An Interview with John Halfen, M.D.

John Halfen, MD, is the Medical Director of Lakewood Health System (LHS), a rural independent, non-profit, integrated healthcare system located in Staples, Minnesota.  He joined LHS in 1993, and became the Medical Director in 2009.  He is a family medicine physician with a special interest in geriatric health care and in the development of preventative care initiatives for all ages.  Dr. Halfen has been active in public health as the Todd County Public Health Medical Advisor for 20 years, and is the medical director of two care centers.  In the area of occupational medicine, he has been accredited by the AAMRO as a Medical Review Officer since 1996. 

Dr. Halfen designed and implemented the medical home program at LHS, starting in 2007, which has received numerous awards and recognition.  In addition, Dr. Halfen has been involved with the initial organizational phases and ongoing implementation phases of the Minnesota Health Care Home. Numerous clinics, hospitals and medical systems have visited Staples to learn about the LHS  medical home, and Dr. Halfen has spoken to many groups focusing on the need, value and means of establishing medical homes.

In his "spare time" Dr. Halfen enjoys spending time with his family—his wife Kris, their six children (all of whom have finished their undergraduate college education) and three grandchildren.  He and his family enjoy fishing, skiing, scuba diving and many other activities that keep them active.  He drives a 1994 Saturn coupe with 325,000 miles home from work each day to play his most prized personal possession: a 1926 renovated Steinway Grand Piano.

Can you describe the significance of establishing a Patient Centered Medical Home (PCMH) at LHS?

This journey has been very rewarding for me, for LHS, and for our patients.  The LHS medical home has been successfully delivering high quality, value care to significant numbers of patients.  As a small rural independent healthcare system, LHS represents proof that the medical home concepts are applicable to large and small systems even when rural. We have over 800 patients in the medical home with five care coordinators, 12 family physicians, one pediatrician and now one physician assistant (a new trial).  Our entire system has made the transformation to a Minnesota Health Care Home with four years of experience now.  Along the way, we learned how medical homes, palliative care and hospice could work together.   The hiring of a young energetic pediatrician brought a huge boost in our pediatric care.  Through providing teaching programs, speeches, and publishing our medical home instructional book, we were able to disseminate our successes and help others.  The Minnesota Health Care Home Program has helped us and helped others to achieve and maintain a high level of care not matched in most programs across the country (all medical homes are NOT the same which is why some succeed and some just exist).

However—we are a long way from perfect and actually just barely viable in some ways.  Our CFO would point out that the cost of the medical home far exceeds the compensation.

Why does the cost exceed the compensation for your medical home—or medical homes, in general?

The budgetary cost of the program is minimal compared to the lost compensation.  With an estimate of 30 percent decrease in total cost of care (TCOC) for each of those 800 patients, and with about 50 percent of that estimated to have been incurred at LHS, there is a significant deficit beyond the costs.  It was the "right thing to do" for our patients, and it positions us well for TCOC contracts, but our benefits so far have been reputation and the advocacy of our patients who have benefited.  Our care coordinators are doing an excellent job as evidenced by the decreased hospitalizations, the excellent quality scores and the decreased emergency room need.  As a "rural health clinic" some of our expenses are included in our "cost-based reimbursement." The State of Minnesota is developing some changes to make the Health Care Home payments more equitable, but that is still pending.  The payment for quality care is still in the developmental stage of health care reform.

Are there any efforts being made nationally, or modes already in place, that address the compensation problem?

The "tiering fee" (state designated monthly payments based on patient need) is a simple induction to action rather than the long-term solution.  The second step is the "shared savings" agreements.   Initial shared savings were available through private payers who knew their costs would be covered by improved quality care. Although the shared savings have generally been positive, very few have been able to pay for themselves.  Again this is another step along the way, helping to establish a culture of value care (quality/cost).  Our first shared savings program compared the cost of care for each patient to the reimbursement received from Medicare Advantage minus overhead.  Although the payer found a 31 percent decrease in TCOC for these people, the compensation was still negative.  There has been no benefit to us from this program.

A second mode of payment, chosen by Medicare, compares each year TCOC to the average of the previous three years.  This certainly allows for compensation improvement, but if the previous three years already included a medical home that cut 31 percent from the top 5 percent of the sickest population, such as ours, there is little room for improvement.  Since the sickest 5 percent account for 50 percent of TCOC, the remaining 50 percent must come from 95 percent of the population, making the work much harder and more expensive.  Each year the provider competes only with himself/herself for savings, making each year more difficult.  In addition, a minimum savings is required to qualify as well as meeting quality goals.  With a population of 5,000 Medicare patients, the provider must reduce expenses by 4 percent to qualify for any share in the savings.  This reduces to 3 percent for 10,000 patients and eventually to 1 percent.

The most fair "shared savings" contracts compare expected expense adjusted by severity indices, to the actual spending.  Here the critical factor is the ability to have a reliable record system to establish the proper severity index.  Not only are the electronic medical records systems generally deficient in this, but also the providers are not accustomed to comprehensively listing all diagnoses.  The combination of low severity index and high billing makes the TCOC become adjusted up instead of down and thus the chance of "shared savings" is reduced rather than enhanced.  The critical point here is that the provider, with the assistance of computer data systems, must change documentation and billing practices, and the records must reflect these changes.  This is not an easy change, so it takes time and work to get proper compensation.

So "shared savings" are possible, but require much organization and work.  Most organizations consider this a learning step along the way to more equitable but advanced payment systems based upon capitation.   With capitation, the level of risk the provider is willing to take becomes another discussion item.   Now the size of the provider organization is particularly important.  Most advisors recommend at least 50,000 patients to take the risk, while LHS has less than 5,000 eligible Medicare patients.  The income from value care rises considerably compared to "shared savings" but a partner with more patients is now necessary.

Looking ahead, how can LHS sustain its medical home?

In order to accomplish significant earnings in the reformed healthcare world, the cost of improved care must be obtained with risk capitation.  This means partners must be found.  LHS is looking to nearby organizations to consider the value of jointly improving care through common patients and a common population.  Working together on community health programs and common patients will work to the benefit of all parties.

There is also the National Rural ACO (NRACO), with which we have had multiple discussions.  This brings in the potential for partnering with organizations, like us, who are smaller, independent and run Critical Access Hospitals.  The potential here is to have more influence in the organization and, in the world of capitation, to be able to remain independent.  (The world of capitation could easily grow to control 80 percent of patients, making any partnership with a larger organization a virtual merger).  Unfortunately, the NRACO is small yet, with only 15,000 patients, and has no other interested systems in Minnesota.  LHS would be included in a cohort of organizations from Oregon, Ohio and possibly Texas.  Although the NRACO has no electronic health records (EHRs), it does have a very nice data warehouse, and it can start January 1, 2015.  Making our decision by their deadline of September 1, 2014 is a very significant challenge.

How do Electronic Health Records (EHRs) figure into the creation of a medical home?

LHS is presently improving its record system.  Information about patient risk of illness, especially hospitalization, is important.  Finding the patients at risk must be followed by interventions to promote a healthier population.  Interconnectivity within our own record systems is mandatory, and interconnectivity with outside systems is important. Beyond the EHR is the immense amount of data coming from payers and other sources of health care, requiring a data warehouse to manipulate and translate data into usable information.  By the end of 2015, LHS must be on a new system, both to improve our care and to prove to potential collaborators that we can be a "value" provider.

But the EHR does not change care by itself.  It must be used intelligently to provide the information about processes, patients and providers to meet the "triple aim" of improved health, patient satisfaction and lower cost.  Only improved care coordination with teams of providers can produce this result.  Quality goals must be set, changes made and progress measured.  Lakewood has developed a "Value Council" to direct a set of committees covering contracting, quality, IT development, patient satisfaction, care coordination and provider relations.  The administration has directed and empowered these groups to transform LHS into a profitable value organization maintaining comprehensive and patient-centered care.

Other than medical homes, what are other trends/challenges that rural medical facilities need to address? And what is LHS doing to address them?

The medical homes concentrate on the 5 percent of the population that account for 50 percent of expenses.  The other 95 percent must be addressed with measures of population health.  LHS is acquiring the tools to work with this large group, but will only achieve success when working in collaboration with other organizations, both within health care and outside health care (social, political, educational).

What do you think rural facilities offer that their urban counterparts can't?

Two of the latest concepts in healthcare improvement are those of vertically integrated networks and narrow networks of patients.  Rural areas start out with a much more advanced level with both than urban.  Also, competition for patients instead of collaboration for patient health is much more tempting in the urban setting then rural.  Patients are more loyal to their provider and, in turn, providers are more responsive to patients in smaller communities.  In small towns, the vertically integrated network is already started with communication networks between patients, employers and healthcare providers readily available.  The narrow networks consist of the distances to the next towns and the lack of easy transportation for the sick and elderly.

What did you find most rewarding about your work—and why did you choose to be a family practice physician?

Having no relationship with any healthcare field, my entry into medicine was purely from a desire to be useful to others with my life. Family medicine most suited my needs.  As the years have passed, my aptitudes and knowledge have changed with experience.  Now the most rewarding work for me is the development of more efficient and effective health care.  My belief remains firmly seated that family medicine, even in rural areas, can provide the closest to perfection as judged by the "triple aim."

Opinions expressed are those of the interviewee and do not necessarily reflect the views of the Rural Health Information Hub.

Back to: Summer 2014 Issue