The lines are blurring between payer and provider perspectives on total cost of care as healthcare's payment model shifts from volume to value. Now, using a payer's methodology, providers are mastering TCOC accounting.
For decades, commercial payers have been trying to track the total medical-services "spend" of individual beneficiaries and beneficiary cohorts on an annual basis.
Providers are catching up.
The total cost of care [TCOC] calculation accounts for a beneficiary's spending in every healthcare setting along the entire care continuum, and can yield operational and competitive advantages to those who know how to apply it.
Katherine Hempstead
"Payers use [TCOC] to identify their most expensive beneficiaries. They use it to evaluate how providers are performing," says Katherine Hempstead, health insurance program director at Princeton, NJ-based Robert Wood Johnson Foundation.
Under fee-for-service medicine, providers have had far less compelling incentives than payers to focus on TCOC. "As a provider, you have to be in a risk relationship for it to be relevant," Hempstead says. Growth in risk-based contracting such as bundled payments has hospitals and physician practices focusing on costs more intensely than ever, she says.
But [providers are] "increasingly involved in risk contracts. Basically, in bundling, you are bidding jobs. You have to give a number and be able to make that number; and to make that number, you have to know your costs… You don't want to be systematically losing money on each procedure."
Now, using a payer's methodology, providers are mastering TCOC accounting.
Rooted in Insurance
Founded as a health insurance cooperative in 1957 and operating today as an integrated health system based in Bloomington, MN, HealthPartners is the national leader in measuring TCOC. HealthPartners provides medical and dental insurance to 1.5 million beneficiaries in Minnesota, Wisconsin, and the Dakotas, with a seven-hospital health system serving more than a million patients.
In January 2012, the National Quality Forum endorsed cost and resource use indexes developed at HealthPartners, marking the first attempt to standardize TCOC measurement across the country.
And in 2013, the Portland, Maine-based Network for Regional Health Improvement (NHRI) launched the Total Cost of Care Pilot program, which is designed to collect TCOC information for primary care practices. The initiative started with regional partners in five states and has added partners in six more states this year. It enables participants to share TCOC information so they can compare themselves against their peers and bear down on costly elements of their practices.
"Physicians need to see where they are spending. This information helps them manage overall costs," says Ellen Gagnon, senior project and operations director at NRHI, and project leader of the Total Cost of Care Pilot program.
For primary care practices, TCOC accounting can be a powerful decision-making tool, says Meredith Roberts Tomasi, program director at Oregon Health Care Quality Corporation, a founding partner in the Total Cost of Care Pilot program. "This information can verify assumptions they already had and guide improvement efforts," she says.
For example, TCOC data can identify cost-saving opportunities for coding improvements and it can ferret out high-priced specialists. And, she adds, "accountable care organizations want to share this information to address cost variability. It's really up to the practices to decide how this information is used moving forward."
Identifying Cost-Cutting Opportunities Analyzing TCOC information helps primary care physicians compare their practice's costs to the average costs of other practices in their markets, allowing them to "drill down on those costs," says Doug Rupp, senior healthcare analyst at Oregon Health Care Quality Corporation. "Identifying high costs creates opportunities to reduce inefficiency and waste. When you find physicians with lower costs, we can learn from them."
The longtime secrecy surrounding healthcare-service pricing deals between payers and providers is one of the biggest hurdles in tracking TCOC, Gagnon says.
"Historically and still, what health plans pay to health systems and providers has been closely held information—confidential and protected. That has made [controlling costs] more difficult than the patient experience and quality goals of The Triple Aim… We are moving out of the infancy stage [in accounting for provider costs]. More standardization will reduce the complexity of reporting. What's really challenging is bringing multiple payer information sets together."
TCOC data can help primary care physicians benchmark costs, peg the average cost to care for a group of patients, and assess the factors that impact negotiated prices for medical services, Rupp says. "[TCOC] is different than price and it's different from what goes into services."
Intermountain Healthcare's Cost Quest
Rather than tracking TCOC to gauge the total annual healthcare spend for the patient population in their markets, a handful of health systems have been measuring and monitoring the total cost of their medical services. This form of cost accounting helps health systems track total spending by healthcare setting, as opposed to TCOC's actuarial objective to track the total spending of patients over an entire healthcare market.
Salt Lake City-based Intermountain Healthcare has been tracking the cost of procedures, materials, and patient services since the early 1980s, says Greg Poulsen, senior vice president and chief strategy officer at the not-for-profit integrated health system. He compares Intermountain's cost-accounting methodology, to supermarket pricing.
"It's like a smorgasbord," Poulsen says. By pricing out the cost of 18,000 procedures, materials, and services, Intermountain "can understand, in real time, the costs of two different physicians… We can calculate the cost of having twins rather than [the cost of] having a single baby."
Greg Poulsen
For providers, there are several operational and competitive advantages to tracking costs closely, he says. "We've been doing it nonstop for 30 years. It gives good analytical capabilities and an early warning system for changes, whether they're good or bad. [Instances of] identifying new approaches have yielded cost improvements and quality improvements simultaneously."
High prescription drug prices have been healthcare-industry headline fodder since the marketing of the hepatitis drug Sovaldi in 2013. Intermountain detected the oncoming wave of costly medications at least a year earlier, Poulsen says. "We started to see the first wisps of that about three and a half years ago in some areas. Sovaldi and Harvoni are the [iconic costly drugs] now, but we saw cost increases in generic drugs. We were able to identify some of those. We identified that there were a number of drugs that had been around a long time or generic drugs that had all of a sudden become more expensive."
With a wealth of cost information stretching back three decades, Intermountain can conduct valuable analytical exercises, he says.
"We can slice it and analyze it in ways that we now know may be useful, which is what we did in the area of mental health integration [with primary care]. What the data shows is the cost of primary care goes up somewhat, not surprisingly. But hospital visits go down dramatically. The number of ER visits goes down significantly. If you look at the whole, it ends up saving thousands of dollars per year [per patient]. It's good to have real cost savings information available. The lack of this information has led to some of the strange cost anomalies we have seen, with high prices at some doctors [practices] and hospitals. That ends up in the lay press as shocking information."
As the retooling of the healthcare industry with telemedicine capabilities advances, the technology is supplementing rather than supplanting traditional modalities of medical service delivery.
As a veteran of the newspaper business, I have experienced the fear and loathing of outsourcing firsthand: market-driven consolidation of an industry and the rounds of layoffs that follow.
The outsourcing of some medical services through the use of telemedicine appears to be moving in a kinder and gentler direction.
Bloomington Radiology of Normal, IL, started contracting telemedicine services from Eden Prairie, MN-based vRad about eight years ago. A measure of handwringing at the radiology practice accompanied the deal, says Practice Administrator William Wilson. "It was a nervous move for a variety of reasons, but it's turned into a source of supplementing the practice," he says.
William Wilson
For Bloomington Radiology, the partnership with vRad has boosted staffing of the practice and expanded the range of services the practice offers.
The ability to rely on vRad radiologists to cover shifts on nights, weekends, and holidays has been a significant business gain for the practice, Wilson says. "It provided an opportunity to provide services 24/7… and costs far less than having an in-house person cover those shifts."
With a telemedicine partner, Bloomington Radiology is capable of providing more services with fewer staff radiologists, he says. The practice peaked at 15 staff radiologists several years ago, but employs 11 physicians now while delivering a 10% increase in service volume. The vRad partnership also helps control staffing costs, Wilson adds. "We know exactly what our costs are going to be with vRad… The work gets done. There are no 'I'm sicks' and no 'I quits.'"
With vRad radiologists available at all times, Bloomington Radiology is providing patients every kind of subspecialty exam except advanced pediatric care, he says. The practice provides services at three hospitals, including a facility that treats a high volume of neurology patients, and the ability of vRad to expand Bloomington Radiology's neurological exam capacity has become crucial to the practice's success. "That demand is really hard to handle, but vRad helps us meet [it]."
Despite all of telemedicine's advantages, Wilson says there will be limits within radiology for the foreseeable future. "I'm a huge advocate of outsourcing, but it has to be proper outsourcing." It is critically important, he says, for radiology practices to have staff radiologists working closely with their local hospital partners. "Relationships are everything in this business. You have to be careful in outsourcing the group's functions."
Telemedicine's Scale, Scope, and Efficiency
With 350 physicians, vRad provides services to 2,000 healthcare facilities in the United States and 10 other countries, according to Chief Information Officer Shannon Werb.
The majority of vRad clients are radiology practices that need "subspecialty coverage in the middle of the night," he says. "We're the market leader. We have made considerable investments in technology. We provide the complete service 24/7."
The telemedicine outfit provides more than clinical services, says David Trachtenberg, vRad's chief solutions officer. "We're more than a clinical provider; we provide insights for our clients," he says.
vRad has access to a wealth of radiology exam information and collects data that allows clients to track performance metrics and compare that data against their peers. "We're an information provider to help clients make better decisions, whether that's on the cost side or the revenue side… Clients are actually managing their service lines with the information we're able to provide them," Trachtenberg says.
'We're Active. We're Involved.'
Bloomington Radiology uses vRad analytics to help show its hospital partners how they can improve their performance. vRad tracks key metrics such as exam volume, which can identify hospital physicians who are ordering the most radiology exams. "It shows that we're active; we're involved," Wilson says.
The scale, scope, and efficiency of vRad's services generate financial gains for health systems, hospitals, and radiology practices, Trachtenberg says. "We're able to deliver services in a much more cost-effective manner because of our scale," he says, noting the costs associated with recruiting and paying full-time subspecialists such as neuro-radiologists. "We provide [that expertise] on-demand."
Benjamin Strong, MD, who serves as vRad's chief medical officer, says the telemedicine outfit offers a uniquely broad range of clinical services, including 24-hour coverage for several hospital neuro-stroke centers. "It is very important to these hospitals to have this service… It is an unreasonable expectation that hospitals and radiology practices will have the full gamut of services," he says, "We run the whole gamut."
Telemedicine for Language Interpretation
Atlanta-based Northside Hospital health system began ramping up its use of virtual remote interpretation (VRI) on iPads last December. "We've been heavily using this technology for almost a year, says Interpretation Services Coordinator, Darrin Bearden. "Because we’ve only used the technology for a year, we can’t yet attest to the financial benefits – but I do know we are more efficient."
In a partnership with Clearwater, FL-based Stratus Video Interpreting, Northside started using VRI in the health system's Atlanta hospital emergency department about three years ago to help serve patients who communicate in American Sign Language. "Last December, we introduced 145 iPads all at once," he says.
A decline in the average duration of interpreter encounters with patients shows that the VRI service has improved efficiency. The hospital tracks the duration of in-person, telephone and VRI interpretation encounters. "I've seen the average duration go down five minutes. We did the same amount of work [on iPads] in less time."
Northside operates three hospital campuses and "is currently purchasing physician practices all over Metro Atlanta. We're also purchasing imaging centers," Bearden says. Sending an interpreter to an off-campus physician practice is usually not cost-effective when accounting for the costs of travel, parking, and waiting for the physician visit to begin. "It's not cost-effective for us to send someone. [With VRI], we're only paying for what we really need. It reduces that down-time cost."
'Looking for the Balance'
With Stratus offering VRI for 17 languages and Northside serving a patient population that speaks 90 languages, the health system has no plans to stop hiring staff members to conduct in-person interpretation. Bearden says there will always be a need to have staff interpreters.
"It's an enhancement to our services. Traditionally, we had the telephone and the in-person. Obviously, those are two extremes… I do not want to get rid of the in-person interpreters. In-person communication is a more caring, empathetic approach. I'm looking for the balance between the video and the in-person interpreters."
As telemedicine matures in the years to come, the outsourcing balancing act is likely to play out in every sector of the healthcare industry.
"What has emerged, more and more, are atypical relationships that aren't focused on ownership; they're focused on leveraging the strength of our partners," says one senior executive.
This article appears in the October 2015 issue of HealthLeaders magazine.
For health systems across the country, clinical affiliations have emerged as an attractive alternative to mergers and acquisitions, which come with ownership stakes attached.
Most health system clinical affiliations feature relationships with local medical service providers that help the hospital group cost-effectively fill gaps in the organization's care continuum, such as partnerships with independent urgent care centers. Junior partners gain several financially related benefits from health system clinical affiliations, including service volume growth and the ability to maintain most, if not all, of their independence.
"There is a tremendous amount of potential from partnerships," says Thomas Blincoe, executive director of outreach for The Ohio State University Wexner Medical Center and executive director of Ohio State Health Network, a regional affiliation of 15 community hospitals centered around Ohio State University Wexner Medical Center in Columbus. "What has emerged, more and more, are atypical relationships that aren't focused on ownership; they're focused on leveraging the strength of our partners."
For the fiscal year ending June 30, 2015, OSU Wexner Medical Center posted total gross revenues of $7.3 billion.
Two of the country's largest hospital associations are applauding recent changes to the two-midnight rule, but they say the Medicare payment regulation for short hospital stays remains a work in progress.
The beginning of the end could be in sight.
Changes to the two-midnight rule announced Oct. 30 are welcomed, but fall short of fixing the Centers for Medicare & Medicaid Services' regulation, according to two hospital associations.
Controversy has swirled around the rule from the start, with many healthcare providers calling for the hospital admission guidelines to be significantly revised or scrapped.
Priya Bathija
"It's been a long process to get to this point, where CMS is making meaningful changes. It's a good first step and a move in the right direction," says Priya Bathija, senior associate director for policy at the American Hospital Association.
A bit of history before diving into the changes: In October 2013, CMS officials implemented new guidelines to determine when a short hospital stay qualifies for payment under Medicare Part A, which reimburses hospitals at a higher rate than Medicare Part B. Under the guidelines released two years ago, hospital stays spanning less than a period of two midnights were not considered appropriate for Medicare Part A reimbursement.
The original rule riled providers and presented hospitals with a revenue problem. CMS heard the discontent and in early 2014 announced that enforcement of the rule would be delayed while it sought to clarify admission guidelines.
The updated rule, set to go into effect Jan. 1, has two key elements.
First, hospital stays that span a period of less than two midnights could be eligible for reimbursement under Medicare Part A based on a physician's clinical judgment, which will be subject to review on a case-by-case basis. According to the changes announced Oct. 30 as part of the 2016 Outpatient Prospective Payment System final rule: "The physician's decision should be based on such complex medical factors as patient history and comorbidities, the severity of signs and symptoms, current medical needs, and the risk of an adverse event," the 2016 OPPS final rule states. "The decision to admit the patient as an inpatient must be supported by the medical record."
Last week, a CMS spokesman told me that other factors will also be considered, including "the need for diagnostic studies that appropriately are outpatient services in rendering their payment determination. Additionally, CMS will examine and evaluate applicable claims data and any other data available in order to determine whether any patterns of case-by-case exceptions exist that may be adopted as national exceptions."
In the second major change, the initial federal review of disputed hospital admissions under the two-midnight rule is being shifted from Medicare's Recovery Audit Contractor (RAC) program to the agency's Quality Improvement Organization (QIO) program. Hospital officials have been highly critical of having RACs control the entire review process. These officials have accused auditors of overly zealous enforcement because they bank a percentage of short hospital stay reimbursements that are deemed inappropriate for Medicare Part A billing.
Both of the changes to the two-midnight rule are positive, to a point, Bathija says.
Welcome Changes
"Our members are currently using a variety of tools to determine whether someone should be admitted as an inpatient [and be eligible for Medicare Part A reimbursement]," she says. "We believe CMS should allow for a wide variety of tools."
In the 2016 OPPS final rule, CMS officials have struck the right balance in giving physicians leeway for exercising clinical judgment for short hospital stays, Bathija says. "That is the right language. We are happy that CMS has left this broad."
Ivy Baer, senior director for government relations and public policy at the American Association of Medical Colleges in Washington, DC, says allowing physicians to exercise clinical judgment in administering short hospital stays is a leap forward. "I would not characterize the change as an exception to the two-midnight rule, but as a recognition of the importance of physician judgment… regarding the appropriate care and care setting for any particular patient. There are no specific criteria, nor should there be, as relying on judgment requires a case-by case decision."
Tweaking the rule to account for clinical judgment is appropriate, but CMS is moving too quickly, Bathija says, noting that AHA has asked the federal agency to delay the rule changes until March 31. "We need to re-train physicians on how to determine patient [admission] status."
Taking RACs out of the initial review process of claims that may violate the two-midnight rule is a "very positive change," Bathija says. "It will diminish the high volume of denials from the RACs. We're hopeful there will be a smooth transition."
Unlike the animosity that has been building between hospitals and RACs, most hospitals have good relationships with their QIOs, which use physicians to review claims, she says.
While the AHA applauds inserting QIOs into the initial review of claims disputed under the two-midnight rule, the hospital association has adopted a watchful-waiting stance, Bathija says. "One of the key unknowns is the referral process from the QIOs to the RACs. At this point, we don't know how that is going to work."
The CMS spokesperson told me that the agency expects a sharp reduction in RAC involvement in claims disputes involving the two-midnight rule, at least in the short run:
"QIOs will refer providers to the recovery auditors based on patterns of practices such as high rates of claims denial after medical review or failure to improve after QIO assistance… Accordingly, we do not expect substantial recovery auditor medical review activity for such claims for several months. CMS believes this will result in a common understanding for when inpatient admissions are appropriately payable under Part A consistent with the two-midnight rule."
Skepticism Remains
The AHA and AAMC are cautiously optimistic about the changes to the two-midnight rule, but other members of the medical community are skeptical at best.
Ronald Hirsch, MD, FACP
CMS should be more specific about how physicians exercise clinical judgment on patient admission status, says Ronald Hirsch, MD, FACP, a vice president at Chicago-based Accretive Health and former medical director at Advocate Sherman Hospital in Elgin, IL. "CMS has provided two criteria for when this exception can be used: 'rare and unusual' with no definition of how rare something must be, and 'risk' and 'severity of signs and symptoms' without any indication of how high a risk or how severe the signs and symptoms. Without concrete guidance on these, I would advise hospitals [to] never use this exception."
More changes to the two-midnight rule seem inevitable, he says.
"No system will ever be perfect; for any iteration there will be confusion and potential ways to game it, but simplicity should be the goal. The [Oct. 30] changes made things more confusing. Every exception added creates more confusion. Instead of adding exceptions, CMS should adjust reimbursement for those services."
"For example," says Hirsch, "instead of an exception for unexpected mechanical ventilation, CMS could have just increased the outpatient payment for any patient that required mechanical ventilation. With this new exception, CMS could have designated specific one-day stays that are high-risk and/or severe, and increased payment for those specific diagnoses, such as acute myocardial infarction or stroke."
Apparently, the final chapters of the two-midnight rule saga have yet to be written.
For more details, see the CMS final rule that is set to be entered into the Federal Register this week.
Health system revenue cycle teams are deploying several strategies to maximize revenue in financially lean value-based business models, such as building strong financial relationships with patients to boost point-of-service and billing collections.
This article appears in the October 2015 issue of HealthLeaders magazine.
With the shift from volume to value in healthcare, efficiency gains and a widening scope of responsibility are transforming revenue cycle operations. Health system revenue cycle teams are deploying several strategies to maximize revenue in financially lean value-based business models, such as building strong financial relationships with patients to boost point-of-service and billing collections. Information technology is playing a key role in the transformation process.[Sponsored by Bank of America Merrill Lynch]
In the "Great Capitation Debate of 2015," a semi-fictional duo goes head-to-head with opposing perspectives on the dawning of the value-oriented era of healthcare.
With public payers accelerating adoption of value-based payment models and commercial payers launching their own value-based initiatives, the delivery of medical services is shifting away from fee-for-service payment, the economic model that has dominated the healthcare industry for generations.
James "Larry" Holly, MD
The shift away from fee-for-service payment has reignited interest in capitation, one of the economic building blocks of the health maintenance organization era in the 1980s and 1990s.
To debate the issue and peer into the future of the healthcare industry, I've assembled a semi-fictional duo with opposing perspectives on the dawning of the value-oriented healthcare era. The format gives each debater about 500 words to answer a handful of questions about the role capitation could play in the evolving economics of the healthcare industry.
Arguing for capitation, and maintaining that its time has come with a vengeance for a second time is James "Larry" Holly, MD, CEO of Beaumont, TX-based Southeast Texas Medical Associates (SETMA).
Reginald Thump Image: TLB Designs
Arguing against capitation on the belief that it is no more than a partial substitute for unfettered fee-for-service medicine is Reginald Thump, wealthy Manhattan businessman and candidate for president of the United States.
HLM: Is healthcare capitation here to stay this time around?
Thump: First ofall, let me say I don't have a plan for the future of the healthcare industry, but I have a vision for a plan, which is great for the American economy and great for the American people.
Traditional capitation is a hugely problematic payment system—hugely problematic. Under this model, a healthcare provider receives a fixed payment for every patient, regardless of health, and the provider is expected to provide all of the care that patient needs.
If providers get very sick patients, they can go bankrupt. This creates unfortunate incentives to cherry pick patients and to deny patients needed care.
Not even health insurance companies are willing to accept true capitation payments for Medicare patients. All payments to Medicare Advantage plans are risk-adjusted. Yet many Medicare Advantage plans try to pay providers on a traditional capitation basis, which means the health insurance company profits by giving more risk to the providers than the health insurance plan takes from Medicare.
The new health insurance exchanges have risk-adjusted transfer payments to protect health plans from adverse selection, but capitation contracts do not have similar protections for providers. Health plans have large reserves to protect themselves from random variation in costs, but providers have no similar reserves to manage risk under capitation.
On the other hand, health systems and multi-specialty providers can take risk-adjusted global payments from Medicare or a commercial health plan. Under risk-adjusted global payment, the provider receives more money for sicker patients to reflect the fact they need more care.
No individual physician can accept capitation or even a risk-adjusted global payment. Capitation or risk-adjusted global payments have to be accepted by a large group of physicians, an independent physician association (IPA), or a health system. And that means there still has to be a way to pay the individual physicians and hospitals for the services they deliver. Many physician IPAs accept capitation payments from health plans, but they still pay individual physicians using fee-for-service, which means fee-for-service is here to stay.
Holly: Capitation will last "this time around," but only if it is joined with a value-based payment system with quality-outcomes bonuses and analytics-based demonstration of continuous performance improvement.
SETMA, founded in August 1995, began working in a capitated, global-risk care model in March 1996 through an IPA. By 2000, a fifth (20%) of our payment came from capitation, which grew to a present-day 40%.
When we began in 1995, we measured performance by volume, including charges, collections, patient visits, and X-ray and laboratory tests. By October 1997, we were failing financially. We had not changed the cost curve and our IPA was losing money every month.
SETMA decided to "capitate" laboratory services for IPA members, a decision that cost SETMA $50,000 in profit a month. It was hard, but it was critical to the success of our IPA and to changing to a value-based model of care. With this capitation approach, the IPA was solvent and growing in 90 days.
HLM: Are there adequate information technology capabilities in the healthcare industry to amass, analyze, and distribute the data necessary to support capitation?
Thump: Data systems are much better now than in the past, but data systems are only as good as the data that the dummies running healthcare have been collecting.
In many cases, key characteristics of patients that affect how much it will cost to care for them are not collected, which is huge! HUGE. For example, the stage of cancer is a key factor determining the cost of cancer treatment, but stage of cancer is not coded even under ICD-10. So a data system that depends on ICD-10 codes will not be able to accurately determine whether the cost of cancer care is too high or to predict whether a capitation payment will be adequate to cover the costs of treatment.
The importance of an IT system depends on whether it is the primary method being used to control costs, or whether all of the individual physicians are working to control costs within their practices. If the individual physicians are working to control costs, then the data system is only needed to help with care coordination.
Holly: Healthcare IT is mature enough to provide support for capitation, analytics, and pay-for-performance contracting.
The foundation of successful capitation is analytics. One of the deficiencies with the previous experience with capitation was that primary care providers often simply referred patients to specialists without seeing them.
In May 1999, SETMA defined 10 principles of practice growth and medical record development. In 2000, we expanded our statistical analytics to populations of patients.
Combining capitation with population management and performance improvement creates a perfect platform for payment by quality rather than quantity, or payment for value rather than volume. This approach eliminates the historical abuse of capitation.
HLM: Can a sustainable customer-experience model be crafted to support capitation?
Thump: Absolutely. You just do it!
If the global payment structure is used to pay individual providers in ways that support better patient care, the patient experience can be better. Under a properly structured payment model, patients will not be denied care by a distant bureaucracy's dummies trying to control costs.
But you have to cut a good payment deal. Whether payment is through fees or capitation, if payment is high enough, a good customer experience can be offered. If payment is too low, patients will have a bad customer experience.
Holly: Patient-centric healthcare is the ideal model for "sustainable customer-experience" in a capitation environment.
Transformation is self-sustaining, generative, and creative. In this context, SETMA believes that efforts to transform healthcare may fail unless four strategies are employed:
The methodology of healthcare must be electronic patient management.
The content and standards of healthcare delivery must be evidenced-based medicine.
The organization of healthcare delivery must be based on patient-centered medical homes.
Capitation is the best payment methodology for healthcare delivery paired with additional reimbursement for quality performance and cost savings.
HLM: Is capitation unsustainable in some local markets, or is it a universal payment model for the healthcare industry?
Thump: Capitation or global payment is designed to support the entire range of services that a group of patient needs. In rural communities, not all of the services are delivered locally, which makes it difficult for any local provider to accept responsibility for the cost and quality of all services.
Capitation is not a universal payment solution for healthcare. In some markets, it will be a two-time loser.
Holly: Finally some common ground with Thump! The limitations of capitation are based on volume of patients, not volume of services. There is nothing unique about one market or another, except in the case of rural areas, where the numbers of patients are so small that they may make payment by performance and cost savings difficult to compute.
New Jersey's Blue Cross Blue Shield affiliate is taking a cooperative approach to episodes-of-care contracting with orthopedic surgeons and other medical service lines, generating care benefits for patients and sustainable financing for healthcare providers.
With Medicare making many hip and knee replacement procedures subject to mandatory bundled-payment contracting, Horizon Blue Cross Blue Shield of New Jersey has created a bundled-payment offer that is far more attractive to physicians.
"Horizon actively engaged the physicians first—before initiating the program," says Stephen Zabinski, MD, a practicing surgeon at Shore Orthopaedic University Associates and co-author of a January 2015 bundled-paymentsreport in The Journal of Arthroplasty.
Stephen Zabinski, MD
"It's been a positive experience working with them," he told me.
Zabinski's Somers Point, NJ-based practice is one of five charter members of the bundled-payments program for hip and knee replacements that began at Horizon about five years ago, according to Lili Brillstein, Horizon's episodes of care program director. "It has changed the nature of the relationship. I've heard a lot of doctors say they have a lot of satisfaction with the Horizon program," she says.
She says Horizon has one of the widest arrays of bundled-payment models nationwide, including contracts for cardiology, colonoscopy, obstetrics, oncology, and orthopedics. Bundled payment for congestive heart failure (CHF) and oncology services are the newest models at Horizon. "They're all growth programs," Brillstein says.
In the journal report, Zabinski and co-author James Doran concluded: "We have been able to successfully decrease the cost of the [hip and knee replacement] episode of care in comparison to our historical averages prior to 2011. This cost reduction has primarily occurred through decreased length of inpatient stay, increased discharge to home rather than to a skilled nursing or inpatient rehabilitation facility, reduction in implant cost, improvement in readmission rate, and migration of cases to lower cost sites of service.
"Participation in the bundled payment program has resulted in higher practice reimbursement through shared savings payments. Our practice's total joint volume during this time has grown and patient satisfaction and functional outcomes have remained strongly positive."
Surgeon's Critique of CMS Bundled Payments
Flexibility is one of many advantages of working with Horizon as opposed to the Centers for Medicare & Medicaid Services (CMS), Zabinski says. "Horizon New Jersey is a smaller entity than the federal government, so it's much easier to work with them and request modifications of the program."
In particular, the surgeon says, financial components of the Horizon hip and knee replacement program are more flexible than CMS' Comprehensive Care for Joint Replacement (CCJR) model, which is set to take effect Jan. 1, 2016.
A crucial consideration for physician practices is that Horizon's bundled payment contracts cushion the financial blow of cost-outlier cases, he says. In stark contrast to CCJR, the Horizon contracts also exclude complete joint replacement for the most costly acute episodes of care, such as fall-related broken hips and bundle-budget-busting "revision" knee replacements that require implants and lengthy recovery times.
"Dealing with outliers is not addressed in the Medicare model. If you don't throw out the outliers, the government wins. … The Medicare model doesn't allow for ambulatory surgery center procedures. … The Medicare population is a bunch of different patient populations," Zabinski says, noting that an active 67-year-old with no chronic conditions is a far cry from an 87-year-old with multiple chronic conditions who needs joint replacement to improve quality of life. "What one person needs is often not the same as what another person needs."
Zabinski has several other reservations over the proposed rules for CCJR:
Benchmarking blemishes such as a two-year historical performance standard and inadequate allowance for practices that start bundled-payment contracting at high efficiency levels. "When Medicare comes in and applies that model to me, I have nowhere to go," says Zabinski. His practice has adopted the care-redesign elements of the Horizon bundled-payment program for all patients, including preoperative patient engagement to screen patients for risk factors such as obesity and diabetes, wellness interventions to limit risk factors, and empowering physicians to quarterback care management. "Ultimately, the physician is engaged in the care of the patient more than the hospital."
CCJR's mandatory imposition in dozens of urban markets nationwide in January is too much too fast, he says. "I don't have much of an issue with this being a mandatory program, but I think it should be phased in. It's set to go into effect January 1, 2016, and many practices are not going to be ready for it."
Putting hospitals in the administrative driver's seat for bundled payments is an "egregious error" in CCJR. "There must be a hospital-physician co-management structure in place."
Changing the Dynamic Between Provider and Payer
For bundled payments to be successful at physician practices, "there's real transformation that has to occur," Brillstein says. Horizon urges physician practices to embrace episode-of-care payment contracting, data-sharing, and best practices for quality and care management, and to post positive clinical outcomes. "It's quite remarkable. We really are changing the dynamics between two sparring partners."
Horizon's bundled-payment contracts feature upside risk only, quarterly retrospective reporting and reimbursements, patient stratification, and efficiency-promotion measures. "Invariably, there are savings to be found," she says, noting that standardization and optimization lower costs.
Horizon's oncology bundle has a sophisticated patient-stratification mechanism out of necessity, she says. "In cancer, it can be very different if you are Stage 1, Stage 2, or Stage 3. [Cost of care also] depends on the kind of the tumor. It's biomedical stratification."
Horizon is set to launch monthly respective reporting by the end of 2015. "We're very close to it."
Finding the Triple Aim in Bundled Payments
Horizon's bundled-payment contracts for hip and knee replacement exemplify how value-based payment models can be crafted economically and benefit patients, Zabinski says.
"Patient satisfaction and quality care is aligned with cost reduction. … The better a patient is prepared for surgery, the better the clinical outcome. There is improved surgery technique and decreased complications. You can increase quality, increase patient satisfaction, and decrease costs all at the same time."
Value-based payment models have the potential to improve the historical shortchanging of U.S. patients, he says. "Our health system has been tremendously wasteful. [The healthcare industry has provided] suboptimal care at high cost. In the cases of CHF and diabetes, these conditions have not been managed the way they should be managed."
Horizon views bundled-payment contracting as a step forward for the healthcare industry and patients alike, Brillstein says. "It's more like managed care was meant to be: collaborative."
"What has emerged, more and more, are atypical relationships that aren't focused on ownership; they're focused on leveraging the strength of our partners," says one senior executive.
This article appears in the October 2015 issue of HealthLeaders magazine.
For health systems across the country, clinical affiliations have emerged as an attractive alternative to mergers and acquisitions, which come with ownership stakes attached.
Most health system clinical affiliations feature relationships with local medical service providers that help the hospital group cost-effectively fill gaps in the organization's care continuum, such as partnerships with independent urgent care centers. Junior partners gain several financially related benefits from health system clinical affiliations, including service volume growth and the ability to maintain most, if not all, of their independence.
Thomas Blincoe
"There is a tremendous amount of potential from partnerships," says Thomas Blincoe, executive director of outreach for The Ohio State University Wexner Medical Center and executive director of Ohio State Health Network, a regional affiliation of 15 community hospitals centered around Ohio State University Wexner Medical Center in Columbus. "What has emerged, more and more, are atypical relationships that aren't focused on ownership; they're focused on leveraging the strength of our partners."
For the fiscal year ending June 30, 2015, OSU Wexner Medical Center posted total gross revenues of $7.3 billion.
Healthcare industry survey data reflect the growing interest in clinical affiliations. In a HealthLeaders Media Intelligence Report published in February, The M&A and Partnership Mega-Trend: Deals for Growth and Survival, 38% of survey respondents said their organization's most recent activity was a contractual relationship but not an M&A deal. In comparison, 34% of respondents said their organization's most recent activity was an acquisition, and 10% said it was a merger.
Partners tackle new challenges
As health systems seek valuable clinical partners beyond their hospital walls, many organizations are affiliating with familiar allies: other health systems and hospitals.
Last summer, OSU Wexner Medical Center signed an affiliation agreement with Ohio Valley Health Services & Education Corporation, which operates community hospitals in Wheeling, West Virginia, and Martins Ferry, Ohio. The relationship, which began about three years ago when Ohio Valley joined the Ohio State Health Network, has initially focused on improving oncology services at Ohio Valley's community hospitals.
The West Virginia not-for-profit corporation's duo of community hospitals has 340 licensed beds combined, and Ohio Valley employs 1,600 people.
"Cancer was the service line that made the most sense right out of the chute," Blincoe says. "One of the things we ask our potential affiliation partners is what their priorities are. Ohio Valley wanted a cancer affiliation."
From a strategic perspective, a key goal of the Ohio State-Ohio Valley clinical affiliation is to allow Ohio Valley's oncology patients to stay close to home for most cancer treatments, while also creating easier access for Ohio Valley patients to receive top-notch tertiary care at The Ohio State University Comprehensive Cancer Center in Columbus. OSUCCC includes the James Cancer Hospital and Solove Research Institute (also known as the James), an acute care facility with 306 inpatient beds and 17 emergency department beds.
"Our goal is to keep the patient at Ohio Valley if and until he or she would need specialized treatment at the James," says Jeff Walker, senior executive director of business administration at the James. "The support structure for patients—their family and friends—is in the community. … It's just not realistic for patients to travel two hours to Columbus every time they need a cancer treatment."
The master affiliation agreement that the partners signed in June 2014 features an up-to-eight-member advisory council with equal representation from Ohio State and Ohio Valley, according to Lisa Simon, a 25-year healthcare industry veteran who serves as CFO for Ohio Valley. She says the advisory council reports directly to each partner's board of directors, noting there is no governance stake linked to the clinical affiliation. "They don't control us. They don't have board seats on our board of directors."
Melissa Childress
Ohio State and Ohio Valley formalized their oncology clinical affiliation last fall.
As the term clinical affiliation implies, Simon says the Ohio State-Ohio Valley partnership is primarily focused on improving clinical services, with financial impacts considered a secondary concern. "We looked at things clinically, then we looked at things financially. … We looked at it from the perspective of what we could do to improve clinical care in the community."
With most clinical affiliations designed primarily to achieve clinical goals, including initiatives in untested territory such as population health, finance executives face a dual challenge. First, they have to track murky monetary impacts, and then they have to variously mitigate and maximize the impacts
to achieve the best possible financial outcomes for their organizations.
Melissa Childress, associate executive director of business development at the James, says many clinical affiliations and the models that inspired them are in their infancy, making financial impacts hard to determine.
"One of the challenges at this stage in the country's healthcare reform efforts is the focus. It's usually either higher quality or lower cost, but there has not been enough work on the downstream financial effects of a value-based healthcare delivery system," Childress says. "We haven't had enough time to develop the metrics. We're in the middle of an evolution of healthcare."
Simon says she is monitoring a dashboard of metrics to gauge the financial impact of the Ohio State-Ohio Valley clinical affiliation, including doctor professional fees, chemotherapy infusion costs, and physician office visit volume. But the CFO says she is still gathering data to fill in all of the pieces in the clinical affiliation's financial impact puzzle.
Ohio Valley hiring an Ohio State radiation oncologist—a major clinical boost from the clinical affiliation—has tremendous clinical upside for the organization's community hospitals but far foggier financial effects, Simon says.
"They identified an individual who wanted to be here, and we vetted her. She is employed by Ohio State, but we pick up the cost. … Prior to last year, we did not employ a radiation oncologist. It's not like this relationship has been in place for a few years," she says. "When we hired the radiation oncologist, our labor costs went up; so in addition to new revenue from this affiliation, we have new costs to consider. We had to hire new pharmacists, and hiring pharmacists is not cheap."
Simon says Ohio Valley set a modest financial goal for the early stage of the organization's clinical affiliation with Ohio State. "We knew we were going to experience start-up costs," she says, noting first-year expenditures such as new lab equipment. "My expectation for year one of the affiliation was that our cancer program would financially break even with the preaffiliation budget. I haven't seen anything yet to alter that expectation."
Targeting service lines
In California, a cancer care affiliation was launched in August 2011 between Community Hospital of the Monterey Peninsula and the University of California San Francisco's Helen Diller Family Comprehensive Cancer Center. UCSF is part of UC Health, which for the fiscal year ending June 30, 2014, posted total operating revenue of nearly $8.6 billion.
For Community Hospital, a 258-bed nonprofit facility based in Monterey, California, the partnership has strengthened its oncology services on several fronts, says Phillip Williams, director of the organization's cancer center. He says the clinical benefits of the affiliation for Community Health include local access to UC Health clinical trials, educational opportunities for medical staff and the public, participation in "tumor boards" made up of experts from a range of disciplines who review challenging cases, and expedited referrals to specialists.
From Community Hospital's clinical perspective, the oncology affiliation with UCSF's cancer center has the same primary goal as Ohio Valley's cancer care relationship with Ohio State, says Williams. "It is important to Community Hospital that we provide the highest level of cancer care locally for our patients. When treatment is not readily available, we are aligned with a provider that can seamlessly address the need."
In addition to helping ensure that the Monterey Peninsula's oncology patients receive quality care in the most cost-effective setting, Community Hospital's oncology affiliation with UCSF's cancer center yields financial benefits for both partners, tied to service pricing, says Dan Limesand, director of business development at Community Hospital.
"In addition to the clinical elements covered by the affiliation, we have also negotiated favorable rates with UCSF that are applicable to Community Hospital and other Community Hospital Foundation affiliates," he says, noting the hospital's self-insured health plan has benefited from in the partnership. "So when care must be obtained from tertiary-level facilities, we attempt to direct care to UCSF to optimize the partnership and save money via the favorable negotiated rates—a win-win arrangement for UCSF, Community Hospital and its affiliates, and our patients."
Lynne Rosen
New partnership opportunities
Health systems are reaching out to a bevy of relatively new clinical affiliate partners, including organizations that specialize in ambulatory surgery, urgent care, and imaging services.
Although there are significant financial risks and costs, clinical affiliations with urgent care organizations can be golden opportunities for health systems, says Lynne Rosen, CEO of Brookfield, Connecticut–based PhysicianOne Urgent Care. "It fills gaps in care. The shortage of primary care providers makes it difficult to access primary care, and people are becoming well aware that nonurgent visits are inappropriate for a hospital emergency department."
Urgent care organizations such as PhysicianOne, which operates nine facilities in Connecticut, can generate financial gains for health systems in several ways, she says. "With urgent care, the hospital either has outpatient clinics that are trying to do this or their own version of urgent care clinics. At the start of an affiliation, an expert in urgent care would assess the best practices of a hospital's 'urgent care centers' for location, services, hours, and marketing."
Rosen says establishing urgent care affiliations can help health systems more effectively and efficiently provide delivery of care outside the hospital.
Rosen notes that health systems are deepening their relationships with a wide range of external partners, from primary care practices to long-term care facilities.
For health systems, there are reputational and financial risks associated with urgent care affiliations, Rosen says. "They have to have something that ensures the quality of their health system is matched by the quality of care provided by their urgent care partners. There is joint oversight of quality of care."
Start-up costs and the retail nature of urgent care services are significant financial risks for health systems seeking urgent care partners, she says.
"Urgent care is a capital-intensive business. It can cost $800,000 to build a clinic, and there are losses until your community starts to use it. Customer expectations are much higher, and the experience needs to be exceptional to gain people's confidence."
Urgent care organizations also have to pick their health system partners carefully, Rosen says, adding she is mulling some clinical affiliations for PhysicianOne. "Hospitals need to be ready and committed to making a change."
This year, Quincy, Massachusetts–based CareWell Urgent Care established a clinical affiliation with UMass Memorial Health Care in Worcester, Massachusetts. The partnership features the opening of two new urgent care clinics in Worcester this summer.
For the fiscal year ending Sept. 30, 2014, UMass Memorial posted total revenues of $2.3 billion.
Shaun Ginter, CareWell's president and CEO, says he expects the clinical affiliation with UMass Memorial to generate value for a wide spectrum of healthcare stakeholders.
Shaun Ginter
"We see this as primarily a benefit to our patients, who more and more are looking for alternatives to the traditional delivery method of getting services in a hospital. This is a further movement along the continuum of care for UMass Memorial as we continue our push to have a fully integrated delivery system, ready to serve our patients at their convenience, whenever and wherever the service is needed. This is great for patients, payers, and employers, who all benefit from a lower-cost setting."
He says there are elements of the clinical affiliation that are designed to soften the financial impact from lost hospital-based patient service volume.
"We do see the potential to bring new patients into our healthcare system. CareWell clinics will be able to refer patients to UMass Memorial Health Care specialists and primary care physicians when necessary. … CareWell clinics are located within a mile of UMass Memorial Health Care hospitals, ensuring these referrals can be made quickly and conveniently, even in an emergency."
Rosen says the recent proliferation of clinical affiliations reflects a realization among health system leaders that patient service volumes are shifting to outpatient facilities whether their hospitals are ready for the transition or not. "They need to communicate their support for cost-effective outpatient delivery systems, including urgent care. Hospital systems should select partners who have a track record in the successful building and scaling of the urgent care process. Better that they affiliate with new partners than lose that business altogether."
Industry stakeholders are trying new ways to deliver and pay for care, but the shift to value remains an unfinished journey.
The ongoing shift from a volume-based business model to payment for services based on value has prompted a back-to-the-future scramble in the healthcare industry.
A generation ago, healthcare providers were called upon to assume more risk in the delivery of their services, including the first ill-fated formation of health maintenance organizations across the country. Most providers eventually backed away from both the financial burdens of bearing risk as well as a consumer backlash to managed care, retreating to their familiar fee-for-service payment model. But a select few, such as Salt Lake City-based Intermountain Healthcare, have remained at risk in delivery of services to this day.
"We have a long history with full-premium payments—full, at-risk healthcare," says Greg Poulsen, senior vice president and chief strategy officer at Intermountain. "We think at-risk contracting is, by far, the best approach. There are games you can play with almost all the other value-based payment models. For example, shared savings programs frequently end up being anemic in terms of return on investment and don't do enough to overcome the volume incentives for providers. If you simply get bits and pieces of value-based contracting, you may not be able to overcome the inertia that is U.S. healthcare."
Now, with Medicare transforming reimbursement metrics, health systems are taking up the challenge anew to emphasize value rather than volume in their business models.
The Centers for Medicare & Medicaid Services threw down a value-based gauntlet earlier this year, announcing a drive to link at least 50% of Medicare payments to value-based financial models by 2018. This year, about 20% of Medicare payments to providers are linked to programs designed to boost quality and reduce costs, according to CMS.
In Washington, D.C., this past January, with representatives from nearly two dozen healthcare industry stakeholders at her side, U.S. Health and Human Services Secretary Sylvia Burwell described her vision for the shift from volume-based to value-based payment.
"Whether you are a patient, a provider, a business, a health plan, or a taxpayer, it is in our common interest to build a healthcare system that delivers better care, spends healthcare dollars more wisely, and results in healthier people," Burwell said. "We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement."
Large health systems, which generally have the most resources among providers, are leading the adoption of new care and payment models. Based mainly on key local factors such as the patient population, market economics, and organizational culture, large health systems are implementing a range of value-based payment models, with many of the early adopters reporting gains in clinical outcomes and cost efficiency. However, setting the pace of transformation is perilous, with public and commercial payers just beginning to roll out payment models that can finance redesigned delivery of services based on value.
Survey results published in the Premium edition of the March 2015 HealthLeaders Media Intelligence Report, Payer-Provider Strategies: New Rules for Facing Risk Together, show that health systems lead providers in adoption of at-risk contracting for healthcare services; only 12% are not participating in any type of at-risk programs, which is smaller than the 23% among hospitals and 28% among physician organizations. Also, more than one-quarter of health systems (26%) report that they own or operate a payer business unit or health plan, which is greater than the 16% of hospitals and 7% of physician organizations that have that component as part of their business.
Harold D. Miller, president and CEO at the Pittsburgh-based Center for Healthcare Quality and Payment Reform, says the biggest advantage for large health systems in the shift from volume to value is deep pockets. "Are the big health systems doing value-based care because they want to do it or because they are the only ones who can do it?" he says.
Citing Oakland, California-based Kaiser Permanente as a prime example, Miller says health systems achieving the most success in the value-based space have payer business units to help finance value-based care while Medicare and commercial payers develop value-based payment models.
"They have their own health plan. They can at least pay themselves differently for at least some of their value-based business. A lot of these systems are making a bet—it's sort of at a tipping point. They're not making a bet that they are going to be paid for value. They are arranging to pay themselves."
Indeed, the March Intelligence Report indicates that 29% of health systems are considering establishing or acquiring a health plan, more than twice the share reported by hospitals (14%) or physician organizations (10%).
Until more value-based payment models are available down to the physician-specialty level—and more payers deploy more value-based payment models—large health systems are best equipped to lead the drive to value-based care, Miller says.
"It's not automatic that they can do that. Some systems have leadership that really wants to move to better health. Some are able to do it because they have a monopoly in their community. They are reinventing healthcare, which is a good thing. And they have a lot of money to do this thing."
Flexing financial muscle
Kevin E. Lofton, FACHE, CEO of Englewood, Colorado–based Catholic Health Initiatives, says CHI has spent several billion dollars over the past four years on the value-based retooling of the health system—which includes 105 hospitals and 10 health plans with 104,000 covered lives—bankrolling the nonprofit organization's effort with its massive cash reserves. He says CHI made a strategic decision to dedicate a substantial portion of the system's cash reserves toward value-based care rather than generating investment income.
"We're not a bank. We still have about $7 billion in investible cash, even after spending $2.5 billion on [healthcare information technology]," Lofton says. "We're still spending $1 billion to $1.5 billion in capital expenses to make this transition [to value-based care]. We definitely have been utilizing the strength of our balance sheet." The system reported total assets of nearly $22 billion in fiscal year 2014.
CHI's vigorous effort to adopt value-based care features several elements, including direct managed care contracting with large employers, developing its Prominence Health payer business unit (a wholly owned for-profit subsidiary), and physician-led adoption of value-based payment models.
"First, we have made investments knowing we were not going to be paid for our services. We had to begin implementing these investments before payment models were in place," Lofton says. The hit to the balance sheet from these efforts for the fiscal year that ended in June is estimated between $250 million and $300 million. "The second part of it is that we have reached out directly to employers because we can demonstrate how we are gaining with our own employees through value-based care."
Large health systems are large employers, of course, and have a good measure of flexibility with their own employees in redesigning care and finding innovative ways to pay for healthcare services crafted to deliver value. "That's one of our larger value-based programs," says Christopher Stanley, MD, vice president of care management at CHI. "We are using our own employees as a kind of a canary in the coal mine."
Health systems can more quickly overcome the managed care learning curve by establishing such programs with their own employees, Stanley says, citing the importance of "quick feedback" drawn from CHI workers who were among the first to enroll in the health system's new value-based clinically integrated networks. CIN enrollment for CHI employees began soon after passage of the Patient Protection and Affordable Care Act in 2010.
At the outset, about 30,000 workers and their dependents enrolled in CHI's internal managed care initiative, Lofton says. This year, about 102,000 lives are covered in CHI managed care, including about 45,000 employees and about 58,000 dependents. CHI employs more than 95,000 people in 19 states.
"We began launching managed care initiatives about four years ago—as an initial pilot in Nebraska, then as the next wave in a pilot in Des Moines, [Iowa]," Lofton says. "The big launch really came at the beginning of last year, in 2014. We are still in the early stages. We now have about 50% of our employees and dependents in these programs. We've lowered costs in a few different areas. One is by managing high-risk individuals within our population, the 3% to 5% that drive 40% or 50% of healthcare costs. We have seen a drop in emergency department visits and hospitalizations, and an increase in medication adherence and preventive-medicine screening."
For employees and dependents who have received care through a clinically integrated network, ED visits have dropped 10% and the average length of stay for hospitalizations has fallen 10%, CHI reports.
In 2014, CHI launched Prominence Health. Lofton says Prominence has boosted CHI's health insurance know-how and opened new revenue streams. "We have built up an expert payer staff, when two years ago, we didn't have anybody."
With the additional acquisition in 2012 of a majority interest in Soundpath Health, a Medicare Advantage plan in Federal Way, Washington, and the 2014 purchase of QualChoice, a Little Rock, Arkansas-based commercial insurer, CHI is making market-share gains in Medicare Advantage, Lofton says. "It appears to be a little easier to manage that population, and you don't face the same level of competition as you do in other areas from commercial payers."
Lofton says physician leadership is a crucial component of CHI's adoption of value-based payment models and value-based redesign of care. "They're the ones who come up with the ideas. They have skin in the game."
The focal point for CHI physician leadership in the adoption of value-based care is the Medical Group Leadership Council, Lofton and Stanley say. MGLC members include about 26 physician enterprise leaders who represent each of CHI's markets. Council members have accountability in their markets for several key operational functions, including revenue cycle, clinical quality, labor productivity, patient satisfaction, legal compliance, provider compensation, managed-care contracting, and supply chain management.
Stanley says that "operational dashboards with key performance indicators—financial, productivity, supply chain, etc.—were put into place over the past couple years and are reviewed by MGLC members at frequently recurring leadership meetings. MGLC leaders are held accountable by their market CEO as well as by their peers [in areas] including goal-setting and transparency of information. Leadership
changes have occurred in circumstances where results did not meet expectations."
CHI's heavy investment in information technology combined with administrative support provided through an internal physician services business unit gives the MGLC significant resources, Lofton says. "We've relieved them of the electronic billing and business side of the value-based world."
With the health system's multibillion-dollar IT investment serving as an "absolutely critical" infrastructure component, CHI has focused care redesign efforts on enhancement of primary care capabilities, such as the formation of patient-centered medical homes, Stanley says.
He says one of the top goals of CHI's primary care transformation initiatives is to include behavioral health specialists in staffing. Adding social workers and mental health specialists to the resources available to primary care physicians "augments the physicians and augments the team approach," Stanley says.
CHI is banking on resource-rich patient-centered medical homes to help drive high quality at low cost, such as improvement in medication compliance, he says. "Sometimes, noncompliance is because of financial issues. Sometimes, it's because of psycho-social, mental health, or other behavioral issues, and the team can tackle these issues."
The health system is "just starting the journey" toward incorporating behavioral health resources in patient-centered medical homes, but the PCMH model of care is already generating patient engagement gains, Stanley says. "We are now identifying patients who are in need of care but are not following up the way they should. Using data to identify gaps in care, we are now making direct outreach to them and conducting collaborative interviews to get patients to take more direct care ownership."
Targeting primary care is part of a strategic decision to shift CHI away from reliance on hospital income as the dominant financial pillar of the organization, Lofton says. "We are at about 53% of our net patient service revenue coming from nonacute care sources. Our goal, which we set about five years ago, is to be at 65% of all net patient service revenue coming from nonacute care services by 2020. One of our biggest growth areas will be primary care, which is the real underpinning or foundation of all of our value-based programs.
"We are certainly going to see more and more outpatient procedures that were historically done in an inpatient setting, in part because our technology and care management is so much better," Lofton says. "We'll also be extending this care out to the communities—especially rural communities—through virtual health services."
Stanley acknowledges there are challenges to fostering physician leadership and quelling concerns among clinicians about the shift from volume to value. "That's probably what I spend 80% to 90% of my time on: leading the change in the organization," he says.
Among CHI physicians, eagerness to embrace value-based care varies widely, with three broad categories, Stanley says.
Physicians who have received training in population health and patient-centered care have stepped into leadership roles in the shift from volume to value at CHI, he says. "They're the champions. They're the leaders. They're the torchbearers."
Stanley says there are other CHI physicians "on the opposite end of the spectrum" who have spent their entire careers receiving volume-based payments for services and are deeply skeptical over the transition to value-based payments. He says CHI has eased the organizational tension from this clash of philosophies with a strategy rooted in an undeniable reality: There will always be health system settings and services such as emergency medicine that operate with volume-based payments. "There's a real value to physicians who just want to show up and see patients, and we have places for them to be successful."
Then there is everyone else in between.
"These are the physicians who can be convinced that value-based care is better for patients," Stanley says, adding that he sits down and talks with physicians about redesigning care to be patient-centered, prevention-oriented, and outcomes-based. "Most physicians will absolutely get there."
Even with a strong balance sheet, CHI has faced difficult decisions regarding opportunity costs in its four-year-long quest to conquer the clinical and financial dimensions of the value-based world, Lofton says.
"To come through that period, we had to also look at our operating model and look at places to trim back. It was not without turmoil."
Historically, CHI has posted an operating margin of about 3%, but investments in infrastructure for value-based care such as IT and the creation of clinically integrated networks drove the health system's financial performance below that benchmark for the 2013 and 2014 fiscal years, CHI officials say. While Lofton is forecasting that the costs of investing in value-based care will outstrip the financial gains again this fiscal year, he says CHI expects that to improve in 2016. "This is the fiscal year that we told our board that we would get operating performance back to historical levels."
CHI had considered cutting up to 1,500 jobs this year, but the reduction amounted to a loss of about 500 actual jobs and a decision to eliminate about 500 unfilled positions. CHI officials say the workforce reduction was not related to the transition to value-based delivery, but a recognition of the need to reduce the number of employees so the system could become more efficient in certain areas.
Lofton says a measure of turmoil has been linked to opportunity costs and an ongoing effort to wring out $250 million in overhead. "We have certainly looked at costs across the system—personnel and overhead—to become more efficient. Like other health systems, we are adapting to changing times. We have made a huge investment in information technology. That has caused us to ratchet back, at least for a time, some of the capital investments we typically make on a yearly basis in terms of infrastructure improvements, new construction, and upgrades."
Again emphasizing the importance of CHI's healthy balance sheet, Lofton says the health system has been able to help finance the adoption of value-based care with investment income. "During this time, the capital markets have been very strong. We still had a healthy bottom line because of the investment income we earned."
Lofton says it is imperative for health systems to plan carefully and act decisively as they shift from volume to value. "We need to make sure when it's the right time that we have made the right investments to be ready."
Embracing accountability
There is an assortment of options on the value-based menu, including accountable care organizations, bundled payments, capitation, shared savings contracting such as the Medicare Shared Savings Program, and warranty payments. But most models have limited track records, and some have had underwhelming appeal to providers.
Several factors are determining the overall appetite for value-based care at health systems and the taste for particular payment models, including corporate culture and local market circumstances.
Some health systems such as Intermountain Healthcare are enjoying the benefit of a track record of delivering care with assumption of risk.
Operating in Utah and Idaho, Intermountain has 750,000 members enrolled in the organization's health plan, SelectHealth, and the integrated health system features a 22-hospital network on the provider side. Intermountain's involvement with its own health plan stretches back three decades.
Poulsen, the senior vice president and chief strategy officer at Intermountain, says one-third of its healthcare services are tied to value-based payment, and the organization is seeking to double that figure.
"We call our program shared accountability as opposed to accountable care. It's partly the lifestyle of our patients, but it is also medical decisions designed to consume healthcare in the right way—the providers of healthcare have to be fully engaged. When we put those two together, we think we have something really powerful."
Intermountain is engaging providers to generate value by holding them accountable to total-cost-of-care budgets, Poulsen says.
"We create budgets that are essentially regional. We distribute accountability to four geographies, with a risk-adjusted budget for each region. Then the team in each region—doctors, hospitals, ancillary services, care managers—works together within their budget. There are rewards if quality and service measures are met at the team level. We believe value-based care is a team sport. We do not anticipate financial incentives will change any provider's behavior. Instead, financial incentives are simply a nod to the fact that doing the right thing will come with a cost in some cases," such as a lost opportunity to increase volume.
On a monthly basis in each region, Intermountain's Geographic Committees—which are composed of physicians, hospital administrators, actuarial specialists, and data analysts—gauge performance of the four budgetary regions and compare that to other value-oriented organizations recognized for operating with best practices. "They identify weak links and fix them. This is a way to get that information out in a transparent, actionable way," Poulsen says.
Intermountain's shared accountability approach to providing managed care services for 700,000 patients is sustainable financially, he says, noting revenue is outpacing costs. "The margin varies significantly by type of patient: Medicare, Medicaid, and commercial are all part of this group of 700,000. Overall, there is a 2% to 3% margin."
The primary metric Intermountain uses to assess the cost-effectiveness of its managed care efforts is total cost of care, Poulsen says. "We have been focused on total cost of care as a legitimate measure of public benefit for a long time, and population metrics suggest that our populations look pretty good on those metrics."
In the decade before passage of the PPACA, Utah was among the lowest-cost states for healthcare services, according to CMS. In 2009, the state posted the lowest annual per capita cost of care in the country at $5,031.
Local and national leadership
With its vision for a value-based healthcare future, a track record in care delivery innovation, and market power in northern New England, Lebanon, New Hampshire–based Dartmouth-Hitchcock Health has taken a regional and national leadership role in the adoption of value-based payment models.
The academic medical center includes a main hospital, a children's wing, a cancer center, an association with the Geisel School of Medicine at Dartmouth, and community group practices. About half of the health system's revenue is tied to value-based payment models, and it plans to increase that figure to 70% within two years, according to President and CEO James N. Weinstein, DO, MS.
Weinstein also is a founding member of the High Value Healthcare Collaborative, a coalition of value-oriented health systems across the country serving 70 million patients. "It's not just Dartmouth-Hitchcock trying to move New England; we're trying to move the country."
He says the HVHC has been involved in value-based care initiatives such as promotion of three- and four-hour bundled care protocols for sepsis treatment. Adoption of the Surviving Sepsis Campaign protocols at Dartmouth-Hitchcock led to dramatic improvements in clinical outcomes, Weinstein says. "By the way, saving lives also saves money, and also helps providers run their businesses better."
He says Dartmouth-Hitchcock has fully embraced the transformational power of value-based care.
"This is a time when there's an industrial revolution in healthcare and the old models are broken," says Weinstein, adding that Dartmouth-Hitchcock has become a leader in accountable care contracting because value-based care fits with the organization's culture. "We didn't go into this ACO work to make money. We did it because it matched our values and the way we practice medicine."
Dartmouth-Hitchcock's experience with value-based healthcare innovation stretches back years. The Dartmouth Atlas project was founded in 1996 to track variations in healthcare spending nationwide. In recent years, Dartmouth-Hitchcock has been among the early adopters of several value-based payment initiatives, including Medicare's first accountable care organization program featuring upside and downside risk, Pioneer ACO.
Dartmouth-Hitchcock has lost some money participating in Pioneer ACO, a demanding venture with a roster that has dwindled to 18 participants after launching with three dozen provider organizations in 2012. Like Medicare's most popular ACO program with providers, the Medicare Shared Savings Program, the Pioneer ACO is afflicted with a value-based innovation irony. Assuming they make effective value-based changes, providers that have been riding high on the fee-for-service model will gain more from the Pioneer ACO contract than providers that have historically posted low utilization rates.
Despite taking a financial blow in the Pioneer ACO program, Robert A. Greene, MD, MHCDS, FACP, executive vice president and chief population health management officer at Dartmouth-Hitchcock, says the chance to learn and lead is priceless.
"We have been disappointed with Pioneer ACO," Greene says. "We saved CMS about $20 million, but because of the ways that contract is structured, we may end up sending a couple million back to CMS. We view that as a tremendous learning process and opportunity. We have been more successful in
other contracts. But Pioneer ACO has been an opportunity to influence and give perspectives on future ACOs at CMS."
From Dartmouth-Hitchcock's financial perspective, Pioneer ACO has three primary flaws, he says.
"For the first three years of the contract, CMS used the 'matched cohort' methodology instead of applying a more time-tested risk adjustment methodology approach," Greene says. "This was corrected for the fourth year of Pioneer by converting to a version of the Hierarchical Care Condition methodology that is more similar to that used by Medicare Advantage plans. [Second,] benchmark trending factors were solely based on national trends, and therefore did not necessarily reflect the specific region and market that Dartmouth-Hitchcock's Pioneer ACO operated in. This has been somewhat addressed in the fourth year of Pioneer by adding a locality adjustment factor, but we don't believe this goes far enough to address the disparate differences between regions. [Finally,] the baseline is established by applying an algorithm to a defined set of historical claims incurred by an attributed population, and then trended. The challenge with this approach is that ACOs that start out with lower per beneficiary per year Medicare spends, and lower rates of utilization have less opportunity to generate shared savings results compared to ACOs that start out with higher per beneficiary per year Medicare spends and/or higher rates of utilization."
Dartmouth-Hitchcock has operated financially successful value-based payment models with Medicare and commercial payers, Greene says.
"Dartmouth-Hitchcock was one of 10 participants in Medicare's Physician Group Practice Demonstration model, which was the precursor to Medicare's shared savings programs. Over the five years of the PGP Demo, we met or exceeded quality measures in each year and earned $10.6 million in shared savings payments over the course of the five-year contract period. We have had a shared risk contract with Anthem since October 2010," Greene says.
"Over the past four completed contract periods," Greene says, "Dartmouth-Hitchcock has passed the quality gate in each year, and earned $6.7 million in shared savings payments over the course of the four-year contract period. We have also had a shared risk contract with Harvard Pilgrim Health Care since January 2011. Under this contract, we have earned $1.7 million in shared savings payments over the course of the past four completed contract periods.
"All three of these contract models have one thing in common: Our financial performance and quality scores are compared to our own performance year over year," he says. "Dartmouth-Hitchcock has been more successful under models that reflect our continuous improvement process. Because our utilization started low, compared to much of the U.S., we have been less successful under models that require Dartmouth-Hitchcock to produce results that are better than a 'reference population,' 'market,' or 'peer group.' "
Greene says Dartmouth-Hitchcock was able to make a significant impact on the rulemaking for the newest Medicare ACO model, Next Generation ACO, which was unveiled in March. "We can see in the changes they have made in Next Generation ACO, they have incorporated some of our ideas."
For providers with a history of low service volumes to succeed in the transition to value-based payment models, "redesigning care becomes imperative," Greene says, noting that Dartmouth-Hitchcock is focusing on developing patient-centered medical homes, telemedicine capabilities, and clinical partnerships.
Dartmouth-Hitchcock is leveraging telemedicine across a broad range of care delivery, including a telestroke program that, in collaboration with the Mayo Clinic Arizona, provides patients with 24/7 access to a neurological assessment.
"We see telemedicine as a huge opportunity. It solves some interesting problems that people have been thinking about for a long time, like rural patient management and remote sensing programs. The big question now is, how do we best integrate those things into patient-centered
medical homes?"
One of Dartmouth-Hitchcock's new partnerships is a clinical affiliation with Woonsocket, Rhode Island–based CVS Health's MinuteClinic. "There are people who just need convenient care and need to pop into someplace, and MinuteClinic has the same version of Epic for electronic medical records. That information will upload directly into Dartmouth-Hitchcock's electronic record. On Monday mornings, there will be an alert, and the doctors and nurses here will know what happened with their patients at MinuteClinic over the weekend."
Partnerships represent a huge building block for all healthcare providers as they transition from volume-based to value-based financing of their services, Greene says.
"You have affiliates instead of adding space for inpatient beds or spending on other costly investments," he says, noting the clinical affiliation Dartmouth-Hitchcock has established with New London (New Hampshire) Hospital, a federally designated Critical Access Hospital about 25 miles from the health system's main campus in Lebanon.
"New London used to run eight beds out of their 25, which was not sustainable. Now, we coordinate with them. We keep their care local, and we can start using our telehealth capabilities with this population of patients. Their average daily census is up to 20 patients. It's a win-win because it frees up more of our beds in Lebanon for tertiary care," Greene says.
As an organization, Dartmouth-Hitchcock continues its journey to adopt value-based care delivery, Weinstein says.
"We are already on the right side of this curve," he says. "We are going to put our money where our mouth is. We do not want to sustain an unsustainable health system. We need to change this system, and I have dedicated my life to doing that, and we're making incredible progress."
That progress includes solid performance in several value-based contracts with commercial payers, Greene says.
For example, Greene notes that despite not earning a shared savings payment from Cigna for the most recent contract performance period, Dartmouth-Hitchcock's rate for inpatient admissions per 1,000 patients was 4% below the New Hampshire market's, and the related cost of care for these inpatient admissions was 1% below the state market. Also, the advanced imaging scans per 1,000 patients rate was 8% below the state market's and avoidable emergency visit rates were 3% below the state market's, he says.
The attributed members assigned to its Anthem risk contract increased 32% from the 2013–2014 contract performance periods, yet it was able to keep admissions per 1,000 rates flat year over year, Greene says. Dartmouth-Hitchcock also was able to reduce emergency room visits per 1,000 patients by 6.5% during this same time period. Despite this significant growth in membership, overall cost of care increased just 1.9% between 2013 and 2014.
Greene also notes that the attributed members assigned to the Harvard Pilgrim risk contract increased 17% from the 2013–2014 contract performance period, yet Dartmouth-Hitchcock was able to reduce admissions-per-1,000 rates by 17% year over year and was able to reduce emergency room visits per 1,000 by 22% during this same time period. Despite this substantial growth in membership, the overall cost of care increased just 0.8% between 2013 and 2014," he says.
Embracing bundled payments
CHI has a shorter historical experience delivering value-based care than Dartmouth-Hitchcock, but the multistate health system is operating with a similarly broad set of value-based payment models.
Stanley says about 30% of CHI's healthcare service revenue is linked to some form of value-based payment, with more than 400,000 patients receiving care through value-based payment models such as Medicare Advantage, bundled payments, the managed care program for CHI employees, and direct managed care contracting in the employer-sponsored group insurance market.
He says bundled payments tied to episodes of care have been among the most rapidly adopted value-based payment models at CHI. "They really resonate well with our clinical staff and our administrative staff. We've been able to gain more traction in our organization in this area."
Bundled payments are relatively easy for all of the key clinical and administrative players to comprehend and operationalize, Stanley says. "A trigger event provides the starting point. There's a clear start and clear finish to when that episode occurs. Specialists can understand their sliver of care: procedure preparation, procedure, then procedure follow-up through a 90-day recovery period."
A robust healthcare IT capability is needed for large health systems to provide services through value-based payment models such as bundled payments, he says.
"There are multiple data elements. There's clinical data: status of patients, experience of care, and aggregate data as a program, not just data by patient. There's creating a real-time data capability alongside monthly and aggregate data collection," Stanley says, adding that the ability to track data digitally is indispensable to keep providers within their bundled payment bounds. "You have to not only have the data but also the analytics to drill down into it."
He says CHI monitors several classes of metrics in the health system's bundled payment programs.
"We track multiple metrics including clinical (complication rates, readmissions, and clinical risk), utilization (discharge locations such as rehab, skilled nursing facilities or home, and average length of stay in all settings), financial (total cost of care and supply cost during acute stay), and service and clinical quality metrics as determined by CMS. In our longest operating bundled payment program—St. Vincent Infirmary in Little Rock—our 90-day readmission rate has dropped by about 50%, average length of stay is now less than two days, and total cost of care has dropped significantly, with total reduction in costs of about $2 million in the first 12 months under the program for knee and hip replacements."
Options for smaller organizations
Large health systems possess big advantages over other providers in the shift from volume to value. But independent hospitals and physician practices have several strategies at their disposal to survive the rigors of the transition to value-based payment models.
In some markets, commercial payers—a healthcare industry stakeholder that providers have often viewed as a business nemesis—can be the best value-based care comrade.
For the past decade, Detroit-based Blue Cross Blue Shield of Michigan has helped lead a statewide value-based initiative that features physician organizations and patient-centered medical homes. In 2005, BCBSM launched the Value Partnerships program with a set of provider partners featuring 10 physician organizations and 3,000 doctors, says David Share, MD, MPH, senior vice president of value partnerships at BCBSM.
"We started out 10 years ago with a recognition that the healthcare system was fragmented and had no meaningful accountability," he says. Value Partnerships has grown to 46 physician organizations, with 19,000 primary care physicians and specialists across the state.
"We wanted physician organizations to be responsible for cost and quality of care more and more over time. The physician organizations were held responsible for results on a population level," Share says.
In 2009, the Value Partnerships program launched a PCMH designation program that included variable reimbursement for physician practices based on cost and quality performance, he says. "If you had a good cost and quality experience, you got a bounce up in your fee. Providers can generate up to a 30% increase in value-based payments from success in the program."
As of July, the Value Partnerships program had designated 1,551 physician practices as PCMH sites eligible for value-based payments, Share says. "It's the largest such program in the country. The PCMH practices that are most involved achieve a 5% improvement in HEDIS [Healthcare Effectiveness Data and Information Set] scores and a 4% to 5% reduction in costs from effective preventive measures. For the past four years within the preferred provider organization, the trend for increases in cost has been 2% or lower, one of the lowest cost trends among comparison plans nationally."
Coping with costly investments
While costly investment in healthcare IT systems is essential for most health systems to deliver value-based care, providers of all sizes can adopt elements of value-based care without huge expenditures on digital technology, according to Miller, of the Center for Healthcare Quality and Payment Reform.
"The myth that has developed is that you need to spend a lot of money on information technology. It's a top-down approach. ... You're spending a ton of money on IT to be able to watch the doctors, instead of trying to involve the doctors themselves," he says.
But specialty practice leaders have proven they can redesign care based on value, as long as they can find a way to pay for it. Miller cites, for example, the New Mexico oncology practice of Barbara McEneny, MD, who also serves on the American Medical Association Board of Trustees. With grant funding, the New Mexico Cancer Center hired oncology triage nurses to track and coordinate patient care, which led to a significant reduction in treatment costs.
"There's a little bit of IT in there, but it wasn't a massive investment," Miller says. "The key investment there was not the IT. It was the triage nurses. They can figure out what to do as soon as patients get into trouble, like bringing someone in for IV rehydration as an intervention at the practice, which is far less costly than at the ER. But at most oncology practices, a chair at the practice for an IV gets paid relatively little, whereas that chair is far more profitable for the practice if someone is in it receiving chemotherapy drugs."
Dartmouth-Hitchcock's Greene says providers seeking to adopt value-based payment models can and should leverage capabilities beyond healthcare IT. "There are some very big bites you have to swallow, and healthcare IT is one of them. But people and processes are probably the biggest bite of them all."
David Lansky, PhD, president and CEO of San Francisco-based Pacific Business Group on Health, says providers seeking to improve managed care contracts directly with employers need to keep the motivations of these potential customers in mind. PBGH is a purchaser-only coalition, representing 60 public and private organizations across the United States that collectively spend $40 billion a year purchasing healthcare services for 10 million Americans.
"Whether it's direct relationships with [the] provider or health plan managed care products, the employers are still looking for the same kind of features," Lansky says. "For ACOs with shared savings and other value-based contracting, the employers want to see that contracting tied to a quality threshold. They feel a responsibility for the care of their employees. They need to feel especially confident about quality."
As a way to cater to that concern over quality, PBGH has established a centers-of-excellence program that features a handful of providers that its employer members may use—for example, Baltimore-based Johns Hopkins Health System. PBGH selects providers for the program based on a large set of factors, including patient experience scores such as complication rates and the collection of patent-reported outcomes.
"There's a long list of quality-based criteria, at a reasonable price," Lansky says. "It sends a lot of really powerful signals. For employees, they know they are getting top-notch care. And there's a strong message for providers: 'We're not going to take the community norm, and we'll put an employee on a plane to Baltimore if we have to.' "
Although value-based payment models are more demanding on providers than fee-for-service, and are likely to be less rewarding financially, there is a value-based promised land on the horizon, Weinstein insists.
"As doctors, we take the Hippocratic Oath to 'do no harm.' The wrong incentives—as in the fee-for-service system that we're in now—can lead to the wrong solutions. And there is a pot of gold at the end of the rainbow: It's the creation of a health system where patients, when well-informed, receive only the care they want and need—care that's delivered safely and at the lowest possible cost."
The top performers in the Medicare Shared Savings Program are leveraging their experience with population health and their willingness to embrace innovation.
The pathways to shared-savings success are becoming clearer.
Houston, TX-based Memorial Hermann Accountable Care Organization and Portland, ME-based MaineHealth Accountable Care Organization are two of the most successful MSSP participants in the country. Executives at these ACOs say their organizations have been able to earn millions in MSSP shared-savings payments based on lengthy experience in population-health initiatives and wise investments in new capabilities.
Christopher Lloyd
"One of the reasons we have been so successful is this is not a new conversation for us," says Christopher Lloyd, CEO of Memorial Hermann ACO.
Memorial Hermann ACO's financial success as an MSSP participant is impressive, with the organization posting shared-savings payments in the federal program's first and second performance years, according to Centers for Medicare & Medicaid Services data. In Performance Year 1, which reflects data collected from 220 MSSP ACOs in calendar year 2013, Memorial Hermann ACO served 34,430 Medicare beneficiaries and earned shared-savings payments totaling $28.3 million. In Performance Year 2, which reflects data collected from 333 MSSP ACOs in calendar year 2014, Memorial Hermann ACO served 40,911 Medicare beneficiaries and earned shared-savings payments totaling $22.7 million.
The Memorial Hermann health system, which features 13 not-for-profit hospitals and about 5,500 affiliated physicians, was well-positioned for MSSP participation when the organization launched its ACO in July 2012, Lloyd says.
Having clinically integrated hospital and physician networks has been "absolutely fundamental" to Memorial Hermann ACO's success, he says. Prior investments in establishing patient-centered medical homes also have boosted MSSP performance. "That's the foundation. [Our primary care physicians] understand the concepts of cost and quality."
On the hospital side, Memorial Hermann ACO has sought to maximize value for both inpatient and outpatient services, driving down costs while maintaining quality in areas including supply chain and pharmacy.
"It helps us manage the total cost of care. We're pretty sophisticated at determining total cost of care, but we're not sophisticated enough yet. … We're calling it medical economics: understanding total cost of care and where the spending occurs," Lloyd says.
Strengthening the capabilities required to track total cost of care has been a top priority at Memorial Hermann ACO and throughout Memorial Hermann health system, he says. "The fastest area of investment is in medical economics." Those investments have included information technology upgrades and hiring a range of data-oriented staff members such as actuaries and data analytics specialists. "It is a whole series of people who have not been in the health system before."
Next month, Lloyd and a half dozen other Memorial Hermann executives are slated to provide a three-hour online presentation about the health system's ACO prowess.
MaineHealth ACO, which has an independent board, but is staffed through the Maine Medical Center Physician-Hospital Association, is built on a solid foundation crafted over the past two decades, says Betsy Johnson, MD, who serves as CEO of MMCPHO. She is slated to serve in a similar leadership role at MaineHealth ACO as part of a reorganization set to be finalized in January.
Since joining the MSSP program in July 2012, "We've evolved with the times," she says. And it's been lucrative.
Along with Memorial Hermann ACO, MaineHealth ACO was among the Top 10 MSSP shared-savings earners in Performance Year 1, serving 48,273 Medicare beneficiaries and receiving shared-savings payments totaling $9.4 million. The ACO did not realize an MSSP return in Performance Year 2, serving 49,413 Medicare beneficiaries and falling $831,000 short of the benchmark for receiving shared-savings payments.
Betsy Johnson, MD
"Because of our success in Year 1, and our ability to hold steady in Year 2, we get asked a lot about the reasons for our success," Johnson says. "We point to the existing infrastructure that we had in place."
The crucial component of MaineHealth ACO's existing infrastructure has been the physician-hospital organization MMCPHO, which has been in existence for more than 20 years. MMCPHO has experience providing care management as well as teams dedicated to care transitions, service contracting and data analytics. MMCPHO also had a clinical registry in place long before the launch of MaineHealth ACO, which provided an essential building block for population-health success, Johnson says. "We already had 10 years of experience in building our own registry."
Jen Moore, who serves as chief operating officer of MMCPHO, says expanding the physician-hospital organization's care management capabilities has bolstered MaineHealth ACO's performance significantly. "We had really been focusing on chronic disease management," she says. MMCPHO formed a care management team in 2003 to help treat patients with conditions such as diabetes and mental health disorders. "We needed to be in a different space for complex case management."
One of the innovative areas where MaineHealth ACO has invested time and resources is improving relationships among the organization's 10 hospitals and the region's post-acute care facilities. The historical experience at the hospitals was akin to having acute-care patients "discharged into a black hole," Johnson says.
"A single care plan is our vision across the entire continuum of care," the practicing primary care physician says. "That's a care plan that is the patient's care plan that everybody has access to… We are all learning together."
Engagement with physicians, skilled nursing facility staff, and other caregivers is an essential ingredient of the MaineHealth ACO's "secret sauce" for share-savings success, Johnson says. "Ultimately, it's all about how you engage the frontline team."
Minnesota-based ACO Embraces Innovation
Primary care is the prime focus of St. Paul, MN-based Community Health Network from top to bottom, says Paul Berrisford, MBA, a member of the MSSP participant's governing board and chairman of the ACO's finance committee. "Our ACO is primary care-driven. It is not your typical hospital-driven ACO."
Launched in January 2013, Community Health Network (CHN) was formed as a partnership between HealthEast Care System, Entira Family Clinics and two dozen specialty physician practices. The ACO's 12-member governing board has four representatives each from HealthEast and Entira, three representatives from the specialty practices, and one patient representative. "It was built around the concept of collaboration," Berrisford says.
The ACO has only four hospitals, all owned by HealthEast. "The patients get the care they need when they need it, which is easier said than done. … We use the ACO as the platform by which to do this and avoided the regulatory problems that come with collaborating with competitors."
With 13,553 Medicare beneficiaries in MSSP Performance Year 1, CHN earned $1.4 million in shared-savings payments. With 15,021 Medicare beneficiaries in Performance Year 2, the ACO earned $5 million in shared-savings payments.
So far, CHN has invested about $800,000 annually to build up its population-health capabilities, Berrisford says. That level of annual spending could rise to as high as $3 million to hire care managers and to staff a care transitions team. "We invested a substantial amount of resources in data analytics… In this year's budget, we will probably invest substantially more resources to care coordination and care management."
Another key investment for CHN has been contracting with Des Plaines, IL-based Pharos Innovations to provide telephonic and online patient engagement services. "We had a challenge… Population health is like looking at a matchstick from 50,000 feet," he says.
CHN has leveraged Pharos algorithms, data-gathering capabilities, and personnel to help provide care management to patients in several costly condition categories, including congestive heart failure and complex diabetes cases. "It made the focusing of our resources on those patients very efficient," Berrisford says, adding that CHN was able to limit the number of care-management phone calls to congestive heart failure patients from potentially 2,000 calls per day to about 20 per day.
The CHN leadership team is deeply committed to providing value-based care, he says. "We are evangelical about change. We don't think it can happen fast enough… It's better for us to do it to ourselves than wait for someone else to do it to us."
HealthLeaders Media LIVE from Memorial Hermann: A Care Management ACO,will be broadcast on Wednesday, November 11, 2015, from 11:00 to 2:00 p.m. ET. Memorial Hermann reveals its multi-pronged approach for their successful Accountable Care Organization. How physician alignment, patient engagement methodologies, and a focus on community health has propelled them to the top.
