Barry Arbuckle says he is developing a new way to control costs in the health industry.
As the chief executive of nonprofit MemorialCare Health System, he’s built an organization that emphasizes more than 200 locations for outpatient care, while leaving its four hospitals to concentrate on the critically ill.
“That’s unusual” in the health industry, Arbuckle said during an interview last week in his Fountain Valley headquarters.
“Our edge is our proficiency in value-based care. We’ve dedicated ourselves to design a health system around value-based care.”
MemorialCare, Orange County’s largest nonprofit healthcare system, generated $2.4 billion in revenue in fiscal 2019 and employs 10,500, including 5,400 in Orange County where it’s the 11th largest employer.
The Strategy’s Value
When MemorialCare began implementing this new system about seven years ago, Arbuckle said the nonprofit gave up millions in revenue by not performing certain services it felt to be unnecessary for patients, even though insurance companies and government agencies would have reimbursed them for it.
That runs counter to national trends.
“The more you do, the more you get paid—that’s what hospitals have done for 50 years,” Arbuckle said. “That’s why the United States finds itself in the position where everything costs so much.”
Now, MemorialCare’s value-based philosophy is beginning to pay off, as it has landed unusual direct health service contracts with companies such as Boeing Co., which has large operations in West OC and Long Beach. In one year MemorialCare drove down the cost of pharmaceuticals for Boeing by 22%, the healthcare company said.
Hospital Growth
The strategy in turn has also enabled the nonprofit to have its busy acute care hospitals concentrate on seriously ill patients, while using the newest technology.
“Our hospitals in Orange County are running pretty much at capacity,” said Marcia Manker, CEO of the Orange County region for MemorialCare.
Manker’s claims are backed up by recent financial results.
Two of the OC hospitals she oversees, Laguna Hills-based MemorialCare Saddleback Medical Center and Fountain Valley-based MemorialCare Orange Coast Medical Center, saw revenue climb 15% to $373.8 million and 25% to $369.3 million, respectively, according to the Business Journal’s annual list of Orange County’s biggest hospitals.
That revenue growth from OC’s No. 9 and 10 hospital by net patient revenue was much faster than the total 6.1% rise reported by the 31 hospitals on the list (see list, page 30).
“We’re growing market share,” Arbuckle said.
“The healthcare plans are beginning to notice what we can do for them.”
Outpatient Focus
Arbuckle, who is on the Business Journal’s annual list of the 50 most influential executives in Orange County, has been with MemorialCare since 1989 and CEO since 2002.
The organization’s focus on expanding its base of smaller, outpatient locations is largely because the expenditures at hospitals kept increasing, he said.
In California, it’s particularly difficult to build new hospitals because they cost on average $3 million to $4 million per bed, compared with $1 million nationwide.
MemorialCare’s strategy seemed logical after studies showed that about 80% of the patients at a hospital didn’t need to be there and could be seen for a less expensive cost at smaller facilities, he said.
Over the past seven years MemorialCare began emphasizing opening centers for urgent care as well as imaging and breast cancer screening. MemorialCare also entered into a minority partnership for dialysis centers.
It has “aligned” itself with 3,300 physicians, some of whom are employees and others who are in independent practice associations, also known as IPAs.
Last week, it announced the acquisition of Irvine Family Practice Medical Group, which services 25,000 patients.
“They have an amazing reputation,” Mark Schafer, CEO of MemorialCare Medical Foundation that manages the physicians, told the Business Journal.
The acquisition will help MemorialCare, which traditionally has had locations around the San Diego (405) Freeway corridor in Orange County, service more patients along the Santa Ana (5) Freeway area in Irvine and Tustin, Schafer said.
In 2013, it formed a joint venture with Surgical Care Affiliates, now a part of UnitedHealth Group Inc. (NYSE: UNH), to build Ambulatory Service Centers where outpatient surgeries are conducted.
“As we like to say, partner with somebody that does it for living—that’s all they do,” Arbuckle said.
A One Day Knee Job
As an example of MemorialCare’s efficiency, if Arbuckle said he needed a knee replacement surgery, he would arrive at 6 a.m. at an Ambulatory Service Center, have the surgery completed by 8 a.m., be awake by 1 p.m., walking by 4 p.m. and out of the clinic by 6 p.m.
Such clinics can typically perform the knee replacement surgery at a third of the cost compared to a hospital, which must comply with more stringent licenses and costlier infrastructure, Arbuckle said.
“The public is oblivious to it and the health plans have been foolishly paying for it,” Arbuckle said.
Consolidation Continues
The hospital industry is in a consolidation phase, with about 90 deals in 2018 and 117 in 2017, up from about 50 in 2009, according to the Wall Street Journal that cited Kaufman Hall healthcare consulting firm.
At a time when hospitals are consolidating and costs are going up, Arbuckle said health plans and state and federal officials are paying closer attention to models like the one MemorialCare is implementing.
Arbuckle expects to continue growing, most likely with more facilities in the Inland Empire.
“We’re moving towards value-based care where the providers take risks for the health of the individuals,” he said. “Most people say those words, but when you unpeel the onion, they’re not doing much of it.”
