Is the distinction beginning to blur between for-profit and nonprofit healthcare organizations?
This article first appeared in the March 2016 issue of HealthLeaders magazine.
For-profit and nonprofit hospitals are fundamentally similar organizations with subtly different cultural approaches to managing the economics of healthcare.
All acute care hospitals serve patients, employ physicians and nurses as their primary personnel, and operate in the same regulatory framework for delivery of clinical services.
For-profit hospitals add a unique element to the mix: generating a return for investors. This additional ingredient gives the organizational culture at for-profits a subtly different flavor than the one at their nonprofit counterparts, says Yvette Doran, FACMPE, chief operating officer at Saint Thomas Medical Partners in Nashville, which is affiliated with Ascension Health, a nonprofit based in St. Louis that owns 131 hospitals in 24 states and the District of Columbia.
"When I think of the differences, culture is at the top of my list. While quality care is a priority for both, the culture at for-profits is business-driven. The culture at nonprofits is service-driven," she says.
However, the fundamental similarities of all acute care hospitals blunt the impact of the business-driven culture at for-profits, Doran says, noting the differences between for-profits and nonprofits reflect cultural nuances rather than cultural divides. "Good hospitals need both. Without the business aspects on one hand and the service aspects on the other, you can't function well."
Doran has prior work experience at Franklin, Tennessee–based for-profit Community Health Systems. CHS operates 202 hospitals in 29 states, and reported 2014 net operating revenues of $18.6 billion and adjusted EBITDA of $2.8 billion.
The executive leadership at Capella Healthcare, a relatively small for-profit health system based in Franklin, Tennessee, shares much of Doran's nuanced perspective on the differences between for-profit and nonprofit hospitals.
"At Capella, we do not believe there are significant differences between for-profit—or taxpaying—hospitals and nonprofit hospitals. In fact, that line of differentiation has become exceptionally blurred in recent years," says Michael Wiechart, president and CEO of Capella, a privately held company that operates 10 acute care and specialty hospital facilities in five states, and for fiscal year 2014 reported $713.4 million in revenue from continuing operations, net of the provision for bad debts, and adjusted EBITDA of $103.3 million.
"Both of us share the mission of delivering the highest-possible quality of care. And both of us must make a sustainable bottom line in order to achieve the mission and to expand care for the future. We are both held accountable on our quality of care, our ability to be good stewards of the operations, and to make our organizations great places to work for both employees and physicians. While each operates by some slightly different rules and regulations based on our business or tax structure, both of us have all of the same basic goals and challenges."
For-profits and nonprofits have a nearly identical mission under ground rules designed to foster and support value-based care, Wiechart continues. "Neither for-profits nor nonprofits have the luxury of ignoring sustainability or patient-care excellence. We're all dealing with the same environment and the same challenges. And it's about who can do it better. Being able to make a sustainable bottom line is necessary for reinvestment and growth for everyone, regardless of your tax status.
"You just have to consider what the motivation is around making the profit. For us, it's about being able to reinvest in our family of hospitals, which we historically have done by reinvesting 100% of free cash flow into growth and quality improvements, not in dividends to shareholders."
Comparing business model theories
In theory, for-profit hospitals should operate with more zealous attention to business objectives than nonprofits because shareholders have their money on the line.
"The absence of a residual claimant with a financial interest in the organization means that no one individual, or group of individuals, has strong incentives to monitor the behavior of the organization at nonprofit hospitals," Rexford Santerre, PhD, a professor of finance and healthcare management at the University of Connecticut, wrote in a 2005 National Bureau of Economic Research report with a Finance Department colleague John Vernon, PhD. The NBER is a private, nonprofit economic research organization based in Cambridge, Massachusetts.
In the absence of mitigating factors such as shared regulatory frameworks and shared interests in providing quality services, financial considerations would dominate decision-making at for-profit hospitals, Doran says. "If I were a fly on the wall at a for-profit meeting, the dollar would be at the top of the list. If I were a fly on the wall of a nonprofit meeting, the patient would be at the top of the list."
In an interview with HealthLeaders, Santerre explains that for-profit boards and their executive leadership teams, which invariably have monetary performance incentives built into compensation packages, face a measure of financial pressure that is absent at nonprofits. "Theoretically, there is a residual claimant, and that residual claimant wants to maximize profit," he says, referring to for-profit shareholders.
In contrast, Santerre says nonprofit boards and their executive leadership theoretically have an "incentive not to compromise quality," noting a nonprofit is required to distribute earnings back into the organization or into its service-area communities. Nonprofits can reinvest earnings in facilities, lower charges to patients, or offer community benefits. In contrast, one of the prime benefits of operating as a for-profit is the opportunity to bank positive operating margin after taxes. "You can take on risks, but you can also gain the rewards as a for-profit," he says.
Quality as a common denominator
Despite the indications of business theory, there is no evidence that for-profits compromise quality of care through cost-cutting, Santerre says. "It's never played out in reality. … Physicians play a huge role at hospitals, which are the workshop of physicians. The physicians will do what they do regardless of the ownership structure of the hospital. Studies have shown not a dime of difference between for-profits and not-for-profits in terms of performance … measures such as quality, community benefits, and costs."
There also is no indication that for-profit hospitals are posting higher operating margins than their nonprofit counterparts, Santerre says. "There may be a different target at for-profits, but they're not achieving a different margin. … When taken as a whole, the literature does not show a significant difference in the profitability of for-profit and nonprofit hospitals. That's what we report in our textbook."
The 2016 HealthLeaders Media Industry Survey indicates there is little difference in reported margin among for-profit and nonprofit organizations. Fifteen percent of the for-profits reported a negative operating margin for the most recent fiscal year, nearly equal to the 16% of nonprofits reporting negative margin. Similarly, 9% of respondents from for-profits reported that their organization's financial forecast for the current fiscal year was negative or very negative, just a few points better than the 12% of nonprofits reporting a negative outlook.
For-profit and nonprofit hospitals achieve similar levels of quality care, says Mark R. Chassin, MD, FACP, MPP, MPH, president and CEO of The Joint Commission, an independent nonprofit that accredits and certifies nearly 21,000 healthcare organizations and programs in the United States.
The organization's Top Performer program has measured hospital quality performance from 2010 to 2014. The program recognizes those that attain excellence in accountability measure performance. The data report on evidence-based interventions for heart attack, heart failure, pneumonia, surgical care, children's asthma care, hospital-based inpatient psychiatric services, venous thromboembolism, stroke, immunization, perinatal care, substance use, and tobacco treatment.
"By 2014, there really are only minor differences between quality outcomes of for-profit and nonprofit hospitals," Chassin says.
The data shows that a greater share of for-profit hospitals make the quality cut as a Top Performer than nonprofits, he says. In 2010, 30.7% of for-profit hospitals participating in the quality assessment program earned Top Performer status, but only 9.7% of nonprofit hospitals qualified for the top honor.
Nonprofits have improved their standing in the Top Performer program significantly, Chassin says, noting 30.6% of nonprofits qualified as Top Performers in 2014. But for-profits continue to outperform nonprofits in Top Performer propensity, with 47.8% of for-profits qualifying as Top Performers in 2014. "Not-for-profit hospitals made up a lot of ground on the quality measures over this time period," he says.
For the 2014 results announced in November 2015, 3,315 hospitals provided data to The Joint Commission and 1,043 were recognized as Top Performers.
All hospitals have been under pressure to improve quality since the publication of an Institute of Medicine report in 1999 that estimated as many as 98,000 people die in hospitals each year from preventable medical errors.
To Err Is Human: Building a Safer Health System launched a systemic push to improve quality at hospitals, Chassin says. "Community stakeholders started asking questions. Boards of directors started asking questions. CEOs started asking questions. Adverse events got into the media. The quality problem needed to be addressed."
In September 2013, a report in the Journal of Patient Safety estimated that more than 400,000 premature deaths occur annually due to preventable harm to patients at medical facilities. The report also noted that serious harm seems to be 10- to 20-fold more common than lethal harm.
The staff and quality
The motivations of for-profit health system and hospital leadership teams extend far beyond financial incentives, Chassin says. "Self-interest is a very narrow view of how for-profit hospitals see their pathway to success. You can get by for a while scrimping on quality … but in order to be recognized, grow volume, and attract physicians as well as patients, you can't cut corners on quality for long."
Quality is a goal for all hospitals, Chassin says. "Nothing significantly separates not-for-profits and for-profits now on quality measures. The difference is a few percentage points one way or the other in care measure data. Qualitatively, hospitals of all kinds are focused on quality. They are all very attuned to a much wider array of quality initiatives than before, both external metrics and internal metrics."
The staff members who provide care in hospitals have motivations that trump financial incentives, says Dereesa Reid, CEO of Hoag Orthopedic Institute in Irvine, California, a 70-staffed-bed joint venture between physicians and Hoag Memorial Hospital Presbyterian.
"Economic theory does not totally apply in healthcare because one of the variables that is not considered in traditional economics is the vocational calling factor," says Reid, who worked at a county hospital, a state-owned academic medical center, and a faith-based nonprofit health system before leading HOI, which has a nonprofit/for-profit ownership structure. Hoag Memorial Hospital Presbyterian, a nonprofit health system based in Newport Beach, California, holds a 51% ownership stake in the for-profit HOI and for-profit physician groups hold a 49% stake. "Doctors and nurses go into the profession because they want to help people. It is a calling."
Business-driven operational discipline
In practice, manifestations of the economic pressures inherent to the business model at for-profit hospitals are subtle but significant, says Neville Zar, senior vice president of revenue operations at Boston-based Steward Health Care System, a for-profit that includes 3,000 physicians, nine hospital campuses, 30 affiliated urgent care providers, and six ambulatory surgery centers, plus home care, hospice, and other services. The system earns nearly $2.4 billion in net patient service revenue and serves more than 1 million patients annually in more than 150 communities. The system is owned by New York City–based Cerberus Capital Management.
With positive financial performance among the primary goals of shareholders and the top executive leadership, operational discipline is one of the distinguishing characteristics of for-profit hospitals, Zar says. "At Steward, we believe we've done a good job establishing operational discipline. It means accountability. It means predictability. It means responsibility. It's like hygiene. You wake up, brush your teeth, and this is part of what you do every day."
A revenue-cycle dashboard report is circulated at Steward every Monday at 7 p.m., and includes point-of-service cash collections, patient coverage eligibility for government programs such as Medicaid, and productivity metrics, he says. "There's predictability with that."
Steward's commitment to operational discipline is reflected in the health system's training and staff development programs, Zar says. "They're one of the last things we cut if there are budget reductions. That's how you lose operational discipline."
The revenue cycle team at Steward has an internship program for college students and peer-to-peer coaches who work side by side with the low performers on the staff, he says. "The reason the coaches are effective is the coach is not the boss, and they have to be high performers."
The coaching program also serves as a performance incentive. "People want to be coaches. It takes them out of production, at least temporarily. It gives them recognition. It gives them an opportunity to advance," Zar says.
Operational discipline is an essential building block for developing speed of execution capacities, he says. "At Steward, we have a flat organization. We have eliminated a lot of the bureaucracy you see at nonprofits and academic medical centers. The revenue cycle leaders sit down with the IT team every week. Once we decide something is important, we roll up our sleeves and get it done."
Another method of addressing operational efficiency involves a thorough review of practices.
"One of the initiatives we've had success with—in both new and existing hospitals—is to conduct an operations assessment team survey, says Andrew Slusser, executive vice president and chief development officer at Capella. "It's in essence a deep dive into all operational costs to see where efficiencies may have been missed before. We often discover we're able to eliminate duplicative costs, stop doing work that's no longer adding value, or in some cases actually do more with less," he says.
An emphasis on financial accountability
A high level of accountability also fuels operational discipline at Steward and other for-profits, Zar says.
There is no ignoring the financial numbers at Steward, which installed wide-screen TVs in most business offices three years ago to post financial performance information in real time. "There are updates every 15 minutes. You can't hide in your cube," he says. "There was a 15% to 20% improvement in efficiency after those TVs went up. It's not punitive. It builds teamwork. … Your name is on the board, or your team's name is on the board. It becomes competitive; people are naturally competitive."
The TVs display several metrics, such as receivable follow-up performance and claims denial reversal rates. "Everybody's throughput is up on the board," Zar says.
Accountability for financial performance flows from the top of for-profit health systems and hospitals, says Dick Escue, chief information officer at Valley View Hospital, a 78-licensed-bed nonprofit community hospital in Glenwood Springs, Colorado.
Escue worked for many years at a rehabilitation services organization that for-profit Kindred Healthcare of Louisville, Kentucky, acquired in 2011. "We were a publicly traded company. At a high level, quarterly, our CEO and CFO were going to New York to report to analysts. You never want to go there and disappoint. … There's so much more accountability. You're not going to keep your job as the CEO or CFO of a publicly traded company if you produce results that disappoint."
Finance team members at for-profits must be willing to push themselves to meet performance goals, Zar says. "Steward is a very driven organization. It's not 9-to-5 hours. Everybody in healthcare works hard, but we work really hard to serve the communities in which we are invested. We're driven by each quarter, by each month. People will work the weekend at the end of the month or the end of the quarter to put in the extra hours to make sure we meet our targets. First and foremost is patient satisfaction, patient safety, and clinical outcomes. There's a lot of focus on the financial sustainability, from the senior executives to the worker bees. We're not ashamed of it."
"Cash blitzes" are one way Steward's revenue cycle team goes into to overdrive to boost revenue when financial performance slips, he says. Based on information gathered during team meetings at the hospital level, the revenue cycle staff focuses a cash blitz on efforts that have a high likelihood of generating cash collections, including tackling high-balance accounts and addressing payment delays linked to claims processing such as claims rejections from payers.
Finding unique ways to incentivize employees is part of the business-driven culture for Steward's revenue cycle team, Zar says, adding that nonmonetary incentives can be just as effective as a little extra money in a paycheck. In November, when the health system posted cash collections at a record pace, members of the revenue cycle staff received fleece sweaters with the cash goal for the month embroidered on the sleeve. "People wear those fleeces for bragging rights," he says.
Executive compensation and incentives
For-profit hospitals routinely utilize monetary incentives in the compensation packages of the C-suite leadership, says Brian B. Sanderson, managing principal of healthcare services at Oak Brook, Illinois–based Crowe Horwath LLP. "If your income is tied to the success of the business, you will pay a lot of attention to operational discipline. The compensation structures in the for-profits tend to be much more incentive-based than compensation at not-for-profits," he says. "Senior executive compensation is tied to similar elements as found in other for-profit environments, including stock price and margin on operations."
In contrast to offering generous incentives that reward robust financial performance, for-profits do not hesitate to cut costs in lean times, Escue says, noting cost discipline is a key element of the organizational culture at such hospitals.
"The rigor around spending, whether it's capital spending, operating spending, or payroll, is more intense at for-profits. The things that got cut when I worked in the back office of a for-profit were overhead. There was constant pressure to reduce overhead," he says. "Contractors and consultants are let go, at least temporarily. Hiring is frozen, with budgeted openings going unfilled. Any other budgeted-but-not-committed-spending is frozen. … Even capital spending can be affected. Capital spending almost always creates new operating expenses. Capital spending such as IT projects can be slowed down or stopped."
The impact of tax status
The for-profit hospital business model has several unique characteristics. The most obvious difference—tax status—has a major impact financially on for-profit hospitals and the communities they serve.
"I see taxes as a preferred dividend back to the community. They're first in line," Wiechart says of Capella's local and state taxes. "They give us their trust and their patients. The community can then turn around and redeploy tax payments for other social needs like schools, roads, and public safety."
Hospital payment of local and state taxes is a significant benefit for municipal and state governments, says Gary D. Willis, CPA, executive vice president and chief financial officer at Capella. "Our hospitals are proud of the community support they provide, including the payment of property and sales taxes used to help fund community needs such as support of their local schools, development of roads, recruitment of business and industry, and other needed services. Taxes paid in the communities we currently serve ranged in 2014 between $984,856, in a state with no sales tax, to $3.6 million."
The financial burden of paying taxes helps to create a corporate culture that emphasizes cost consciousness and operational discipline, says Slusser. "For-profit hospitals generally have to be more cost-efficient because of the financial hurdles they have to clear: sales taxes, property taxes, all the taxes nonprofits don't have to worry about."
The advantage of scale
Scale is another hallmark of the for-profit hospital sector.
There are 4,974 community hospitals in the United States, according to the American Hospital Association. Nongovernmental not-for-profit hospitals account for the largest number of facilities at 2,904. There are 1,060 for-profit hospitals, and 1,010 state and local government hospitals.
The for-profit hospital sector is highly concentrated. The country's for-profit hospital trade association, the Washington, D.C.–based Federation of American Hospitals, represents 14 health systems that own more than 1,000 hospitals. Four of the FAH health systems account for about 520 hospitals: CHS; Nashville-based Hospital Corporation of America; Brentwood, Tennessee–based LifePoint Health; and Dallas-based Tenet Healthcare Corporation.
"For-profits represent 20% of the total hospitals but only a handful of companies—companies that have huge sets of assets," says Chip Kahn III, FAH president and CEO. And that scale generates several benefits at for-profit hospitals.
"Scale is critically important," says Julie Soekoro, chief financial officer at Grandview Medical Center, a CHS 250-staffed-bed tertiary care hospital in Birmingham, Alabama. "What we benefit from at Grandview is access to resources and expertise. I really don't use consultants at Grandview because we have corporate expertise for challenges like ICD-10 coding. That is a tremendous benefit."
Grandview also benefits from the best practices that have been shared and standardized across the 200 CHS hospitals. "Best practices can have a direct impact on value," Soekoro says, adding that large health systems can support individual hospitals in several ways. "The infrastructure is there. For-profits are well-positioned for the consolidated healthcare market of the future. … You can add a lot of individual hospitals without having to add expertise at the corporate office."
The High Reliability and Safety program at CHS is an example of how standardizing best practices across every hospital at the health system has generated significant performance gains, she says.
"A few years ago, CHS embarked on a journey to institute a culture of high reliability at the hospitals. The hospitals and affiliated organizations have worked to establish safety as a core value. At Grandview, we have hard-wired a number of initiatives, including daily safety huddles and multiple evidence-based, best practice error-prevention methods. Meetings begin with a safety moment, we have safety coaches throughout the facility, and other structures designed to support safety as a core value.
"For example, at 9 a.m. on weekday mornings at Grandview, each department gets on a facilitywide safety call where we address all manner of safety concerns," Soekoro says. "Frequently heard [comments] may include: 'It's raining today—make sure the entrances are adequately managed for possible wet floors'; or 'Two patients with same name on the seventh floor today—assign different nurses to avoid confusion in dispensing medications'; and 'Based on anticipated volumes today, any anticipated staffing issues?'
"The success of these efforts is measured by companywide reductions in serious safety events, which are shared on a quarterly basis," she says.
Expertise in the corporate office has been a key to success for Capella, which has many executives with ownership stakes in the company, Wiechart says. "We're vested consultants who have a shared interest in our hospitals' success."
Members of Capella's executive leadership teams at the health system and hospital level own 48% of the economic value of the company and control 51% of the Capella board of director voting rights, he says.
The ability to access capital
Scale also plays a crucial role in one of the most significant advantages of for-profit hospitals relative to their nonprofit counterparts: access to capital.
"There's no question that scale is additive to the discussion when it comes to access to the capital markets," Wiechart says, noting investors covet the diversified risk that comes with scale.
Investors are also drawn to for-profits because of their focus on the financial side of their business, says Willis, Capella's CFO. "A significant difference is that we often have better access to capital for investment in our hospitals due to the expectation that we will be good stewards with capital deployment."
Ready access to capital gives for-profits the ability to move faster, says Crowe Horwath's Sanderson. "They're finding that their access to capital is a linchpin for them. … When a for-profit has better access to capital, it can make decisions rapidly and make investments rapidly. Many not-for-profits don't have that luxury."
The result, Wiechart says, is "a better structure through which to access capital dollars for investing in facilities, services, and recruitment. For-profit organizations don't have to rely on taxes or bond support to launch needed services or recruit vital providers. And, while we rely on leadership and support from our communities, we don't have to ask them to fund our investments. Nonprofits tend to rely on their communities for financial support. We can be more nimble or flexible, responding more quickly to what's needed."
Learning from the for-profit model
The similarities between for-profit and nonprofit hospitals outweigh the differences, but there are valuable lessons for nonprofits to draw from the for-profit business model as the healthcare industry shifts from volume to value, Doran says.
When healthcare providers negotiate managed care contracts, for-profits have a bargaining advantage over nonprofits, she says. "In managed care contracts, for-profits look for leverage and nonprofits look for partnership opportunities. The appetite for aggressive negotiations is much more palatable among for-profits."
As patients take on more out-of-pocket costs and become more prominent economic agents in the healthcare industry, the revenue cycle teams at nonprofit hospitals can improve their bill-collection performance through adoption of the business-driven culture at for-profits, Doran says, noting "the level of zest with which you pursue the patient's responsibility" is more intense at for-profits.
Particularly for faith-based nonprofits such as Ascension Health that actively reach out to economically disadvantaged patient populations, embracing elements of for-profit culture will require walking fine lines, she says. "In addition to conducting charity care, we have additional Medical Missions that include the poor and vulnerable within the community. It's a little bit of a twist that makes us different from for-profits."
And of course, a successful organization can better meet its mission. "Good business practices make sense for nonprofits because if you're managed effectively, you can provide care to a lot more people, Reid says. She also notes that nonprofit hospitals can even learn from for-profit organizations outside the healthcare industry.
"Hospitals can learn from other industries on how to align and incentivize employees closer with pay for performance. Semiconductor wafer fabricators are a wonderful model to study. They measure quality, efficiency, and cost in almost real time. I have seen wafer fabricators where frontline employees can see real-time metrics and how they are trending to monthly incentive goals," she says.
"The idea is to make an impact as soon as the data starts trending in the wrong direction—waiting weeks or months for the perfect report results in inertia," Reid says. "Semiconductor employees know how many defects are in the manufacturing line. They know where the defects occur and they know how their efficiency is trending. At hospitals, this approach could be applied to OR turnover times, staffing targets, and bed turnover."
Delivering healthcare services based on value is going to be a far more complicated and risky business environment for all hospitals, and nonprofits can help ensure their existence through adoption of a more business-driven organizational culture, Kahn says.
"If you have any kind of an enterprise in our economy: No margin, no mission. Every hospital has to make a margin," he says. "The no-margin, no-mission imperative is always present on the private investor side; but on the nonprofit side, sometimes they forget that. And they forget at their own risk."
"At some point," Sanderson says, "part of the mission is to be a relevant, thriving healthcare organization. If you have no margin, if you have no money to invest, if you cannot maintain a reputation as a high-quality provider, then it's hard to remain a relevant organization in the communities you serve."
"Since Capella's decentralized management approach involves local control of the hospital, this is particularly important. … Without their support, buy-in, and involvement, the hospital will not make progress."
With hospitals leading the charge, rural healthcare providers are finding pathways to success in population health and risk-based contracting with payers.
Like neighboring farmers banding together to raise a barn over a weekend, rural hospitals are banding together to raise their value-based healthcare capabilities as quickly as possible.
"The hospitals typically have the resources to build an ACO in a rural market. It's prohibitive for rural doctors. You would have to partner with several tiny practices," says Lynn Barr, chief transformation officer at the National Rural Accountable Care Consortium.
NRACC is a nonprofit based in Nevada City, NV. It organized 23 rural Medicare Shared Savings Program ACOs in 2015, including 147 community and critical access hospitals in nine states. This year, NRACC plans to nearly double the number of rural ACOs participating in MSSP and plans to operate ACOs in 32 states.
NRACC ACOs are serving 500,000 Medicare beneficiaries in rural communities, Barr says. The figure accounts for about 5% of Medicare's rural patient population and rural ACOs operating outside NRACC serving at least as many Medicare beneficiaries.
An effort to launch an ACO in the North Country of New Hampshire reflects the key role hospitals are playing in adoption of value-based healthcare models in rural markets, she says. The new ACO, which is launching this year, includes a handful of rural hospitals, including Berlin-based Androscoggin Valley Hospital, a 25-bed critical access hospital.
By banding together, the hospitals will be serving about 10,000 patients, which should be sufficient scale to make the new ACO financially sustainable, Barr says. "It took five hospitals to get there, but now they're all in an integrated network. Now, we can go to Medicaid, we can go to Blue Cross, and we can enter risk-based contracts."
The effort will be Androscoggin Valley's first foray into risk-based reimbursement of any kind, says James Patry, the hospital's public relations and marketing director. "We're still very early on in the ACO process."
The leadership team and physicians at Androscoggin Valley are preparing to deliver care under an ACO model with two prime goals, he says: maintaining quality and embracing innovation.
"We're going to measure success in value-based care the same way we do in volume-based care: It's quality. If we continue to provide quality care, the rest will fall into place… A lot of it is Yankee ingenuity. We get people around the table, find out what we can do, then get busy doing it the best we can."
A little financial help from the feds doesn't hurt.
The Centers for Medicare & Medicaid Services recognizes that rural health systems, hospitals, and physician practices often lack the financial resources to retool their organizations for value-based care delivery with costly investments such as new electronic medical record systems, Barr says. "Nobody can afford to build an ACO. It takes $2 million to $2.5 million to build one."
To help finance the formation of rural ACOs, NRACC is tapping funds through the CMS's Center for Medicare and Medicaid Innovation, which gave rural healthcare providers $46 million in 2015 through the ACO Investment Model program.
The feds provide the money upfront and the funding converts to grants if ACOs fail to earn shared savings payments. With the vast majority of rural providers operating on thin margins, the low-risk proposition to begin adopting value-based care models is enticing, she says. "They're not making big bets on new models of care."
Rural-Market Inherent Advantages for Value-Based Care
Although there are daunting financial challenges to adopting value-based care models in rural markets, there also are advantages to seize upon. The biggest built-in advantage is familiarity with patients.
"That is the key—that relationship. If people don't know you, they don't open up. And rural providers know you. They know how much you drink and how much you argue with your wife," Barr says.
The staff members at rural hospitals establish a level of familiarity that is hard to match in urban markets or at large medical centers, says Bruce King, president and CEO of 83-bed New London Hospital, which is also located in the New Hampshire North Country. "We're more nimble. Those patients who come to the emergency department, we get to know them," he says. "That's where I think scale works for us."
New London Hospital, which is affiliated with Lebanon, NH-based Dartmouth-Hitchcock, is using familiarity with patients to "reach out proactively" in ways that support core goals of population health, King says.
The hospital is planning to launch a mobile integrated health initiative that will capitalize on the ambulance crew's familiarity with members of the community. Hospital EMTs and paramedics will be helping to conduct follow-up visits with chronically ill patients. "It's a little like home healthcare," he says.
Familiarity with patients fuels care coordination, which is one of the prime mechanisms of population health, Barr says. "The number one factor of care-coordination success is the relationship with the patient."
Healthcare is a "very personal" business in rural markets, and hospitals can play a pivotal role as catalysts for change in isolated areas of the country, she says. "They can really mobilize the community. They have social prestige and can focus on a particular campaign [such as smoking cessation]."
Rural Physician Practices Get on Value-Based Bandwagon
Even resource-starved physician practices in rural markets can make progress toward adopting value-based care models, Barr says.
Changing workflows at practices such as more intensive pre-visit screening and boosting preventive care are essential steps for introducing population health models of care at the physician-practice level, she says. "This is just redesigning what we do at the front desk… It doesn't take a lot of resources."
And improved workflows can pay huge dividends in patient satisfaction scores. "It is very impactful," Barr says.
All rural healthcare providers can capitalize on a market mindset that has a softer edge than urban markets, she says. "We don't compete against each other, so there's a lot of sharing of the best ideas."
CMS says a 0.2% Medicare payment cut for hospitals is needed to offset the estimated costs of implementing the two-midnight rule. Hospitals contend it is "an arbitrary standard." But an analysis of the financial impact of the rule will likely take years and another round in federal court.
The three-year-long struggle over Medicare's two-midnight rule for hospital admissions could be over as soon as next month.
Under the rule, which the Centers for Medicare & Medicaid Services launched in 2013, a hospital stay that spans less than two midnights is generally not considered appropriate for designation as an inpatient admission. The two-midnight rule has financial implications for hospitals because inpatient cases are reimbursed at Medicare A reimbursement rates, which are significantly higher than Medicare B rates for outpatient care.
Joanna Hiatt Kim
Hospitals have been vocal critics of the two-midnight rule since its inception. "CMS has developed an arbitrary standard," Lawrence Hughes, assistant general counsel of the Chicago-based American Hospital Association, told me last week.
In January, CMS enacted a pair of two-midnight rule concessions, including a revision that allows an attending physician to designate anyone for inpatient care based on medical necessity as supported by the medical record.
But a financial sticking point linked to the rule still divides CMS and hospitals: a 0.2% payment cut that CMS imposed on hospitals in the federal fiscal year that began in October 2013 (FY 2014).
"It really added insult to injury," says Joanna Hiatt Kim, AHA's vice president of payment policy. CMS estimates the cut will total $220 million for FY 2014. "It was an arbitrary rule with an arbitrary payment cut... CMS needs to get it out of there."
In September, US District Court Judge Randolph Moss cast doubt on the legality of the 0.2% payment cut, and ordered federal officials to justify the reimbursement reduction and to subject their justification to public comment.
According to the court ruling, Medicare actuaries calculated that implementing the two-midnight rule would result in a net annual shift of 40,000 patient encounters from outpatient status to inpatient status, which would increase Medicare spending by $220 million in FY 2014. The 0.2% across-the-board Medicare payment cut to hospitals was designed to offset that increased cost, the court ruling states.
The payment cut was remanded back to CMS for justification in part because the agency had omitted critical material on which it relied to determine the reimbursement reduction and deprived the public of its right to participate in rulemaking, Moss ruled.
In December, CMS officials filed their justification for the 0.2% payment cut in the Federal Register. In the 32-page document, the federal agency says it is still examining claims data from FY 2014 to gain a firm understanding of the financial impact of the two-midnight rule. But even without a determination of the rule's impact on hospitals that is based on empirical data, CMS is standing its ground on the 0.2% payment cut.
CMS made a good-faith effort to estimate the financial impact of the rule, according to the federal agency's justification document: "The task of modeling the impact of the 2-midnight policy on hospital payments begins with a recognition that some cases that were previously outpatient cases will become inpatient cases and vice versa. Therefore, our actuaries were required to develop a model that determined the net effect of the number of cases that would move in each direction."
In addition, CMS asserts that the methodology used to predict an annual shift of 40,000 patient encounters from outpatient status to inpatient status may have been based on "an overly conservative definition of observation services," resulting in an underestimation of the cost to the Medicare program.
Hospital officials have been skeptical of the logic behind the 0.2% payment cut since it was first proposed, Hughes says. "We never thought the estimate of the impact was realistic in the first place."
The data that hospitals have collected to gauge the financial impact of the two-midnight rule indicates that CMS grossly overestimated the cost to Medicare, Hiatt Kim says. "If anything, we think there was a net decrease in inpatient volume. They can argue for whatever they want, but it doesn't mean it's grounded in reality."
Members of the public had until Feb. 2 to submit comments on the CMS justification document for the 0.2% Medicare payment cut. CMS is expected to take a final stand on the payment cut by March 18. As of Friday, the public comments had not been posted online for viewing.
In the AHA's public comment letter, which was submitted Feb. 2, the hospital association assails the calculations that CMS used to set the 0.2% payment cut, arguing that more accurate methodologies would have found the reimbursement reduction unjustifiable.
"Had CMS's actuaries properly accounted for the portion of observation stays that were not continuous, the net change in the number of cases shifting from outpatient to inpatient would have been zero, or even a small net decrease in inpatient stays," the AHA comment letter states. It makes "only a few minor corrections to CMS's actuaries' assumptions would entirely negate the net increase in inpatient stays predicted by CMS."
CMS is likely facing an avalanche of criticism in the public comment letters about the agency's justification for the 0.2% payment cut, but federal officials are unlikely to budge on the reimbursement reduction, says Colleen Hall, a senior manager for the Chicago-based healthcare consultancy Crowe Horwath. "I do not believe the comments alone will make CMS overturn their ruling on the payment cut… It will go back to the courts."
If the payment cut controversy lands back in US District Court, the case could take a couple of more years to resolve, she says.
"It's all going to come down to the validity of the calculation. As time goes on, we can see real analysis at the provider level. Only then will there be clear and irrefutable evidence for the court to overturn CMS," Hall says.
Data to conduct that level of analysis on the financial impact of the two-midnight rule will not be available until next year, she says. Implementation of the rule was delayed in 2014 and 2015 and "A full year of good data will not be available until FY 2017."
Even if CMS and hospitals can resolve their differences over the two-midnight rule, friction between the parties over drawing the line between inpatient and outpatient care, and the associated financial impacts, will be hard to eliminate. "Medicare officials will never define inpatient medical necessity, and that's the challenge," Hall says.
Guideposts for the paths to participating in value-based healthcare models come into focus at a payment innovation summit held in Tennessee.
Although rural and disadvantaged communities are lagging behind, the shift to value-based healthcare delivery models is accelerating.
Gauging the movement of healthcare providers toward adoption of value-based contracting for their services and how to succeed in those contracts were the dominant themes for speakers at last week's National Payment Innovation Summit in Memphis, TN.
With resource-rich health systems in urban areas leading the adoption of, and investment in, value-based clinical care and payment models, healthcare providers face high financial stakes, says David Krueger, MD, MBA, executive director and CMO of Bellin-ThedaCare Healthcare Partners.
Navigating the financial perils of redesigning care while simultaneously redesigning payment models is the key question at this stage in adoption of value-based healthcare, Krueger said during a general-session presentation at the payment summit.
"How do we move both at the same time in a way that we don't get hurt?" he says of the healthcare industry's value-based-care redesign high-wire act, with 1 million patient lives in the balance just at Bellin-ThedaCare.
The Wisconsin-based health system, which experienced a measure of success in Medicare's Pioneer ACO program, has been increasing its odds for positive financial performance in value-based payment models by climbing the learning curve as quickly as possible.
It started participating in Medicare-sponsored ACO contracts in 2012, and rose to the challenge of Pioneer ACO's double-sided risk. In 2012, the health system reduced per-beneficiary-per-year spending $389 for Pioneer ACO patients, Krueger says. The performance-benchmark-beating spending reductions could not be sustained, however and the average per-beneficiary spending cut between 2012 to 2013 was only $177.
From 2012 to 2014, in the Pioneer ACO and the Medicare Shared Savings Program, Bellin-ThedaCare posted impressive results, with high quality scores, low spending levels and shared-savings payments.
Although Bellin-ThedaCare joined several other founders in pulling out of the Pioneer ACO program, Krueger praised the program's role in advancing the health system's journey toward adoption of value-payment models. "It allowed us to put a program in place… it opened the doors."
Now, more than half of Bellin-ThedaCare's 1 million patients receive care through some form of value-based payment model, including Medicare Advantage and MSSP. The shift away from fee-for-service medicine includes a fundamental examination of healthcare services and redesign of care models, he says.
In value-based payment models, healthcare providers will have to revolutionize their patient engagement strategies, Krueger says. "How do we incent them down the path? We need to know when to get out of the way."
As an advanced pilgrim in the journey toward a more value-based healthcare industry, Bellin-ThedaCare is picking partners who are moving at a similar pace and running a similar leg of the race, he says, noting the health system's participation in Appleton, WI-based, AboutHealth.
The value-oriented collaboration features eight health systems, 48 hospitals and 8,000 physicians. "Incentives are built in, right down to the front line. All patients are viewed as part of the population," Krueger says.
'Inherent Mistrust in the System'
For healthcare providers, many lessons have already been learned in the transformation from FFS medicine to value-based care models, says Darin Gordon, director of TennCare and Tennessee's deputy commissioner of health care finance administration.
A key lesson is the need for patience, the state Medicaid director says of efforts to transform care delivery and payment models simultaneously. "You can't do it overnight."
In recent years, healthcare payment and delivery reforms have been dominant elements of TennCare's administrative workload. Gordon says his experience reflects other state Medicaid leaders nationwide. "It has taken at least 50% of my time."
The necessity to pick the right partners is another key lesson learned in value-based care initiatives, he says. "Leveraging health plans has been critical."
Commercial insurance carriers have several areas of expertise that are well-suited to value-based care delivery and payment models. Areas ripe for "leveraging" include benefit and provider-network design, wellness programs, and preventive-health services, Gordon says.
With employer-sponsored insurance remaining overwhelmingly dominate in the health-coverage market, Gordon says commercial payers bring an essential partner to the value-based healthcare transformation table: large employers. The capability of large employers to provide "expertise in finding solutions has been vital," he says.
To successfully change the healthcare industry's dominant economic engine from FFS medicine to value-based payment models, a revolutionary change in mindsets will be required, Gordon says. The process of breaking down silos and linking crucial sources of information such as claims data and clinical data demands more than technological advancements in data management, he says, asserting that the process requires cooperation between longtime adversaries.
"Historically, we have not done a good job partnering with providers as much as we should. [There has been] inherent mistrust in the system."
Amy Frankowski, MD
Equipping for Value-Based Healthcare Journey
Transformational change targeted at boosting value-based clinical service delivery is an essential element of the strategic vision at Cincinatti-based Mercy Health, says Amy Frankowski, MD, senior medical director for population health and medical director of the health system's ACO, Mercy Health Select.
Mercy Health Select features 1,800 physicians and has participated in MSSP since 2012. In 2014, Mercy Health Select posted the 10th highest MSSP shared-savings payment. At $6.5 million, the 2014 shared-savings payout was the highest among Ohio-based MSSP participants.
Financial alignment with payers is an important factor for healthcare providers to achieve success in value-based payment models, Frankowski says. And long-term contracts that include robust provisions for data sharing are essential to generate positive financial results. She lists the attributes of gainful data as timeliness, relevancy, transparency, accessibility and security. "Routine data sharing could not be more important."
Building productive relationships between healthcare providers and payers is crucial to making value-based payment models function effectively, Frankowski says. "You have to have trust and you have to be at the table."
She says contracting staff should be involved at every step of the process to "avoid surprises," and lists the key factors in building strong relationships between providers and as
An early emphasis on cooperation between provider and payer clinical teams
Specificity of language during fact-finding
Contract negotiations, and sharing of data analytics capabilities
Gauging adoption speed of value-based care models
In the Friday afternoon session that closed the three-day payment innovation summit, Cristie Travis, CEO of Memphis Business Group on Health, said health systems in urban centers are leading the charge toward widespread adoption of value-based healthcare payment models.
But she said most physician practices in areas such as eastern Tennessee, western Texas and many other rural areas have yet to take their first steps toward participating in value-based payment models.
"I'm not really sure how many people are really all-in," Travis said. The disconnect" between the payment-reform summit attendees and the majority of physician practices across the country. "Most of the people out in the world don't think about this, ever!"
The middle ground of the healthcare partnership continuum is dotted with a variety of relationships that feature varying degrees of shared governance.
This article first appeared in the January/February 2016 issue of HealthLeaders magazine.
Mark Schafer, MD
The extremes of the healthcare partnership continuum are well-known and well-traveled: Narrowly focused clinical affiliations such as service contracts between hospitals and laboratories at one extreme, with mergers and acquisitions at the opposite extreme.
The middle ground of the healthcare partnership continuum is dotted with a variety of relationships that feature varying degrees of shared governance, including joint ventures, accountable care organizations, and integrated network pacts between health systems and hospitals that nearly match the intimacy of mergers and acquisitions.
Fountain Valley, California–based MemorialCare Health System, a system with 1,546 licensed beds across six hospitals and $1.9 billion in total revenue, is banking on joint ventures to help the organization maintain service revenue as medical procedures shift to outpatient settings, says Mark Schafer, MD, CEO of MemorialCare Medical Foundation, the system's physician group division that has more than 2,000 employed and affiliated physicians.
Through a joint venture established in February 2013 between the foundation and Deerfield, Illinois–based Surgical Care Affiliates, MemorialCare is operating eight ambulatory surgery centers with plans to open as many as three more. The health system also is seeking joint venture partners to split ownership of the organization's 10 imaging centers, Schafer says.
MemorialCare holds 51% ownership of the ambulatory surgery center joint venture with SCA. The joint venture consists of the newly formed surgery center company, Beach Surgical Holdings LLC, which, in turn, owns 51% of the surgical center assets. The remaining 49% of the surgical center ownership includes more than four dozen physicians. MemorialCare also wants to hold 51% ownership of the imaging centers, Schafer says.
"These types of services are moving out of the hospitals. The vast majority of these things can be done in freestanding facilities. We estimated 80% of ambulatory surgeries could be performed outside the hospital setting," he says, adding that MemorialCare is garnering a patient experience boost through providing more services closer to patients' homes at relatively low prices.
Any financial fears over a massive diversion of patient volume away from MemorialCare's hospitals appear to be unwarranted, Schafer says, noting the joint venture ambulatory surgical centers' physicians send patients to the MemorialCare facilities, including hospitals. "Initially, we thought these kinds of moves might have a negative impact on the health system, but the opposite has been true. Surgery and imaging is going to move out of the hospitals whether we want it to or not. We felt that, long-term, operating joint ventures was the right thing to do. It allows us to participate in some of the revenue stream."
MemorialCare's overall surgical volume surged 20% from the fiscal year ending June 30, 2014, to the end of the 2015 fiscal year, rising from 55,674 cases to 66,992, Schafer says. Hospital surgery volume held steady: While hospital inpatient cases fell 2%, from 18,329 to 17,921, hospital-based outpatient surgeries rose 3%, from 14,402 to 14,827. Cases at freestanding ambulatory surgery centers increased 49%, from 22,943 to 34,144.
"This is consistent with the national trend of doing less inpatient cases and our ability to do more and more on an outpatient basis," he says.
MemorialCare's joint venture philosophy features shared governance and experienced clinical partners, Schafer says. "We have a seat on the surgery center board. We work together on growth. We work together on strategy. It's much deeper than just contracting with an outside company. … It really takes a strong partner to make these affiliations work. As we look to other lines of service or opportunities, we have to make sure we find a partner with the experience and willingness to work with us."
Accountable care organizations
Partnerships developed through accountable care organizations are among the most recent innovations in the middle ground of the healthcare partnership continuum.
Katherine Schneider, MD
Radnor, Pennsylvania-based Delaware Valley ACO has participated in the Medicare Shared Savings Program since 2014, with four founding equity owners: Huntingdon Valley–based Holy Redeemer Health System, Philadelphia-based Jefferson University and Hospitals, Philadelphia-based Magee Rehabilitation Hospital, and Bryn Mawr-based Main Line Health. Doylestown Health, a small but highly integrated Pennsylvania health system centered on 237-bed Doylestown Hospital, joined the ACO in 2015.
Katherine Schneider, MD, president and CEO of Delaware Valley ACO, says the organization's equity owners "are not cookie-cutter health systems—they're all bringing different strengths to the table."
Starting in January 2014, with 33,310 Medicare beneficiaries, the ACO's 2014 MSSP spending benchmark was $394.8 million, and total spending reached $381.4 million. For the $13.4 million in shared savings that Delaware Valley generated in 2014, the ACO earned $6.6 million in shared savings payments, and Medicare saved $6.8 million, according to data collected at the Centers for Medicare & Medicaid Services.
Delaware Valley ACO is focusing its MSSP participation on primary care practices, with more than 430 participating physicians now serving about 65,000 Medicare beneficiaries. When the ACO divvies up the shared savings, there is a 30-30-40 split: 30% is allocated to the ACO for reinvestment and infrastructure financing, 30% is returned to the equity owners, and 40% is allocated to primary care practices.
As a business, Delaware Valley ACO is in its infancy, Schneider says, noting the equity owners are investing much more money in the ACO than the $6.6 million generated in 2014 shared savings payments. "The ACO's share of that distribution doesn't come near covering our current operating costs."
Delaware Valley ACO is experiencing explosive growth, which is a positive sign for recruitment of participating primary care physicians but poses a challenge to attaining financial sustainability, she says. "We're almost like a new ACO because half of the providers in 2015 are new. This is a journey we're on together. We want there to be interest. We want more physicians to come in, but it makes it harder to predict as a business model."
The ACO's equity owners and primary care physicians are committed to enduring short-term hardships to prepare for long-term success, Schneider says, noting Delaware Valley ACO is anticipating strong beneficiary and participating physician growth again this year. "The growth is because the horse has not only left the barn, it's left the state, with CMS expanding value-based payments. We've tried to message to our physicians that this is coming."
Delaware Valley ACO's 15-member governing body (with 13 voting seats) has representatives from the five equity owners and a half-dozen other members, including community stakeholders and ACO physician-practice representatives. Among the equity owners, Jefferson Health has four voting seats, Main Line Health has four, and Doylestown and Holy Redeemer each have one. The CEO of Magee Rehab, which has a 2% stake in Delaware Valley ACO, has a nonvoting seat on the governing body.
Four primary committees report up to the ACO's governing body: audit and finance, care coordination, information technology, and network development. The audit and finance committee includes CFOs from each equity owner. "Delaware Valley ACO is a separate company with representatives from its owner-members and community," says Michael Buongiorno, CPA, executive vice president and CFO at Main Line Health. He serves as chairman of Delaware Valley ACO's Audit and Finance Committee.
While Delaware Valley ACO has enjoyed a measure of early MSSP success, the organization faces challenges.
Buongiorno says Delaware Valley ACO is facing a significant challenge—a rapidly expanding new organization with an untested business model. "How much do you invest to achieve the return on investment? It's really about how much do you embed in your operations to create savings while improving the healthcare of the community."
Linking specific physicians with measurable cost savings is a daunting actuarial hurdle, Schneider says.
"As you mature as an ACO, you start to work in more performance-based initiatives. That sounds easy; but in some cases, actuarially, it's just not possible. We're not alone. … Everybody is looking at rewarding quality and rewarding population health. … If you try to pick it apart, it is more theory than mathematically valid," she says, noting that it is actuarially impossible to assign every cent of shared savings to a specific physician.
Michael Buongiorno, CPA
ACOs must develop robust data analytics capabilities to determine where cost savings are being generated before doling out physician rewards based on performance, Buongiorno says. "That is the challenge—where are the savings really coming from?"
IT investment is critical to ACO success, Schneider says. "The big one is the population health platform," which includes an integrated electronic medical record for equity owners and physician practices, data exchange capability, workflow tools tied to care coordination, and clinical systems upgrades.
Building a healthcare provider organization from scratch is a daunting task, Buongiorno says. "While this may provide a challenging endeavor, opportunities to invest in information technology and data analytics have the potential for us to improve care coordination, lower our costs, and improve the health status of the communities we serve."
Delaware Valley ACO's ownership members are taking a long-term approach to return on their investment, Schneider says. "This is like shifting the course of a battleship. … It's changing the care model."
Sole-member substitution affiliation deals
Dartmouth-Hitchcock Health, a Lebanon, New Hampshire–based health system featuring a 396-licensed-bed academic medical center, has established affiliation agreements with three relatively small hospitals in the organization's service area: 169-licensed-bed Cheshire Medical Center/Dartmouth-Hitchcock Keene in Keene, New Hampshire; 35-bed Mt. Ascutney Hospital and Health Center, a critical access hospital in Windsor, Vermont; and 25-bed New London (New Hampshire) Hospital, a critical access hospital.
"It's more than a clinical affiliation. It's really a parent-subsidiary model with the goal of improving the coordination of care for the patients we serve and enhancing value by reducing cost and improving quality. The Dartmouth-Hitchcock system has certain reserve powers over New London and the other two hospital partners that are pretty substantial," says Stephen J. LeBlanc, executive vice president for strategy and network relationships at D-H. "It's not quite a merger. They have their own boards. They have their own medical staffs."
C. Timothy Gary, JD, MBA
The legal framework for D-H's hospital-affiliate trio is sole-member substitution, he says. "The governance model is the same for all three; however, I would not describe the model as shared governance in the manner that the phrase is commonly used. Essentially, under our affiliation agreements, the organization maintains its corporate structure, but Dartmouth-Hitchcock retains specified reserve powers, such as approval of key strategic and financial decisions as well as approval of affiliate board members and CEO selection."
The recent growth of clinically integrated networks at health systems nationwide is a prime driver of hospital affiliations based on the sole-member substitution deals, says C. Timothy Gary, JD, MBA, CEO of DW Franklin Consulting Group in Nashville, a healthcare law consultancy linked to Detroit-based Dickinson Wright PLLC.
"As clinically integrated networks have become popular in the last few years, we have seen sole-member substitution agreements of this type become much more popular," Gary says. "CINs tie feeder hospitals to larger systems that have more clinical resources than the smaller facilities can sustain independently. The process essentially allows a 'sole member' to assume certain control rights on what are usually specified issues that have traditionally been controlled by the local board. This allows the center facility of the CIN, often an academic medical center, to ensure that the member facilities maintain sufficient levels of staffing and infrastructure to support the CIN agreement. These types of agreements require careful scrutiny on the part of the member facilities, especially in the control of finances."
Bruce King, MSPH, FHFMA, an employee of Mary Hitchcock Memorial Hospital, a component of D-H, who serves as president and CEO of New London Hospital, says the affiliation agreement is mutually beneficial and financially essential to the critical access hospital. "We have enjoyed a significant turnaround in 2015, and the affiliation is at least partly responsible for that."
New London Hospital finalized its D-H affiliation in October 2013. King says the affiliation's financial benefits are reflected in the 2015 fiscal year that closed June 30. The hospital posted gross revenue for 2015 at $107.7 million, which is a $9.5 million increase over 2014 gross revenue, he says. "This represents a 10% increase, of which price is 2.5%. So we experienced a 7.5% volume increase, largely attributable to added Dartmouth-Hitchcock clinical services."
Bruce King, MSPH, FHFMA
In the D-H affiliation, New London Hospital has given something to get something.
In addition to ceding the chief executive candidate search function to D-H, the hospital has granted D-H representation on its board of directors. D-H representatives account for one-third of the hospital's board, with two-thirds of the board membership drawn from the community, including the chairperson. D-H has influence over key decisions such as annual operating budgets, King says.
In return for governance concessions, New London Hospital has gained preferential access to D-H tertiary care and specialists as well as D-H–driven patient volume gains in primary care, urgent care, and expanded levels of specialty care. "We've added several clinical services," King says, noting D-H physicians in 10 specialty areas are treating patients in New London, including dermatology, oncology, orthopedics, and urology. "It means a doctor comes here to see patients as opposed to the community driving up the highway" about 25 miles to the medical center.
The affiliation has improved bed census management for both D-H and New London Hospital.
"We are often at full capacity and have to divert patients to other tertiary centers in the region. Part of the reason we are full is we are treating some low-acuity patients, too," LeBlanc says, adding that D-H hospital affiliates are helping to ensure all patients in the D-H service area have access to the right level of care at the most cost-effective setting. "We have daily care management calls every morning. We understand whether New London will be able to take our transfers or not."
New London Hospital's daily bed census has improved dramatically since the D-H affiliation, rising from fewer than 10 patients to close to 20 patients, LeBlanc says.
King notes that the D-H patient population is spread across 20 local markets and the health system functions more efficiently when low-acuity cases are treated at local facilities. "They don't want to be jammed up with services that can be provided at the local level. … They're at capacity, and we have beds available. It's very complementary and symbiotic."
As market pressures increase on healthcare providers to consolidate and integrate, there are several options to lean on partners to ease burdens and seize opportunities.
By proposing changes to performance benchmarking, Medicare officials are trying to improve the odds that cost-effective healthcare providers will earn spending-benchmark-beating payments in the Medicare Shared Savings Program.
Some big changes proposed for the Medicare Shared Savings Program are drawing a measure of praise from healthcare providers and analysts.
The biggest change, which would go into effect in January 2017, would craft financial performance benchmarking to fit local markets, says Ivy Baer, JD, MPH, senior director and regulatory counsel at the Association of American Medical Colleges, a Washington, DC-based nonprofit that represents nearly 400 teaching hospitals and health systems.
Bill Bithoney MD
Going from a national benchmark to a regional benchmark would be a "huge leap forward" for health systems, hospitals and physician practices participating in MSSP, says William "Bill" Bithoney, MD, FAAP, chief physician executive and managing director at BDO's Center for Healthcare Excellence & Innovation. "It's incredibly great."
Basing MSSP's financial performance benchmarks on national trends has been a sore point for hospitals and physicians in accountable care organizations since federal officials launched the shared savings program in 2012.
"The national benchmark can be difficult for even the most efficient healthcare providers to earn shared-savings payments in some areas of the country and "is not useful to most ACOs," Bithoney says. "It's dispiriting in high-cost markets."
Officials at the Centers for Medicare & Medicaid Services are proposing changes to MSSP's performance benchmarking that are likely to be a net positive for many ACOs, says Sarah Baumann, JD, legal analyst at Riverwoods, IL-based consultancy Wolters Kluwer.
"The rule would use county-level data when resetting benchmarks after an initial three-year agreement period, since CMS believes that counties are more stable than other geographic units and better capture regional variation in Medicare expenditures," she says.
"Rather than rebasing the benchmark by adjusting it to account for savings generated under the prior agreement period, the agency would adjust it based on regional fee-for-service expenditures. CMS thinks that adjusting benchmarks based on regional spending rather than prior performance would allow ACOs that previously enjoyed shared savings to enjoy a similar or slightly greater share of savings, and would lower benchmarks for ACOs that previously suffered losses."
More Participation, Fewer Dropouts
The increased likelihood of earning shared-savings should increase the number of hospitals and physicians participating in MSSP, Bithoney says. "You will have increased ACO participation [and] fewer dropouts. Hospitals and clinically integrated health systems are going to be more likely to join."
As of January, the MSSP roster stood at 434 ACOs, compared to 404 MSSP ACOs enrolled in the program in January 2015.
The proposed benchmarking changes are designed to reward cost-effective ACOs and to financially prod high-cost ACOs, a CMS official told me last week.
"We anticipate use of regional FFS trends could encourage the development of and continued participation by ACOs with rates of [spending] growth below that of their region. Using regional trend factors would result in relatively higher [spending] benchmarks for ACOs that are low-growth in relation to their region compared to benchmarks for ACOs that are high-growth relative to their region. Therefore, these ACOs would benefit from having a relatively higher benchmark, which would increase their chances for shared savings."
"On the other hand," the CMS representative continued, "ACOs with historically higher rates of growth above the regional average would have a relatively lower benchmark and may be discouraged from participating if they are not confident of their ability to bring their costs in line with costs in their region."
More Risk
CMS is seeking to make several other significant changes, Wolters Kluwer's Baumann says. "CMS is also continuing to encourage ACOs to assume more risk by switching from Track 1 to Tracks 2 or 3. Track 1 is a one-sided model that allows ACOs to share in savings rather than losses. Track 2 is a two-sided model that allows for more savings, but also subjects ACOs to losses. Track 3 allows for greater savings, but higher risks."
The proposed rule would allow Track 1 ACOs wishing to enter Tracks 2 or 3 to extend Track 1 participation for a fourth year, deferring benchmark rebasing, before entering the new track," she says.
"The proposed rule would limit the authority of CMS to re-open determinations of shared savings or losses to no more than four years after the date of the notification to the ACO of the initial determination, while reserving the right to reopen a payment determination at any time in the case of fraud."
Fine-tuning MSSP is going to be a daunting task for federal officials, Baer says. "It's too early to know who will or won't be helped by this; though with regional benchmarking, ACOs may be better positioned to make that determination themselves."
Thousands of hospitals and physician practices are either just contemplating or just beginning investments of money and clinical-redesign effort into building ACOs. Under the current performance benchmarking rules, many of those providers are longshots to earn shared-savings payments in the early years of an MSSP contract, Bithoney says.
"It's a real challenge to develop a care continuum," he says, noting that it takes significant investment to achieve ACO success. Care coordination, including "warm handoffs" and providing home-care support for patients who lack family members or friends as caregivers are just two elements of a successful ACO.
By the end of 2018, CMS officials are vowing to make 50% of Medicare payments for healthcare services tied to value-based care and alternative payment models such as ACOs. Volume-based FFS payments currently account for about three quarters of Medicare payments, and MSSP participation grew at less than 8% from January 2015 to this January.
The proof of whether proposed MSSP rule changes will boost participation in the ACO program will come next January, when anything less than double-digit growth will be deeply disappointing.
The 60-day period for public comments on the proposed rule changes closes March 28.
In terms of the number of human lives and costs to healthcare providers, Texas stands out among states unwilling to expand Medicaid programs to more low-income adults nationwide.
"When Texans win, they win big. And when they lose, it's spectacular."– Robert T. Kiyosaki
If Kiyosaki is right, a looming healthcare-service affordability crisis could be catastrophic to the wellbeing of the Lone Star State's poor and uninsured population.
Several hundred thousand previously uninsured Texans gained health coverage through the PPACA exchange, but about 20% of the state's 26 million people remain uninsured, says Vivian Ho, PhD, a professor of economics at Rice University and professor of medicine at Baylor School of Medicine in Houston.
Vivian Ho, PhD
"There are at least a million lives at stake," she says. "The people without insurance who can't afford healthcare services is still alarmingly high."
Ho is co-author of a pair of reports released over the past month on the affordability of healthcare services and health insurance in Texas. In one report, survey data found that 14.7% fewer Texans had problems paying for their medical bills in 2015 compared to 2013. In the other, survey data found 69.1% of uninsured Texans cite high costs as the primary reason they do not have health insurance.
Unless Texas lawmakers expand Medicaid under provisions of the Patient Protection and Affordable Care Act (PPACA), the state's modest gain in healthcare-service affordability is destined for a disastrous reversal, Ho says. "This is an extraordinary missed opportunity for people to gain access to healthcare."
There are about 1 million adult Texans who would be eligible for health coverage through Medicaid expansion, she says. A roughly equal number have health insurance coverage through the PPACA exchange, but some of them were previously insured through other means.
"What we're talking about, is an even larger expansion of coverage than we have achieved through the ACA exchange." Ho says, "This is a large group that doesn't have healthcare insurance coverage and definitely needs it." With Medicaid expansion firmly obstructed in their Republican-controlled legislature, Texas healthcare providers are facing a double whammy from Washington.
Expiring Funds
The feds are edging closer to implementingdeep cuts in the Disproportional Share Hospital (DSH) program that has offset the cost of uncompensated care over the past two decades at hospitals across the country. And the Healthcare Transformation and Quality Improvement 1115 Waiver, a five-year Medicaid program that has given Texas about $29 billion in federal funding to offset uncompensated care and to help providers pay for improvements in the delivery of healthcare services, is set to expire in the fall.
Katherine Hempstead
"A good portion of that money is going to help [low-income] adults get some kind of coverage. That's our Band-Aid," Ho says of the 1115 Waiver. "Where do people think these people are going to get care when they get sick? I'm worried about what's going to happen in three or four years."
She believes that if the waiver is not renewed, emergency rooms across Texas could be overwhelmed by poor men and women who will have nowhere else to go to seek medical attention when they need it.
This doomsday scenario is bigger than Texas, says Katherine Hempstead, health insurance program director at the Princeton, NJ-based Robert Wood Johnson Foundation:
"Texas is a little bit unique because it has a very high uninsured rate, so it has a lot of uncompensated care covered in its current Medicaid waiver. Florida is in a similar boat… But while Texas and Florida may be somewhat unique in terms of their size and their very high uninsured rates, hospitals in all states that have not yet expanded Medicaid are experiencing considerable fiscal stress.
In many of these states, hospital associations are leading expansion efforts and in many cases are willing to pay the state share through some kind of provider fee. Widespread financial distress and sometimes closings of hospitals in non-expansion states is another way to bring the message to politicians and the general public that failure to expand Medicaid can affect everyone's access to healthcare."
As of January, 31 states and the District of Columbia had expanded their Medicaid programs through provisions or waivers of the PPACA. The status of the struggle over Medicaid expansion in the remaining 19 battleground states continues.
Mounting Burdens
The collapse of the crude oil market, which is dealing a mighty blow to the Texas economy, will likely exasperate the state's healthcare affordability problems for at least the next two years, she says. "Now, we've had a loss of jobs, which means more people without health insurance, which puts an increased burden on the healthcare system."
That burden is already heavy at Southeast Texas Medical Associates (SETMA), a multi-specialty physician practice based in Beaumont.
"In anticipation of continued downward pressure on revenue, last June all SETMA partners had a 10% salary decrease," says James "Larry" Holly, MD, who serves as CEO of the physician practice.
"Our budget for this year estimates a 1% shortfall in revenue, which may be compounded if revenue streams continue to weaken. Our plan is to decrease partners' salaries further before anyone else is asked to take a decrease. Even in the face of this pressure, we paid bonuses in December 2015 to our salaried employees and we have rejected suggestions to eliminate the matching 401(k) plan funds for SETMA employees. As of yet, we have not had to turn anyone down for care, and we continue to participate in the state Medicaid program and the Affordable Care Act [health] plans."
Lives really are at stake, Holly says.
The SETMA Foundation—funded by SETMA partners—assists patients in medication purchases and co-pays for specialists not found in SETMA. These patients are treated free by SETMA. Obviously, this is a stopgap, as the Foundation can help some patients a great deal and a great deal of patients some, but we can't solve the problem… The evidence is that this intervention has been life-saving for some [patients such as] the discovery of colon cancer, which can be cured by our paying the co-pay so the patient can have a colonoscopy."
Everything really is bigger in Texas, including the shameful political partisanship over expansion of Medicaid to provide healthcare coverage to more impoverished American adults.
In the "Great Drug Pricing Debate of 2016," a semi-fictional duo goes head-to-head on whether the pricing of prescription drugs is spiraling out of control, whether price controls should be instituted, and whether drugs can be priced based on value.
Pricing practices for prescription drugs are drawing intense scrutiny from inside and outside the healthcare industry.
Healthcare payers are apoplectic over the rising costs of prescription drugs. America's Health Insurance Plans, the trade association for healthcare payers, has been blasting pharmaceutical companies over drug pricing on a nearly daily basis.
Healthcare providers also are sounding the alarm, with the American Medical Association announcing in November that it would launch an "advocacy campaign to drive solutions and help make prescription drugs more affordable."
Reginald Thump Image: TLB Designs
Drug pricing is already a hot topic in this year's presidential race, with Democratic Party contender Hillary Clinton calling for affordable drug pricing in political advertising and on her campaign's website. Her main opponent, Sen. Bernie Sanders (D, VT) has his own plan to lower prescription drug prices.
To debate the issue, I have assembled a semi-fictional duo with opposing perspectives on drug-pricing trends and their impact on the healthcare industry. The debate format gives each participant about 500 words to answer a handful of questions.
Arguing in favor of the drug-pricing practices of pharmaceutical companies is Reginald Thump, wealthy Manhattan businessman and candidate for president of the United States.
Arguing against the drug-pricing practices of pharmaceutical companies is Jennifer Campbell, analyst for healthcare cost and delivery at the National Business Group on Health.
HLM: Are prescription drug prices trending at unsustainably high levels?
Thump: This country is not as great as it used to be and certainly not as great as I could make it again. Let's face it folks, the ability to innovate is one of America's greatest strengths, and it blows my mind that my opponent and others like her want to beat up on one of the most innovative sectors of our economy.
If we want to focus on unsustainable healthcare costs, we should not be focusing on prescription drugs. Pharmacy-dispensed drugs account for about 10% of total healthcare spending, and the cost of those drugs pale in significance compared to the costs of ER visits and hospitalizations.
Drugs keep people out of the hospital, which generates cost savings for the entire healthcare industry. That's an undeniable fact that pharma's critics want to ignore.
Campbell: The trend is unsustainable.
While drug pricing and utilization both continue to surge, drug spending will increase by 6% or more annually from now until 2022, according to the Centers for Medicare & Medicaid Services. In 2014, U.S. spending on prescription drugs hit $379 billion, a third of which can be attributed to specialty drugs.
Layering on top of this growing financial burden is that these drugs are now being formulated and targeted for chronic conditions affecting much larger patient populations, a trend that will spark continued discovery and growth of specialty drugs.
Under current law, the Food and Drug Administration grants brand-name biologic drugs a 12-year exclusivity period upon approval. Such a long exclusivity period essentially removes the benefits of price competition, resulting in higher drug prices and a failure of less-costly generic versions to reach the market—all of which will continue to endanger affordable coverage options.
When there is a lack of lower cost substitutes for these steeply priced drugs, health plans and employers alike will increasingly struggle to execute drug access and cost management strategies. More and more, we are seeing that even when efficacious, low-cost generics do exist, payment incentives are not always aligned to promote their use.
Jennifer Campbell
HLM: Should there be price controls or windfall-profit taxes in the pharmaceutical sector?
Thump: Price controls would harm patients. U.S. patients have more treatment options and earlier access to medications than patients in any other country on Earth.
The new hepatitis drugs, which we should be celebrating because they cure a dreaded disease, are a great example. The doomsday predictions about these drugs have not come true. All of the patients who need these drugs have gotten these drugs. The market does work.
Campbell: We support neither approach and believe, instead, that the current pricing models are unsustainable and that manufacturers and payers should come to a consensus on pricing.
One promising approach involves manufacturers taking on risk if medications don't deliver as promised and either fail to reduce downstream costs or increase them.
HLM:What is the best way to contain rising prescription drug costs?
Thump: The costs of life-saving medications are not the problem, and the health plans should look in the mirror before they start pointing fingers at pharmaceutical companies.
The way health plans craft benefit designs contributes to increased drug prices. Some health plans require doctors to use an expensive medication when there is a cheaper alternative. Other health plans have placed generic drugs in the highest tier of their drug-pricing benefit designs with brand-name medications.
Campbell: There are a number of best practices that employers follow. In conjunction with their pharmacy benefit manager and health plan provider, employers first seek to provide employees with tools and support to guide appropriate specialty medication management.
Second, [employers seek to] create a comprehensive utilization management framework, complete with prior authorization, step therapy, quantity limit, and exclusion protocols.
Third, [they] implement a custom drug formulary that is designed based on evidence of drug safety and efficacy, and promote patient access to appropriate treatments while effectively controlling costs.
Fourth, [they] promote a more dynamic relationship between patients and their physicians and pharmacists to ensure practical treatment recommendations and compliant drug utilization behavior.
And fifth, [they] focus on site-of-care strategies and the most cost-effective distribution channels, such as specialty pharmacy chains.
HLM: Can prescription drugs be priced based on value, such as how well one drug performs clinically compared to competing drugs?
Thump: Every sector of the healthcare industry is struggling with this challenge. Singling out pharma for the sector's struggle to price prescription drugs based on value is the height of hypocrisy. I'm just saying.
Campbell: In the new value-driven healthcare system, pharma companies are feeling the pressure to demonstrate real, measurable product value. Employers have long been clamoring for more alignment between purchasers and manufacturers.
Finally, we're starting to hear more chatter around this. There are multiple efforts in the United States to make drug price determinations based on value, including the Institute for Clinical and Economic Review and DrugAbacus.
HLM: Are the costs of prescription drugs taking up too large a share of patients' total cost of care?
Thump: Again, the health plans need to take their fair share of responsibility for what is happening with the price of prescription drugs. In this country, the cost of all medications has consistently accounted for about 14% of total healthcare spending.
Patients are enduring higher out-of-pocket costs for their medications because of the way health plans are crafting benefit designs, including high deductibles. The prescription-drug share of the healthcare spend has been consistent, but the patient share of the healthcare spending burden is going up because of the way health plans are changing their benefit designs.
Campbell: The simple answer is yes, although the question is not quite that simple. As one of our forward-thinking employer members has pointed out, we need to understand the downstream costs associated with medications such as medical side effects in addition to the "value add" of the drug.
However, in general, on a per-member, per-month basis, "specialty drugs" are having an impact on patients' total cost of care. In general, increasing drug costs are driving higher costs to health plans as well as to members, both on the medical and pharmacy side.
The better question might be, "how has specialty pharmacy had an impact on the member's total medication cost share over the course of the last year or so?" To which one member responded, "It's going up, and with no end in sight."
A new Medicare payment system for physicians and other frontline providers is slated to launch in January 2019. Given the difficulties involved in crafting the new rules, federal officials have a busy three years ahead of them.
This is not going to be easy.
Last year's passage of the Medicare Access and Children's Health Insurance Program Reauthorization Act (MACRA) has set in motion a lengthy and likely arduous effort to replace Medicare's reviled Sustainable Growth Rate (SGR) formula for physician reimbursement.
Barbara L. McAneny, MD
MACRA has two essential elements: the Merit-Based Incentive Payment System (MIPS), which ties annual Medicare Physician Fee Schedule payments to value, and an incentive program to encourage physicians and other frontline healthcare workers to participate in Alternative Payment Models (APMs) that reimburse Medicare providers based on value of services rather than service volume.
The most daunting challenge facing the federal officials who are crafting the reimbursement rules for MACRA is accounting for the healthcare industry's variety of providers and the country's diverse economy, says Barbara McAneny, MD, FACP, CEO of the New Mexico Cancer Center in Albuquerque and member of the American Medical Association Board of Trustees.
"We need to figure out how we're going to take care of everybody, including the small-town doctor and the pathologist at a small community hospital. Pathologists become a commodity in the accountable-care-organization world, getting paid less and less, and then they give up," McAneny says.
While noting that almost any payment system would be better than the annual high-stakes battle in Congress over adjusting and reauthorizing SGR, the practicing oncologist says she fears officials at the Centers for Medicare & Medicaid Services (CMS) is creating a new Medicare reimbursement monstrosity. "What they should do is offer a menu of payment model options. We are facing a significant physician shortage in this country. … Therefore, we need to make sure we keep every physician as functional and financially sustainable as possible."
SGR Replacement Process Churning
CMS has taken several steps to lay the foundation for the MACRA ruling-making process.
On July 16, the Medicare Learning Network made a presentation to healthcare providers that gave a "general summary" about the MIPS and APM provisions of MACRA. In October, CMS released a Request for Information from the public about MACRA rule-making that generated more than 460 comments. Last month, CMS released a proposed Measure Development Plan (MDP) that seeks to revise and consolidate Medicare quality measures linked to physician reimbursement. The MDP, which is open to public comment through March 1, is designed to "leverage quality measure development as a key driver to further the aims of the CMS Quality Strategy: better care, smarter spending and healthier people," the document states.
The highlights of the statutory requirements of MACRA and the proposed rules to implement the SGR replacement legislation include:
Beginning in 2019, CMS will apply a positive, negative, or neutral payment adjustment to each MIPS-eligible healthcare professional based on a composite performance score across at least four performance categories: quality, resource use, clinical practice improvement activities, and meaningful use of certified electronic health record (EHR) technology.
MIPS will build upon existing quality measure sets from the Physician Quality Reporting System (PQRS), Value-based Payment Modifier (VM), and Medicare EHR Incentive Program for Eligible Professionals (EPs), commonly referred to as Meaningful Use. MACRA will sunset payment adjustments for PQRS, VM, and the EHR incentive program and establish MIPS.
In 2019 and 2020, MIPS is set to apply to payments made to physicians, physician assistants, nurse practitioners, clinical nurse specialists, and certified registered nurse anesthetists. Beginning in 2021, CMS can expand the applicability of MIPS to other healthcare professionals, including certified nurse midwives, clinical social workers, clinical psychologists, physical therapists, and speech-language pathologists.
Creation of a payment incentive program from 2019 to 2024 to encourage physicians to participate in APMs such as the Medicare Shared Saving Program.
Technical guidance and assistance for small practices and practices in health professional shortage areas (HPSAs) to ease MIPS adoption. The proposed technical guidance and assistance would apply to physicians in practices of 15 or fewer professionals, with priority given to practices located in rural areas, HPSAs, and medically underserved areas, as well as practices with low composite scores.
Proposed MACRA Rules Drawing Criticism
Particularly in rural and medically underserved areas of the country, physicians and other frontline providers are going to need more than technical assistance to survive financially under the proposed rules for MACRA, McAneny says. "We're going to need to come up with some capital to redesign the healthcare delivery system."
Linking APM participation to a 5% annual lump-sum bonus for Medicare Physician Fee Schedule payments as proposed in July's Medicare Learning Network presentation on MACRA would not compensate small physician practices adequately for the investments required to redesign the way they deliver healthcare services, she says.
For small practices, financing is often an insurmountable obstacle that blocks participation in accountable care contracting arrangements such as the Medicare Shared Saving Program, according to McAneny. "The infrastructure to build an accountable care organization costs millions of dollars. Where is a little practice going to come up with that money?"
In its response to the CMS Request for Information document released in October, the Reston, VA-based American College of Radiology offers a laundry list of proposed changes to the MIPS and APM provisions of MACRA, including a call on CMS to reduce the administrative burden on physicians. "Administrative burdens must be limited and reporting tasks streamlined so that the delivery of patient-centered care is the principal focus in all clinical settings."
The reporting requirements under MACRA are a potentially fatal flaw for the new law, McAneny says. "The administrative burden from MIPS is going to be overwhelming. … It already costs 14 cents on the dollar [for a physician] to get paid. No other industry would put up with that."
Harold Miller
MIPS may be fundamentally misguided, says Harold D. Miller, president and CEO at the Pittsburgh-based Center for Healthcare Quality and Payment Reform.
"MIPS is pay-for-performance on steroids, and there is a serious risk that it will do more harm than good. It is based on the flawed premise that physicians need 'incentives' to improve quality and control costs, despite years of evidence showing that P4P systems have little positive impact on quality or costs, and that they can have serious negative impacts on patients and physicians," he says.
"The problem with P4P systems like MIPS isn't that the incentives aren't big enough; the problem is they penalize individual physicians for costs and aspects of quality they can't control, and they don't change the underlying fee-for-service payment system so that physicians have the flexibility and resources to actually redesign care in ways that will improve quality and reduce costs in the areas they can potentially improve. MIPS is a particularly bad structure because the only way a physician can get a higher payment is if some other physician gets a lower payment, when the goal should be to have every physician receiving the resources they need to improve care so that all patients can benefit,:"; says Miller.
"In contrast," he says, "properly designed alternative payment models can create a true win-win-win: better care for patients, lower costs for payers, and physician practices that are financially viable. … They do that by fixing the problems in the underlying fee-for-service system to enable physicians to deliver care differently; and they hold physicians accountable, but only for aspects of costs and quality they can truly control."
Despite the difficulties of implementing MACRA, McAneny has a succinct response about whether she would prefer to reinstate SGR: "No. It's a new set of problems, but at least I know my practice is going to continue past January 1 of every year."
CMS officials provided several online links to information about MACRA, but they did not respond to requests for comment before this column's publication deadline.
A Q&A with the distinguished physician, who oversaw publication of the seminal "To Err is Human" report and who has prescriptions to help transform American medicine.
Even in a field sparkling with stars, Kenneth I. Shine stands out.
Shine began his career in Boston, earning his MD degree from Harvard Medical School in 1961 and training at Massachusetts General Hospital, where the cardiologist and physiologist became chief resident in medicine. Shine left the Bay State in 1969, joining the faculty at University of California, Los Angeles School of Medicine, where he was named dean in 1986. After a stint chief of the American Heart Association, Shine served as president of the Institute of Medicine from 1992 to 2002. In 1999, the nonprofit group published the earthshaking exposé on patient deaths linked to medical errors, "To Err Is Human: Building a Safer Health System." From 2003 to 2013, when he announced his (active) retirement, Shine served in several roles at the University of Texas System, including responsibility for six UT Health campuses and a budget of nearly $9 billion as executive vice chancellor for health affairs.
Kenneth Shine
I talked with Shine recently about the ongoing transformation of healthcare financing and processes, and whether healthcare delivery is any safer since the publication of "To Err is Human."
HealthLeaders Media: The shift to healthcare industry business models that emphasize value involves costly investments and complicated administrative processes. Are there sufficient financial resources to support this transformation?
Kenneth Shine: There are adequate resources. We are talking about 18% of the [U.S.] gross domestic product. That is substantially more than other Organisation of Economic Co-operation and Development countries that provide as good or better care in many areas. I don't believe the resources are the issue. The issues have to do with the organization of the system, the misalignment of financial incentives with the outcomes that we want, and the fact that our prices are the highest in the world. A couple of years ago, the average cost for a hospitalization in this country was about $16,000. That's cost—not charges. At that time in France, it was $4,700 and the length of stay was longer. The fact is that we pay far more for what we get, and we don't get the highest quality.
From my perspective, the issue is: Do we have the will to make the kind of changes that are required? This is an exciting time. Even in the absence of Obamacare, the cost of healthcare had risen to such an extent that there was an increased willingness of people to take on that cost. How do you take on that cost? You change the delivery system, you change the reimbursement system, and you make organizational changes. The resources are there … and physicians can make a good living, particularly if they are incented to keep people healthy and get paid for it.
HealthLeaders: Describe the ideal integrated health system of the emerging value-based era.
Shine: First, it does have to be value-based, where value relates the outcomes of care to the costs of care. And the health system has to be judged on the basis of whether it is providing value. Secondly, it has to be able to provide outcomes while maintaining the highest level of quality. The movement toward outcomes can only take place under circumstances in which you know how to measure quality and quality is very much a part of what the outcomes are to be measured. Thirdly, it has to be organized in such a way that it promotes health as opposed to solely treating disease. That's quite closely connected to the notion that the system has to be organized increasingly so that it is responsible for a population of patients, which is not only managed to minimize the costs of care but also organized in such a way that it promotes health.
Finally, the economic incentives, the value we pay for, have to clearly be aligned with the desirable outcomes, which include a healthy population. The incentives also need to have a process that finds the least expensive way to provide quality and takes into consideration the entire state of the individual patient's health. Such a health system has to be patient-centered: It has to be focused around the patient and the patient's needs in terms of where and how the patient gets information, gets advice, and gets treatment. And it has to be focused around the patient and the family in terms of the full spectrum of components that produce health. Only a fraction of those components are medications and procedures. Many of those components have to do with lifestyle and environment, and a truly successful health system would take those kinds of factors into consideration.
HealthLeaders: One of the areas you are working on now is supporting efforts to ease the sharing of healthcare data, such as your recent addition to the advisory board at Austin, TX-based vitaTrackr. Why do you think data sharing is one of the keys to improving healthcare?
Shine: We have a fragmented system—a fragmented industry, with a large number of large cottages. In many ways, it is a cottage industry that uses high technology but lacks organization as a real system. One of the ingredients of a real system would be a method for all of the elements of that system to effectively communicate with each other. The system I'm talking about involves physicians, it involves hospitals, it involves pharmacists, it involves everywhere where healthcare is provided. But it also, if it was a real system, would include social services, nutrition counseling, and a whole variety of elements that are critical to improve health. Having an information utility that can connect all of the different elements of the system so they can communicate with each other is essential. The patient is a key member of that system. I have talked for a long time about the concept that 21st-century care is team care, and the patient has to be a member of that team. That means we need a way to communicate between the patient and the rest of the system.
HealthLeaders: It has been 15 years since the Institute of Medicine's publication of "To Err Is Human." Is the healthcare industry safer today?
Shine: The definition of patient safety and the number of deaths from patient safety have expanded dramatically over what "To Err Is Human" described. What "To Err Is Human" focused on was the failure to carry out an action on behalf of the patient in a safe manner. It focused on medication errors, wrong-side surgery—a variety of those kinds of considerations. At that time, there was an estimate that there were between anywhere from 48,000 to 98,000 deaths. Since that time, the definition of patient safety has expanded dramatically. I am not sure the original [review] committee would have considered ventilator-associated infections as necessarily a medical error. It would have been an important complication, but it has become part of a much expanded definition of what errors are.
Many of the areas where "To Err Is Human" looked have improved substantially, and the overall system is substantially safer than it was 15 years ago. But there still is an enormous amount to do, and as the definition of deadly medical error has expanded, there are more and more things that we recognize that we have to do.