Care Solutions Through Procurement

As complex as it can be, Avalon Healthcare—a multistate, post-acute care provider—has flourished while serving Medicare and Medicaid patients

The pressure to cut costs under the terms of the Affordable Care Act (ACA) is exceptional, especially for postacute care providers that primarily serve Medicare and Medicaid populations. Nationwide, facility managers have faced dwindling reimbursements even while equipment, supply, and personnel costs continue to rise.

Hyrum Kirton understands this perhaps as well as anyone. As VP of alliance services and procurement at Avalon Health Care, based in Salt Lake City, he has, for the past decade, assumed an increasing number of responsibilities in supply sourcing and creating alliances by working with allied service providers such as physical therapy, home healthcare, and pharmacy companies.

Avalon offers skilled nursing, assisted living/senior housing, and hospice facilities, in addition to care coordination and managed care services. Patients can access these services through one of Avalon’s thirty-nine communities in Arizona, California, Hawaii, Idaho, Utah, and Washington.

Kirton has implemented several critical strategic initiatives to make Avalon’s care as accessible and comprehensive as possible. Overall, his approach has been to be adaptive and nimble.

“Revenues are growing slower than inflation,” Kirton says, speaking to one of the unique challenges a company faces when the majority of its patients are on Medicare or Medicaid. And Avalon is hardly alone in facing this challenge. The number of people on these federal programs has increased the amount of spending of these programs. According to the Centers for Medicare & Medicaid Services, Medicaid spending has grown by 9.7 percent and Medicare by 4.5 percent in 2015. The same agency projects healthcare spending will grow 1.3 percentage points higher than the GDP by 2025.

This reality is not lost on Kirton. The strategy has been to rein in costs, wherever and however possible, while still providing the kind of care that improves patient outcomes, he says.

Kirton began working at Avalon in 2007 and says a cost-management mentality persisted at the company long before the ACA. “Our first hard task in procurement was to look for creative ways to buy,” he says. “We looked for ways to become vertically integrated.” This initially meant forming a joint venture with a pharmacy company that met the objective: Avalon cut costs even while learning ways to improve service quality. The venture was successful enough that it attracted a buyer—a large national pharmacy—in 2016. So, Avalon is once again a customer but with the lowest-possible prices.

The company also entered into a partnership with a therapy company, Brighton Rehabilitation, which provides rehabilitation services to patients. “This is one of our largest spend categories,” Kirton says. The partnership began in 2006, and by 2014, Avalon owned it outright.

Additionally, Avalon began providing hospice care a decade ago; it now has an average daily census of one thousand patients. The company intends to diversify with investments in several private senior-living facilities that are not dependent on Medicare or Medicaid reimbursements, and it has management contracts in two other facilities.

In addition to finding partnerships, Avalon was nimble enough to exit some of these businesses when it was rational to do so. That meant divesting of a home-health business and a decision not to pursue the durable rental equipment market.

But as five hundred facility managers and professional staff make purchases in their facilities in six states every day, procurement procedures are just as critical to the cost-containment strategy as deciding which business ventures to pass up. This is important from both a cost-management standpoint and from the perspective of caregiving. A uniform approach, with preapproved vendors and negotiated pricing, will enable better service to Medicare and Medicaid patients.

To ensure a balance between cost reduction and patient care quality, the Avalon team continually looks at its approach to cost reduction. “Every two to three years our standards are revisited by our clinical experts,” Kirton says. “We consider what new options are on the market, pull information from all sources together, and discuss it in a nonsales atmosphere.”

Kirton has also been tasked with negotiating agreements’ terms with managed Medicaid and Medicare for HMOs, such as Aetna and Humana, which face a fairly uncertain future. “Most of the industry expects that government entitlement cuts will continue to drive down healthcare spending,” he says.

With that in mind, the company is exploring management contracts in China, a country where elder care outside of families is only in a nascent stage. “We want to take our expertise to China,” Kirton says. “But cultural acceptance is new, and the specific product to be accepted is unknown.” The country’s one-child policy will likely prompt that acceptance in about twenty years, he says.

That means Avalon is in it for the long term, despite the acute challenges of US government-funded healthcare services.