Executive VP, Strategic Services
St. Joseph Health System
Advocate Physician Partners
Chief Strategy Officer
Scott & White Healthcare
Senior Leadership Editor
HEALTHLEADERS: Many are predicting that funding for the Patient Protection and Affordable Care Act will be short or that parts of the law will be repealed. How does that affect how you prepare?
PETER BRUMLEVE: Regardless of whether it gets repealed or funded, private market forces will still act in trying to fix the fundamental issues in healthcare. So we look at the act as a stalking horse for what we eventually have to do as a system. We're a large group practice that has hospitals and clinics, and we have roughly a thousand salaried physicians. Our single biggest granular concern is about the cuts in Medicare payments to physicians surrounding the sustainable growth rate formula.
HEALTHLEADERS: What about issues with the congressional debt commission? Are you preparing as though it will fail to find enough savings, thereby instituting automatic cuts across the federal budget?
ANNETTE WALKER: We've had some discussions about whether or not automatic cuts would be less painful than if they actually implement specific cuts. As Peter alluded to, we are very concerned about automatic cuts in physician reimbursement. But the primary discussion we're having around reimbursement is how we prepare to survive on current Medicare rates. The reductions are significant enough that it's a most pressing issue. When we saw the world was changing well over a year ago, we started working on solutions to these types of challenges.
MARTY MANNING: Our best-case scenario as an industry might be if the [congressional] debt commission failed because we would then presumably only be subject to the same kinds of across-the-board cuts that everybody else would be. The real problem is on the utilization side. So we're very much looking at the ACO models as the way to get back some of the savings that would be otherwise taken out by drops in utilization.
BRUMLEVE: While we break even or even make a little bit of margin on Medicare today, any cuts are a game-changer because we're right on the line now. Also, in Texas, we just took an immediate 8% cut on Medicaid, so we're going to be running out of room. And of course the private payers are unwilling to continue to subsidize. Then you add some estimates that 30% of employers are going to be dropping healthcare and giving vouchers to their employees to go into the exchanges and they're getting out of the healthcare business. We get all that.
WALKER: Those big game-changers are going to be seismic alterations to the landscape. We've been through Medicare cuts before, but not accompanied by such significant decreases in the commercial market.
HEALTHLEADERS: What contingency planning can you make for those issues?
BRUMLEVE: We're not worried about quality or transparency because that's what we should do anyway on the patient's behalf. But in terms of the reimbursement rates coming down, we think we can continue to blunt that through our essentiality in our local market. There really is no way that a commercial payer who wants to continue to be in the business can market health insurance to employers or individuals without us in the network. But it doesn't mean the pressures aren't constant and real in terms of, well, Medicare did it, so we're going to do it. So in fact, we're trying to entice some of the commercials to enact some of the metrics in terms of quality and volume and bundled payments and payment for episodes of care.
HEALTHLEADERS: What's your sense about employers and whether they will be dropping coverage in order to force people into the exchanges?
MANNING: It's a little murky yet what the reaction will actually be. The groups that go to the exchanges first are the small employers and individuals, and that's even harder to get a pulse on because there's so many of them. But in our discussions with payers, getting ready for the exchanges is a big motivator for them. One of the things we're trying to do is shift the terms of the debate and how they even look at the problem, from one focusing exclusively on unit costs to a focus on total cost per member per year. The way payers and employers purchase the product today is still based on a discount-from-charges mentality wherein a deeper discount is better, but there's not a lot of sophistication yet in looking at the total care that they are buying. So we're trying to move our payers in that direction.
WALKER: In California, we've seen rapid movement to narrower networks, which is the precursor to exchanges. Payers are moving to narrow networks to get a more reasonably priced product. Very quickly, large numbers of patients are moving into exclusive, narrow networks and, although our organization has been successful in getting into some, you can't be in all of them. We're also rapidly engineering ourselves to be able to participate in the exchanges. It's a struggle. If price is the determinant of how patients access you, it doesn't matter how exceptional your care is. And if you fail to make yourself accessible to your community because you're too expensive, how are we really meeting our mission?
HEALTHLEADERS: Sounds like we're talking about accountability. So let's talk about ACOs. What are some of the forces that are acting upon you in that regard?
MANNING: We've already entered into a shared savings or ACO-like arrangement with our largest payer. ACO is a politically loaded term, so we try to finesse that a little. We now have 215,000 attributed PPO lives through that contract, plus about 150,000 at full risk—commercially insured HMO patients—so we're getting to the critical mass necessary to transform the way we organize the delivery of care and get paid for it. It's about a fourth of our total business, maybe a little more. But to this point about living in the two worlds, we're going to be doing something like this with our own employees starting January 1. Foundationally, we will have one approach to the care delivery model. So it doesn't really matter which specific contracts plug into that model—there may be slightly different rules about attribution or the percent of shared savings, but it's the core infrastructure that we're focused on developing now.
WALKER: We're more interested in the commercial ACO market, and there's a lot of activity putting deals together with different insurers. Our concern is how the insurers are going to translate the savings into premium rate reductions. The market will adjust in the long run, but in the short run we'll experience the reductions with little benefit on the employer or patient side.
BRUMLEVE: We think we have an additional advantage in that we have our own health plan component to help administer all of this stuff. You really have to consolidate providers in order to do it, and it becomes a particularly unique problem in rural areas, which we cover a lot. Receiving preapprovals from the [Federal Trade Commission] and [Department of Justice] is obviously a concern for us. So it would be glib or cavalier to say that we've got this figured out. It would be a gross overstatement even for an organization that's highly integrated like ours.
WALKER: We know we need a structure different from what we have now. It will be a transformative—not incremental—change, with the objective of creating something much more efficient, with less waste in the system. It should be something that focuses on outcomes and gives healthcare providers a real opportunity to realize their mission of caring for the community. Ultimately, when we will maximize the value of what we provide to patients, we will have led a critically important transformation.
HEALTHLEADERS: What are the missing pieces to your respective ACO strategies?
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