In our annual HealthLeaders 20, we profile individuals who are changing healthcare for the better. Some are longtime industry fixtures; others would clearly be considered outsiders. Some are revered; others would not win many popularity contests. They are making a difference in healthcare. This is the story of Charles Kennedy, MD.
This profile was published in the December, 2014 issue of HealthLeaders magazine.
"This can work, and it can help the American people, and you can build a business that's not only profitable but a higher-quality product at a cheaper price."
When Charles Kennedy, MD, was training as a physician in the Bay Area in the '90s, socially, he ran not with the other physicians, but with his friends in electrical engineering or in computer sciences. Noticing the lack of technology in healthcare delivery, he managed his own patients with the help of his laptop, and so began a career bent on what he calls an opportunity to make an important contribution to the quality of healthcare.
Nearly 20 years later, Kennedy is chief population health officer for Healthagen, an Aetna company. Until recently, he had served as CEO of Accountable Care Solutions from Aetna. In his new role, he has responsibility for expanding population health endeavors with providers across all Healthagen businesses (Accountable Care Solutions, Medicity, ActiveHealth Management, and more).
Kennedy is at the forefront of transforming Aetna's business away from its role as a nationwide commercial insurance company that competes on price and access with health plans that are frequently larger and more locally dominant. The pace of Aetna's rollout of value-based plans, and Kennedy's leadership of the initiative, merited his inclusion in the HealthLeaders 20.
"If you look at the way healthcare is bought and sold, there's really no notion of accountability. You're buying the product from a third party but then receiving the care from physicians, and hospitals [that are] not part of that organization," he says. "So it's very difficult to create accountability for cost and quality from a business model perspective. The ACO, which allows you to work within a PPO concept, offers balance, cost, and quality performance. I thought it would be a major driver of change. This was probably the most fundamental and exciting opportunity to create change that I have seen in my career, so I wanted to be at the center of it."
Aetna's ACO strategy was born from its expertise in managing costs and quality, as well as its desire to establish a different metric under which to sell its products. It allows the company to go toe to toe against its competitors in geographic areas where it doesn't have the most beneficiaries. That's the main reason Aetna has aggressively been building ACOs, perhaps more than any other competitor.
"Health insurers are large organizations because we're a fixed-cost business. We're trying to get as many members as possible so we can spread that fixed cost over large numbers of people," Kennedy says of health insurers' traditional competitive landscape. In a healthcare system focused on the volume of services provided, the combination of large size and large market share "froze the industry in place" for many years, he notes. Under that framework, the Blue Cross and Blue Shield plans, generally, had the most market share.
"In the old game, whoever had the most market share got the best deals because it was a volume-based system," says Kennedy. "Whoever had the volume kind of won, and that was generally the Blues. But the new game is about who can create the greatest healthcare value, which could potentially replace and supersede the old volume model, and that's why Aetna's so focused on it."
As a nationwide company that often played second or worse in terms of covered lives in local markets, Aetna was "a mile wide and an inch deep," says Kennedy, so it couldn't compete well in the volume game. "This gave us a new business strategy that could allow us to outcompete the other health plans and has worked out quite well for us."
Aetna is a profit-making company, so it's not jumping into ACOs without careful thought and strategic decision-making, and it's not acting out of altruism. But it is partnering closely with health systems to create narrow networks that have promising potential to reduce costs, and this makes its approach unique.
ACOs offer a promising area of growth for Aetna, but they still represent only a small part of its business. In terms of industry transformation from a volume game to a value one, Kennedy estimates that Aetna is in about the third inning, to use a baseball analogy. He says organizations like his have been able to put the financial rules of the road in place with such ACO plans. And Aetna has created the aligned incentives and shown it can sell ACO products very well, with growth rates in excess of 500%.
"We've shown we can sell it and that people will purchase it, and early data shows organizations can meet their cost of care targets in shared savings and they will be able to deliver low-cost, high-quality care," Kennedy says. "The reason it's in the third inning is we have around 50 ACOs in place, but Aetna has literally thousands of relationships. We'd still have a long way to go to create a national network and to achieve the penetration in major markets we need to make ACOs the normal way of purchasing healthcare."
The industry is still embryonic when it comes to transforming care delivery, he says. "In a value-based world, you need data on individuals, interactions, and a common understanding of what's going on to help clinicians deliver care that's consistent with the evidence base. Most IT tools today don't do much of any of that," Kennedy says.
So tech has a long way to evolve—as does the construction of most delivery systems, which aren't set up for accountable care. "They're organized, by and large, on an inpatient revenue basis," says Kennedy. "Empty beds are a bad thing because they represent a loss of revenue opportunity. Systems have to transform themselves to being more out in the community where they can work with people where they are and manage chronic disease outside the inpatient setting where it's less expensive. That work has a long way to go."
So far, Aetna's work has been successful by the metrics of cost reduction and quality improvement, Kennedy says. "I could cite the number of products we've introduced that are anywhere from 8% to 15% lower in costs, or that quality measures are in all our PPO contracts, but what's most important is we've shown that it is possible, and we have a track record of success in accountable care at a time when there are such levels of cynicism about the healthcare industry. This can work, and it can help the American people, and you can build a business that's not only profitable but a higher-quality product at a cheaper price."
So it can work, but with a healthcare equation so long resistant to improving value, will it?
"There are more reasons it could fail than reasons it could succeed," Kennedy admits. "We're trying to change an industry that is resistant. The biggest concern I have is the federal government and Medicare program. They have done a great job with CMMI [CMS' Center for Medicare & Medicaid Innovation], but because they control so much of the spending, if they don't get the ACO piece right, it will put in jeopardy to some degree the depth and breadth of the initiative."
The Medicare Shared Savings program was effective in getting organizations to participate, says Kennedy, but many organizations have not saved as much as they expected to, and many who were already efficient chose not to participate. Healthcare provider organizations are only going to reengineer when enough of the patients they treat are tied to this economic model, says Kennedy.
"The Feds are their leading payer, and in many circumstances that's the case," he says. "So if they don't get it right, it makes it much more difficult to justify the expense and risk and organizational effort involved in trying to transform."
Philip Betbeze is the senior leadership editor at HealthLeaders.