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HCPro recently published The New Era of Healthcare: Practical Strategies for Providers and Payer, written by Emad Rizk, MD, president of McKesson Health Solutions. In the book, Rizk writes about how collaboration between providers and managed care payers has the potential to reduce costs, improve processes, and enhance patient care. This is Chapter 2 of the book.

The fundamental need in today's healthcare system is for the two largest constituents—payers and providers—to work together in alignment. We need a change in thinking and actions to shift the dynamic of how payers and providers work and interact with each other.

From the payer's point of view, most costs—85%—are devoted to patient care and the administration that goes with it. My vision is to break the endless cycle of push-and-pull around those costs and to finally align payers and providers toward their common goals. This proposal is not altruistic, but practical. After decades of shifting the economic burden and risk, it makes sense for payers to align themselves with those who control 85% of costs. For providers, it makes sense to accept responsibility for the health and well-being of the patients they care for and share the risks and rewards of good outcomes. And for everyone involved, reducing bureaucracy and inefficiency makes sense.

It is easy to get overwhelmed by the magnitude of the problems we face in healthcare. But it is possible to break down the problems into smaller pieces, on which we can take action. I believe there are three key areas in which payers and providers must align:

• Clinical. Identify the best treatments from evidence-based medicine (EBM) and mutually determine appropriate care.
• Economic. Agree on costs in advance, in detail and with full transparency.
• Administrative. Create and use tools to diminish the administrative burden for all parties and increase efficiency.

Granted, these are three large areas, but a lot can be done with each through a commitment to collaboration and business alignment. By alignment, I mean that payers and providers should agree on clearly defined goals in patient care, how costs will be paid, and what tools will be available to help reach those goals. This means bringing together resources, rather than using them to work around or against each other.

How alignment will work

Health plans and providers need each other. Payers have vast amounts of historical claims data, while providers have the clinical data. These are two very different kinds of information, both referring to the same patients. Combining the two could be powerful. Neither payers nor providers are there yet. Yes, both parties talk about collaborating and sharing information with each other, but neither is truly doing it. In fact, both groups use much of this information to check up on the other. So we are missing the opportunity to drive up efficiency and deliver better care to patients because of a lack of alignment and collaboration. It is time to move forward on this vast opportunity to bring this information together and use it to better our industry.

A key ingredient that is desperately missing to connect the care process between payers and providers is trust. Payers and providers just don't trust each other. A first step toward trust is for payers and providers to agree, up-front, what information they will share. And they must agree to share that data in a transparent way in order to engender trust. Transparency is a popular buzzword right now, applied to many industries and relationships. But it truly describes what is necessary to align payers and providers in a fruitful manner. For our purposes, transparency means that each constituency shares data that could be useful to the other. This means that payers make fully available and understandable to providers all the rules that govern what they are paid. This enables providers—both hospitals and physicians—to understand how their reimbursement is determined and what factors influence the payments they receive. This knowledge will become ever more crucial as providers are increasingly reimbursed for outcomes rather than for the interventions they deliver. Meanwhile, payers would fully learn from providers the clinical outcomes they are—or are not—achieving. This exchange would help to compensate providers appropriately and also enable payers to help identify patients who would benefit from greater efforts to reach them.

But this collaborative approach goes further, in ways that can help both payer and provider in a sort of feedback loop and, ultimately benefit the patient, too. For example, let's say that in this model, a physician is expected to identify all patients with a certain condition and put them on a care plan. The physician also would make available to the payer all clinical data relating to these patients. The payer would provide analytic support, using prescription and other data, to guide the physician toward patients who are most in need of attention so that their care can be prioritized. Ultimately, the physician gets paid to identify disease early, the payer truly optimizes its efforts toward managing the medical risk in its portfolio, and patients get better-quality, more cost-efficient care. The linchpin is the shared data—which ideally is stored in a common database that both groups could access. The payer and provider would be working toward a shared outcome. Along with sharing information, this model would enable payers and providers to share economic rewards.

The shared goal of payers and providers is to connect the care process, the economics that pay for and reward good care, and the administrative framework that makes it all happen. That is a broad-brush view of alignment. Now, let's break it down into the three key areas I mentioned earlier.

1. Clinical alignment

Today, we are fortunate to have at our disposal abundant EBM data that payers and providers can use to help implement clinical alignment. This success can then be used to achieve alignment where evidence is not readily available, but standards of medical care are.

It may be difficult to believe that as recently as the early 1970s, when the popular show Marcus Welby, MD, was on television, what we then called "modern medicine" in fact lacked hard evidence for many common practices. The acknowledgment that medical practice relied on experience and judgment, but not clear data, led to the increased development of EBM in the early 1970s.

Since then, researchers have conducted increasing numbers of randomized controlled studies to compare one therapeutic option with another or to measure the result of a specific therapy. EBM uses the data and analysis from these well-designed studies and applies the lessons learned to the decision-making for individual patients. Combined with a clear understanding of the patient's circumstances and good clinical judgment, EBM has had a powerful effect on patient outcomes and has been a critical component in setting standards for medical care.

Given that it's always easier to align people around evidence rather than opinions, you would expect that EBM would have been immediately and universally embraced. However, as used in a managed care setting, EBM initially created some waves and was sometimes misunderstood. Physicians often felt that payers overly relied on EBM to justify denying treatment outside the guidelines, when some individual patients in fact warranted a different, more customized approach. On the other hand, payers sometimes felt that doctors were resistant to change.

Indeed, EBM has limitations. Study results are not always as straightforward as we might like—due to study design, the way researchers frame a question, and the complexities of disease processes. Adoption of EBM has been slow because not all physicians keep up with new medical findings. Also, some are skeptical about changing course from what they have been doing for patients for decades. For example, although it has long been clear from the evidence that beta-blockers greatly benefit patients with heart failure, it was decades before they were widely adopted.

By now, it is universally acknowledged that EBM offers the most effective guide to patient care, especially when used in concert with the judgment of an experienced physician and with flexibility allowed for the customs and standards of the community. Clinical guidelines used by payers generally combine EBM data with the consensus from experts on how a particular problem is best treated. Today, EBM is the cornerstone of medical practice—and it should also be the cornerstone of clinical alignment between payers and providers.

A good example of clinical alignment, as I envision it, could be seen in the Chapter 1 example of determining when a cataract should be removed. Clinical alignment would call for providers and payers to agree—based on evidence—when a cataract should be removed. Because removal of a cataract is based on both objective (a vision test) and subjective (effect on a patient's life) measures, a shared guideline would take both factors into account.

Now let's examine coronary artery angioplasty for a blockage. What does the evidence say is the appropriate time to perform angioplasty? When a coronary artery is 60% occluded? 70%? The evidence may show that in most patients, angioplasty should be used when a specific artery is blocked by more than 70%.

In both of the above examples, a clinician and a payer would have a predetermined guideline that is easily accessible and would describe—based on evidence—the most appropriate course of action. But the use of evidence-based guidelines within a managed care environment is not intended to hamstring a physician. For example, after a heart attack, it would be expected that all patients would be prescribed a beta-blocker. But a physician may run into circumstances in which beta-blockers may be contraindicated because of conditions such as severe lung disease, in which case a different course of action would be necessary.

These are examples of how payers and providers might align around treatment for a specific procedure. But I also have in mind a much more basic clinical alignment: a simple, shared goal between payer and provider to make sure the most fundamental screenings and care reach patients with chronic disease.

We know that the top five chronic diseases—diabetes, congestive heart failure, hypertension/coronary artery disease, chronic obstructive pulmonary disease, and asthma—account for 50% of all healthcare costs. But we also know that only a small percentage of those with chronic disease are diagnosed. And of those who are diagnosed with these conditions, many are not well-controlled because of inadequate care or poor patient compliance. Clinical alignment also means a shared commitment by the payer and provider to reach and engage people who are not receiving adequate care to control their disease.

For example, take diabetes care. The payer and provider might agree on the following three goals for diabetes care:

• The provider must identify all diabetes patients in his or her practice.
• All identified patients must receive a care plan.
• All diabetes patients must regularly receive the basic tests (hemoglobin A1c, a retinal exam, and kidney function test) to monitor their level of disease control.

This is clinical alignment, with the goal of early identification and treatment of a chronic disease. The benefits come down the road from saving the considerable costs incurred by an emergency such as diabetic coma or loss of vision.

Providing the right care, at the right time, in the right setting, has been a mantra in healthcare in recent years. Clinical alignment is the way to do it. This clinical alignment toward continuous, rather than episodic, care is good for the payer and good for the patient. But it requires buy-in from the provider, especially the physician, who needs appropriate compensation and support. This is where economic and administrative alignment play a role.

2. Economic alignment

The simplest and most obvious form of economic alignment is for payers and providers to agree on the cost of services—in advance and in detail, through the contracting process. This requires that contracts be transparent and easy to understand. Tools already exist to automate the contracting process. We know that contract automation reduces negotiation time, streamlines changes, eliminates errors, and enables further automation such as auto-adjudication. These elements are essential to reducing the time spent on denials and appeals, which is an important underpinning of economic alignment.

But economic alignment should go beyond agreement on costs. True economic alignment begins when the physician, the hospital, and the health plan align around a specific outcome. They must agree on what providers will be paid for achieving that outcome, and all parties must feel there is equity in the alignment.

One very simple form of economic alignment could be that the plan and the providers agree that the physicians will receive preset payment for each diabetes patient and will be free to use those dollars as they see fit.

The most obvious and widespread form of economic or financial alignment is pay for performance (P4P). The challenge is to keep the measures simple, yet aligned with outcomes. Thinking back to the example of clinical goals for patients with diabetes, we can see how a three-tiered P4P plan could work. A physician's first payment would come simply for identifying a patient with diabetes and populating a database with that patient's demographic and clinical information. A second payment would be triggered when the patient is put on a care plan agreed to by both physician and payer. A third payment would come when that patient undergoes tests for hemoglobin A1c, retinal health, and kidney function, and the results are entered in the database.

One problem with P4P as it has been used in recent years, has been its narrow focus on rewarding specific actions, rather than contributing to improving the continuum of care. For a plan to pay incentives for a particular, limited action may actually misalign care. It is human nature to chase an incentive.

A physician who is paid specifically to look at the hemoglobin A1c test may focus on completing that objective without looking at the bigger picture of care for his or her diabetes patients, and may exclude other important diagnostic indicators and treatments that do not have incentives attached.

Financial incentives to physicians evolved by identifying aspects of care that a payer could measure through a claim, which made it possible for the process to be industrialized. We must ensure that in the future, the economic reward structure is focused more globally on outcomes. Economic alignment occurs when payment helps lead to desired outcomes. For example, a more expansive way to address economic alignment is to create P4P—or pay-for-participation—mechanisms that reward outcomes in sync with the optimal results found in evidence-based guidelines.

Again, trust is crucial. Without trust, providers may be concerned that payers are simply trying another tactic to pay less or shift risk to them. And payers will be wary that providers will work toward the financial rewards rather than the overall objectives and desired outcomes.

This is why shared accountability—I call it collaborative accountability—must be built into the relationship between payers and providers. Both payers and providers are accountable for addressing the chronic diseases that make up the majority of our healthcare spending. (Patients, of course, are accountable for following their care plans.) But it is payers who must step up to provide and pay for the tools of alignment. This commitment from payers will engender the trust of physicians.

Health plans are in a position to provide the infrastructure and technology that bring together financial and clinical information. Plans already are the repository of much of our healthcare data: claims data, laboratory values, benefit and eligibility information, and more. Paying for the technology to make this information accessible to physicians at the point of care would help them move from episodic care to delivering care focused on the continuum. To play their part within this collaborative accountability, physicians must commit to using these tools. For economic alignment to be achieved, providers' responsibilities must be articulated clearly, the outcomes must be measurable, and providers must be adequately compensated.

3. Administrative alignment

Although economic alignment is usually seen as the primary incentive to physicians, health plans have an equally effective tool in their arsenal: They can relieve the administrative burden on the provider. Think of all the staff needed to support a single practicing physician: a nurse, a receptionist, and someone to handle authorizations and billing. According to some estimates, physicians spend 15%?20% of their time on administrative tasks—time that could be spent one-on-one with patients. Technology offers many solutions to achieve greater efficiency in the delivery of healthcare, if we choose to invest in and use it.

Looking ahead, we anticipate that a greater percentage of the physician work force will be employed by hospitals. Many physicians are now seeking a work environment in which they are not responsible for the details of running a small business, as self-employed physicians have been. One way to provide the quality of life these physicians want is to diminish the time they spend on administrative chores. Relieving the administrative burden of a practice can be a very powerful incentive for these physicians. Plans can align with providers by offering administrative ease. For physicians, electronic medical records, e-prescribing tools, and electronic access to clinical guidelines automate administrative functions and contribute to effectiveness and efficiency. These tools connect the physician to the payer in a way that the physician values. At the front desk and in the back office, payers can help provide tools that enable staff to submit claims electronically rather than manually and to check what is authorized at the point of care. The aim of administrative alignment is to break the cycle of denials and appeals that is so time-consuming and costly. If we can remove just 10%-20% of the inefficiency and paperwork that is generated in the back-and-forth between providers and payers, administrative costs will drop and physicians will have more time for patient care. Administrative alignment can involve patient history data that helps the physician make better decisions and can be leveraged across an entire care team to more efficiently deliver better care.

Collaboration between payers and providers is necessary so that physicians help determine what types of administrative support would be most helpful for reaching clinical goals. If a payer has identified high emergency room use by asthma patients in a practice, that payer might ask whether a 24-hour 1-800 hotline to a nurse might help. The alignment comes when a payer funds the hotline and then finds that emergency room visits drop.

Alignment around administration brings together the clinical and financial relationships between provider and payer—and has the potential to reduce costs for both parties. Creating the administrative tools is a wise investment for the payer, both in building efficiency and in cultivating goodwill with the provider.

Although we will explore alignment in much greater detail in later chapters, the basic scenario is this: The provider commits to identifying patients in need, follows an agreed-upon care plan, and provides all relevant clinical data to the payer. In return, the payer provides analytical support to help guide the physician, support aid in clinical care (a care team approach for medical care), and provide administrative relief to mitigate costs and improve efficiency. The compensation is agreed upon in advance and regarded as equitable.

The financial model for alignment is both powerful and simple. Providers will focus their energies on patients presenting the greatest opportunity to affect costs, particularly future costs, in the form of catastrophic events. Payers will channel their investigative capabilities (analytics) to help providers find the patients with the greatest need and, therefore, financial exposure. Alignment will also reduce costs for low-value administrative activities that cannibalize patient care time and drive up the cost of care. Without alignment, we cannot get rid of waste and inefficiency. Without alignment, we cannot seize upon the enormous potential of information-sharing technology. Without alignment, we cannot reward and perpetuate good practices.

But with alignment, we can bring high-quality and cost-effective care to our patients. In Chapter 3, I will explain how to begin defining and creating a pilot program to harness the power of alignment.

Senate Democrats are increasingly receptive to using a controversial budget shortcut to ease passage of healthcare reform legislation, a shift in stance encouraged by the White House but denounced by Republicans. The procedure, known as reconciliation, is included in the House's budget blueprint but is not in the Senate version. The House reconciliation language would allow lawmakers to bundle into a single bill all facets of healthcare reform, combining the coverage initiatives that President Obama has advocated with the tax increases and spending cuts needed to offset the program's high costs. The rule also would protect the legislation from a Republican filibuster.