Tag Archives: Healthcare Transformation

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”.


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.

Accountable Care Organization (ACO) Final Payment Rules Released, Now the Real Work Begins

The final rule for Medicare Shared Savings Program (MSSP), the payment engine for Accountable Care Organizations (ACOs), were released on October 20, 2011 with an editorial published by Berwick in the New Journal of Medicine (NEJM).  What is evident is that the Center for Medicare and Medicaid Services (CMS) did listen to the complaints and issues raised regarding the proposed rules.  Changes were made to create more flexible options and reduce barriers to broader participation.  Major changes include providing more timely, information to ACOs at the outset of the performance year through preliminary prospective alignment of beneficiaries; reducing the total number of quality measures by about half; allowing start-up ACOs to choose a “savings only” track without financial risk during their initial contract period; sharing savings with successful ACOs on a “first dollar” basis when the ACO achieves meaningful savings for the Medicare program; and creating a pathway for full participation of federally qualified health centers and rural health clinics.  Also, the Center for Medicare and Medicaid Innovation announced an advanced payment initiative that will allow small physician practices and rural community hospitals to receive up-front access to needed capital to enable the transition to an ACO model.

This more palatable model and options should encourage more organizations to sign up.  However, now the real work begins.  The ACO model is expected to be the framework for transforming the healthcare industry to a value-based payment model.  It is important to understand that the underlying fundamental change is that of shifting performance risk from the payers, including the government, to providers.  There are two types of medical care risks: (1) insurance risk which is the risk that someone will have some relatively unforeseeable medical issue like an auto accident or develop cancer that would lead to high medical costs and (2) performance risk which is the risk that a provider will provide inefficient and low quality care for a particular condition.  Insurance risk is addressed in the underwriting process that considers various risk factors and predictive models to assign risk levels and charge premiums accordingly.  As we have no perfect models, this is an inherent probabilistic exercise due to the uncertainty in determining insurance risk.  Members of a high risk category may never have an incident while those in a low risk categories may have a catastrophic incident.  Most insurance, such as auto and home insurance, is designed to insure against these kinds of catastrophic risks.

Due to the rising costs of healthcare, medical insurance evolved over time to attempt to also address performance risk.  Healthcare costs began to rise dramatically in the 1960’s and 1970’s and it became evident that there was significant variation in the costs and quality of care for the same conditions depending on provider and geography.  Insurance companies began to try to manage performance risk to address the opportunity to reduce costs that this variation represented.  This lead to the development of Health Maintenance Organizations (HMOs) and Managed Care Organizations (MCOs) of the 1980’s.  These organizations began to invest in medical directors, nurses and and expanded infrastructure to evaluate and manage the “appropriateness” of care being provided to their members.  They used very crude tools such as contracting provisions, benefit design and utilization review and, early on and temporarily, were very effective in decreasing the costs of care.  Despite the early success, the fact that one organizations’ costs are another’s income lead to battle lines being drawn.  HMO’s and MCOs were making significant profits at the expense of providers.  This conflict pitted providers vs insurance companies and set-up the “managed care backlash” of the late 1990’s and early 2000’s, as patients and politicians sided with the more highly trusted providers.

Now, the absolute level and rate of rise of healthcare costs are threatening to bankrupt the US and the “can” cannot be kicked any further down the road.  The opportunity is that the ACO model will appropriately shift risk to providers and, for the first time, align the incentives of payers and providers.  There is evidence that the changing reimbursement environment is driving more partnerships between providers and payers, such as the partnership between Aetna and Banner Health.  There is opportunity for alignment because each share in the savings IF performance risk is managed better than expected.  This will be an extremely complex undertaking.  Nevertheless, there is not really a better alternative on the table.  The real work will be for providers to make the transition to become more like insurance companies with an increased, laser focus on managing performance risk.  This makes sense because most of the decisions that drive costs are made by doctors on the delivery side.  This will require new skills, infrastructure, processes and analytics for providers.  Most importantly this will involve a shift in culture and thinking from focusing on the importance of volume to the importance of value.  In particular, for hospitals this will require new partnerships and realigned thinking since the greatest costs to the system are for inpatient care.  This will also require a cultural shift from visit-based care to enrollment-based care.  Providers are used to being reactive and waiting until the patient generates a visit to provide care.  Since patients with chronic disease can generate up to 75% of costs, managing performance risk MUST involve better managing patients with chronic conditions.   These patients require proactive outreach, behavioral modification coaching and on-going monitoring to decrease costs and improve quality.  This approach to care called Population Health Management (PHM) should begin as soon as the patient enrolls in a system of care.  Again, this requires a dramatic shift in culture, people, process and technology.  It will be interesting to see which organizations will successfully navigate this transformation and become a leader in the new model of value-based care delivery.  Now the real work begins.

At the intersection of system redesign, informatics and quality is healthcare transformation!

It is well accepted that American has a healthcare crisis that is now at the point of failure. The high costs are bankrupting individuals and making this benefit unaffordable for businesses. We have over 46 million people uninsured. Despite having the highest cost, our quality is mediocre and over 100,000 patients die unnecessarily in our hospitals every year. Information technology is barely used in a business where timely and accurate information can mean the difference between life and death. Incomplete, missing and inaccurate information drives inefficiencies and medical errors. The lack of information integration and sharing between providers leads to tremendous inefficiencies and fragmentation of care.  We are in a grave situation.  Yet, the solutions are within our hands if we have the will and commitment to apply them. Regardless of how healthcare reform plays out, the elements of solving this crisis revolves around three fundamental features we must optimize to achieve healthcare transformation.

The three critical elements are:

1) System redesign: our current system was designed for acute care during the 1800’s when infectious diseases dominated our culture. We have substantially managed infectious disease and have extended life expectancy from the age of late 40’s in 1900 to the late 70’s today. Now chronic disease management is the dominant requirement for care delivery. Furthermore, our poor lifestyle habits are driving up the prevalence of obesity which is a risk factor for several chronic conditions. We therefore have to redesign the system to better manage longitudinal, chronic care that is delivered outside of the medical office setting and that is often complex, with the interaction of several healthcare providers. This is in addition to acute and, very importantly, preventive care. Our reimbursement system must be overhauled as well. Paying for the quantity of services without considering the quality or customer service aspects locks providers into a mindset of more is better for financial reasons. With decreasing reimbursement from the government and payers, it leads to a strong incentive to increase services and sometimes, trying to game the system, in order to maintain incomes. There are other important elements of redesign as well such as clinical workflow changes, team-based care and improving patient self-management.  Our healthcare model is an antiquated model T and any version of reform, to be successful, must encourage and support updating the delivery system vehicle.

2) Informatics: the healthcare industry is one of the few over the past 10-15 years that has not substantially benefited from the huge efficiencies gained in other industries from the use of Information Technology (IT).  I now rarely go into the bank and conduct nearly 100% of my transactions online or at an ATM machine.  I pay bills, transfer money and check balances on my computer and now on my mobile phone.  Healthcare is miles behind other industries in terms  of making their records electronic, establishing standards so that different systems can communicate and interact, establishing convenient consumer interfaces for transactions and using intelligent rules engines (such as in the credit processing industry) to improve decision-making.  Despite being one of the most information intensive industries in the world, we have not effectively leveraged IT.  This gap leads to cost and patient risk that is unacceptable.  Medical Informatics, the study and use of IT in healthcare, is a critical enabler of closing this gap.  We must rapidly expand use of IT and reform efforts so far are aligned.  However, there is much work to be done.

3) Quality: a high quality outcome and a high quality experience should be a fundamental characteristic of a healthcare delivery system.  Yet the American system delivers on this requirement only around 50% of the time.  Patient safety issues have been well-documented and persistent.  The status of your physical and mental health has such a far reaching impact on your life achievements, your family dynamics, your community vitality and your work productivity, that we cannot leave it at a 50/50 chance that you will receive quality care.  Improving care to near perfect levels should be the goal as well as better engaging patients in their care.  We are seeing isolated examples of achieving these objectives with tremendous impact, but they are far to infrequent.

This blog will focus on these issues and track, share and explore the many opportunities we have to transform healthcare through system redesign, informatics and quality.

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