Value-Based Purchasing Model Waits for No One

For a variety of reasons, many healthcare organizations have delayed the necessary operational moves they need to make to be able to compete on value. There's still time, but not much.

I promised to come back this week with some solid recommendations for those of you who have delayed the transformation of your business model from a volume-based one to one based on value. It's the current holy grail of healthcare to make this transformation, yet many obstacles stand in the way, not the least of which, for many of you, is survival.

Let's be honest: It can cost a lot to transform. Changes in labor, internal and external incentives, possible loss of volume, bad IT engagements—all must be factored into a transformation of this magnitude. CEOs like to tell me it's like turning a battleship—slow. Wouldn't it be nice to just have to turn it once? I'd argue it's more like navigating a clipper ship around the Cape of Good Hope—lots of twists and turns, with strong winds and storms likely. Subtle and sometimes not-so-subtle course corrections will be required.

Many organizations are hoping to navigate this transition by forming or joining an ACO. But that's just a destination. Getting there is the bigger challenge. Some hospitals and health systems are way down this road. They've spent precious capital on hardware and software and labor to better coordinate care and, ideally, provide less costly interventions before more costly ones are required.

But many, perhaps most, have not.

"For some groups that have not done any of this, it's a huge marathon," says William DeMarco, a consultant from Rockford, IL, who helps organizations prepare for value-based reimbursement by helping them build ACOs or other value-based operational constructs.

"When we see estimates of what it costs to launch an ACO, they're often in the millions of dollars and have scared the daylights out of a lot of people, and that's before they realize that the ACO is probably not the only thing they'll be spending money on."

DeMarco says such estimates are often overstated. But even if they aren't, focusing on how much it will cost as a reason to delay investment in transformation is counterproductive. "Whether you form an ACO or not, you'll still have to spend money to get ready for reform," he says.

And ACOs get results, he says.

But whether or not you decide to form a full-fledged ACO, building the expertise and knowledge to operate within one is critical and should not be put off.

Make Primary Care a Focus
For instance, regardless of whether an ACO or even participating in Medicare's shared savings program is in your immediate or short-term plans, making primary care a focus, using case managers and paramedics to better coordinate and steer care to lower cost areas will be invaluable.

"It's not so much something you have to do, but you can do it and save some money," DeMarco says. "Contracts will get better and savings will come back to you."

He mentions a new program in Minneapolis that provides additional primary care training to paramedics. If they're sent to a chronically ill patient, that training has paid off handsomely. Usually, the ambulance has to go to the ER first, but with additional training in primary care, paramedic crews can assess a situation and exercise judgment on whether a particular patient actually needs to go to that high-cost treatment site.

"For this paramedic program, for every dollar spent, they're getting nine dollars back," says DeMarco.

He says this example shows much of the delay in refashioning how care is delivered is not necessarily predicated on participation in ACOs or Medicare shared savings, and is misplaced.

"It gets back to the failure of clinical integration for many hospitals because they did not see it as a financial plus for them," says DeMarco. "They only saw that it would reduce the number of stays and readmissions, and would thus reduce dollars in revenue stream, therefore it was not rewarding to do it proactively. But now, they are punishing you for some of these failings."

The fact is that managing chronic care is becoming more important as the population ages, and investments in better coordination as well as seeking the most efficient use of expensive health resources will pay off through rewards or penalty avoidance.

Lose the Old Thinking
Part of the struggle is getting healthcare executives to let go of some of their old internalized attitudes about what's "good" for the hospital and getting back to focusing on what's best for the patient. That sounds simple, but it's far from it given how hospitals and physicians have historically been reimbursed. Personally, I've heard tales similar to the following:

A patient comes in with bronchial symptoms, and stays overnight on suspicion of pneumonia, but the hospital or physician doesn't get an antibiotic prescription to the patient for three to four days after discharge. Some organizations have even waited for six or seven days with hopes they could put that patient in a ventilator unit. It would mean more money, after all.

Except often, even now, it isn't. The hospital would not be reimbursed for the additional days in the ventilator unit, but the thinking among those who make such decisions at a patient care level had not changed.

Even disregarding the many other problems within such a scenario, why would you fill a bed at a loss?

I don't know if the tale is true, but the fact that it's even believable—and it is—is ridiculous. Yet it fits the strange ethical minefield that's created by the volume-based payment scheme. A head in a bed is not good, even financially, if you fill it at a loss. Left unmentioned, of course, is the ethical issue with treating a patient in such a way as to derive maximum reimbursement from a flawed payment model.

"It really is an ethical issue," says DeMarco. "Maybe you need to rethink your inpatient capacity."

Making such bets on reforming patient care can be risky work, but the return on investment is becoming more definite. Sometimes there's an assumption that the big health systems are the only ones doing this work because they have all the resources and experience and the little guys don't, DeMarco says.

But there are companies that will manage a complex accountable care platform for a per-member, per-month charge, limiting the capital outlay necessary to begin transformation. As the transformation builds momentum, further capital investments can be contemplated and ROI can be better assured.

"The era of fee-for-service medicine is being replaced. What does that mean? Shared risk. We're past the tipping point on that," DeMarco says.

"More than 40% of Medicare eligibles are either going through an ACO or a Medicare Advantage program. That permanently changes Medicare in terms of reimbursement and conditions of participation. There will always will be some fee-for-service. But for the vast majority and as the differentiator, you need to get ahead of this ball called risk."