger's CEO in 2015, Geisinger had $3.4 billion in reserves and a national reputation as an innovator.

    How'd Steele do it? Goldsmith took a close look at his writings and outlined the core of Steele's strategy.

    High-level strategy

    Steele thought Geisinger had become too integrated. The lines between its three key businesses—health plan operations, physician care, and hospital services—were "fatally blurred," Goldsmith writes, and the system was, in Steele's judgment, too reliant on its health plan revenue.

    To turn things around, the system settled on a multipronged strategy:

    • Convert its health plan from an HMO to a PPO to broaden patients' choices;
    • Scrap the capitated contracts between its health plan and the system's then 600-person medical group, Geisinger Clinic;
    • Recruit subspecialty clinical leadership and procedure-oriented specialists—and incented such specialists on volume to grow their practices; and
    • Use its regional dominance on the physician and hospital markets to negotiate more favorable reimbursement rates with non-Geisinger health plans.

    Geisinger then used the revenue from those more favorable reimbursement rates to:

    • Further grow its hospital network to enhance its negotiating position with payers; and
    • Use its increased cash flow and "windfall profits" from its Medicare Advantage (MA) plan to fund innovation in the relationship between its health plan and physician group.

    On the ground

    According to Goldsmith, another key part of Steele's turnaround plan was to instill "profit-and-loss responsibility in Geisinger's various operating units." The focus aimed to shake up a culture which—in Steele's judgment—had become too complacent and unproductive.

    In addition, Geisinger consolidated its primary care facilities to cut overhead, and boosted the number of specialists in the system to increase the specialist-primary care physician ratio from about 50:50 to 75:25.

    Steele also decided to rework rather than sell the system's health plan. To help initiate that change, Steele brought on Norm Payson, an experienced health plan executive, who expanded Geisinger's health plan network to more non-Geisinger providers. The move reduced the percentage of Geisinger's total revenues attributable to its own health plan from 60 percent to 35 percent, effectively making Geisinger less dependent on revenue from its health plan.

    "Additional patient care revenues and margins from non-Geisinger health plans were the key to Geisinger's explosive revenue growth and profitability," Goldsmith explains. "In other words, becoming less integrated was the key to Geisinger's financial recovery."

    Delivering quality

    Steele's repositioning of Geisinger's health plan still left enough overlap that the system could pursue unique quality initiatives, such as the nation's first "warranty for Coronary Graft Bypass (CABG) surgery," Goldsmith writes.

    Geisinger Health Plan members who underwent CABGs at the health system received a "guarantee" that if they experienced any complication within 90 days they would pay no additional costs. But making such an arrangement profitable meant Geisinger hand to hone its CABG quality strategy, which it did via its ProvenCare care protocol.

    Drawing on the latest research, the protocol was a five-step process which standardized the entire CABG process around proven best practices. Ultimately the "protocol reduced Geisinger's already low 1.5 percent post-op mortality to a remarkable 0.5 percent, and cut post-acute spending by close to 50 percent," Goldsmith writes. "The success of the CABG ProvenCare protocol encouraged Geisinger to extend the methodology to 14 other clinical problems, including joint replacement, bariatric surgery, and lung cancer."

    Eventually, the approach was expanded to primary care, where so-called "commando nurses," were empowered to coordinate care for high-utilization patients to improve outcomes and control costs.

    Main takeaways

    Goldsmith highlights a few key lessons from Steele's Geisinger turnaround story for other integrated delivery networks (IDNs):

    • Capitation growth isn't the only way to reduce the potentially negative incentives of fee-for-service compensation. "Geisinger was not viable economically at 60 percent population-based revenues, but was both dynamic and highly profitable at 35 percent," Goldsmith writes. "Resizing the three main Geisinger businesses to fit market demand was the key to the recovery."
    • Geisinger "found the right balance between entrepreneurial effort and clinical discipline in managing their physician groups," in part by rebalancing its business units to foster clinical productivity and curbing unnecessary care;
    • The shift from Geisinger Health Plan's HMO focus to a PPO model was "perfectly timed for changes in market demand," Goldsmith argues;
    • Geisinger was able to balance its integrated delivery model with physician independence, which helped drive growth and nimbly adjust to market demand; and
    • Geisinger's MA plan and favorable rates with private payers provided an earnings "hedge," Goldsmith writes, which helped it innovate and manage the transition to value-based carre.

    Goldsmith concludes, "Geisinger's experience suggests that market timing and creative opportunism—finding the right balance between growth and clinical discipline—play a significant role in the viability of IDNs." He adds, "These factors are as important as, or even more important than, any inherent advantages of scale, or integration itself" (Minemyer, Fierce Healthcare, 3/9; Goldsmith, Health Affairs, 3/8; Modern Healthcare, 8/2/14).

    Achieve value through system integration

    Health system consolidation is on the rise across the country, but mergers and acquisitions have largely failed to deliver on their promises. The idea that increasing in size produces higher quality of care and lowers consumer costs doesn’t always hold true. In fact, one in five acquired hospitals have gone from positive to negative margins in just two years after a deal. But achieving true integration is a long-term challenge that won’t come overnight.

    Join us for a webconference on March 27 as Advisory Board National Partner, Sean Angert, and Ben Umansky, Managing Director of Health Care Advisory Board share the challenges that many face when working to achieve "systemness" throughout their organizations, and the strategies to drive integration across both system and facility-level.

    Register now

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