This article appears in the October 2012 issue of HealthLeaders magazine.
Where are you placing your bets in the new reimbursement game? As the shift to value-based purchasing of healthcare services nears, in fits and starts and at different speeds in different areas, leaders of hospitals, health systems, and physician practices know they need to rethink quality, safety, and reimbursement. Given the uncertainty of an array of carrot-and-stick incentives from federal and state payers, coupled with the vagaries of the regional or local commercial insurance and employer market, it's little wonder that healthcare leaders are discussing their options in the language of gambling. It's not unusual to hear leaders ask each other: What cards can we play to lessen our risk profile?
Unlike gambling, however, the success or failure of these bets will not be revealed in the flip of a card or roll of the dice, but in how well individual decisions can be integrated into a cohesive strategy. Not all these strategic wagers will pay off, but leaders are tying their organization's future to expensive state-of-the art technology, different divisions of labor and acquisition of nontraditional talents, and investment in innovative structures of care that will allow them to compete in a more transparent and coordinated healthcare environment.
The scramble for scale
Marquette General Health System President and CEO Gary Muller and his board faced a critical long-term challenge. As the largest hospital (with 276 staffed beds) in Michigan's mostly rural and geographically isolated Upper Peninsula, Marquette General Hospital would seem to outsiders to be competitively well-situated to endure any number of shocks associated with a generally decreasing reimbursement environment and to be able to weather the nationwide push toward accountable care. But a closer look reveals a worrisome outlook, says Muller.
"Our board is highly educated in healthcare and started to see that the future was not looking good as an individual system, even though we're making money," says Muller. "We were not generating the capital we needed for the future."
The hospital still has mostly semiprivate rooms instead of the private rooms that patients increasingly demand; the system's pension plan, while funded, would have become underfunded in three years; and leaders were facing a daunting array of investments in clinical and financial technology.
"We also have some 63 specialty services despite a population base of 320,000, so by staying independent, we were looking at the specter of reducing services," says Tom Noren, MD, the health system's chief medical officer.
Leadership started looking carefully for a deep-pocketed partner. With the help of a consultant, MGHS came up with attractive candidates from Michigan-based nonprofits and some university health systems. But in the meantime, in February 2011, for-profit operator LifePoint Hospitals, a Brentwood, Tenn.–based system with more than 50 hospital campuses across the United States, put together a joint operating company with Durham, N.C.–based Duke University Health System: Duke LifePoint Healthcare.
MGHS signed an agreement with Duke LifePoint in July that transfers ownership to the joint venture and eliminates the hospital's debt and funds its pension program. "It's what our board wanted in starting with quality," says Muller. While the deal seems like a traditional acquisition, he says it will bring additional processes and expertise that will allow quality and outcomes measures to be more fully integrated into clinical practice at MGHS, allowing it to benchmark against Duke and top hospitals in the country. At the same time, LifePoint specializes in rural operations, Muller says, which means much of its processes, technology, and outcomes measures will be integrated into MGHS operations. Those facets will allow the organization to more easily enter into value-based commercial health plan negotiations that the Michigan's payers are increasingly seeking.
"This all forms a basis for value-based purchasing by improving quality and service and lowering costs," says Muller.
The partnership is unusual, in that the Duke LifePoint joint venture, until now, has largely been concentrated in the South, primarily in North Carolina and Virginia. But Muller says the opportunity in Michigan to create a regional health network in the Upper Peninsula, geographically isolated from the rest of the state, was too enticing to pass up.
"Duke LifePoint did their due diligence, too, and they were looking at a top 50 cardio hospital that has every service that any major medical center has except burns and transplants. They also saw an opportunity to capture business that's leaving the UP," says Noren. The transaction closed at the end of August.
MGHS' dilemma was not unlike the difficult choices facing many leaders of hospitals, health systems, and physician practices surrounding independence, the ability to meet accountable care targets being demanded by both CMS and commercial payers, and the evaluation of strategic alignments with potential partners in the continuum of care. Many are finding they can't do it alone, that scale is a highly limiting factor in their ability to participate in value-based reimbursement structures, and that national scope and a focused philosophy of aligning physicians and labor resources in a battle-tested format will be critical to their success long term.
Some key partnerships that will pave the way for a shared future of value-based care protocols at the local level had already been hammered out.
Superior Health Partners, which is a separate nonprofit organization formed by MGHS in 2010 as the basis for Superior's accountable care organization, has eight affiliate agreements with other smaller UP hospitals as well as a major partner in Blue Cross Blue Shield of Michigan. MGHS leaders see SHP as a laboratory for organizing care in a geographic area that they hope can be exported to other parts of the state, says Noren. He and his physician leadership team did a lot of the groundwork in preparing physicians and getting their cooperation through Noren's "service lines" vision of team-based care (see HealthLeaders, November 2011), but lacked the capital to fully build it out with the technological and labor resources necessary to ensure financial stability. That, among other attributes, made MGHS an attractive acquisition for a large player like Duke LifePoint Healthcare.
"Superior Health Partners' organized system of care, which is the evolution of medical home and pay for performance, speaks to the regional management of populations," says Noren. "That's our ACO lookalike. Meanwhile, we have set ourselves up beautifully with our patient registry, to jump into a CMS Medicare shared savings ACO. We want to minimize the risk we need to take by being incredibly well prepared for it."
Change equals uncertainty
If some of what MGHS and other healthcare entities are doing seems experimental and risky, it's only one of many different organizational models being created, whether governmental or in the private sector, that aims to deliver better outcomes at lower cost. It's a daunting task, says David Ebel, a director and senior CFO consultant for Atlanta-based Warbird Consulting Partners, whose healthcare experience includes 10 years as CFO at Mayo Clinic in Rochester, Minn.
"The contrast between paying for services and paying for minimizing services, particularly at the individual level, is an absolutely huge change and complete reversal of the revenue model for healthcare over the last 100 years," he says.
The only certainties surrounding this inversion in payment methodology is that there will be change and that there will be unintended consequences for those changes, Ebel says. Changes in how CMS and commercial payers are organized are themselves breeding a wide variety of organizational models for healthcare delivery.
"There are physician-organized accountable care trials, hospital-based accountable care initiatives, and payer-based initiatives," Ebel says. "This differs market to market, so there's not a specific model we're moving away from or moving to, and it's not at all clear that all will succeed or that any will."
Making the transition to a completely new payment model carries provider risk that's unprecedented. "You can come to a bad end either by clinging too tightly to the current model or by putting all your eggs in a basket of dramatic change when that's not really the way you're being paid," he says.
Big bet No. 1:
Give physicians leadership roles
Large physician practices are finding ways to insert themselves into leadership roles because the hospital is not necessarily always needed as the lead organization in accountable care. If you want to lead change in your market and retain your market clout, however, it probably doesn't pay to wait too long, Ebel cautions, sharing a story about a hospital that, after much deliberation, finally decided that it wanted to put together a primary care network and become head of an ACO.
"Lo and behold, most of the providers had already signed up with a specialty physician organization that wanted to be its own ACO," he says.
Simon Prince, MD, president and CEO of Beacon Health Partners in Manhasset, N.Y., heads one of those physician organizations that wants to lead the shift. In early 2010, Beacon began adding independent private practitioners to its physician network. Critically, barriers to entry are low—providers need only commit to upholding the clinical standards of the organization and have a certified electronic medical record, care protocols, and reimbursement models that are tied to quality and patient outcomes measurements. Though some of those requirements seem daunting, practices can remain independently owned and structured. The idea, says Prince, is to give independent physicians a route toward becoming regionally prominent.
Getting started early is extremely important for physician-oriented accountable care organizations, he says.
"We started our IPA from really nothing—a bunch of independent private practices—in summer 2010," he says. "We made a deal with Empire BlueCross BlueShield that helped to galvanize the group and get us to the next level. After putting that infrastructure in place, we decided to participate in the Medicare shared savings program, and we were selected, which really serves to push all the initiatives forward for us."
One of those initiatives is a coordinated patient-centered medical home initiative, for which Beacon has a new medical director. There are pros and cons to this structure, Prince admits, especially the fact that the group is not affiliated with major hospital systems.
"That makes it attractive to those who want autonomy, but the lack of being under one tax ID and of oversight on their salaries make it a tougher lift to get them on a coordinated EMR and do what we need to do to push the
agenda forward," he says.
The group is focusing on partners in the disease management, care management, and IT space, but at least for now is eschewing deals with what Prince calls "big institutional partners" like hospitals and health plans. He says the aforementioned BlueCross agreement is operational and reimbursement based, rather than strategic. Right now, the focus is on improving care and being able to prove they've done so.
He's counting on the fact that most of his partners are starting to understand that the push toward proving a practitioner's value-add is not a passing fad.
"We're not going to get enhanced rates and shared savings bonuses for doing nothing," he says. "The biggest risk is in not doing it. We have to, unless you want to join a hospital or health system and cash in your chips. It's just not sustainable to do it the old way."
Big bet No. 2: The risk in doing nothing
Indeed, when asked about the challenge of accepting risk on patient outcomes in any accountable care model, whatever its particulars, those interviewed for this story almost always turned the question around in a similar way that Prince framed his answer. The biggest risk is in doing nothing.
Rick Lopez, MD, chief medical officer of another physician-run ACO, Atrius Health in Newton, Mass., sings the same tune, although he points out that Atrius started its journey well ahead of other physician-led ACO concepts. "The risk of remaining on the sidelines is that the train will pass you by and you'll be even further behind in two to three years," he says.
Atrius has a long history of managing under global payment and accepting risk. Ten years ago, about 40% of Atrius's revenues were global payment. Now that number is about 65%, he says, so Atrius has built, over time, infrastructure to support that system.
"It's not going from 0 to 60," he says. "We were already going 45 mph."
He says if there was a time when Atrius was bold strategically, it was in retaining that infrastructure in the early part of the last decade, when "we were driving toward a totally fee-for-service environment. In that model, a lot of groups took down their infrastructure to manage care because things were moving in the other direction, and this infrastructure is expensive. If you're just in fee-for-service and it's about churning out services, then clinical pharmacists and care managers and IT systems are just overhead. A lot of places reduced or eliminated those and it took courage and mission to say, 10 years ago, ‘No, this is part of who we are, and we'll hold on to this.' "
Lopez says creating an accountable care strategy is a difficult calculus no matter which group leads the effort or when it starts, because of the many moving parts. Atrius has to work with skilled nursing facilities, for example, to develop a network for its patients with clear-cut standards and accountability. Information technology is another big component, he says, because interoperability helps ensure that transitions in care sites and protocols occur and that no duplication of services occurs. The IT infrastructure required significant investment in a proprietary data warehouse and in analytics.
"This investment is necessary so we can understand high-risk patients, their status, who needs outreach, and in tracking our performance overall." The benefit of that investment has been to provide Atrius with the actionable data it needs for population management, says Lopez.
"We provide information that cascades down to the physician level that supports our quality and care management programs," he adds. "Information included is for all patients from our EMR and administrative claims data for our risk patients." Examples include identification of high-risk patients, high-utilization patients, patients with "defects" in their quality metrics who need outreach, and rosters of patients with certain disease characteristics that require ongoing monitoring, maintenance, and outreach.
On the cost side, the data warehouse and analytics tools reveal data such as case costs of various types and utilization rates, as well as support in contracting with hospitals and payers. The tools can also model the pros and cons of new business arrangements. Finally, the tools can provide analysis of data for practice variation patterns that are amenable to quality and efficiency improvements, Lopez says, carefully noting that those are only some of the applied uses for the data warehouse.
Atrius is also very open to partnerships and affiliations with hospitals, citing the need to develop collaborative relationships with "a multitude" of hospitals and closer collaborations with a smaller set of preferred hospitals to deliver value for patients.
"We've done a lot of work meeting with hospitals regularly, and in publishing a scorecard, which measures them on a series of qualities," he says. "We'll be able to share with them data that they may not have seen before because we have exchange data about how they compare with the other 19 hospitals on the list."
The overriding goal is continuous improvement. Atrius has invested heavily in Lean process improvement over the past four years, which gives leaders the ability to adapt and implement changes as they figure out better ways to manage both patients' costs and their care. He says organizations that have fully embraced Lean seem to have been able to remove waste from the system in a dramatic fashion.
"Because we have incorporated Lean methods into everything we do, it's difficult to separate out the savings from Lean specifically," Lopez says, adding that Atrius has seen a decrease in the growth of its total medical expenses in the past two years from double-digit growth down to low single digits.
"Who knows what it will evolve to in the next five years," he says. "But if you're doing it on less cost and patients are happy, regardless of your payment mix, you're going to be well positioned."
He concedes the task of creating accountable care structures in Massachusetts—which has large integrated systems, five of the 32 CMS Pioneer ACOs (including Atrius), and a long history of managed care and prepaid delivery that has persisted beyond the 1980s and '90s—may be considerably less difficult than elsewhere, especially for physician-controlled ACOs. But he says the biggest issue with the transformation is not procedural, regulatory, or dependent on market-moving organizations such as health plans or the government leading the process. It's culture change.
"You can hire a dozen care managers and spend a few million dollars to put in an EMR or data warehouse, but if people and physician leadership aren't compelled that this is an important mission, it's really going to be hard to move the organization forward," he says.
Big bet No. 3: Standardization
As the chief medical officer at Intermountain Healthcare—long upheld by politicians and others as a model of accountable care execution and strategy—Brent Wallace, MD, has done a lot of the groundwork toward establishing an accountable care structure at the 22-hospital system based in Salt Lake City. Yet Intermountain declined to participate in CMS' Pioneer ACO program. Does that mean it is backing off the strategy of taking on risk and reward?
Not at all, says Wallace. He says even though the system has achieved a lot in accountable care, especially surrounding improvement in costs and outcomes that can evolve from a strong commitment to information technology, he's still having a lot of difficult conversations with physicians over the need to participate in some of the system's internal initiatives toward accountability.
"We are working toward accountable care, "but we're defining it with physicians as shared accountability between Intermountain, physicians, and patients," Wallace says, adding, "I can't stress how important it is to develop among the physicians—especially those affiliated with the organization—an understanding that there's a need for change. The status quo is not really an option, and a large number of physicians in this country don't recognize that. The second cornerstone of that change actually needs to be a focus on quality care before you can get to establishing a medical home or ACO or any of these other things. If they don't understand a lot of what we try to do is aimed at accomplishing those ends, they look at it as the newest flavor of the month."
For the past 15 years, Wallace says, rather than experimenting with reimbursement directly through ACO vehicles created by others, Intermountain has focused on standardization among its hospitals and outpatient sites, developing guidelines for care protocols, measuring the protocols' impact on patients and physicians, and using data and analysis to offer feedback to physicians and other caregivers.
Interestingly, as Intermountain has developed focus in areas such as beefing up evaluation of how the flow of funds might change as the organization moves into population-based payment, it has not as yet signed broad agreements with payers on shared accountability, although its employed medical group does have some value-based structures with other payers. However, he says, "these are pretty low risk, taking the form of additional payment for certain metrics being attained."
Part of the reason for the system's slow pace of adding value-based structures, especially bundled payments, with its payers is because it can experiment with its own captive health insurance company, SelectHealth.
"We're working on how to appropriately incentivize everyone in the care delivery process," Wallace says. Although Intermountain's hospitals have worked with SelectHealth on bundled payments for total knee replacements, for example, "it is amazing how complex this is even for a fairly well-defined episode of care. I doubt that we will be actively pursuing bundled payments with other payers unless they push us toward that methodology."
Still, there's room to experiment with a captive commercial plan. There's a team working on shared decision-making between doctors and patients, for example.
"A lot of expenditures are semi-elective," Wallace says, mentioning such interventions as total knee replacement and cataract surgery. "It's really important to do a much better job than has been done historically on educating patients on benefits and risks with those interventions. Rather than being a situation where a physician has a procedure they could do that will get them paid more, you really get the patient well educated so they are involved in making a more rational decision. Our belief is that as we do that, a number of patients will say, ‘Not yet.' "
Meanwhile, Intermountain is having exploratory conversations with physicians about how to change their compensation methodology. That is less difficult for Intermountain's more than 900 employed physicians; independents still need
"There's a concern that if we do that, we will decrease the amount of work they have—that is fee-for-service thinking," says Wallace. "Our belief is that our docs are still going to be plenty busy, even if the number of procedures per population we're doing is less."
Intermountain's service area is blessed with population growth, and with the entry of the baby boomers into Medicare, Wallace says Intermountain will therefore have a larger population of patients for which it is providing care, all of which preserves volume for its physicians.
"They get it, but they don't reflexively think about it. We're trying to help them understand the realities of those population dynamics," he says.
Big bet No. 4: major investments
Banner Health in Phoenix fits the mold of a health system that has bought into the accountable care structure wholeheartedly, says executive vice president and chief medical officer John Hensing, MD. Again, a recurring theme is that sitting on the sidelines or "watchful waiting" is not a valid strategy.
Banner, one of the largest nonprofit hospitals in the country, with 23 hospitals in seven states, has been focusing on organizing its employed physician base—Banner Medical Group—but Hensing says that has mostly come on an ad hoc basis as physicians have expressed interest in being employed rather than independent. By far the biggest investment the system has made for its value-based care strategy has been in electronic medical record system and data warehousing capabilities.
"The medical group is an aligned group of clinicians that can focus on clinical excellence, but certainly the biggest test so far is the formation of the infrastructure and medical leadership that's required to form a delivery network that involves hospitals, the medical group, and independent physicians, so that we can participate in the marketplace of the accountable care model," he says.
As one of 32 Pioneer ACOs under CMS, Banner is seeking expertise in contracting, network development, and redesigning care delivery around the outpatient environment to avoid hospitalization and expensive medical interventions. In the payer space, it has joined a partnership with Aetna that should help achieve some of those metrics. Under the partnership, Aetna shares much of the population management and care gap identification, particularly in the ambulatory environment, to help Banner take on medical cost risk.
"That IT technology is quite new, and we call it the Aetna stack, and we're just beginning to understand those capabilities," Hensing says.
Though the Aetna partnership is important, Hensing is careful to say that Banner's is an open system, in that its strategic plan was never intended to be exclusive to one payer. Banner is managing Aetna's population in two ways, one with a narrow network product by which Banner is the predominant delivery system for all care, and also through a relationship that allows a so-called attributable model.
"With that one, we negotiated a reward and penalty for achieving certain targets of clinical performance," Hensing says.
Using that model as proof of concept, Banner has created a similar relationship with other major payers. Hensing says Banner recently successfully completed a similar narrow network product with Blue Cross Blue Shield of Arizona and recently completed discussions with Health Net for a narrow network product. With both, Banner will be using Aetna's infrastructure to apply to any population for which Banner has assumed risk.
"If our inpatient business remains the same, we'll continue to wring out cost, but that's not the big opportunity," Hensing says. "We're going to want to focus a lot of resources on managing people where they are and keep them out of trouble if possible. We've finally gotten into an arrangement whereby if we do a really good job, we'll have resources to do it better tomorrow based on how we're going to be paid for these services."
The big question facing Hensing and Banner is whether they can successfully retrain people to lead teams to help manage the most expensive members of the populations—those who consume "tremendous resources"—by 2014.
"We keep saying 2014, because 2015 is when we will really be assuming major risk," Hensing says. "So right now we're still quite early in a lot of our work. We don't have ambulatory protocols in place, we're not utilizing the full features of the Aetna stack, and we need to bring to maturation the leadership model in our own medical group."
Some pundits have suggested that hospitals should try to hire or contract all the medical underwriting and actuarial expertise they can to prevent such partnerships from becoming too one-sided, but Hensing scoffs.
"Having people who understand medical cost risk and clinicians experienced in medical management of defined populations is vastly more important than an actuary telling us how much risk we have."
But speaking of risk, Hensing also weighed in on the risk of so dramatically transforming reimbursement.
"The path we have been on is actually a low-risk path. Is there short-term financial risk if we stub our toe in risk assumption? Yes, there clearly is. But we view that as short-term only. With our ownership of a Medicare Advantage plan and a risk-assuming PHO [physician hospital organization], we've already got expertise that afforded us the confidence that even the short-term financial hits would not be deep and create harm to the organization. The worst thing, and the most high-risk, would be to continue by maintaining the status quo of nonpreparation for change."
Philip Betbeze is the senior leadership editor at HealthLeaders.