Cartoon – Dying of Status Quo
Category Archives: Status Quo
Sharing an Almost Unique Perspective — Putting the Hospital Out of Business
I have been both a frontline officer and a staff officer at
a health system. I started a solo practice in 1977 and
cared for my rheumatology, internal medicine and
geriatrics patients in inpatient and outpatient settings.
After 23 years in my solo practice, I served 18 years as
President and CEO of a profitable, CMS 5-star, 715-bed,
two-hospital healthcare system.
From 2015 to 2020, our health system team added
0.6 years of healthy life expectancy for 400,000 folks
across the socioeconomic spectrum. We simultaneously
decreased healthcare costs 54% for 6,000 colleagues and
family members. With our mentoring, four other large,
self-insured organizations enjoyed similar measurable
results. We wanted to put our healthcare system out of
business. Who wants to spend a night in a hospital?
During the frontline part of my career, I had the privilege
of “Being in the Room Where It Happens,” be it the
examination room at the start of a patient encounter, or
at the end of life providing comfort and consoling family.
Subsequently, I sat at the head of the table, responsible for
most of the hospital care in Southwest Florida. [1]
Many folks commenting on healthcare have never touched
a patient nor led a large system. Outside consultants, no
matter how competent, have vicarious experience that
creates a different perspective.
At this point in my career, I have the luxury of promoting
what I believe is in the best interests of patients —
prevention and quality outcomes. Keeping folks healthy and
changing the healthcare industry’s focus from a “repair shop”
mentality to a “prevention program” will save the industry
and country from bankruptcy. Avoiding well-meaning but
inadvertent suboptimal care by restructuring healthcare
delivery avoids misery and saves lives.
RESPONDING TO AN ATTACK
Preemptive reinvention is much wiser than responding to an
attack. Unfortunately, few industries embrace prevention. The
entire healthcare industry, including health systems, physicians,
non-physician caregivers, device manufacturers, pharmaceutical
firms, and medical insurers, is stressed because most are
experiencing serious profit margin squeeze. Simultaneously
the public has ongoing concerns about healthcare costs. While
some medical insurance companies enjoyed lavish profits during
COVID, most of the industry suffered. Examples abound, and
Paul Keckley, considered a dean among long-time observers of
the medical field, recently highlighted some striking year-end
observations for 2022. [2]
Recent Siege Examples
Transparency is generally good but can and has led to tarnishing
the noble profession of caring for others. Namely, once a
sector starts bleeding, others come along, exacerbating the
exsanguination. Current literature is full of unflattering public
articles that seem to self-perpetuate, and I’ve highlighted
standout samples below.
- The Federal Government is the largest spender in the
healthcare industry and therefore the most influential. Not
surprisingly, congressional lobbying was intense during
the last two weeks of 2022 in a partially successful effort
to ameliorate spending cuts for Medicare payments for
physicians and hospitals. Lobbying spend by Big Pharma,
Blue Cross/Blue Shield, American Hospital Association, and
American Medical Association are all in the top ten spenders
again. [3, 4, 5] These organizations aren’t lobbying for
prevention, they’re lobbying to keep the status quo. - Concern about consistent quality should always be top of
mind. “Diagnostic Errors in the Emergency Department: A
Systematic Review,” shared by the Agency for Healthcare
Research and Quality, compiled 279 studies showing a
nearly 6% error rate for the 130 million people who visit
an ED yearly. Stroke, heart attack, aortic aneurysm, spinal
cord injury, and venous thromboembolism were the most
common harms. The defense of diagnostic errors in emergency
situations is deemed of secondary importance to stabilizing
the patient for subsequent diagnosing. Keeping patients alive
trumps everything. Commonly, patient ED presentations are
not clear-cut with both false positive and negative findings.
Retrospectively, what was obscure can become obvious. [6, 7] - Spending mirrors motivations. The Wall Street Journal article
“Many Hospitals Get Big Drug Discounts. That Doesn’t Mean
Markdowns for Patients” lays out how the savings from a
decades-old federal program that offers big drug discounts
to hospitals generally stay with the hospitals. Hospitals can
chose to sell the prescriptions to patients and their insurers for much more than the discounted price. Originally the legislation was designed for resource-challenged communities, but now some hospitals in these programs are profiting from wealthy folks paying normal prices and the hospitals keeping the difference. [8] - “Hundreds of Hospitals Sue Patients or Threaten Their Credit,
a KHN Investigation Finds. Does Yours?” Medical debt is a
large and growing problem for both patients and providers.
Healthcare systems employ collection agencies that
typically assess and screen a patient’s ability to pay. If the
credit agency determines a patient has resources and has
avoided paying his/her debt, the health system send those
bills to a collection agency. Most often legitimately
impoverished folks are left alone, but about two-thirds
of patients who could pay but lack adequate medical
insurance face lawsuits and other legal actions attempting
to collect payment including garnishing wages or placing
liens on property. [9] - “Hospital Monopolies Are Destroying Health Care Value,”
written by Rep. Victoria Spartz (R-Ind.) in The Hill, includes
a statement attributed to Adam Smith’s The Wealth of
Nations, “that the law which facilitates consolidation ends in
a conspiracy against the public to raise prices.” The country
has seen over 1,500 hospital mergers in the past twenty
years — an example of horizontal consolidation. Hospitals
also consolidate vertically by acquiring physician practices.
As of January 2022, 74 percent of physicians work directly for
hospitals, healthcare systems, other physicians, or corporate
entities, causing not only the loss of independent physicians
but also tighter control of pricing and financial issues. [10]
The healthcare industry is an attractive target to examine.
Everyone has had meaningful healthcare experiences, many have
had expensive and impactful experiences. Although patients do
not typically understand the complexity of providing a diagnosis,
treatment, and prognosis, the care receiver may compare the
experience to less-complex interactions outside healthcare that
are customer centric and more satisfying.
PROFIT-MARGIN SQUEEZE
Both nonprofit and for-profit hospitals must publish financial
statements. Three major bond rating agencies (Fitch Ratings,
Moody’s Investors Service, and S & P Global Ratings) and
other respected observers like KaufmanHall, collate, review,
and analyze this publicly available information and rate health
systems’ financial stability.
One measure of healthcare system’s financial strength is
operating margin, the amount of profit or loss from caring
for patients. In January of 2023 the median, or middle value,
of hospital operating margin index was -1.0%, which is an
improvement from January 2022 but still lags 2021 and 2020.
Erik Swanson, SVP at KaufmanHall, says 2022,
“Is shaping up to be one of the worst financial years on
record for hospitals. Expense pressures — particularly
with the cost of labor — outpaced revenues and drove
poor performance. While emergency department visits
and operating room minutes increased slightly, hospitals
struggled to discharge patients due to internal staffing
shortages and shortages at post-acute facilities,” [11]
Another force exacerbating health system finance is the
competent, if relatively new retailers (CVS, Walmart, Walgreens,
and others) that provide routine outpatient care affordably.
Ninety percent of Americans live within ten miles of a Walmart
and 50% visit weekly. CVS and Walgreens enjoy similar
penetration. Profit-margin squeeze, combined with new
convenient options to obtain routine care locally, will continue
disrupting legacy healthcare systems.
Providers generate profits when patients access care.
Additionally, “easy” profitable outpatient care can and has
switched to telemedicine. Kaiser-Permanente (KP), even before
the pandemic, provided about 50% of the system’s care through
virtual visits. Insurance companies profit when services are
provided efficiently or when members don’t use services.
KP has the enviable position of being both the provider
and payor for their members. The balance between KP’s
insurance company and provider company favors efficient
use of limited resources. Since COVID, 80% of all KP’s visits are
virtual, a fact that decreases overhead, resulting in improved
profit margins. [12]
On the other hand, KP does feel the profit-margin squeeze
because labor costs have risen. To avoid a nurse labor strike,
KP gave 21,000 nurses and nurse practitioners a 22.5% raise over
four years. KP’s most recent quarter reported a net loss of $1.5B,
possibly due to increased overhead. [13]
The public, governmental agencies, and some healthcare leaders
are searching for a more efficient system with better outcomes
at a lower cost. Our nation cannot continue to spend the most
money of any developed nation and have the worst outcomes.
In a globally competitive world, limited resources must go to
effective healthcare, balanced with education, infrastructure, the
environment, and other societal needs. A new healthcare model
could satisfy all these desires and needs.
Even iconic giants are starting to feel the pain of recent annual
losses in the billions. Ascension Health, Cleveland Clinic,
Jefferson Health, Massachusetts General Hospital, ProMedica,
Providence, UPMC, and many others have gone from stable
and sustainable to stressed and uncertain. Mayo Clinic had
been a notable exception, but recently even this esteemed
system’s profit dropped by more than 50% in 2022 with higher
wage and supply costs up, according to this Modern Healthcare
summary. [14]
The alarming point is even the big multigenerational health
system leaders who believed they had fortress balance sheets
are struggling. Those systems with decades of financial success
and esteemed reputations are in jeopardy. Changing leadership
doesn’t change the new environment.
Nonprofit healthcare systems’ income typically comes from three
sources — operations, namely caring for patients in ways that are
now evolving as noted above; investments, which are inherently
risky evidence by this past year’s record losses; and philanthropy,
which remains fickle particularly when other investment returns
disappoint potential donors. For-profit healthcare systems don’t
have the luxury of philanthropic support but typically are more
efficient with scale and scope.
The most stable and predictable source of revenue in the
past was from patient care. As the healthcare industry’s cost
to society continues to increase above 20% of the GDP, most
medically self-insured employers and other payors will search for
efficiencies. Like it or not, persistently negative profit margins
will transform healthcare.
Demand for nurses, physicians, and support folks is increasing,
with many shortages looming near term. Labor costs and burnout
have become pressing stresses, but more efficient delivery of
care and better tools can ameliorate the stress somewhat. If
structural process and technology tools can improve productivity
per employee, the long-term supply of clinicians may keep up.
Additionally, a decreased demand for care resulting from an
effective prevention strategy also could help.
Most other successful industries work hard to produce products
or services with fewer people. Remember what the industrial
revolution did for America by increasing the productivity of each
person in the early 1900s. Thereafter, manufacturing needed
fewer employees.
PATIENTS’ NEEDS AND DESIRES
Patients want to live a long, happy and healthy life. The best
way to do this is to avoid illness, which patients can do with
prevention because 80% of disease is self-inflicted. When
prevention fails, or the 20% of unstoppable episodic illness kicks
in, patients should seek the best care.
The choice of the “best care” should not necessarily rest just on
convenience but rather objective outcomes. Closest to home may
be important for take-out food, but not healthcare.
Care typically can be divided into three categories — acute,
urgent, and elective. Common examples of acute care include
childbirth, heart attack, stroke, major trauma, overdoses, ruptured
major blood vessel, and similar immediate, life-threatening
conditions. Urgent intervention examples include an acute
abdomen, gall bladder inflammation, appendicitis, severe
undiagnosed pain and other conditions that typically have
positive outcomes even with a modest delay of a few hours.
Most every other condition can be cared for in an appropriate
timeframe that allows for a car trip of a few hours. These illnesses
can range in severity from benign that typically resolve on their
own to serious, which are life-threatening if left undiagnosed and
untreated. Musculoskeletal aches are benign while cancer is life-threatening if not identified and treated.
Getting the right diagnosis and treatment for both benign and
malignant conditions is crucial but we’re not even near perfect for
either. That’s unsettling.
In a 2017 study,
“Mayo Clinic reports that as many as 88 percent of those
patients [who travel to Mayo] go home [after getting a
second opinion] with a new or refined diagnosis — changing
their care plan and potentially their lives. Conversely, only
12 percent receive confirmation that the original diagnosis
was complete and correct. In 21 percent of the cases, the
diagnosis was completely changed; and 66 percent of
patients received a refined or redefined diagnosis. There
were no significant differences between provider types
[physician and non-physician caregivers].” [15]
The frequency of significant mis- or refined-diagnosis and
treatment should send chills up your spine. With healthcare
we are not talking about trivial concerns like a bad meal at a
restaurant, we are discussing life-threatening risks. Making an
initial, correct first decision has a tremendous influence on
your outcome.
Sleeping in your own bed is nice but secondary to obtaining the
best outcome possible, even if car or plane travel are necessary.
For urgent and elective diagnosis/treatment, travel may be a
good option. Acute illness usually doesn’t permit a few hours of grace, although a surprising number of stroke and heart attack victims delay treatment through denial or overnight timing. But even most of these delayed, recognized illnesses usually survive. And urgent and elective care gives the patient the luxury of some time to get to a location that delivers proven, objective outcomes, not necessarily the one closest to home.
Measuring quality in healthcare has traditionally been difficult for the average patient. Roadside billboards, commercials, displays at major sporting events, fancy logos, name changes and image building campaigns do not relate to quality. Confusingly, some heavily advertised metrics rely on a combination of subjective reputational and lagging objective measures. Most consumers don’t know enough about the sources of information to understand which ratings are meaningful to outcomes.
Arguably, hospital quality star ratings created by the Centers for Medicare and Medicaid Services (CMS) are the best information for potential patients to rate hospital mortality, safety, readmission, patient experience, and timely/effective care. These five categories combine 47 of the more than 100 measures CMS publicly reports. [16]
A 2017 JAMA article by lead author Dr. Ashish Jha said:
“Found that a higher CMS star rating was associated with lower patient mortality and readmissions. It is reassuring that patients can use the star ratings in guiding their health care seeking decisions given that hospitals with more stars not only offer a better experience of care, but also have lower mortality and readmissions.”
The study included only Medicare patients who typically are over
65, and the differences were most apparent at the extremes,
nevertheless,
“These findings should be encouraging for policymakers
and consumers; choosing 5-star hospitals does not seem to
lead to worse outcomes and in fact may be driving patients
to better institutions.” [17]
Developing more 5-star hospitals is not only better and safer
for patients but also will save resources by avoiding expensive
complications and suffering.
As a patient, doing your homework before you have an urgent or
elective need can change your outcome for the better. Driving a
couple of hours to a CMS 5-star hospital or flying to a specialty
hospital for an elective procedure could make a difference.
Business case studies have noted that hospitals with a focus on
a specific condition deliver improved outcomes while becoming
more efficient. [18] Similarly, specialty surgical areas within
general hospitals have also been effective in improving quality
while reducing costs. Mayo Clinic demonstrated this with its
cardiac surgery department. [19] A similar example is Shouldice
Hospital near Toronto, a focused factory specializing in hernia
repairs. In the last 75 years, the Shouldice team has completed
four hundred thousand hernia repairs, mostly performed under
local anesthesia with the patient walking to and from the
operating room. [20] [21]
THE BOTTOM LINE
The Mayo Brother’s quote, “The patient’s needs come first,” is
more relevant today than when first articulated over a century
ago. Driving treatment into distinct categories of acute, urgent,
and elective, with subsequent directing care to the appropriate
facilities, improves the entire care process for the patient. The
saved resources can fund prevention and decrease the need for
future care. The healthcare industry’s focus has been on sickness,
not prevention. The virtuous cycle’s flywheel effect of distinct
categories for care and embracing prevention of illness will decrease
misery and lower the percentage of GDP devoted to healthcare.
Editor’s note: This is a multi-part series on reinventing the healthcare
industry. Part 2 addresses physicians, non-physician caregivers, and
communities’ responses to the coming transformation.
Cartoon – Status Quo Strategy
Cartoon – Implementing These Changes Won’t Be Easy
Cartoon – Desperate for Healthcare Reform
Cartoon – Importance of Change
The Future of Hospitals in Post-COVID America (Part 1): The Market Response
Click to access CBC_72_08052020_Final.pdf
[Readers’ Note: This is the first of two articles on the Future of Hospitals in Post-COVID America. This article
examines how market forces are consolidating, rationalizing and redistributing acute care assets within the
broader industry movement to value-based care delivery. The second article, which will publish next month,
examines gaps in care delivery and the related public policy challenges of providing appropriate, accessible
and affordable healthcare services in medically-underserved communities.]
In her insightful 2016 book, The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore,
Michelle Wucker coins the term “Gray Rhinos” and contrasts them with “Black Swans.” That distinction is
highly relevant to the future of American hospitals.
Black Swans are high impact events that are highly improbable and difficult to predict. By contrast, Gray
Rhinos are foreseeable, high-impact events that we choose to ignore because they’re complex, inconvenient
and/or fortified by perverse incentives that encourage the status quo. Climate change is a powerful example
of a charging Gray Rhino.
In U.S. healthcare, we are now seeing what happens when a Gray Rhino and a Black Swan collide.
Arguably, the nation’s public health defenses should anticipate global pandemics and apply resources
systematically to limit disease spread. This did not happen with the coronavirus pandemic.
Instead, COVID-19 hit the public healthcare infrastructure suddenly and hard. This forced hospitals and health systems to dramatically reduce elective surgeries, lay off thousands and significantly change care delivery with the adoption of new practices and services like telemedicine.
In comparison, many see the current American hospital business model as a Gray Rhino that has been charging toward
unsustainability for years with ever-building momentum.
Even with massive and increasing revenue flows, hospitals have long struggled with razor-thin margins, stagnant payment rates and costly technology adoptions. Changing utilization patterns, new and disruptive competitors, pro-market regulatory rules and consumerism make their traditional business models increasingly vulnerable and, perhaps, unsustainable.
Despite this intensifying pressure, many hospitals and health systems maintain business-as-usual practices because transformation is so difficult and costly. COVID-19 has made the imperative of change harder to ignore or delay addressing.
For a decade, the transition to value-based care has dominated debate within U.S. healthcare and absorbed massive strategic,
operational and financial resources with little progress toward improved care outcomes, lower costs and better customer service. The hospital-based delivery system remains largely oriented around Fee-for-Service reimbursement.
Hospitals’ collective response to COVID-19, driven by practical necessity and financial survival, may accelerate the shift to value-based care delivery. Time will tell.
This series explores the repositioning of hospitals during the next five years as the industry rationalizes an excess supply of acute care capacity and adapts to greater societal demands for more appropriate, accessible and affordable healthcare services.
It starts by exploring the role of the marketplace in driving hospital consolidation and the compelling need to transition to value-based care delivery and payment models.
COVID’s DUAL SHOCKS TO PATIENT VOLUME
Many American hospitals faced severe financial and operational challenges before COVID-19. The sector has struggled to manage ballooning costs, declining margins and waves of policy changes. A record 18 rural hospitals closed in 2019. Overall, hospitals saw a 21% decline in operating margins in 2018-2019.
COVID intensified those challenges by administering two shocks to the system that decreased the volume of hospital-based activities and decimated operating margins.
The first shock was immediate. To prepare for potential surges in COVID care, hospitals emptied beds and cancelled most clinic visits, outpatient treatments and elective surgeries. Simultaneously, they incurred heavy costs for COVID-related equipment (e.g. ventilators,PPE) and staffing. Overall, the sector experienced over $200 billion in financial losses between March and June 20204.
The second, extended shock has been a decrease in needed but not necessary care. Initially, many patients delayed seeking necessary care because of perceived infection risk. For example, Emergency Department visits declined 42% during the early phase of the pandemic.
Increasingly, patients are also delaying care because of affordability concerns and/or the loss of health insurance. Already, 5.4 million people have lost their employer-sponsored health insurance. This will reduce incremental revenues associated with higher-paying commercial insurance claims across the industry. Additionally, avoided care reduces patient volumes and hospital revenues today even as it increases the risk and cost of future acute illness.
The infusion of emergency funding through the CARES Act helped offset some operating losses but it’s unclear when and even whether utilization patterns and revenues will return to normal pre-COVID levels. Shifts in consumer behavior, reductions in insurance coverage, and the emergence of new competitors ranging from Walmart to enhanced primary care providers will likely challenge the sector for years to come.
The disruption of COVID-19 will serve as a forcing function, driving meaningful changes to traditional hospital business models and the competitive landscape. Frankly, this is long past due. Since 1965, Fee-for-Service (FFS) payment has dominated U.S. healthcare and created pervasive economic incentives that can serve to discourage provider responsiveness in transitioning to value-based care delivery, even when aligned to market demand.
Telemedicine typifies this phenomenon. Before COVID, CMS and most health insurers paid very low rates for virtual care visits or did not cover them at all. This discouraged adoption of an efficient, high-value care modality until COVID.
Unable to conduct in-person clinical visits, providers embraced virtual care visits and accelerated its mass adoption. CMS and
commercial health insurers did their part by paying for virtual care visits at rates equivalent to in-person clinic visits. Accelerated innovation in care delivery resulted.
THE COMPLICATED TRANSITION TO VALUE
Broadly speaking, health systems and physician groups that rely almost exclusively on activity-based payment revenues have struggled the most during this pandemic. Vertically integrated providers that offer health insurance and those receiving capitated payments in risk-based contracts have better withstood volume losses.
Modern Healthcare notes that while provider data is not yet available, organizations such as Virginia Care Partners, an integrated network and commercial ACO; Optum Health (with two-thirds of its revenue risk-based); and MediSys Health Network, a New Yorkbased NFP system with 148,000 capitated and 15,000 shared risk patients, are among those navigating the turbulence successfully. As the article observes,
…providers paid for value have had an easier time weathering the storm…. helped by a steady source of
income amid the chaos. Investments they made previously in care management, technology and social
determinants programs equipped them to pivot to new ways of providing care.
They were able to flip the switch on telehealth, use data and analytics to pinpoint patients at risk for
COVID-19 infection, and deploy care managers to meet the medical and nonclinical needs of patients even
when access to an office visit was limited.
Supporting this post-COVID push for value-based care delivery, six former leaders from CMS wrote to Congress in
June 2020 calling for providers, commercial insurers and states to expand their use of value-based payment models to
encourage stability and flexibility in care delivery.
If value-based payment models are the answer, however, adoption to date has been slow, limited and difficult. Ten
years after the Affordable Care Act, Fee-for-Service payment still dominates the payer landscape. The percentage of
overall provider revenue in risk-based capitated contracts has not exceeded 20%
Despite improvements in care quality and reductions in utilization rates, cost savings have been modest or negligible.
Accountable Care Organizations have only managed at best to save a “few percent of Medicare spending, [but] the
amount varies by program design.”
While most health systems accept some forms of risk-based payments, only 5% of providers expect to have a majority
(over 80%) of their patients in risk-based arrangements within 5 years.
The shift to value is challenging for numerous reasons. Commercial payers often have limited appetite or capacity for
risk-based contracting with providers. Concurrently, providers often have difficulty accessing the claims data they need
from payers to manage the care for targeted populations.
The current allocation of cost-savings between buyers (including government, employers and consumers), payers
(health insurance companies) and providers discourages the shift to value-based care delivery. Providers would
advance value-based models if they could capture a larger percentage of the savings generated from more effective
care management and delivery. Those financial benefits today flow disproportionately to buyers and payers.
This disconnection of payment from value creation slows industry transformation. Ultimately, U.S. healthcare will not
change the way it delivers care until it changes the way it pays for care. Fortunately, payment models are evolving to
incentivize value-based care delivery.
As payment reform unfolds, however, operational challenges pose significant challenges to hospitals and health
systems. They must adopt value-oriented new business models even as they continue to receive FFS payments. New
and old models of care delivery clash.
COVID makes this transition even more formidable as many health systems now lack the operating stamina and
balance sheet strength to make the financial, operational and cultural investments necessary to deliver better
outcomes, lower costs and enhanced customer service.
MARKET-DRIVEN CONSOLIDATION AND TRANSFORMATION
Full-risk payment models, such as bundled payments for episodic care and capitation for population health, are the
catalyst to value-based care delivery. Transition to value-based care occurs more easily in competitive markets with
many attributable lives, numerous provider options and the right mix of willing payers.
As increasing numbers of hospitals struggle financially, the larger and more profitable health systems are expanding
their networks, capabilities and service lines through acquisitions. This will increase their leverage with commercial
payers and give them more time to adapt to risk-based contracting and value-based care delivery.
COVID also will accelerate acquisition of physician practices. According to an April 2020 MGMA report, 97% of
physician practices have experienced a 55% decrease in revenue, forcing furloughs and layoffs15. It’s estimated the
sector could collectively lose as much as $15.1 billion in income by the end of September 2020.
Struggling health systems and physician groups that read the writing on the wall will pro-actively seek capital or
strategic partners that offer greater scale and operating stability. Aggregators can be selective in their acquisitions,
seeking providers that fuel growth, expand contiguous market positions and don’t dilute balance sheets.
Adding to the sector’s operating pressure, private equity, venture investors and payers are pouring record levels of
funding into asset-light and virtual delivery companies that are eager to take on risk, lower prices by routing procedures
and capture volume from traditional providers. With the right incentives, market-driven reforms will reallocate resources
to efficient companies that generate compelling value.
As this disruption continues to unfold, rural and marginal urban communities that lack robust market forces will
experience more facility and practice closures. Without government support to mitigate this trend, access and care gaps
that already riddle American healthcare will unfortunately increase.
WINNING AT VALUE
The average hospital generates around $11,000 per patient discharge. With ancillary services that can often add up to
more than $15,000 per average discharge. Success in a value-based system is predicated on reducing those
discharges and associated costs by managing acute care utilization more effectively for distinct populations (i.e.
attributed lives).
This changes the orientation of healthcare delivery toward appropriate and lower cost settings. It also places greater
emphasis on preventive, chronic and outpatient care as well as better patient engagement and care coordination.
Such a realignment of care delivery requires the following:
A tight primary care network (either owned or affiliated) to feed referrals and reduce overall costs through
better preventive care.
A gatekeeper or navigator function (increasingly technology-based) to manage / direct patients to the most
appropriate care settings and improve coordination, adherence and engagement.
A carefully designed post-acute care network (including nursing homes, rehab centers, home care
services and behavioral health services, either owned or sufficiently controlled) to manage the 70% of
total episode-of-care costs that can occur outside the hospital setting.
An IT infrastructure that can facilitate care coordination across all providers and settings.
Quality data and digital tools that enhance care, performance, payment and engagement.
Experience with managing risk-based contracts.
A flexible approach to care delivery that includes digital and telemedicine platforms as well as nontraditional sites of care.
Aligned or incentivized physicians.
Payer partners willing to share data and offload risk through upside and downside risk contracts.
Engaged consumers who act on their preferences and best interests.
While none of these strategies is new or controversial, assembling them into cohesive and scalable business models is
something few health systems have accomplished. It requires appropriate market conditions, deep financial resources,
sophisticated business acumen, operational agility, broad stakeholder alignment, compelling vision, and robust
branding.
Providers that fail to embrace value-based care for their “attributed lives” risk losing market relevance. In their relentless pursuit of increasing treatment volumes and associated revenues, they will lose market share to organizations that
deliver consistent and high-value care outcomes.
CONCLUSION: THE CHARGING GRAY RHINO
America needs its hospitals to operate optimally in normal times, flex to manage surge capacity, sustain themselves
when demand falls, create adequate access and enhance overall quality while lowering total costs. That is a tall order
requiring realignment, evolution, and a balance between market and policy reform measures.
The status quo likely wasn’t sustainable before COVID. The nation has invested heavily for many decades in acute and
specialty care services while underinvesting, on a relative basis, in primary and chronic care services. It has excess
capacity in some markets, and insufficient access in others.
COVID has exposed deep flaws in the activity-based payment as well as the nation’s underinvestment in public health.
Disadvantaged communities have suffered disproportionately. Meanwhile, the costs for delivering healthcare services
consume an ever-larger share of national GDP.
Transformational change is hard for incumbent organizations. Every industry, from computer and auto manufacturing to
retailing and airline transportation, confronts gray rhino challenges. Many companies fail to adapt despite clear signals
that long-term viability is under threat. Often, new, nimble competitors emerge and thrive because they avoid the
inherent contradictions and service gaps embedded within legacy business models.
The healthcare industry has been actively engaged in value-driven care transformation for over ten years with little to
show for the reform effort. It is becoming clear that many hospitals and health systems lack the capacity to operate
profitably in competitive, risk-based market environments.
This dismal reality is driving hospital market valuations and closures. In contrast, customers and capital are flowing to
new, alternative care providers, such as OneMedical, Oak Street Health and Village MD. Each of these upstart
companies now have valuations in the $ billions. The market rewards innovation that delivers value.
Unfortunately, pure market-driven reforms often neglect a significant and growing portion of America’s people. This gap has been more apparent as COVID exacts a disproportionate toll on communities challenged by higher population
density, higher unemployment, and fewer medical care options (including inferior primary and preventive care infrastructure).
Absent fundamental change in our hospitals and health systems, and investment in more efficient care delivery and
payment models, the nation’s post-COVID healthcare infrastructure is likely to deteriorate in many American
communities, making them more vulnerable to chronic disease, pandemics and the vicissitudes of life.
Article 2 in our “Future of Hospitals” series will explore the public policy challenges of providing appropriate, affordable and accessible healthcare to all American communities.
Cartoon – Covid 19 Dining
Cartoon – History Repeating
“What is it that America has failed to hear?”
https://mailchi.mp/9f24c0f1da9a/the-weekly-gist-june-5-2020?e=d1e747d2d8
“What is it that America has failed to hear?” asked Dr. Martin Luther King, Jr. in March of 1968, calling riots the “language of the unheard”. “It has failed to hear that the promises of freedom and justice have not been met.” Stubbornly, shamefully, we continue to turn a deaf ear: to structural racism; to institutionalized inequality; to a pandemic of police brutality and bigotry that chokes off the breath of black Americans as surely as a virus in the lungs or a boot on the neck. But the sound in the streets is thunderous.
We in healthcare must listen. We must hear that what killed George Floyd, and Breonna Taylor, and Eric Garner, and Tamir Rice, and Philando Castile, and Trayvon Martin, and Ahmaud Arbery, and countless others, as surely as the terrible actions of any single person, was the pervasive, insidious virus of racism, long since grown endemic in our country.
This week’s protests are a kind of ventilator, providing emergency breath for a national body in crisis. We must work—urgently—on the therapeutics of structural change and the vaccines of education and understanding.
At Gist Healthcare we are listening, and learning. As a team, we’ve committed to each other to be attentive, invested, empathetic allies, and to dedicate our individual and collective time, talents and treasure to antiracist work, in healthcare and beyond. Our contribution may not be large, and it will never be enough, but at least we hope it will be positive. We’d like to hear your thoughts and suggestions as well. For the moment, and for our colleagues, friends, and families, we stand with the protestors.
Black Lives Matter.
HENRY KOTULA 