Top 10 Trends That Will Transform Healthcare in 2012

The US healthcare industry is in the midst of the “perfect storm”.  The issue of cost cannot be kicked down the road any further and payers, including the government, are pursuing cost reduction strategies by any means necessary.  Although the Fee-For-Service (FFS) reimbursement model is often cited as the root cause of the dysfunctional care delivery system, it cannot be changed overnight.  In an effort to catalyze the necessary transformation, the government has created several programs and incentives to model, test and drive care delivery in a more functional direction.  Combined with market forces, all payers are expected to follow suit in one way or another to shift the incentives and financial reimbursement model in a more rational direction.  All of these efforts are heavily dependent on upgrading the Information Technology and analytic infrastructure of the industry.  Healthcare has greatly lagged other information intensive industries, such as banking, in investing in and leveraging technology.  All of these efforts will transform the industry and there clearly will be winners and losers.  The early and effective adopters will be well-positioned, although there will certainly be a transition period when overall results may slip.  It will be important to find and take advantage of the synergies in these drivers so as to respond most effectively and without wasting resources.  The basis of competition in the industry is changing and that will be transformative.  The following are the top 10 most important drivers to pay attention and respond to.

1) Healthcare Reform

The broad and comprehensive reforms put forth in the Patient Protection and Affordable Care Act of 2010 legislation will be tested at the highest level this year.  The Supreme Court decision will have fundamental impact on which components of the law can go forward and which cannot.  The increased covered lives is not only an important objective but also bringing healthier enrollees into the pool would make providing health insurance more financially viable.  If this form of healthcare reform fails, an alternative would have to be found quickly or draconian cuts in public programs will be likely and private insurance would not be able to make up the difference.  The impact on reimbursement for some providers would be devastating for some.

2) Patient-Centered Medical Home (PCMH)

The PCMH is a driver which already has tremendous momentum.  There has been unprecedented industry alignment around this concept and adoption is rapidly spreading through primary care practices.  Many early tests are beginning to show results.  The challenge is the reimbursement model and creating a “medical neighborhood” that is aligned with the PCMH.  The most important work of the PCMH is often the uncompensated work of coordinating care.  This is where the FFS reimbursement model comes into direct conflict with more effective reimbursement models.  Many groups and payers are testing hybrid models to see if they can be mutually beneficial.  This model of care is also very dependent on technology and care teams to support the work of coordination and outreach as well as better engaging the patient.

3) Accountable Care Organizations (ACOs)

As one of the programs of the healthcare reform act, testing of Accountable Care Organizations (ACOs) was established to drive a system orientation for the care of a designed population of patients.  This approach incentivizes the development of Integrated Delivery Systems (IDSs) as the “medical neighborhood”.  The results are expected to be better than the failed movement in the late 1990’s to develop IDSs because incentives are better aligned between providers and payers, quality is more defined, measurable and expected and technology is more mature and affordable.  This is a heavily technology and analytics dependent model in that it means that providers must become more like insurance companies with the attendant need to manage risk.  Data and analytics are the lifeblood of an ACO as what you don’t know can really hurt you.  This will be transformative at a macro level for the entire industry.

4) Population Health Management (PHM)

Population Health Management (PHM) attempts to strike at the root cause of high healthcare costs.  The cost of healthcare has now reached a crisis level.  To solve this crisis, we have to go where the money is.  The costs of care are extremely unevenly distributed with 1% of the population generating 20% or more of the costs.  Chronic conditions are a driver of as much as 75% of costs.  These are patients that you cannot wait until they show up in your emergency room or clinic.  They may be well on their way, by that time, to generating high levels of cost.  ACOs will have to manage risk to be successful and that means becoming very good at PHM.  It will be critical to identify and outreach to high risk patients and mitigate their risks before the clinical time bomb goes off.  This will become the basis of competition as value-based reimbursement becomes more prevalent.  The move to PHM will be a powerful driver of transformation of the system.

5) Health Information Exchanges (HIEs) 

As one of the elements of the stimulus program, funding to support the development of Health Information Exchanges (HIEs) has increased dramatically the number of viable exchanges in the country.  This concept has had appeal for a number of years under different names (e.g. CHINs and RHIOs) but financial sustainability has always been an issue.  HIEs may finally have a sustainable business model in that ACOs and PCMHs need the knowledge of patient care activities that HIEs can potentially aggregate and make available.  Care coordination and proactively managing risk in a population is important because, if you are an ACO, what you don’t know can hurt you.  HIEs will help with tracking patients in and out of your system.

6) ICD-10

Although not scheduled to become mandatory until October 2013, the switch to ICD-10 is expected to have significant and far-reaching impact on the delivery of health services.  And preparation must begin far ahead of the deadline.  There is the priority one issues of ensuring that operations can continue with the switch and that cross-walks create comparable financial scenarios.  However, the transformative aspect is the increased clinical granularity of the codes.  This is expected to drive more effective analytics and understanding of care delivery.  Also the richer code set will enable more precise Clinical Decision Support (CDS) to be deployed.

7) Big Data

An interesting development, just in time to consume the volume of new EHR data that will be produced, is the concept of “Big Data”.  Big data is a term applied to data sets whose size is beyond the ability of commonly used software tools to capture, manage, and process within a tolerable timeframe.  Big data sizes are a constantly moving target currently ranging from a few dozen terabytes to many petabytes of data in a single data set.  The research group, Gartner, has defined the challenge data growth challenges (and opportunities) as being three-dimensional: not only increasing volume (amount of data) but also increasing velocity (speed of data in/out) and variety (range of data types, sources). This certainly describes the situation in healthcare as EHRs, outcomes data, predictive models and genomics are creating increasingly large and varied data sets.  Big Data technologies are tuned to manage these huge volumes of data with acceptable processing times.  This capability, especially in analytics, will be critical for healthcare quality and care management as an organization can move to near real-time decision support and rapid cycles of improvement.

8) Meaningful Use

The Meaningful Use incentives have created a powerful catalyst for organizations to implement Electronic Health Records (EHRs).  Although the incentive will not pay the total freight for implementation, it does defray a significant amount of costs and the looming penalty phase should push the laggards in this direction.  More than $1.3 billion in Medicare and $1.1 billion in Medicaid EHR Incentive Program payments have been made between May 2011 by the end of December 2011.  The result will be the retooling of the entire Information Technology (IT) infrastructure of the healthcare industry.  There will likely some come a time when you are not competitive if you do not have an EHR.  Most importantly, the basis of competition will shift from whether you have an EHR to how effectively you are using your EHR.

9) Personal Health Records (PHRs)

The Personal Health Record (PHR) is seen as an important tools as we move to managing populations and reducing risks associated with chronic conditions.  Engagement of the patient will be essential.  Consumerism and personal accountability for health will gain increased momentum especially as consumers continue to pay more out of pocket for health costs.  Access to quality information and guidance through remote and mobile technologies will be critical to the consumerism revolution. As we move to PHM approaches, it will be important for healthcare providers to use technology to electronically create a “continuous healing relationship” with the patient as well as support caregivers.  Having patients and caregivers empowered, engaged and knowledgeable about their illness and managing their own care is the most cost-efficient and, generally, high quality care delivery model.

10) Social Media

As with many other trends, healthcare has lagged the general business community in adopting certain approaches and technologies.  Social media is one of those technologies.  Issues of privacy are obviously a barrier.  However, the impact of social networking and social media is so important and pervasive that increased healthcare adoption would be transformative.  It is important to recognize that not only is social media technologies useful for engaging with patients but it is also valuable for internal use within the healthcare organization.

The Next 5 Years Will be Transformative for the Healthcare Industry

Rarely has there been so much change in play in the healthcare industry.  There is much at stake in this trillion dollar industry.  There clearly has to be winners, losers and change if we are to bend the cost curve.  In this transformative phase, some organizations will fail, some specialties will see decreased reimbursement, many roles and responsibilities will change and the patient will have to become more accountable for his or her own health.  However, as has typically been the American way, with innovation, influence of market forces and the right level of government intervention, we can come out of this transformation with a stronger, cost-efficient and high quality system that will, once again be competitive on an international scale.

Stealth Healthcare Reform

In 2010, in what has, unexpectedly, turned out to be a very productive legislative year, a historic healthcare reform bill was passed.  Many will say that the bill passed will NOT ultimately solve the underlying cost problem and will only add cost to the system.  In many ways the naysayers are correct.  The bill focused on health insurance reform and not on reforming the entire healthcare system.  Coverage will be increased and the uninsured rolls will decrease.  However, without controlling costs, they are bound to skyrocket, as it has occurred in Massachusetts.  There is a lot of gnashing of teeth and legal challenges to the major provisions of the healthcare reform bill, dubbed “Obamacare”.  However, it is really much ado about nothing.  In effect the bill will tweak the insurance industry and provide a path for greater coverage of the uninsured.  However, real healthcare reform actually was initiated two years ago.  In what I would call “Stealth Healthcare Reform” by luck or happenstance, I am sure not wisdom, the wheels of true healthcare reform are turning beneath the surface of what you see in the newspapers.  The real revolution is not being televised.  If you are not in the industry, you may not even realize what is going on.  However, contained within the stimulus bill passed two years ago and the reform bill are innocuous appearing, small but incredibly transformative provisions that all smart and aware healthcare organizations are responding to right now.  When you put them together, you have the catalyst for the entire healthcare industry, including providers and payers, to transform and challenge themselves to rein in runaway costs.

The first important provisions of stealth healthcare reform were embedded in the stimulus package.  The American Recovery and Reinvestment Act of 2009 (ARRA), commonly referred to as the Stimulus or The Recovery Act, was enacted in February of 2009.  The stimulus funding was intended to create jobs and promote investment and consumer spending during the recession.  The bill also included incentives for the first steps towards true healthcare reform.  The bill included over $155 billion for healthcare initiatives.  Most were targeted towards supporting current programs such as Medicaid ($86 billion).  However, there was also a provision to allocate $25 billion to encourage all healthcare providers to invest in Health Information Technology (HIT).  Prior to the Act the US trailed most other industrialized nations in the use of HIT.

International Comparison of EHR Adoption Rates

There has been an interest in moving the US to Electronic Health Records (EHRs) for over 30 years.  This interest intensified in the early 2000’s as healthcare costs continued to skyrocket and progressive organizations such as Geisinger and Kaiser Permanente were making large investments in HIT and beginning to deliver increased healthcare value.  In 2004, President George W. Bush called for widespread adoption of electronic health records in 10 years.  To further this aim, he doubled government HIT funding to $100 million for demonstration projects and created a new sub-cabinet position of National Health Information Coordinator.   Nevertheless, there was still very little traction in terms of EHR uptake, especially in terms of comprehensive EHRs.  In a 2008 survey of ambulatory physicians only 4% reported having an extensive, fully functional electronic records system and 13% reported having a basic system.  In a 2009 survey of hospitals, only 1.5% of U.S. hospitals had a comprehensive EHR (i.e., present in all clinical units), and an additional 7.6% had a basic system (i.e., present in at least one clinical unit).  In both surveys, costs were identified as the major barrier.  The stimulus funding now represents real money to overcome this barrier and catalyze the transition to EHRs.  Through the Center for Medicare and Medicare Services (CMS), the government has created an incentive structure to ensure that EHRs are not only implemented but also used in ways that have demonstrated value for patients and payers.  The so-called “Meaningful Use” regulations provide incentives for all providers to move their business model to a new platform and operate in a way that focuses on value creation.  Competition will shift to how well can you use your EHR to deliver differentiated value.  A first step towards true delivery system reform, necessary but not sufficient.

The key accelerant applied to this context was The Patient Protection and Affordable Care Act (PPACA), which was signed into law by President Barack Obama on March 23, 2010.  The law includes numerous health-related provisions to take effect over a four-year period primarily targeted at insurers, including prohibiting health insurers from denying coverage or refusing claims based on pre-existing conditions, expanding Medicaid eligibility, subsidizing insurance premiums, providing incentives for businesses to provide health care benefits, and establishing health insurance exchanges.  The front-page fight has been over the legality of the act and the impact on the insurance industry with provisions that would increase coverage but not necessarily bend the cost curve.  However, through some act of accidental brilliance, true reform measures actually are buried within the act.  The fact is that, if you follow the 80/20 rule, the insurance industry should not be the target for controlling costs.  Insurance costs represent 10-20% of healthcare costs.  The delivery system including doctors, hospitals and pharma represent 80% of the costs.  The delivery system MUST be reformed if you are to truly bend the cost curve and not just drive more cost shifting.  There just happens to be several, not well publicized, provisions in the PPACA that are driving the necessary reform on the delivery side, though in a stealth fashion.

First, there are several provisions that improve support for Primary Care.  There has already been a great deal of attention paid to primary care redesign in recent years due to the declining numbers and income for the profession.  A strong primary care system is critical for decreasing costs and improving quality.  Due to increased attractiveness and financial benefits of specialty practice, the ranks of primary care doctors have declined over recent years.  This has led to the promotion of the Patient-Centered Medical Home (PCMH), a revitalized model for how primary care be delivered.  The PPACA also includes several provisions to support and strengthen primary care delivery:

• Medicare 10% increase in primary care reimbursement rates, 2011–2016 ($3.5 billion)
• Medicaid reimbursement for primary care increased to at least Medicare levels, 2013–2014 ($8.3 billion)
• 32 million more people insured, with preventive and primary care coverage, leading to less uncompensated care
• Medicare and Medicaid patient-centered medical home pilots
• Grants/contracts to support medical homes
• Scholarships, loan repayment, and training demonstration programs to invest in primary care physicians, midlevel providers, and community providers
• $11 billion for Federally Qualified Health Centers, 2011–2015, to serve 15 million to 20 million more patients by 2015

Secondly, there are other provisions that will stimulate changes in the organization and delivery of health services and create powerful incentives to improve efficiency and productivity, but probably none is as powerful as the incentive to develop Accountable Care Organizations (ACOs).  ACOs are collections of health care providers that formally assume responsibility for the cost and quality of health care given to a defined group of patients.  This will usually include doctors and hospitals.  They will be paid differently (e.g. bundled payments) and may share in savings that they generate.  This means that incentives will be aligned between payers and providers, that doctors and hospitals will have to work together and that doing more may hurt providers rather than increase their incomes.  There are also quality performance requirements to counter-balance any incentive to withhold appropriate care.  Just about every healthcare organization in the county is trying to figure out how to position themselves as an ACO.  The implications are enormous in terms of structure, information systems and relationships.

The thing that probably could not have been better planned is that all of these provisions and incentives work together.  The new information technology implemented will support the PCMH and the ACO model.  The PCMH supports the ACO because a strong primary care base will be needed to better manage cost and quality in the ACO.  The ACO will drive alignment and clinical integration of previously fragmented local delivery systems.  The improved integration and coordination will delivery tangible increased value to patients and payers.  Although it is by no means perfect, the government is actually, by chance, on the right track with its Stealth Healthcare Reform plan.