Seeking standards, not standardization

https://mailchi.mp/325cd862d7a7/the-weekly-gist-march-13-2020?e=d1e747d2d8

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We’ve been working with a number of our members on the topic of “systemness”: helping think through how health systems can (finally) make progress on creating value from consolidation, moving from being a holding company of assets to a true, functioning system of care.

One critical aspect of that work is standardization—making sure that, where appropriate, operational and clinical processes are uniform across different clinics, hospitals and markets. That’s one of the core sources of corporate value for any company—it would be crazy for GE to make refrigerators differently in Hyderabad, India than in Louisville, KY, for instance. Of course, delivering healthcare is more complex than making refrigerators, and (as we point out in our work on systemness) there needs to be a certain zone of allowable variability in many operational and clinical areas.

Along these lines, a phrase that one physician executive used in a meeting recently caught my attention: he said what he tries to achieve are “standards, not standardization”. In other words, setting clinical and operational standards (for example, how much a knee implant should cost) rather than fully standardizing elements of care (what knee implant must our surgeons use).

Of course, there are lots of things that should be completely standardized across the system—especially in “back office” areas like marketing, HR, revenue cycle, and legal. And some clinical work can be standardized as well: care protocols and agreed-upon pathways for treatment. But allowing variability in clinical practice requires a more flexible approach—one built on standards that clinicians can build consensus around—rather than on rigid standardization. We’ll have more to share about our systemness work in weeks to come—it’s a critical topic for executives as cost pressures mount, and questions about the value of health system scale abound.

 

 

 

Five Healthcare Industry Changes to Watch in 2020

https://www.managedhealthcareexecutive.com/news/five-healthcare-industry-changes-watch-2020

Innovation

Industry experts expect significant changes to shake up the healthcare landscape in the next few years, which will affect both health insurers and providers. Many are the result of a shift toward value-based care, a move toward decreased care in hospital settings, technological advances, and other forces.

Here’s a look at what can payers and providers can expect to occur, why each change is occurring, and how payers and providers can prepare for each change:

1. A shift in healthcare delivery from hospital to ambulatory settings

Healthcare delivery will continue to move from inpatient to outpatient facilities. “More surgeries and diagnostic procedures that historically have required an inpatient hospital stay can now be performed more safely and efficiently in an outpatient setting,” says Stephen A. Timoni, JD, an attorney and partner at the law firm Lindabury, McCormick, Estabrook & Cooper, in Westfield, New Jersey, who represents healthcare providers in areas of reimbursement and managed care contracting. A growing volume of outpatient care will be provided in ambulatory surgery centers, primary care clinics, retail clinics, urgent care centers, nurse managed health centers, imaging facilities, emergency departments, retail clinics, and patients’ homes.

This change is occurring as the result of clinical innovations, patient preferences, financial incentives, electronic health records, telemedicine, and an increased focus on improving quality of care and clinical outcomes. “The upward trend in value-based payment models is also influencing this shift, with the goal of reducing the cost of care and improving the overall patient experience,” Timoni says.

Payers and providers can prepare for this shift by analyzing and forecasting the cost and reimbursement implications of providing care in outpatient settings compared to inpatient settings. They should continue to analyze changing patient demographics, consumer preferences, and satisfaction trends, Timoni says. Collecting and analyzing data regarding quality and clinical outcomes as the result of changes in delivery of care from inpatient to outpatient is also key. Healthcare providers should develop effective strategies to grow capacity and infrastructure for outpatient services and invest in innovative mobile technologies, diagnostic tools, and telemedicine systems.

2. Consolidation will continue industry wide

More healthcare entities will continue to merge together. “Even though the number of available partners for transactions is shrinking, new deals pop up all the time because smaller entities are being targeted or entities that had been holding out are now changing their position,” says Matthew Fisher, JD, partner and chair of the Health Law Group at Mirick O’Connell, a law firm in Westborough, Massachusetts. Increased consolidation will result in higher healthcare prices as larger sized institutions use their size to their advantage. Another impact will be narrowing the field of contracting options, which will result in greater dominance by fewer entities in a market.

This change is occurring because industry stakeholder believes that consolidation is the way to survive in a healthcare landscape still being shaped by the ACA. “The belief is that value-based care models require single unified entities as opposed to more contractual-based ventures to succeed,” Fisher says. Another factor is that momentum for consolidations across the industry has continued to build and no player wants to be left behind.

Along these lines, Timoni says that consolidation has been motivated by the evolving and challenging commercial and government reimbursement models which include lower fee-for-service payment rates, value-based payment components, and incentives to move care from inpatient to outpatient settings. “Basic economic theory suggests that consolidation of hospitals and physicians enables these combined providers to charge higher prices to private payers as the result of a lack of competition,” Timoni says. “Likewise, combined insurers are able to charge higher premiums to their subscribers.”

Payers and providers can prepare for this change by evaluating their operations and determining whether consolidation with another entity is advantageous. “This requires assessing an entity’s operations and the risks of consolidation,” Fisher says.

Timoni advises payers and providers to monitor the consolidation landscape and develop effective merger and acquisition strategies. These strategies should focus on optimizing economies of scale to reduce costs and finding the best partners to achieve improved quality of care and effectively manage population health.

3. Protecting data privacy

Ongoing attention will be given to protecting the privacy of healthcare data. New laws, at both the federal and state levels, will be considered that could introduce new regulatory requirements, Fisher says.

While a federal law in an election year may be doubtful, individual states are proceeding. The California Consumer Protection Act (CCPA), intended to enhance privacy rights and consumer protection, will become effective in 2020, for example. Even though the CCPA doesn’t cover all healthcare data, healthcare organizations will still collect additional information that could be subject to CCPA, which means more compliance obligations, Fisher says. Other states are considering how to jump on the privacy legislation bandwagon, which means that regulatory requirements will increase. “Even in the absence of legislation, payers and providers can expect individuals to assert concerns and use public pressure to drive increased attention to privacy issues,” Fisher says.

Meanwhile, debates around what is meant by privacy continue to evolve, Fisher continues. A backlash against the non-transparent sharing of healthcare data and arguable profiteering is creating anger among patients and other groups. Simultaneously, data breaches continue to be reported on a daily basis. Add in that healthcare is a prime target, and all of the factors point to healthcare needing to do more to protect data.

Payers and providers can embrace increased data privacy by focusing on existing compliance efforts, which will require taking time to better understanding HIPAA. “Ignoring or only making superficial efforts to respect data privacy is insufficient,” Fisher says. “Merely doing what is legally permissible may not be good enough.”

4. Consumerization of healthcare

As patients assume more financial responsibility for their healthcare costs due to higher premiums, co-pays, co-insurance, and deductibles, they have become more concerned with the value of the care they receive as well as cost. Patients will likely demand improved access to clearer benefits, billing, and network information to improve transparency, says Brooks Dexter, MBA, Los Angeles-based managing director and head of the healthcare M&A advisory practice at Duff & Phelps, a global consultancy firm.

“Healthcare providers must follow suit to meet value expectations and deliver more consumer-friendly services or may risk losing market share to innovative new healthcare arrangements, such as direct primary care, which offer convenient and quality care with simplified medical billing,” Dexter says. Some ways to do this are to offer better patient portals, expanded hours, improved access, and clear procedure pricing. Despite the trend, payers and providers will most likely continue to resist CMS’ efforts to force greater cost transparency by requiring hospitals to post payer-specific negotiated charges for common services that can be shopped.

Furthermore, Peter Manoogian, principal at ZS, a consulting firm focused on healthcare in Boston, says that the voices of older adults will become comparatively louder as this rapidly growing segment becomes more tech-savvy. The Trump Administration supports increased use of Medicare Advantage and expanding consumer choices. Plan options will reach a record high this year and create an unprecedented amount of choices for this population. The average number of plans a beneficiary has access to this year will be 28, up by a whopping 50% from 2017. What’s more, new entrants that boast a customer-driven approach such as Oscar Health are entering the fray in major markets such as New York and Houston.

Health plans need to be laser focused on improving their understanding and engagement of their customers—who are evolving themselves. “To stay ahead of the change, health plans need access to the right data coupled with leading-edge analytics and technology to continuously mine insights on what members are seeking in their healthcare experience, how patients and providers interact throughout their healthcare journey, and how to meet the needs of future healthcare customers,” Manoogian says.

Health plans will need to take more of a retail focus than what they’re accustomed to, Manoogian says. The bar for providing a great experience and retaining members will also increase.

5. More technological innovations will emerge

Technological innovation will continue to dramatically and rapidly change the manner in which healthcare is delivered, resulting in more personalized care, improved clinical outcomes and patient experience, and overall quality of life. “Information systems, mobile technology, high-tech digital devices, and electronic medical records will allow payers and providers to accurately measure clinical outcomes and effectively manage the continuum of medical care and their population’s overall health,” Timoni says.

One specific way that care will change is that providers will start seeing telehealth play a more critical role in care delivery as the brick-and-mortar, in-person care model becomes less common. “Telehealth will grow past a nice-to-have tool into a standard of care, particularly for low-risk and predictable appointments,” says Cindy Gaines, MSN, RN, clinical leader, Population Health Management, Philips, a company focused on transforming care through collaborative health management in Alpharetta, Georgia. This transformation will enable providers to better tailor their care to patients’ unique needs, while increasing patient autonomy and engagement.

Technological innovations are occurring due to booming private sector interest and investment in medical technology innovation. “Patients are demanding real-time health information, personalized medicine, higher quality of care, and convenient treatment options,” Timoni says. “Payers are demanding more detailed and expansive outcomes data to scientifically manage the reimbursement system to lower costs and improve their subscribers’ health. The medical and information technology fields are attracting more high-skilled workers, who will continue to drive innovation to new levels as long as investor interest is sustained.”

Regarding the increased use of telehealth, Gaines says that many appointments that occur in a hospital today can take place outside of the hospital. And, as the healthcare industry increasingly moves toward value-based care, providers need to extend their line-of-sight outside of a hospital’s four walls. For example, a low-risk follow-up appointment after an operation is usually mostly dialogue and has a predictable outcome—it could be conducted electronically. “By filling up hospitals with visits that could occur virtually, it makes it harder for patients who need face-to-face healthcare access to get it,” she says.

A lack of insurance coverage is a major impediment to telehealth adoption for most health systems. Therefore, providers should pair guaranteed reimbursement opportunities with change management workflows to advance these efforts, Gaines says. They would also be smart to leverage their patients’ everyday devices to manage their care, whether it’s on their smart phone, a fitness watch, or voice assistant.

To embrace technological innovation, payers and providers must continue to be educated and aware of the expanding medical technology landscape and develop technology investment and deployment strategies. “Consider investing and participating in technology venture capital funds and partnering with private sector technology manufacturers and research institutions,” Timoni says.

 

 

 

Another reality check on hospital beds

https://www.axios.com/newsletters/axios-vitals-1a6dd9a6-5198-4abf-812f-dbf8dd8e67cb.html

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Hospital beds are not filling up like they used to, but that doesn’t mean hospitals want their beds to be empty, Axios’ Bob Herman reports.

What they’re saying: Even though more patients are being treated in outpatient clinics rather than hospitals, “we’ll still be able to keep our beds pretty full,” Don Scanlon, chief financial officer at Mount Sinai Health System, said this week at an investor lunch held at Goldman Sachs headquarters in New York City.

Details: Mount Sinai, a not-for-profit hospital system based in Manhattan with $5 billion in annual revenue, is preparing to sell $475 million in bonds, and was making its pitch to bondholders about why buying that debt would be a good deal.

Between the lines: Mount Sinai’s discharges have trended down, but the hospital doesn’t want to lose the bigger dollars tied to inpatient stays. And the system wants to reassure municipal investors they will see returns.

  • As a result, Mount Sinai has invested more money in outpatient centers in other parts of New York that serve as “feeders” for its main city hospitals, Scanlon said.

The bottom line: Mount Sinai, Trinity HealthBanner Health and a host of other hospital systems have openly touted plans to boost or retain admissions even though they say they want to keep people out of the hospital. This is a fundamental disconnect between “value-based care” and the system’s financial incentives.

Go deeper: How banks and law firms make millions from hospital debt

 

Biden, Sanders, Warren clash over Medicare for All in Houston

https://thehill.com/homenews/campaign/461229-biden-sanders-warren-clash-over-medicare-for-all-in-houston

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The battle over health care that has dominated the Democratic race for the White House took center stage in Houston, where for the first time the top three candidates tangled over whether the nation is ready for sweeping reforms.

Former Vice President Joe Biden went back and forth at the opening of Thursday’s debate with the two progressives who are his leading challengers atop the polls, Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.).

Arguing that the “Medicare for All” proposal championed by Sanders would cost people their insurance, Biden called out the Vermont senator as a socialist and said his proposals would be too costly.

At one point in the debate, Biden said of Warren and Sanders that “nobody’s yet said how much it’s gonna cost for the taxpayer.”

He also pointed to the taxes that would have to increase for middle class people to pay for Medicare for All.

“There will be deductible in your paycheck,” Biden said, referencing the chunk that taxes would take out of people’s pay.

Sanders said most Americans were getting a raw deal in terms of their present health care costs compared with countries that have systems more similar to his Medicare for All approach.

“Let us be clear, Joe, in the United States of America we are spending twice as much per capita on health care as the Canadians or any other major country on earth,” Sanders said. 

“This is America,” Biden retorted. 

“Yeah, but Americans don’t want to pay twice as much as other countries and they guarantee health care to all people,” Sanders responded. 

Health care is a top issue in the race according to polls, and Democrats believe they can win the White House if the general election against President Trump is focused on the issue.

But it is also the issue that divides the Democratic candidates the most, with Biden and other centrists proposing more modest steps, such as reforms to ObamaCare.

The battle over health care is intertwined with the debate Democrats are having over which of their candidates is best positioned to defeat President Trump, with some in the party worried that Warren and Sanders are too liberal to win a general election. Others say their bold ideas are what is needed for the party to defeat Trump.

Biden argues Medicare for All means scrapping former President Obama’s signature achievement, the Affordable Care Act, instead of building on it.

While Sanders touted that everyone would have coverage under his plan and that it would be more generous, with no premiums or deductibles, Biden countered with the cost of the proposal, which estimates put at around $32 trillion over 10 years.

In the debate’s first hour, Biden was already hitting Sanders and Warren over the cost of the plan.

“The senator says she’s for Bernie,” Biden said of Warren’s support for Sanders’s Medicare for All plan. “Well I’m for Barack.”

Warren, pressed by host George Stephanopolous on whether middle class taxes would rise from Medicare for All, did not directly answer, pivoting to argue that overall costs for the middle class would go down once the abolition of premiums and deductibles is taken into account.

“What families have to deal with is cost, total cost,” Warren said, adding: “The richest individuals and the biggest corporations are going to pay more, and middle class families are going to pay less.”

Other candidates were also in the middle of the Medicare for All exchanges.

Sen. Kamala Harris (D-Calif.), who drew flak in the early months of the campaign for seeming to change her position on health care several times, touted the plan she eventually developed, to allow some private insurance to remain under Medicare for All by allowing private companies to administer some plans in a tightly regulated way.

“I want to give credit to Bernie. Take credit, Bernie,” Harris said, while adding, “I wanted to make the plan better, which I did.”

At another point in the debate, Biden dismissed the idea that employers would raise workers’ wages if employers no longer had to provide health insurance under a Medicare for All system. 

“My friend from Vermont thinks the employer’s going to give you back what you’ve negotiated as a union all these years … they’re going to give back that money to the employee?” Biden said.

“As a matter of fact they will,” Sanders interjected.

“Let me tell you something, for a Socialist you’ve got a lot more confidence in corporate America than I do,” Biden responded. 

While all of the Democrats advocate large additional government spending to expand health insurance coverage, the debates over whether private insurance should remain as an option has proven to be a particularly fierce source of debate.

Republicans have sensed an opening on that point as well, eagerly bashing Democrats for wanting to take away employer-sponsored coverage that millions of Americans have. Sanders and Warren counter that Medicare for All coverage would be better insurance, with no deductibles at all, so people would not miss it.

“I’ve actually never met anybody who likes their health insurance company,” Warren said, noting people like their doctors, which they would be able to keep. 

Sen. Amy Klobuchar (D-Minn.), who has staked out a more moderate ground, tore into Sanders, though, over his plan’s elimination of private insurance.

“While Bernie wrote the bill, I read the bill, and on page eight of the bill it says that we will no longer have private insurance as we know it,” Klobuchar said.

“I don’t think that’s a bold idea, I think it’s a bad idea,” she added. 

Amid the division, Harris tried to strike a unifying note.

“I think this discussion is giving the American people a headache,” she said. “What they want to know is that they’re going to have health care and cost will not be a barrier to getting it.” 

 

Myth Diagnosis: Do hospitals charge more to make up for low government pay?

https://www.healthcaredive.com/news/myth-diagnosis-do-hospitals-charge-more-to-make-up-for-low-government-pay/560021/

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It’s a mantra from providers to justify the disparate prices charged patients depending on their level of insurance coverage: It’s all in the name of cost shifting to make up for stingy government reimbursement.

The idea is that hospitals bill commercial payers more to make up for low rates from government payers and the costs from treating the uninsured. Providers and payers both insist the practice occurs, but academics are skeptical — and the notion is notoriously difficult to measure.

No one is doubting that the prices are different depending on who is footing the bill. The issue is whether they are dependent on each other.

“What is crystal clear is that there’s a huge unit cost payment differential between government and commercial payers,” John Pickering of Milliman told Healthcare Dive. “What isn’t clear is whether there’s a causal effect between those two.”

Heath economists, doctors and industry executives have been arguing about whether hospitals perform cost shifting for at least 40 years.

Government efforts to tamp down on runaway payments to providers may have sparked the debate. These include Medicare’s shift from strictly fee-for-service reimbursement to the prospective payment system in the 1980s.

Also, the Affordable Care Act attempted to codify efforts to pay providers based on performance with initiatives like the Hospital Readmission Reduction Program and alternative payment models.

Part of the difficulty is untangling factors like differences in geography, quality and market share, said Michael Darden, an associate professor at Carey Business School.

The body of research on healthcare cost shifting is mixed. There is evidence that some hospitals perform cost shifting, but not strong and clear results showing hospitals make such adjustments consistently or what exactly is causing them.

The debate has received some renewed attention as more states approve Medicaid expansion under the ACA and as employers consider offering high-deductible health plans that patients on the hook for more costs, Rick Gundling, senior vice president for healthcare financial practices with the Healthcare Financial Management Association, told Healthcare Dive.

“As folks get more price-sensitive through higher cost-sharing with patients and employers and these types of things — it’s certainly talked about. As it should be,” he said.

Policy implications

The topic may get even more attention as healthcare has come to dominate the early days of the 2020 presidential election, at least among the 20-plus contenders running in the primary.

While still a long way off, a “Medicare for All”-type system seems closer than any time in recent history.

While not all of the proposals explicitly or fully eliminate the private insurance industry, some (including those put forward by Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass.,) do, and others would at least severely curtail it. One key question for those plans is whether government rates would have to increase in order to keep hospitals and providers above water, and if so, by how much.

To counter, President Donald Trump and his administration have stepped up their scrutiny of industry billing practices. These efforts include pushing Congress to ban surprise billing and executive orders to revamp kidney care in the country and advance price transparency.

For their part,  providers say they’ll be forced to raise other rates if government programs pay less. Insurers will say the phenomenon means they must raise premiums to keep up.

In a statement to Healthcare Dive, America’s Health Insurance Plans pointed the finger at rising hospital prices, spurred in part from provider consolidation. The payer lobby argued health plans do their best to keep out-of-pocket costs affordable for customers through payment negotiations and by offering a number of coverage options.

“However, insurance premiums track directly with the underlying cost of medical care. The rising cost of doctor’s visits, hospital stays, and prescription medications all put upward pressure on premiums,” the group said.

Employers care about this issue as well, especially those that self-insure, said Steve Wojcik, vice president of public policy for the National Business Group on Health. Coverage can get expensive for businesses because they don’t get as good of a deal as government payers, he told Healthcare Dive.

Wojcik suggested more radical change away from fee-for-service payment arranges would be a better way of dealing with the issue. It’s an argument for many who push the healthcare sector’s slow march toward paying for quality and not quantity of treatment.

“I think, ultimately, it’s about driving transformation in healthcare delivery so that there’s more of a global payment for managing someone’s health or the health of a population rather than paying piecemeal for different services, which I think is inflationary,” he said.

Regardless, whether hospitals cost shift isn’t as important as whether they go out of business. “We may be missing the point if we focus on cost shifting,” Christopher Ody, a health economist at Northwestern University’s Kellogg School of Management, told Healthcare Dive.

Charging as much as they can?

A paper Darden helped author in the National Bureau of Economic Research found some hospitals that faced payment reductions from value-based Medicare programs did negotiate slightly higher average payments from private payers.

Health economist Austin Frakt noted the ability to negotiate better pricing could be related to quality improvement these hospitals likely undertook, knowing their quality measures would directly affect future payments.

It comes back to determining causality, Frakt, who holds positions with the Department of Veteran’s Affairs, Boston University and Harvard, told Healthcare Dive.

“It’s an important distinction, because the simplest economic model which is consistent with the evidence is that hospitals charge as much as they can to each type of payer,” he said. “So, they can’t really change what they receive from Medicare — those prices are fixed. But they charge private payers whatever the revenue- or profit-maximizing price is.”

Hospitals assert there is causality, but haven’t pointed to evidence that convinced Frakt of their argument. Frakt, for the record, understand why hospitals make the argument to policymakers, however.

“I’m not implying that this, throughout, is just to make a profit,” he said. “I think it’s possible to also have the best interests of patients in mind and to have this argument.”

Grundling said there has to be a breaking point somewhere so long as government rates fail to keep up with medical inflation. Also, hospitals have a federal legal responsibility to stabilize any patient regardless of ability to pay and have other philanthropic investments.

“It just puts a greater pressure on other payers in the system,” he said.

Frakt said the argument providers give for cost shifting doesn’t necessarily make sense for the average consumer. “It’s very strange that people find it intuitive that hospitals can readily cost shift because we don’t talk about any other industry like that,” he said. “Nobody says, well, my theater tickets was so much higher because you paid less.”

The idea that healthcare is vastly different from other industries is enduring, however, he said. “People don’t even want to think of healthcare as having prices,” he said. “How do you put a price on that?”

 

Aligning executive comp with long-term strategy

https://mailchi.mp/3675b0fcd5fd/the-weekly-gist-july-12-2019?e=d1e747d2d8

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I recently had a conversation with the CEO of a regional health system we’ve worked with for many years. It’s a system at the forefront of the shift to risk-based contracting—rather than the 3-5 percent of revenue at risk common across the industry, his system already has a third of its revenue fully at risk. (That’s not counting performance bonuses and other “value-based” reimbursement—it’s true, delegated risk for total cost of care.)

The system managed to get to this point without owning its own insurance plan, but now the CEO is considering whether that’s the right next step, which was the topic of our discussion. We talked through the pros and cons of launching a provider-sponsored plan, which has proven to be a difficult step for many other health systems.

When I asked the CEO how his team was able to move so much faster to risk than other systems, he told me an important component of their approach was the incentive structure put in place for executives and facility leaders. Rather than continuing to pay bonuses based on hospital or system profitability, the board agreed to encourage executives to take a longer-term, strategic view by paying straight salary.

Eliminating P&L-based bonuses allowed leaders to focus on making the right decisions to transform the business, without being overly concerned about the short-term impact on profitability. It’s an idea worth considering for other systems committed to leaving fee-for-service behind. The critical ingredient, of course, is ensuring the board is fully bought into the strategy and has a high degree of trust in system executives to make the best long-term decisions on behalf of the organization.

 

Accountable Care Organizations: The case for “embracing” down-side risk

https://www.linkedin.com/pulse/accountable-care-organizations-case-embracing-risk-thomas-campanella/

The picture above is not exactly on point, but who can resist a little boy “embracing” a bear.

Per the Centers for Medicare & Medicaid Services (CMS), Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve (and hopefully saves money in the process).

ACOs are a product of the Affordable Care Act of 2010 (ACA). The theory behind ACOs was based on the recognition that we have a fragmented healthcare system that contributes to poor quality and higher healthcare costs.

Hospital-based health systems aggressively jumped on the ACO bandwagon starting with the passage of the ACA and, in the process, established relationships with physicians, ancillary providers, long-term care organizations, etc. Many times these Health Systems acquired (especially physicians) rather than established collaborative agreements with these community providers.

As a result of these acquisitions and collaborations, the hospital-based ACO and, in turn, the parent health systems became an even greater force in their communities. They were also in a better position to negotiate with payers because of the increased leverage they had as a result of their enhanced local provider presence. 

This also had a negative impact on health systems, since it did increase their fixed costs and made them less flexible to respond to competitors of different forms, especially in the outpatient and home setting.

Have ACOs lived up to their promise?

There have been many articles and research studies on the value of ACOs to determine if they have lived up to their promise of increased quality and cost-efficiencies. The consensus of research seems to be that ACOs have had a positive impact on quality, especially with regard to continuity of care for individuals with chronic diseases.

The jury is still out on the cost savings side, especially for hospital-based ACOs. 

Recently CMS has required that hospital-based ACOs to take on both up-side and downside risk.

Historically, ACOs have had the ability to take on only upside risk (or rewards), but at a lower percentage of potential gain vs. what they would have received if they were also willing to take on downside risk.

As I have noted in prior blogs, I am believer in risk/value-based contracting with downside financial exposure for hospital systems. I support this approach, not in a vindictive way, but because I want hospitals to survive and prosper in this new world of healthcare.

I also believe that if we are to successfully evolve from a “sick-care” system to a true “health” system, hospitals need to enter into the appropriate payer contracts that reward them for keeping patients healthy, not just for providing additional services.

Breaking down the silos inside and outside the walls of the hospital

I have worked in the healthcare industry in a variety of sectors since the early 1980s and during that period of time, I constantly heard the refrain about the need to break down the silos of healthcare both inside and outside the walls of the hospital.

The fee-for-service payment methodologies that exist today “the more you do the more you make” creates no “real” incentives to break down these silos. ACOs that have downside risk exposure along with payment methodologies such at capitation and bundled payments have the real ability to break down these silos.

As long as the majority of payments from payers is based on the fee-for-service payment methodologies, hospitals will have no “real” incentives to break down the silos that prevent value-based care from being provided. It also does not provide any “real” incentives to keep people healthy.

Per the dictionary, “Accountability refers to an obligation or willingness to accept responsibility for one’s actions. … When roles are clear and people are held accountable, work is accomplished efficiently and effectively. Furthermore, constructive change and learning is possible when accountability is the norm.”

While this definition was not met for ACOs, it really does apply and was ultimately the goal of the original drafters of the ACO concept. ACOs must be held accountable, and only through downside risk along with appropriate rewards will that occur.

If we want to achieve our goals of a value-base healthcare system as well as an overall healthier society, we need to create the proper incentives in our payment methodologies. As I have stated repeatedly in past healthcare blogs, “a healthcare system is shaped by what you pay for and how you pay for it.” The “how you pay for it” gets to the heart of the “risk” linkage with regard to hospital-based ACOs.

All of this is not to say that physician-led ACOs should not have risk but, given their size, these independent practices are much more financially vulnerable. Payment models for physician-led ACOs need to recognize the current value they are bringing to the ACO world, and consider ways to gradually add a risk component.

Hospital-based ACOs are looking to exit (or walk away from) Medicare Shared Savings Programs if required to take on downside risk

Per a recent article (April 26, 2019), “Just over half of accountable care organizations (ACOs) said they would consider leaving (or walking away from) the Medicare Shared Savings Program (MSSP) if required to take on more downside risk, revealed a study published in Health Affairs.

Thirty-two percent of ACOs said they are extremely or very likely to leave, and 19 percent believe they are moderately likely to leave.

The results also showed that there were significant differences in responses from physician-based ACOs and hospital-based ACOs.

“Approximately two-thirds of physician-based ACO respondents reported that they were likely to remain in the program if required to accept downside risk, compared with only about one-third of hospital-based ACOs,” the team said.

“This reflects the fact that physician-based ACOs have performed better, and a higher proportion of these ACOs have earned shared savings, than hospital-based ACOs. Physician-based ACOs have generated substantial savings by reducing spending for both inpatient and outpatient hospital services, which has not been true for hospital-based ACOs.”

Hospital based ACOs and well as hospital systems in general are doing themselves “no favors” by not accepting risk. 

By entering into “risk-based” contracts, hospital systems will create the appropriate incentives to address their supply-chain costs. Hospitals would also find it easier to engage physicians in addressing the cost side of the equation if physicians also understood and embraced the risk-based payment methodologies.

Under risk arrangements, hospitals would also have even more motivation to develop strategic relations with their vendors (medical device, etc.), such as what the auto industry does with their suppliers.

These risk arrangements will also allow hospital systems to be better prepared for the new world of healthcare. In this new world there will be winners and losers and different types of competitors, especially in the outpatient and home setting.

As we have also noted in prior blogs, hospital inpatient admissions are decreasing and patients have a higher acuity. Hospital inpatient care has been evolving to some form of a center of excellence. As hospitals look to find ways to expand their revenue opportunities they should be looking to bundle services for prospective patients and employers. These bundled services would and should have a risk-component tied to them.

Accepting risk-based contractual arrangements with payers is also better than competing in the retail marketplace where hospitals are much more vulnerable to lower priced regional and national competitors, especially as the result of the increased push for transparency.

Payers: Medicaid Managed Care, Medicare Advantage, Commercial Carriers, Self-insured employers should be pushing risk contracts. 

As noted in this article in Health Affairs, there are two ways employers should push ACO arrangements to evolve:

Financial Risk

“As experts jest, if ACO providers don’t take on the financial risk of caring for their population of patients (for example, only shared savings), it is like “vegan barbeque…or gin and tonic without the gin.” Payers’ ability to change provider behavior is likely to be negligible if they only reward providers with small bonuses for effective care a year after the fact. Greater financial accountability would encourage providers to promote preventive care and look for ways to cut waste.

In fact, without downside risk, health systems may take advantage of the ACO model. Experts argue that health systems may take on the practice of “ACO squatting” (that is, they form ACOs, take on patients, but avoid looking for ways to cut waste, reduce total cost of care, and improve quality) and that “a migration to two-sided risk for ACOs…after a certain number of years, so that there is a cost [downside financial risk]…would help to address this issue.”

Alignment of Patient Incentives

“Providers would be loath to assume financial risk for a patient population without the ability to manage their care. Commercial payers can modify patients’ out-of-pocket spending to encourage them to seek care only within the ACO. For example, by treating the ACO as a narrow network, the payer could pair it with a benefit design that offers lower premiums and minimal out-of-pocket spending for care from an ACO provider but little to no coverage for care sought outside of the ACO.

If the vast majority of patient visits occur within the ACO, it might be more likely to stay within budget because those providers can coordinate care and reduce redundancies. In addition, the ACO leadership can communicate with ACO providers about the cost and quality implications of their care decisions.”

If Medicare Advantage and Medicaid Managed Care Plans are not pushing for risk arrangements with Hospital-based ACOs or health systems, and these Plans continue to rely on some form of fee-for-service, then the true payers, Medicare and the individual states, should be reevaluating their own payment formulas with these entities. The payment formulas maybe too rich and do not provide enough incentives for these Plans to enter into risk arrangements with the above providers.

CONCLUDING THOUGHTS:

If you have been a reader of my blogs, you know I like sprinkling in health economic concepts into them. It is natural for individuals and other entities to make decisions based on their own self-interest.By not embracing risk in a manageable, but continuous fashion, hospital-based ACOs as well as hospital systems are sacrificing their long-term self-interest for immediate gain.

Active purchasers of healthcare services will continue to demand value in the marketplace, and for hospital-based ACOs and hospital system to meet this demand they need to break down the silos which can only be done effectively by embracing risk-based contracting tied to appropriate rewards.

Finally, we, as a society, are recognizing the need to focus our attention on population health, not only because it is the right thing to do, but because it also represents the best uses of our resources. We will not be able to achieve our goal of population health unless hospitals fully embrace it. One true way to expedite the transition to population health is for hospitals and ACOs payment methodologies to incorporate in their reimbursement contracts the appropriate risk/rewards that incent them to keep people healthy both inside and outside the walls of the hospital.