"We fully expect that our revenue is going to go down." That's a statement healthcare CFOs are loath to make, but one that Kevin Vermeer, executive vice president and CFO at Iowa Health System isn't shy about saying when referring to his organization's population health management pursuits.
Population health management—achieving health outcomes for an entire group by addressing a broad range of factors that impact that group's health, such as environment, social structure, and resource distribution—will be important when the value-driven reimbursement model takes hold, but it's financially risky business for healthcare organizations operating under the current fee-for-service reimbursement environment.
Fact is, if patient populations are to be managed by hospitals or health systems, then these organizations must establish a medical home or accountable care organization, create risk-based contracts with providers and payers, and be financially stable enough today to withstand diminishing profits for several years until the reimbursement environment shifts to value-driven.
Iowa Health System, an integrated 26-hospital system headquartered in Des Moines, has taken the population health leap through the expansion of its existing ACO and is using a variety of methods to sustain its decision financially.
"Our [financial] approach is to say we are going to incorporate the ACO into our three-year planning process and set very realistic expectations around what we think will happen with revenue and volume," says Vermeer, noting that those expectations are based on the system's current expense run rate and current volume and the potential gap in revenue over the next two to three years.
"We're establishing specific initiatives to address what the [anticipated] shortfall is," he adds. "We're also now focusing on entering into [commercial payer] contracts that will reward us for these types of activities."
In Iowa Health's ACO, patients are identified by providers for participation in the program and then are put into a system-wide, centralized case management program, which includes a home health organization. Last week, Iowa Health System and Wellmark Blue Cross and Blue Shield of Iowa announced the first commercial ACO for that state, agreeing to create ACO organizations in four markets across the state. (Two Iowa Health affiliates already operate a Pioneer ACO, using the Centers for Medicare and Medicaid Services model.) The commercial ACOs are:
- St. Luke's Hospital in Cedar Rapids
- Iowa Health–Des Moines (including Iowa Methodist Medical Center, Iowa Lutheran Hospital, and Blank Children's Hospital) in Des Moines
- Methodist West Hospital in West Des Moines
- Trinity Regional Medical Center in Fort Dodge
- Allen Memorial Hospital in Waterloo
"In our system we can pilot things in eight different regions—to see what works and what doesn't work—and not put the entire system in financial jeopardy until such time as we're ready to deploy things across the system," Vermeer says.
Launching multiple value-based care ACOs when the reimbursement environment is still supporting fee-for-service is a financial risk, he acknowledges, but the system is counting on a few tactics to buoy it during the next few years.
"We fully expect that our revenue is going to go down, so we've got other programs in place," he says. "[Our strategy] is not only cost-cutting; we're also active with our growth strategy. We need to get bigger in order to spread our costs across the enterprise."
In 2011, in anticipation of more expansion into ACOs, Iowa Health aligned with Methodist Medical Center of (Peoria) Illinois. It was the first "senior affiliate," as Iowa Health refers to its major affiliations, added to the system since 1999.
"We know if we can align with other entities that are similar to our size that it has a significant impact around the overhead costs allocated to all our affiliates," Vermeer says. "We know most of the cost on the system-side is fixed, with minor variable costs, so there's not a lot of additional cost associated with additional affiliates. So we're actively looking to align with other organizations."
Other areas of focus include managing referrals within Iowa Health's owned and aligned organizations, medication therapy management, and palliative care.
"We are looking at the long-term, so when we talk about moving the organization toward value-based contracts that's just one part of our strategy," he notes.
The new push will be led by Michael Murphy, who last week was named president and CEO of Iowa Health's ACOs. Murphy is set to begin his job mid-May; he's currently executive vice president of health networks for Trinity Health System based in Novi, Mich."The key to that innovation is the physician," Murphy says in a statement. Murphy led the development of the ACO program across the 35-hospital Trinity Health System and spoke recently at a HealthLeaders Media webcast on physician-hospital alignment and compliance. "By putting the physician at the center of the patient care model, physician leaders can foster a collaborative environment," he notes.
While structuring a collaborative care model to improve the health of the chronically ill has many clinical challenges, establishing a solid financial foundation to support the population health model is equally complex.
"The biggest challenge everyone has now, and it continues to be one of ours, is how do we live in these two worlds until we move enough of the business to a place where we can get rewarded for creating value?," Vermeer says. "There are certainly a lot of pieces that have to be in place to help mitigate the fact that we expect revenues are going to decline once we're doing [care] the way it needs to be done [under value-driven healthcare]."
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
