Cutting Costs Amid Health Care Transformation

Penny Wheeler, president and CEO of Allina Health
Cutting Costs Amid Health Care Transformation

TCB | Why is it important to Allina that your nurses share the rising cost of health care?

Penny Wheeler: Expenses are growing faster than revenue each year by 1.5 to 2 percent. To maintain a 3 percent operating margin, which lets us invest in people, fix holes in the roof, acquire medical equipment, and everything else, we need to reduce expenses by $100 million each year. The nurses’ union-backed health care plans are 1990s-style insurance plans; the premiums are very high and there are little or no out-of-pocket costs. Once we make the transition, the nurses’ plans will be equitable with the plans of 30,000 other people—[other] employees and their families—who have corporate plans. If we can transition from health care plans that are unsustainable to plans that are sustainable, good and more affordable, that is a choice we will make.

TCB | Have you estimated how much Allina would have to pay if the Cadillac tax were in effect today under your nurses’ union-backed health plans?

Wheeler: The tax won’t be implemented until 2020, and the final formulas have not been written, but using the sample formulas provided today—for every dollar paid in premiums and other contributions above $10,200 for individual and $27,500 for family plans, employers would pay a 40 percent tax. We calculate that we would save tens of millions of additional dollars by moving all of our nurses to more sustainable plans.


TCB | What else are you doing to cut expenses?

Wheeler: We are focusing on how we can make operational and care practices more consistent while at the same time reducing unnecessary expenses. For example, I am a board-certified obstetrician/gynecologist, and in obstetrics no one within one week of her due date should have an elective induction of labor. If this is done, you are risking premature births and overall complications for both the baby and the mother, potentially lengthening labor and increasing the need for a C-section. When we decided to look at this, we found that 14 percent of the time, labor was being induced earlier than this. We put a new clinical best practices policy in place that says no elective induction of labor for women within one week of their due date, and we have saved 235 women a year from having a C-section. This policy also improves quality of care and reduces the overall cost of health care.

TCB | The Centers for Medicare and Medicaid Services (CMS) has said that eventually 50 percent of payments to health care providers will be based on results. How is Allina preparing for this transformation?

Wheeler: Right now we are paid based on fee for service. We get more money if more people are in our hospitals, but that does not equate to the health of the community. We need to start to think about being rewarded for keeping our hospitals empty. For example, in January 2015, we had a 7 percent operating margin because many people were sick with the flu. This January there was no flu and our operating margin was a negative 1.5 percent. We don’t want to be rewarded for people being sick, but living in both worlds is difficult.

TCB | The industry is facing a shortage of doctors, particularly in rural areas, and Allina faces stiff competition for talent in a state known for quality health care. How do you plan to compete?

Wheeler: About 25 to 30 percent of doctors’ work could be done by someone on a care team—such as a nurse practitioner, physician assistant or nutritionist. For example, at the Minneapolis Heart Institute, cardiologists are replacing heart valves using a catheter placed into the coronary arteries. This less-invasive procedure requires specialized nurses and equipment technologists, as well as post-operative care teams of dieticians, exercise physiologists and physical therapists. We have a big interest in hiring more care guides, nurse practitioners and pharmacy technicians.