Tag Archives: Delivery System Reform

Can “Big Med” Save the Healthcare Industry?

Atul Gawande has, once again, crystallized some of the fundamental issues in how healthcare in the United States is delivered by making an interesting comparison to the Cheesecake Factory. He asserts that finely tuned corporate practices have enabled the Cheesecake factory, like many other large corporations, to consistently deliver a high quality, reliable and affordable experience for its customers. Does healthcare need to move in this direction, with transformation being enabled by “Big Med” healthcare corporations? This is a debatable position but two things are clear: (1) what we have is not working and (2) entrepreneurism and the ultimate prize of creating a multi-million dollar corporation from scratch is the “American Way” and part of the American dream.

Our current system has failed, pretty miserably, over the past 40-50 years in particular. The percentage of our GDP going to healthcare has risen from 5% in 1960 to 15% in 2008. We spend twice as much on healthcare as we do on food and more on healthcare alone than China spends on all goods and services. Despite this premium pricing, we have the worse quality of any industrialized nation and therefore the worse value for our healthcare dollar among these nations. Other countries have successfully solved or improved their healthcare issues by heavy governmental intervention including single-payer solutions, national guidelines and requiring use of Information Technology (IT). Although some states have gone a similar route, notably Massachusetts and Vermont, this approach is not generally the “American Way”. Freedom of choice and the heroic entrepreneur are highly valued in our society. Therefore “Big Med” may be the only way to save and transform our healthcare system that actually fits our culture. The government can catalyst and create the right conditions but anything heavy handed will be pushed back against. The Affordable Care Act (ACA) probably represents the most that can be done at the federal level and it has received significant push back, although no one really has a better idea to solve this crises. Nevertheless, the ACA actually has created the conditions for the healthcare industry to transform.

The health plan and coverage impact has received much of the press but the really important and smart provisions are those that are impacting providers of care. Over half of the costs of healthcare is going to hospitals and physicians. One persons’ costs are another’s income. To decrease healthcare costs you will have to impact the income or at least the rate of inflation of the income of hospitals and doctors. Unlike the frontal attack on provider’s income that the Medicare Sustainable Growth Rate (SGR) threatens, provisions in the ACA take a more subtle and more fair and reasonable approach. The payment reforms take a two pronged approach. First, the regulations put providers at risk for efficiently managing the healthcare dollar through bundled payments and shared savings. This means that providers will have to begin to really understand their underlying costs. This has previously not been a major issue for providers because as long as you could negotiate enough at a macro-level to cover your aggregate costs, then you were OK. As a result, consolidating markets and gaining bargaining power with payers has been a fairly successful strategy for many providers. However, in a bundled payment scenario you really have to understand your costs at a micro-level because you will create a margin by being efficient in delivering your services below the revenue envelope created by the bundled payment. Different focus, different discipline but one that few businesses in other industries would or could ignore. The healthcare industry reimbursement model gave providers a pass on understanding their true underlying costs for a long time but that time is now over. Secondly, the ACA regulations are demanding more value for the dollar spent through value-based purchasing. This approach places the performance risk where it should be placed, in the hands of the clinicians that make the decisions. Insurance risk (the risk of catastrophic events) should be placed under the management of insurance companies. Insurance companies are very good at determining and managing risk but their reach into managing adherence to clinical care standards (i.e. performance risk) has been intrusive, disruptive and untrusted. It is time that performance risk is transferred to and shared with providers who make the decisions that drive 80% of the costs of the system. We are already putting patients at risk through various “consumer driven” products. The alignment is incomplete without including the providers more directly.

In this evolving market scenario, dollars will shift to those who can be more efficient while sustaining or improving the level of quality. There is plenty of room for improvement as the recent IOM study estimates that 30% of healthcare costs are due to waste. As a provider, to maintain your income you will need to really understand your costs, rigorously eliminate waste and sustain and improve quality. Even if the size of the pie shrinks, you will sustain margins by reducing your own internal waste and likely gaining market share from those who cannot. High quality and high levels of customer satisfaction will be the ticket to play. Sounds like market forces being brought to bear in the healthcare industry. Sounds like an environment where “Big Med” can thrive. Sounds like the “American Way”.

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Accountable Care Organizations (ACOs) Showing Rapid Growth

Accountable Care Organizations (ACOs) are expected to be one of the key vehicles of transformation of the healthcare system from volume-based to value-based reimbursement.  But how many ACOs are out there and how fast is this trend advancing?  In a nice industry summary, Leavitt Partners identified the number of publically known or recognized ACOs from news releases, media reports, trade groups, collaborations and interviews through the beginning of September 2011.  This is definitely a growth industry and the financing model and primary sponsor varies significantly. Of the 164 identified ACOs, the sponsoring entities included hospital systems, physician groups and insurers with a market presence in 41 states but less than half of all HRRs. Of these entities, 99 were primarily sponsored by hospital systems, 38 by physician groups and 27 by insurers.

Fig. 1: ACO Distribution by State

Summary of Results

  •  Dispersion of accountable care organizations varies significantly by market with certain regions devoid of ACOs:  The states with the highest numbers of ACOs were California (17), Michigan (12) and Texas (12).  Poorer and rural regions, in particular, that you would expect to benefit from ACOs, had little ACO growth.  Alabama, Mississippi and West Virginia each had 0 identified ACOs.  Pioneer ACOs, which take on greater risk, are concentrated in 5 states, with California leading the pack with 6 Pioneers, followed by Maine (5), Michigan (3), Minnesota (3) and Texas (2).
  • Hospitals and hospital systems are the primary backers of ACOs:  Nearly two-thirds of ACOs identified were started by hospitals or hospital systems.  This can be seen as a defensive strategy if driven by the need to compete for physician alignment or an offensive strategy if driven by the goal to prepare for value-based reimbursement and sustain margins by integrating outpatient care.  Becker’s has described the five key considerations for hospitals thinking about forming an ACO.  This movement sounds similar to the 1990’s strategy of hospitals buying up physician practices, which was a dismal failure.  However, there are several differences today.  We are all (hopefully) smarter, especially around the physician productivity and management issues, we have more focus on quality, Information Technology (IT) is much more mature for the needed analytic power and the incentive model is clearly moving toward a compatible focus on value-based reimbursement.
  • Significant investment in the accountable care model exists independent of the Medicare Shared Savings Program:  ACO growth is growing independent of Medicare reimbursement as at least 27 insurers have partnered with providers to operate under ACO-like payment contracts.  Norton and Humana have established an ACO that is showing positive early results.
  • The success of different accountable care models is yet unproven:  Although many organizations such as Kaiser Permanente and Geisinger could be considered long-standing ACOs, the variety of models in play and recently developed in this nascent market are yet to be proven.  We will have to wait 2-3 years to begin to really understand what works and what doesn’t, especially for the newer models.

It does seem, based on the interest and growth of ACOs, that this can be a vehicle for transformation of the industry.  For providers to begin to manage risk, it will mean significant cultural change and retooling of their Information Technology (IT) infrastructure.  A few have a history of success and are already there while many others are jumping in.  It will be interesting to see who succeeds and who fails.


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.

To Transform Healthcare, We Have to Fix the Primary Care Physician’s Day

Of all of the challenges in transforming our healthcare system, the most fundamental is transforming the Primary Care Physician’s (PCP’s) day.  If we don’t fix the PCP’s day, high-quality, efficient and reliable care will be elusive.  PCP’s have to have the time, capacity and energy to do what they do best, make clinical judgments, build relationships with patients and their families, define and manage a care plan and lead a team of care providers.  Primary Care is defined as “care provided by physicians specifically trained for and skilled in comprehensive first contact and continuing care for persons with any undiagnosed sign, symptom, or health concern (the ‘undifferentiated’ patient) not limited by problem origin (biological, behavioral, or social), organ system, or diagnosis.  Primary care includes health promotion, disease prevention, health maintenance, counseling, patient education, diagnosis and treatment of acute and chronic illnesses in a variety of health care settings (e.g., office, inpatient, critical care, long-term care, home care, day care, etc.)”.  Our current model of primary care delivery was developed in the mid-1800’s when acute “undifferentiated” patients and infectious diseases were the primary reasons for a visit to the doctor.  The industrial age Taylor assembly line “scientific management” model of business design was popular during that time from which doctor’s offices and hospitals borrowed.  The volume and nature of the patient demand fit the design.  So an acute-care focused, reactive, visit-based model of care became the norm.

However, the patient demand has changed dramatically, especially over the past 30-40 years.  Not only has the prevalence of chronic diseases increased dramatically but the complexity of delivery has increased due to fragmentation and new specialized technology. In addition there is increasing demand for performance on quality metrics for acute, preventive and chronic care in the quest for increased value.  This new and changed patient and stakeholder demand has overwhelmed the primary care delivery system.  When you consider that for a typical panel size, if a PCP endeavors to deliver on all of the quality requirements for chronic and preventive care he or she would have to spend 17 hours a day, the problem becomes clear.  Adding insult to injury is that compensation has been flat for PCPs and a fraction of what many specialists make.  Not only does the Fee-For-Service (FFS) system provide perverse incentives to focus on volume over value but it also does not pay for things it should such as care coordination.  The fact that we have a mix of payment mechanisms from pure FFS to capitation and everything in between adds to our schizophrenic care delivery model.

recent snapshot of a PCP’s day shows the chaotic and overwhelming nature of primary care practice.  Greenhouse Internists is a community-based internal medicine practice employing five physicians in Philadelphia.  They have had an electronic medical record system since 2004.  In 2008, they analyzed the typical PCP day for their practice active caseload of 8440 patients between 15 and 99 years of age.  They had a interesting payer mix which is fairly typical for practices living in the two worlds of FFS and capitation.  Their payer mix included 7.2% of payments from Medicaid, 21.5% from Medicare (of which 14.0% were FFS and 7.5% capitated), 64.7% from commercial insurers (34.5% FFS and 30.2% capitated), and 6.5% from pay-for-performance programs. With the exclusion of copayments and fee-for-service payments received on behalf of patients in capitated plans, 35.2% of their total revenue came through capitation.  In a typical day, each doctor saw 18 patients, made 24 telephone calls, sent 17 e-mail messages, and reviewed 31 laboratory and imaging reports and 14 consultation reports.  In general, the telephone calls, email messages, test report reviews and consultation report are not reimbursed in a FFS model.  In fact, this non-visit uncompensated care assessment and care coordination is some of the most value-added work a PCP does, especially as it relates to decreasing unnecessary cost and improving patient safety.  Uncoordinated care costs America an average of $240 billion a year, according to a recently published study based on analysis of more than 9 million insured lives in five states.  That population includes those who are receiving extremely fragmented care and are accessing the system in a very inefficient and uncoordinated manner.  The study found the average annual cost for an extremely uncoordinated care patient was more than five times higher than other patients. Additionally, the study found that patients with the most uncoordinated care represented on average about 10 percent of the patient population, yet accounted for approximately 45 percent of drug costs, 30 percent of medical costs, and 35 percent of total health care costs annually.  The uncompensated and high value care plan assessment and care coordination that PCPs provide also takes a lot of time.  In one study, Faber found that the mean time spent per physician per week on uncompensated care was 112.2 minutes (range, 36 to 260 minutes), which represents an additional 6.7 minutes (range, 1.7 to 13.8) of care provided outside of office visits for every 30 minutes of time spent scheduled to see ambulatory patients. For a full-time physician scheduled to see 14 patients per day in 30-minute visits over a 5-day workweek, this would represent an extra 7.8 hours of clinical work per week.

How do we fix the PCP’s day?  The most important intervention is establishing the Patient-Centered Medical Home (PCMH) as the new standard model for primary care delivery.  This model recognizes the need for team-based care, use of technology, outreach, access and patient-centered care.  Most importantly, the compensation model must change so that PCPs are compensated and rewarded for delivery of value-based care.  Through the use of technology and process redesign, routine activities should happen automatically, in the background (e.g. A1c testing for diabetics).  PCPs will need to learn to delegate, lead teams, trust “the system” and become more of a coach.  Distributing and automating the work is the only way to reliably deliver high-quality care according the new demands of proven high-value chronic and preventive care.  With PCPs feeling their work is valued and supported and with more time for non-urgent but important activities such as truly coordinating care and building trusted relationships with patients and their families, value in the system will increase.

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.

EHR Adoption

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.

To Bend the Cost Curve You Must Change How Doctors Are Paid

The heated debate over the healthcare crisis and what to do about it has reached a fever pitch. We now have a bill passed from the House though contentious issues remain and the Senate and reconciliation prospects still represent a daunting challenge. The question is how do we fix the American system of care where we pay more than any other country in the world and yet get mediocre quality. Despite the high costs, only 55% of patients receive the care that guidelines say they should. Its like we are paying for a Rolls-Royce that runs only half the time. Care is so expensive that, unlike other industrialized countries, we don’t insure all of our citizens. Part of the healthcare reform puzzle is figuring out how we can pay the insurance costs for an additional 46 million people when the costs of care for those covered is bankrupting companies, individuals and the government. To make matters worse, like a ticking time bomb, cost increases are out-pacing GDP growth every year. How can our businesses be competitive when every year healthcare costs are eating up more and more of their profits? Healthcare costs are a part of the reason for the failure of the automakers. As a country, we now spend more on healthcare than we spend on food. If this situation continues, at some point we will spend all of our money on healthcare. It will crowd out spending on every other good. That scenario would be an economically disastrous and untenable position. This, of course, cannot happen. There will be a breaking point where the government and employers simply will not be able to foot the bill anymore. We are reaching that point now. The early symptoms are that small employers are eliminating the health benefit and larger employers are shifting more and more costs to the employee. If we don’t solve the cost issue, it doesn’t matter who pays the bills, whether it is the government or employers or individuals, they will not be able to afford it.  Most Americans say they are happy with their healthcare. That is because those with private or government insurance are shielded from the full cost of their care. They are paying a small percentage of the full cost and therefore are feeling the pressure on their bank accounts that business are experiencing. Nevertheless, when someone has a catastrophic illness, especially with the increased cost sharing, it still can cause bankruptcy. In this recession, the average American is even more vulnerable to this outcome. In the debate about the public option and death panels, we are missing the root issue. The cost of healthcare is simply the math of price vs volume of services. It doesn’t matter who pays for care, the price is too high. The Health Affairs September/October 2009 issue is focused on “Bending the Curve” of healthcare costs.  This is a very good issue with some of the best thinking on the topic aggregated into one publication. Every one involved in reform should read this issue. One of the most important articles clearly defines what the root issues are that are driving our dysfunctional system. “Market Failure And The Failure Of Discourse: Facing Up To The Power Of Sellers” by Bruce C. Vladeck and Thomas Rice describes the fact that the fundamental problem is the lack of power by purchasers which allows the “sellers” of healthcare services (providers and pharmaceutical companies) to control price. This, in addition to other related structural factors, is why healthcare does not operate like a typical market. Normal market forces are not in play and the power and control of the sellers is one reason. Remember that one person’s cost is another person’s income.  In the US healthcare sellers will resist any effort to reduce their income which just happens to be healthcare costs.  In just about every other country in the world, through various means, purchasers of healthcare have acquired greater leverage. This purchasing leverage is used to control the price of healthcare services and pharmaceuticals and thereby overall costs. This is only one mechanism but it is a fundamentally important and powerful mechanism to control healthcare costs. In other words, we must pay doctors, hospitals and pharmaceutical companies differently if we really want to control costs and improve quality. This is a politically risky proposition due to the power of these groups but, as also noted in the Health Affairs issue, we are seeing promising approaches and experiments popping up throughout the country.

There are only three ways to decrease the underlying cost of healthcare: (1) decrease demand (2) decrease utilization and/or (3) improve efficiency of delivering services (typically through innovation as in other industries) and thereby reduce prices. In healthcare, of course, you must accomplish this while maintaining or improving quality. There are no other options. In other industries due to price pressure, there is an industry motivation to innovate and continually bring to market less costly products and services. In truly competitive markets, there are incentives to fundamentally and continually reduce production costs and innovate to create margins at lower prices and gain market share.  Healthcare is fundamentally difference for two at least reasons. First, clinicians have specialized knowledge that makes it difficult for consumers to judge the quality and reasonableness of their recommendations. In addition when you are dealing with the risk of your or a family member’s health, it is difficult to question the motives or recommendations of your doctor. You can more easily say to a salesperson I don’t need that extra memory on my computer than to say to your doctor I really don’t need that angiogram to see if my heart vessels are clear. When you are not directly paying for or paying a significant proportion of the cost of the procedure as well, why not get the test and gain some reassurance of your health? Secondly, the healthcare reimbursement model is based on Fee-For-Service (FFS) with pricing that is somewhat arbitrary and not necessarily directly related to costs. In the FFS model providers are rewarded for volume of services, not the quality of those services nor the outcomes. In theory, as consumers we should be buying health and longevity for our healthcare dollars. In the US, we are getting a bad bargain for the price we pay. When you combine the FFS model with the specialized knowledge of clinicians, you realize that clinicians can create their own demand apart from the true clinical needs of the patient. Chest pain that could be easily ruled as being dangerous by history, exam, EKG and blood tests could also be extended to include an expensive but unnecessary angiogram. When the price of that angiogram is set by the sellers and not based on competition, as Vladeck and Rice describe, then you get the situation we have in the US.

Therefore in terms of true solutions and not cost shifting, you can attack demand, utilization and/or prices. By changing how physicians are paid you can attack all three issues simultaneously. By shifting from FFS to a global payment model you can address several issues. You can address consumer driven demand by prevention, self-management and healthier lifestyles. However, provider driven demand or “supply driven” demand as described by Wennberg, can be reduced by a global payment method. There are several variations but the principle of paying a set amount for a category of services or episode care reduces the perverse incentive to do more just for the sake of making more. As long as there are controls and monitors for quality and service, then you balance the opposite incentive to do less to make more money. Inappropriate utilization also decreases in this model. If you also have competition at this level, then you begin to move to a more rational market environment. The model also makes it easier to define competition on pricing and can lead to innovative methods of delivering care. This should be where competition occurs. Costs are driven by decisions at the care delivery level and therefore, this is where competition should occur as described by Michael Porter , not at the health plan level.  When you compete at this level you get the kind of innovation that is occurring at Kaiser Permanente, Mayo Clinic and Geisinger. We will see a test of this model in Massachusetts as they test a global payment model. Thus far, the current passed bill and other proposals only weakly impact and acknowledge the importance of this mechanism to control costs. However, the evolution and acceptance of a new model of provider payment will be critical for true transformation of our healthcare system.