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Healthcare Executives Brighten on Reform

 |  By Philip Betbeze  
   March 23, 2012

Two years ago, the last time I attended the American College of Healthcare Executives' annual Congress on Healthcare Leadership (I had a son being born during last year's event), hospitals were getting their first gander at healthcare reform.

In fact, days prior to the event, the Patient Protection and Affordable Care Act had finally passed amidst much rancor. In the political realm, that fight has hardly diminished, with Republican primary candidates uniformly are promising to repeal it (something they certainly can't deliver on their own) if they are elected President. But where reform really matters, where it's operational, leaders at hospitals and health systems are getting on with the work to transform healthcare's business model.

Back in 2010, attendees at the world's largest annual event featuring healthcare leaders (that's how ACHE bills it, at least) seemed almost uniformly dispirited. Wringing every last dollar out of a fee-for-service business model wasn't why most of them had chosen a career in healthcare, but it's all they knew. And as a reimbursement system, fee-for-service was pretty clearly on the way out, if slowly.

Unsurprisingly, initial impressions of the PPACA bill were negative in 2010. The prevailing opinion was that the legislation was terrible for hospitals and addressed only one of the many problems plaguing healthcare—coverage for the uninsured. Many executives said the bill did very little to address a rapidly steepening cost curve in an industry that was already guzzling down nearly 20% of the nation's annual gross domestic product.

Neither did it meaningfully address patient noncompliance, I was told by dozens of healthcare executives, both in educational sessions and outside in the hallways. But most importantly to them, the law represented an irresistible tide of change coming their way, as they sought ways to compete for a shrinking reimbursement pie. Thus the long faces. One theory had it that the bill would hasten and even worsen the healthcare crisis, leaving a true opening for single-payer healthcare—something favored by many Democrats—to pass later on as the crisis spun out of control.

The jury's still out on that prediction, but I must say that the mood at ACHE has improved significantly, and I'm pretty sure it has nothing to do with the beautiful, summerlike weather we had this week in Chicago.

Two years into healthcare reform, the roof hasn't caved in. In fact, many healthcare organizations are doing just fine, thank you, in making the transition to a new business model of healthcare based on value instead of volume. I sense a genuine optimism among the group (though it's hard to get a true handle on how a thousand or more people are feeling without a scientific poll). I have talked to several executives in the hallways, however, and what's different is that healthcare administrators truly seem to believe that they are getting the tools to turn around a wasteful, harmful healthcare system.

Not that credit necessarily is given to the legislation, mind you. Employers, health plans, and other payers were already hard at work on the problem in a piecemeal fashion, but when your biggest payer (CMS) still pays by the procedure, it's hard to get traction. Now that the government will no longer be writing the equivalent of blank checks, a burning platform has been created, as business types like to say.

Much of the buoyancy I have seen at the Congress on Healthcare Leadership this week stems not from government mandates or pressures from payers, but from the work that health systems have done to surmount those hurdles. The focus on value instead of volume has created a real need for healthcare providers to work together for the benefit of the patient. Lots of good work went on in healthcare in the past, but let's be honest, the long-term health of the patient was too often secondary.

Still, there's no doubt that the transition to value is rough, even for top performers. Mark Eustis, president and CEO of Fairview Health in Minneapolis—one of the top 10 health systems in the U.S., according to Thomson Reuters—says this period is highly stressful even at his organization. Fairview  made only a 1% margin last year, as it had to work hard to get critical mass with value-based commercial contracts.

That's a huge oversimplification of the transformational work that Eustis's system has done, but there is one big reason for the smaller profits: Fairview cut utilization, which meant an immediate revenue hit as the organization transitioned from fee-for-service.

Fortunately, Eustis sees that 1% margin as a temporary blip. Fairview predicts a 3% margin in 2012 and 5% in 2013, as it moves almost entirely to value-based reimbursement. In describing the transformation, it's difficult to avoid terms like "capitation" and "managed care," which are still dirty words to a lot of healthcare people. Although that language is close to describing what's going on, what has changed is who's managing the care.

The difference this time, executives say, is that the healthcare provider is incented to keep its patients healthy because the provider keeps some of the savings, rather than the health plan. Better yet, the parties share the savings. The tools to manage care are also much better now, and the team-based approach to improving health is a welcome change.

So there is light at the end of the tunnel if you manage the volume-to-value transition well. The important thing, so many healthcare leaders seem to be saying, is to get started.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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