The false promise of “no regrets” investments

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At the end of my meeting last week with a health system executive team, the system’s COO asked me a question: “Your concept of Member Health describes exactly how we want to relate to our patients, but we’re not sure about the timing. Could you give us a list of the ‘no regrets’ investments you’d recommend for health systems looking to do this?

We frequently get asked about “no regrets” strategies: decisions or investments that will be accretive in both the current fee-for-service system as well as a future payment and operational model oriented around consumer value. The idea is understandably appealing for systems concerned about changing their delivery model too quickly in advance of payment change. And there is a long list of strategies that would make a system stronger in both fee-for-service and value: cost reduction, value-driven referral management, and online scheduling, just to name a few.

But as I pointed out, the decision to pursue only the no-regrets moves is a clear signal that the organization’s strategy is still tied to the current payment model. If the system is really ready to change, strategy development should start with identifying the most important investments for delivering consumer value.

It’s fine to acknowledge that a health system is not yet ready, but I cautioned the team that they should not rely on the external market to provide signals for when they should make real change. External signals—from payers, competitors, or disruptors—will come too slow, or perhaps never.

At some point, the health system should be prepared to lead innovation, introduce a new model of value to the market and define and promote the incentives to support it. Real change will require disruption of parts of the current business and cannot be accomplished with “no-regrets investments” alone.

 

Health Care Valuations: The New, the Old and the Ugly

https://www.wipfli.com/insights/blogs/health-care-perspectives-blog/health-care-valuations-the-new-the-old-and-the-ugly?

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The shift in health care from volume-based, fee-for-service to value-based reimbursement (VBR) continues to push forward. In its wake, unintended consequences and new challenges have emerged — not only in aspects of delivery but also when determining fair market value (FMV) and remaining compliant with the federal Anti-Kickback Statute and the Stark Law. Below we touch on those consequences and how they’ve emerged from both new and old regulations.

The New: MACRA

Now in play, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) promises to fundamentally change the way the country evaluates and pays for health care. Its new payment schedules, however, have created ramifications that not only tangle the hospital-physician relationship but also create implications for VBR transactions and valuations.

As part of the transition to value-based medicine, four new MACRA elements in particular represent significant changes:

1. Pay for Performance (P4P) Arrangements: The remuneration system makes part of payment dependent on performance, measured against a defined set of criteria, and creates measurements and performance standards for establishing target criteria.

2. Shared Savings Arrangements: The new approach incentivizes providers to reduce health care spending for a defined patient population by offering a percentage of net savings realized as a result of their efforts.

3. Episodic Payments: An episode payment system offers a single price for all the services needed by a patient for an entire episode of care; for example, all the inpatient and outpatient care needed following a heart attack. The intent is to reduce the incentive to overuse unnecessary services within the episode. It also gives health care providers the flexibility to decide what services should be delivered rather than constraining them by fee codes and amounts.

4. Global Budget: With a fixed prepayment made to a group of providers or to a health care system (as opposed to a health care plan), this arrangement covers most or all of a patient’s care during a specified time period.

Clearly the value equation is shifting. Value is defined no longer solely by how much revenue a physician generates but rather by solving problems for patients and patient experience. Value can also be derived not by revenue per patient, but by how many patient lives a physician directs, and with that comes control over how some payments are allocated for patient related services.

As the value dynamics change, hospitals have sought to establish closer relationships with physicians. Acquisitions of physician practices by hospitals have continued at dramatic rates alongside the move toward direct physician employment and provider service agreements. New players in the market and marketplace forces have also emerged as competition to hospitals. Private equity groups and insurance companies are pursuing the acquisition of physicians and clinics for control of patient lives, and therefore revenue.

While the trend toward hospital-physician alignment is intended to improve health care delivery, it has come under scrutiny for potential fraud and abuse violations due in part to established laws that now appear at odds with the new VBR movement.

The Old: Anti-Kickback Statute and Stark Law

Health care organizations, providers and their counsels are well aware of the laws in place they must abide by, namely the Anti-Kickback Statute (AKS) and the Stark Law, which have been in force for more than three decades.

Such regulatory considerations related to fraud and abuse have long had significant impact on the value attributable to each property interest and on the valuation process itself. There are in fact several distinct meanings of fraud within the context of the health care regulatory framework, and they affect a property’s profitability and sustainability, creating significant risk and uncertainty for business entities.

What constitutes fraud, however, is now under the microscope and creating potential liability under the False Claims Act. The new direction of collaborative relationships on behalf of the patient and patient outcomes can make some arrangements suspect. How do physicians refer patients in the new MACRA environment without it being considered a conflict of interest or fraudulent? How will payments made to physicians not exceed the range of FMV and be deemed commercially reasonable? How can alignment strategies be constructed to provide a full continuum of care under VBR reforms?

While there have been no changes to the longstanding regulations, discord between the old laws and the new VBR direction is necessitating a different approach to compliance. The American Hospital, in a letter to the U.S. Senate Finance Committee in a hearing on the Stark law, said, “As interpreted today, the two ‘hallmarks’ of acceptability under the Stark law — fair market value and commercial reasonableness — are not suited to the collaborative models that reward value and outcomes.”

The Ugly: The Push and Pull of the New and the Old

The friction between the enforcement of fraud and abuse laws by the Department of Justice and the Office of the Inspector General, and the VBR models being implemented by Health and Human Services is warranting a review of MACRA and the threshold and definition of commercial reasonableness. With no one clear definition of commercial reasonableness, its analysis is ripe for distortion.

Many regulators’ arguments are centered around Practice Loss Postulate (PLP) — that the acquisition of a physician practice that then operates at a “book financial loss” is dispositive evidence of the hospital’s payment of consideration based on the volume and/or value of referrals.

The problem? In maintaining the economic delineation between physicians and hospitals, the PLP focuses exclusively on immediate and direct financial (cash) returns on, and returns of, investments by health care organizations related to vertical integration transactions. The PLP ignores other economic benefits associated with vertical integration, such as social benefits, qualitative gains, efficiency gains and avoiding costs.

As a consequence, such a vertical integration move could be viewed by regulators as evidence of legally impermissible referrals under the Stark law. However, it would prevent vertically integrated health systems from withstanding fraud and abuse scrutiny. And it would create barriers to satisfying the threshold of commercial reasonableness.

More “New” Is in the Future Forecast

Active industry input and congressional committee discussion is underway in hopes of generating workable strategies to reduce the law’s burden. And although the actual outcomes are uncertain, changes are clearly ahead.

How Medicare Advantage steers the Silver Tsunami into coordinated, value-based care

https://www.healthcarefinancenews.com/news/how-medicareadvantage-steers-silver-tsunami-coordinated-value-based-care

CMS and other health insurers are using the program to deliver innovative and unique value to customers, both in terms of cost and quality.

Today’s Medicare Advantage plans are flourishing and the Silver Tsunami is among the reasons.

“Over the last four years, Medicare Advantage enrollment increased by more than 30 percent, while the number of people eligible for Medicare grew by about 18 percent,” said Steve Warner, vice president of Medicare Advantage Product for UnitedHealthcare Medicare and Retirement.

Other reasons for the growth: Innovative models from big insurers and upstarts alike that improve care for health plan members and drive revenue for payers as they look beyond fee-for-service.

IT STARTS WITH THE CONSUMER

Consumers are finding unique value in MA, both in terms of the quality of care and in the financial value.

Medicare Advantage, in fact, makes it easier for consumers to navigate the healthcare system and choose providers, in a way that traditional Medicare does not, said those interviewed.

“Actually it’s pretty hard to navigate the healthcare system on your own,” said Tip Kim, chief market development officer at Stanford Health Care. “Most Medicare Advantage plans have some sort of care navigation.”

Warner of UnitedHealth’s Warner added that Medicare Advantage also offers value and simplicity.

“It provides the convenience of combining all your coverage into one plan so you have just one card to carry in your wallet and one company to work with,” Warner said. “Most plans also offer prescription drug coverage and additional benefits and services not available through original Medicare, including dental, vision and fitness.”

REBRANDING FOR THE NEW ERA

MA plans did not emerge out of thin air. By another name, Medicare Advantage is managed care, a term that was the bane of healthcare during the height of HMOs in the 1980s.

“Medicare Advantage has rebranded ‘managed care’ to ‘care coordination,'” said consultant Paul Keckley of The Keckley Report. “Humana and a lot of these folks have done a pretty good job. Coordinating care is a core competence. Managed care seems to be working in this population.”

MA came along at the right time for CMS’s push to value-based care.

“I would suggest on the providers’ side, embracing Medicare Advantage is an opportunity to get off the fee-for-service mill,” said Jeff Carroll, senior vice president of Health Plans for Lumeris, which recently paired with Stanford Health Care on the Medicare Advantage plan, Stanford Health Care Advantage.

“Provider-sponsored Medicare Advantage plans are a way to put teeth into an accountable care organization,” Keckley added. “Medicare Advantage success is a silver tsunami among major tsunamis. Obviously it’s a profitable plan for seniors and profitable for underwriters. The winners in the process will get this to scale.”

MA is an innovative model that is not a government-run system, but a privately-run system essentially funded by the government.

PAYERS IN THE MA GAME

UnitedHealthcare has the largest MA market share of any one insurer.  Twenty-five percent of Medicare Advantage enrollees are in a UnitedHealthcare MA plan, followed by 17 percent in Humana, 13 percent in a Blue Cross Blue Shield and 8 percent in Aetna, according to the Kaiser Family Foundation.

Numerous insurers, in fact, have gotten into the MA market, including Clover Health in San Francisco, a five-year-old startup which has Medicare Advantage as its only business.

Clover is a tech-oriented company that boasts machine learning models that can accurately predict and identify members at risk of hospitalization.

Because Clover focuses only on MA, it can do a better job at problem solving the needs of an older population, said Andrew Toy, president and CTO of Clover Health.

“The problems we face in Medicare Advantage are very different from a younger generation,” Toy said.

Forty percent of the older population is diabetic. Most seniors will be dealing with a chronic disease as they get older.

In other insurance, whether its individual or commercial, the lower cost of the healthier population offsets the cost of the sicker population. MA has no way to offset these costs. Plans can’t cherry-pick consumers or raise premiums for a percentage of the population.

What MA plans can do is design plans that fit the varying needs of the population. A plan can be designed for diabetics. For younger seniors or those not dealing with a chronic disease, a plan can be designed that includes a gym membership.

“All these plans are regulated,” Toy said. “We have the flexibility to move dollars around. We can offer a higher deductible plan, or a nutrition plan. The incentives for us in Medicare Advantage are different than the incentives in Medicare. CMS has explored giving us more leeway for benefits. Consumers have a choice while still having the guarantees of Medicare.”

Toy believes regular Medicare is more expensive because MA offers a more affordable plan based on what an individual needs.

“When you need it, we get more involved in that care,” Toy said, such as “weight control issues for diabetics.”

The drawbacks are narrower networks, though Toy said Clover offers an out-of-network cost sharing that is pretty much in line with being in-network.

UnitedHealthcare’s Medicare Advantage LPPO plans offer out-of-network access to any provider who accepts Medicare, Warner said.

UnitedHealthcare also offers a wide variety of low and even zero-dollar premium Medicare Advantage plans and annual out-of-pocket maximums, Warner said. By contrast, original Medicare generally covers about 80 percent of beneficiaries’ healthcare costs, leaving them to cover the remaining 20 percent out-of-pocket with no annual limit.

“From a consumer value proposition, it makes Medicare Advantage a better deal,” Kim said. “One is Part B, 20 percent of an unknown number. Knowing what the cost will be in a predictable manner is a preferable manner.”

Stanford Health Care launched a Medicare Advantage plan in 2013. Lumeris owned and operated its own plan, Essence Healthcare, for more than eight years. Stanford and Lumeris partnered on Stanford Health Care Advantage in northern California, using Lumeris technology to help manage value-based reimbursementand new approaches to care delivery through artificial intelligence-enabled diagnostic tools and other methods.

“We are not a traditional insurance company,” Kim said. “We’re thinking about benefits from a provider perspective. It’s a different outlook than an insurance company. By definition we’re local.”

MA MARKET STILL HAS ROOM TO GROW

While the Medicare Advantage market is competitive, it is also under-penetrated, Brian Thompson, CEO for UnitedHealthcare Medicare & Retirement, said during a 2018 earnings report.

Currently, about 33 percent of all Medicare beneficiaries are in an MA plan, he added, but UnitedHealth sees a path to over 50 percent market concentration in the next 5-10 years.

It’s a path not so subtly promoted by the Centers for Medicare and Medicaid Services.

As a way to encourage insurers to take risk and get in the market, around 2009, CMS gave MA insurers 114 percent of what it paid for fee-for-service Medicare. The agency began decreasing those payments so that by 2017, traditional Medicare and MA became about even.

MA insurers instead thrive on their ability to tailor benefits toward wellness, coordinate care and contain costs within the confines of capitated payments, the essence of value-based care.

They have received CMS support in recent rate notices that gives them the ability to offer supplemental benefits, such as being able to target care that addresses the social determinants of health. Starting in 2020, telehealth is being added to new flexibility for these plans.

WHAT THE FUTURE MAY HOLD FOR MA

Medicare Advantage plans have expanded and, in so doing, opened innovative new options for plans and their customers alike at the same time that the ranks of people eligible for Medicare continues to swell.

So where is it all going?

Medicare Advantage is changing the way healthcare is paid and delivered to the point that Keckley and Toy agreed the future may not lie in Medicare for All, but in Medicare Advantage for all.

“I think a reasonable place to end, is in some combination where the government is involved in price control, combined with the flexibility of Medicare Advantage,” Toy said. “That’s really powerful.”

 

 

Segment 5 – Why Is U.S. Healthcare So Expensive?

Segment 5 – Why Is U.S. Healthcare So Expensive?

Slide06

 

This segment reviews the “Perfect Storm” of reasons for unrestrained increase of healthcare spending in the U.S.

In Episode 4, we zeroed in on what I call the Real Problem with healthcare — relentlessly rising costs.

In this Episode, we will look at why the US spends so much on healthcare. As you can imagine, there are many reasons, not just one. In fact, it’s a perfect storm of bad reasons. We will also look whether we are getting our money’s worth.

Here’s the list. Part 1 & Part 2.

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We will go through each one.

Natural Spending Drivers

Let’s start with some natural drivers of health spending, which are understandable and expected. First, as the population grows, so will health spending. Likewise, as the proportion of older people increases, so will spending. We also expect health spending to increase slowly with inflation. New technologies and medicines increase cost, but we hope will give dramatic benefits. For example, during my 40-year practice lifetime I have seen the introduction of new drugs for diabetes, blood pressure, and virus infections including HIV and flu. I have seen new ultrasound, CT and MRI diagnostics. I have seen cardiac caths, by-passes and joint replacements. These new things are expensive but well worth the cost.

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But health spending grows from 1-1/2 to 4 times the rate of inflation, much more than would be explained by natural drivers, as we saw previously.

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Fee for Service Payments

So, let’s look at the other reasons. First and foremost, to my way of thinking, is fee-for-service. Doctors in the US – unlike other countries where they are salaried – get paid for piecework. If a surgeon doesn’t operate, he doesn’t get paid. If a specialist doesn’t have a patient scheduled, HE doesn’t get paid. Money is a powerful incentive. So we should not be surprised if doctors increase their own volume of services, many times unconsciously.

Health Insurance Hides Cost

The next big reason is our health insurance. Until recently premiums were paid by the employer and out-of-pocket copays were minimal. Healthcare felt free to most of us. Most of us had no idea what our care was costing the system, and cared little. Talk about a perfect storm!

Imperfect Market 

Why didn’t market forces keep down costs and spending. Many politicians and reformers think competition as the simple solution to the healthcare cost problem. But economists will tell you that healthcare is not a pure market;  they refer to it as “imperfect.” The reasons are first that no one knows the true price of anything. Have you ever tried to sort out a hospital bill? Ridiculous!

Second, markets rely on buyer and seller having equal footing to negotiate, but most patients dare not quibble with their doctor. Doctors get their feathers ruffled when patients challenge their advice. Third, to make matters worse, patients are a “captive market” – they are often suffering, frightened for their life, and desperate for immediate relief, not exactly a strong bargaining position. Fourth, doctors can control demand. There’s an old joke about the level of eyesight loss that needs a cataract operation – if there’s one doctor in town it’s 20/100, if two doctors it’s 20/80 and if three doctors in town it’s only 20/60.

Administrative Costs

Next is administrative costs. Some economists estimate that up to ¼ of all health spending is for administration, not actual care. This is not surprising knowing how complicated we make our delivery system and financing system. Other countries have one delivery system and one payment system. US has 600,000 separate doctors, 5,500 separate hospitals, and 35 different insurance companies, not counting Medicare and Medicaid. Doctors used to drown in papers; now we spend up to 2 hours doing computer work for every hour of patient care. Don’t you love it?

For comparison, Medicare reports only 2% administrative costs (but some other costs are hidden elsewhere in government).

Inefficiency & Waste

Some other spending drivers include inefficiency. I include in this category unnecessary tests and treatments, as well as wasted effort due to incompatible computerized record systems – there are 632 separate electronics vendors in the US. If airports ran this way, each airline at each airport would have its own unique air traffic control computer that did not connect with each other. All in the name of free market.

Regards unnecessary treatments and procedures, a doctor at Dartmouth named John Wennberg pioneered using Big Data in the 1980s to look at numbers of prostate operations in each individual ZIP code, and found that surgeons in some regions were operating 13 times for often in highest areas than the lowest. Since prostate disease is relatively constant everywhere, this can only mean that doctors practice varies widely – the highest utilizers are doing too many operations.

Monopolies

Next is monopolies. Many small- and medium-sized towns and rural areas can only support one hospital. This creates monopolies with no market forces whatsoever to hold down charges.

Cost Shifting

Cost-shifting means that uninsured patients come to the ER for care. Since the ER doesn’t get paid, the ER shifts the Uninsured cost into the bill for INSURED and Medicare patients. The cost-shifting itself doesn’t increase the costs, but getting care in an ER instead of doctor’s office is the most expensive possible place for care.

New-Technology Policy

The FDA new-technology policy means that FDA rules say that it will approve any new drug or treatment if it shows even the slightest statistical benefit, no matter how small. Some cancer drugs are approved that extend life by only a few weeks. Some medicines are approved, even if the number needed to treat is 100. For example, for some new cholesterol medications, 100 patients need to be treated for 5 years before we see even 1 heart attack prevented. That’s a lot of patients, and a lot of doses, and a lot of dollars. By comparison, since half of appendicitis patients die without treatment, and almost all with appendectomy surgery survive and live happily ever after, the calculated number-needed-to-treat is only 2. So appendectomies are a good valued, but cholesterol medication (for otherwise healthy people) is questionable value.

Non-Costworthy Marginal Benefit

Here is another way of looking at value. As we go from left to right in this graph, we are spending more and more on health care. The more we spend, the higher the cumulative health benefit, at least to start. The first section (Roman number I) are very high value interventions like public health, sanitation, immunizations. The next section (Roman number II) are good value routine health treatments, including kidney dialysis and first-line chemotherapy for treatable cancers. But when we reach the third section (Roman number III), the benefits level off. Bypass surgery is less effective for older patients (and more risky); dying patients don’t survive in intensive care units and are miserable with tubes and futile breathing machines. If we spend even more we reach section Roman numeral IV in which no additional benefit is gained, just a lot of extra testing, treatments or drugs – these are wasted dollars. And if we keep spending more yet, we actually do more harm than good, and can even have deaths on the operating table or reactions to too many drugs. The US is well into section IV and in some cases section V. A lot of other richer countries think that they have already reached the point where spending more will give no benefit or possibly do more harm than good, even though they spend less than the US.

Slide19

In the next episode we will look at the ramifications of so much health spending on the US economy, politics and society. We will look at some potential threats if we do not start to control costs better.

I’ll see your then.

 

How health care is like an airline

A rapidly consolidating industry. One that generally delivers on very difficult work, but with such a horrible customer-service reputation that people hate dealing with it. Known for wringing every last dollar out of its customers. You and the person next to you may be paying wildly different prices.

Health care, or an airline?

It’s a common comparison, and not without merit.

  • Harvard doctor and researcher Ashish Jha invoked the metaphor last year, in response to a non-profit hospital telling investors that it was trying to boost admissions: “Every extra passenger they can squeeze in is profit,” Jha said.
  • Here’s Brent Miller, a nephrologist at Indiana University, explaining to Modern Healthcare why most dialysis patients are treated in facilities instead of at home: “An empty chair is kind of like an empty seat on an airplane. If we were just looking at this not as people and not as health care but just as a business like an airline, our goal would be to fill all those slots.”
  • And, for the trifecta, here’s Elizabeth Rosenthal, writing in Kaiser Health News: “Just as airlines have been shown to exaggerate flight times so they can boast about on-time arrivals, hospitals set prices crazy high so they can tout their generous discount.”

The bottom line: In all seriousness, this analogy does get at an underlying problem with health care: As much as providers love to talk about new payment models, volume is still king — it’s simply too lucrative to give up.

Can Paying for a Health Problem as a Whole, Not Piece by Piece, Save Medicare Money?

https://theincidentaleconomist.com/wordpress/can-paying-for-a-health-problem-as-a-whole-not-piece-by-piece-save-medicare-money/

Among the standard complaints about the American health care system is that care is expensive and wasteful. These two problems are related, and to address them, Medicare has new ways to pay for care.

Until recently, Medicare paid for each health care service and reimbursed each health care organization separately. It didn’t matter if tests were duplicated or if a more efficient way of delivering care was available — as long as doctors and organizations were paid for what they did, they just kept providing care the way they always had.

But ordinary people do not think this way. We focus on solving our health problem, not which — or how many — discrete health care services might address it. New Medicare programs are devised to more closely align how care is paid for with what we want that care to achieve.

One of these programs is known as bundled payments. Instead of paying separately for every health care service associated with a medical event, you pay (or Medicare pays, in this case) one price for the entire episode. If health care providers can address the problem for less, they keep the difference, or some of it. If they spend more, they lose money. Bundled payment programs vary, but some also include penalties for poor quality or bonuses for good quality.

Medicare has several bundled payment programs for hip and knee replacements — the most common type of Medicare procedures — and associated care that takes place within 90 days. This includes the operation itself, as well as follow-up rehabilitation (also known as post-acute care). In theory, if doctors and hospitals get one payment encompassing all this, they will better coordinate their efforts to limit waste and keep costs down.

Do bundled payments work? They certainly appear promising, at least for some treatments. But it’s important to conduct rigorous evaluations.

Previous studies for Medicare by the Lewin Group and other researchers suggest that Medicare’s Bundled Payments for Care Improvement program has reduced the amount Medicare pays for each hip and knee replacement.

But that doesn’t mean the program saved money over all.

One possible issue would be if, despite saving money per procedure, health care providers wastefully increased the number of procedures — replacing hips and knees that they might not otherwise. A related concern is if hospitals try to increase profits by nudging services toward patients who may not need a procedure as much as patients with more severe and more expensive conditions. An average joint replacement costs $26,000, split almost equally between the initial procedure and post-acute care. But more expensive cases can be $75,000 to $125,000 — a costly proposition for hospitals.

A recent study published in JAMA examined whether the volume of Medicare-financed hip and knee replacements changed in the markets served by hospitals that volunteered for a bundled payments program, relative to markets with no hospitals joining the program. It found no evidence that the bundled payment program increased hip and knee replacement volume, and it found almost no evidence that hospitals skewed their services toward patients whose procedures cost less.

“These results suggest bundled payments are a win-win,” said Ezekiel Emanuel, a co-author of the study. “They save payers like Medicare money and encourage hospitals and physicians to be more efficient in the delivery of care.”

But Robert Berenson, a fellow at the Urban Institute, urges some caution. “Studying one kind of procedure doesn’t tell you much about the rest of health care,” he said. “A lot of health care is not like knee and hip replacements.”

Michael Chernew, a Harvard health economist, agreed. “Bundles can certainly be a helpful tool in fostering greater efficiency in our health care system,” he said. “But the findings for hip and knee replacements may not generalize to other types of care.”

Christine Yee, a health economist with the Partnered Evidence-Based Policy Resource Center at the Boston Veterans Affairs Healthcare System, has studied Medicare’s previous efforts and summarized studies about them. (I and several others were also involved in compiling that summary.) “Medicare has tried bundled payments in one form or another for more than three decades,” Ms. Yee said. “They tend to save money, and when post-acute care is included in the bundle, use of those kinds of services often goes down.”

One limitation shared by all of these studies is that they are voluntary: No hospital is required to participate. Nor are they randomized into the new payment system (treatment) or business as usual (control). Therefore we can’t be certain that apparent savings are real. Maybe hospitals that joined the bundled payment programs are more efficient (or can more easily become so) than the ones that didn’t.

Another new study in JAMA examines a mandatory, randomized trial of bundled payments. On April 1, 2016, Medicare randomly assigned 75 markets to be subject to bundled payments for knee and hip replacements and 121 markets to business as usual. This policy experiment, known as the Comprehensive Care for Joint Replacement program, will continue for five years. The JAMA study analyzed just the first year of data.

“In this first look at the data, we examined post-acute care because it is an area where there is concern about overuse,” said Amy Finkelstein, an M.I.T. health economist and an author of the study. “In addition, prior work suggested that it’s a type of care that hospitals can often avoid.”

The study found that bundled payments reduced the use of post-acute care by about 3 percent, which is less than what prior studies found. “Those prior studies weren’t randomized trials, so some of the savings they estimate may really be due to which hospitals chose to participate in bundled payment programs,” Ms. Finkelstein said. Despite reduced post-acute care use, the study did not find savings to Medicare once the costs of paying out bonuses were factored in. The study also found no evidence of harm to health care quality, no increase in the volume of hip and knee replacements, and no change in the types of patients treated.

“Savings could emerge in later years because it may take time for hospitals to fully change their behavior, “ Ms. Finkelstein said. In addition, the program’s financial incentives will increase over time; bonuses for saving money and penalties for failing to do so will rise.

On the other hand, Dr. Berenson said, health care providers could figure out how to work the system: “In three to five years, we may see volume go up in a way that offsets savings through reduced payments for a procedure. We’ll wait and see.”

Medicare put its best foot forward by using a randomized design. Not only were the markets selected in a randomized fashion, but providers in those markets were also required to participate. Though common in medical studiesrandomization is rare in health care policy, as is mandatory participation. Nearly 80 percent of medical studies are randomized trials, but less than 20 percent of studies testing health system change are. Organizations that would be subject to the experiments often strongly resist randomizing health system changes and forcing providers to participate.

Unfortunately, the randomization of the Comprehensive Care for Joint Replacement program will be partly compromised in coming years. The Centers for Medicare and Medicaid Services announced last year that hospitals in only half of markets under the program would have to stay in it. Participation is voluntary in the other half, and only one-quarter of hospitals opted in.

Going to a partly voluntary program will make it harder to learn about longer-term effects, Ms. Finkelstein said, and to get at the answers we’re seeking.

Envisioning new roles for the health system

It’s obvious that if we’re going to make healthcare a sustainable proposition for the nation, we have to address the elephant in the room—inefficient, high-cost hospital systems that are built and incentivized to maximize reimbursement, not outcomes. One of our core beliefs is that we’re not going to fix that problem without engaging health systems in the work. The notion that we’re going to “disrupt” hospitals and make them “obsolete” is the worst kind of wishful thinking, a David-and-Goliath fantasy that doesn’t us any closer to a real solution. What’s needed are re-envisioned health systems that transform the way they organize and deliver care in a way that drives real value for consumers. Over the next several weeks in this space, we’re going to share one of our core frameworks for working with health systems to advance that goal. We’ll lay it out piece by piece, and then discuss some of the major implications for health system leaders.
 
We start with a conceptual depiction of the status quo. We describe today’s health system as “Event Health” because most providers are in the business of single-serve interactions with patients, paid on a fee-for-service basis. And indeed, many of the healthcare needs that consumers have present as “events”—acute episodes of illness that can be addressed with a one-time service interaction. For instance, I may have a sinus infection and need treatment, and a single visit to urgent care solves the problem. But across the stages of their lives, consumers have other kinds of health needs as well: some are episodic, with multiple events taking place over a defined time period (think pregnancy and childbirth, joint replacement, heart surgery). And some are just conditions that need to be managed over an extended period (diabetes, depression, cancer). But our health system is a hammer looking for nails—addressing health needs of every type with an event-driven model. Next week, we’ll begin to discuss alternative organizing principles for the health system that moves beyond this “Event Health” approach.