MAP activity continues to grow, bringing about a broad range of impacts on the industry.
This article first appeared in the March/April 2018 issue of HealthLeaders magazine.
Healthcare industry merger, acquisition, and partnership (MAP) activity remains strong, with little change in momentum after years of consolidation activity.
Driven by the move to value-based care and provider needs for greater scale and geographic coverage, MAP activity shows few signs of a changing trajectory.
According to the 2018 HealthLeaders Media Mergers, Acquisitions, and Partnerships Survey, for example, 71% of respondents expect their organizations' MAP activity to increase within the next three years, a compelling result indicating that MAP activity levels will remain strong for some time. Only 20% say they expect MAP activity to remain the same, and only 2% expect this to decrease.
One area of inquiry about MAP that has mostly gone under the radar, however, is determining the kind of financial and clinical impacts providers are seeing from investments in MAP activity.
What do operating margins and net patient revenue look like post-MAP, and has the cost of providing care come down due to greater scale? Has MAP activity had a beneficial effect on patient readmissions, HCAHPS scores, and most importantly, quality outcomes?
Healthcare provider responses from HealthLeaders Media's annual survey indicate an optimistic financial outlook, but warning signs loom.
Healthcare providers report improving financial conditions, with only 7% of respondents reporting negative operating margin at their organizations for the most recent fiscal year, and 82% posting positive margin, according to the 2018 HealthLeaders Media Annual Industry Outlook Survey. Four percent report results that are flat.
These results are more positive than in last year’s survey in which 18% reported negative operating margin, and 65% positive margin. Three percent said results were flat.
Operating margins fall in a fairly narrow range, with the majority of respondents (68%) with positive margin at their organizations falling in the 0.1% to 5.9% range. Only 14% of respondents report margins 6% or higher.
This means that organizations have little room to sustain adverse changes in financial circumstances and potentially limits their ability to make necessary investments in value-based infrastructure.
Outlook for 2018
Looking to the upcoming 2018 fiscal year, 58% of respondents say they expect their organizations will produce strongly positive (7%) or positive (51%) financial results. Note that only 9% of respondents say that their organizations have a strongly negative (0%) or negative (9%) financial outlook. Thirty-two percent expect results to be flat.
Viewed positively, the combined results for strongly positive or positive (58%) are eight percentage points higher than last year’s survey result (50%), and the combined results for strongly negative or negative (9%) are six points lower (15%). The results for flat are identical to last year (32%).
However, while responses indicate a degree of optimism as respondents head into 2018, there are some warning signs. Comparing the results for flat for the 2018 (or current) fiscal year (32%) with the results for flat for the most recent fiscal year (4%) reveals a large shift from positive financial results to flat. This indicates that financial conditions continue to be challenging for many providers.
Investment areas can be viewed as value-based, but they also benefit fee-for-service models.
The leading area of healthcare IT investment over the next three years is clinical analytics (65%), according to respondents in the 2018 HealthLeaders Media Annual Industry Outlook Survey. Clinical analytics is followed by a cluster of responses that includes EHR interoperability (49%); mobile health, mobile technology (44%); financial analytics (42%); and data-driven knowledge of patient health factors (40%).
In many ways, these investment areas can all be viewed through a value-based care lens, but they also benefit a fee-for-service model.
Christian Pass, senior vice president and chief financial officer at John Muir Health, an integrated nonprofit health system based in Walnut Creek, California, and lead advisor for this Intelligence Report survey, says John Muir Health’s IT investment has addressed both value-based and industry infrastructure needs.
"We've extended our Epic platform out to the independent physicians. We've invested heavily in analytics as well as infrastructure, talent, and learning capabilities so we can manage for value. We need to understand our business differently than we did before, but frankly, most of the technology investment to date is what I would call infrastructure-related. We're really looking at investing in technology that helps us work faster with less manual intervention, and also provides a better customer experience," Pass says.
Healthcare IT ROI
Survey results for healthcare IT return on investment are encouraging. For example, ranked by combined responses for strong and moderate return on investment, the top areas are: financial analytics (51%) and clinical IT (47%), with EHR interoperability (44%) and clinical analytics (44%) in a tie. Respondents clearly feel that they are seeing financial rewards for their investment.
"From an analytics perspective, we're definitely getting some payback, but we have not hit the potential of what we think we can get," says Pass about John Muir Health’s investments. "I would also say that in revenue cycle we've been using a lot of analytics to drive better performance and we see benefit in that."
All things told, 59% of respondents report having some level of return on investment, which is a positive finding. On the other hand, 26% of respondents report receiving no ROI yet, meaning that more than one-quarter have no financial rewards to show for their efforts.
Providers are investing across a broad range of areas as they build infrastructure and add manpower in support of value-based programs.
For example, when investing in groups and individuals, respondents say that the leading area over the next three years will be care coordinators (65%) by a wide margin.
The strong response reflects respondent interest in increasing the effectiveness of value-based programs. Responses for data analytics staff (46%), nursing staff (43%), and physician staff (42%) form a second tier after care coordinators.
Likewise, the top two areas of the care continuum in which respondents expect their organization will begin or increase investment over the next three years are primary care (51%) and urgent care/convenient care clinics (51%), key components of a value-based care model.
Investment in service lines demonstrates a similar focus on value-based care components. While respondents mention a broad range of service lines in which their organizations will be investing over the next three years, the top response is for primary care (29%), a key part of any value-based strategy.
With each passing year, incremental progress has been made in the healthcare industry’s move to a value-based model.
However, after years of investment in infrastructure, healthcare IT, and care delivery enhancements, it seems appropriate to ask whether providers are actually seeing a return on this investment.
There are several challenges when attempting to measure return on investment for value-based care, for both providers and researchers. Net patient revenue is still largely dominated by fee-for-service activities, and it can be difficult to isolate value-based revenue streams within provider organizations.
Further, investments in provider organizations often benefit both care models—for example, investments in infrastructure and healthcare IT—making it problematic to attribute return on investment to one model or the other.
Along with the question of whether providers are seeing return on investment for value-based care, an even broader set of questions relates to the industry’s overall financial health. What do current operating margins look like, and what is the outlook for the coming year? Where are providers investing to remain financially viable in the future? Which provider investments are producing the strongest returns? And last, which investments are producing no returns?
Providers are taking a cautious approach, but momentum appears to be building toward assuming greater risk for population health management activities.
Healthcare industry momentum continues to build for risk-based population health revenue, with 40% of respondents in the 2017 HealthLeaders Media Population Health Survey indicating that 25% or more of their organization’s net patient revenue is attributed to risk-based population health management activities, up 18 percentage points from last year’s survey.
Also encouraging is that fewer respondents say that this activity represents less than 10% of net patient revenue (34%), with results down 14 percentage points from 48%.
While risk-based net patient revenue from population health is increasing, the pace of population health program adoption by providers has remained relatively steady, with the majority of providers either involved in formal programs or pilots.
For example, a combined 75% of respondents in the survey say that they are either fully committed and underway or have an experimental or pilot program underway for managing the overall health of a defined population, nearly the same response as in last year’s survey (76%).
And while the percentage of respondents saying that they are fully committed and underway (53%) is up six percentage points and participation in experimental or pilot programs (22%) is down seven points, these modest changes in response are within the survey’s margin of error.
Fully Committed and Underway
The survey results for fully committed and underway suggest that a greater share of respondents is taking on risk-based population health activities and making a deeper commitment.
Note that the use of risk-based financial models is another key indicator that population health management is occurring at an organization, as providers face real consequences if they misjudge their capabilities or lack insight into the quality of their risk pool.
Up until now, providers have generally taken a cautious approach, but momentum appears to be building toward assuming greater risk.
Lacking financial resources is something that plagues most healthcare IT departments when it comes to analytics, particularly the advanced forms of prescriptive analytics.
The top three tactical challenges respondent organizations expect to face in performing analytics are the need to deliver timely analysis (46%), overcoming insufficient skills in analytics (42%), and insufficient funding in light of other priorities (37%), according to respondents in the 2017 HealthLeaders Media Analytics in Healthcare Survey.
Note that two of the top three tactical challenges are either indirectly or directly related to financial resources—the solution to overcoming insufficient skills in analytics is investment in training or adding new analytics staff, and insufficient funding in light of other priorities is clear-cut.
Delivering timely analysis is perhaps a universal problem—life as we know it requires a real-time response to information needs, and healthcare is no different.
The response for insufficient staff (35%) is fourth on the list of analytics challenges, which is also an indicator of insufficient financial resources.
Lacking financial resources is something that plagues most healthcare IT departments when it comes to analytics, particularly the advanced forms of prescriptive analytics—the needs almost always exceed the budget—because there is simply too much data and the complexity of analyzing it effectively can be overwhelming.
Steve Hess, chief information officer at UCHealth, an integrated health system serving the Colorado area that includes seven hospitals, 1,620 hospital beds, and more than 17,000 employees, says that outsourcing the more advanced parts of the analytics workload while retaining core EHR data responsibilities and mainstream analytics functions can be an effective strategy.
"About 18 months ago I made a decision that we can never find nor retain the data science experts that we're going to need in the future. So even though we're partners with the University of Colorado and we have really intelligent individuals in the Denver area, it is extremely difficult to attract and retain that level of expertise. That's why our partnerships are with companies that are in Silicon Valley and competing with Google and Microsoft and all these different global organizations, that's a better approach for us," he says.
"We have a talented, talented team that knows how to deconstruct the Epic data model really well, but we could never get to that next level that we're going to need to go to. I think you can count on one or two hands the number of healthcare organizations in this country that can actually do what we're talking about in terms of advanced analytics," says Hess.
Providers need to consider the ethical implications for patient care when using genetic data for analytics.
Healthcare organizations expect to face a number of data-related challenges in performing analytics over the next three years, according to respondents in the 2017 HealthLeaders Media Analytics in Healthcare Survey. The top three challenges are integrating internal clinical and financial data (47%), establishing/improving EHR interoperability (43%), and integrating external clinical and financial data (43%). In each case, the data comes from multiple sources and is not easily collated, which is likely why it is a challenge for providers.
Although the response for ethical concerns regarding the use of patient genetic data (8%) receives a low response in the survey, it is also true that the provider usage rate of patient genetic data for analytics is currently quite small. For example, only 9% of respondents say that they draw on patient genetic data when conducting patient-related data analytics. As such use becomes more widespread, concern about ethical issues may also grow.
Steve Hess is chief information officer at UCHealth, an integrated health system serving the Colorado area that includes seven hospitals, 1,620 hospital beds, and more than 17,000 employees. He says that the use of patient genetic data has many ethical implications for patient care, and that it is an issue currently being studied at UCHealth.
"Using patient genetic data adds a bunch of ethical implications. As an example: what if we sequence your DNA data and you are a patient of ours but we haven't seen you in two months, and we notice that based upon your DNA sequencing, the medication that we prescribed for you two months ago probably could have been a better choice? Or there's another non-pharmaceutical therapy that might be better for you? What are our obligations for reaching back out to you?" Hess says.
"It might be that we find something based upon DNA sequencing that wasn't available to us a year ago when we treated you, which is now available to us," he says. "And what if we find something in your DNA that is game-changing; what do we do about that? And do people really want to know some of those things? Do they really want to know what their DNA is showing in terms of being predisposed to cancer, diabetes, or some other disease?"
Population health adoption is proceeding steadily, with providers exploring risk-based models and receiving increasing risk-based net patient revenue.
Healthcare providers are continuing a slow-but-steady embrace of population health management, with the majority of providers either involved in formal programs or pilots.
For example, a combined 75% of respondents in our 2017 HealthLeaders Media Population Health Survey say that they are either fully committed and underway or have an experimental or pilot program underway for managing the overall health of a defined population, nearly the same response as in last year's survey (76%).
And while the percentage of respondents saying that they are fully committed and underway (53%) is up six percentage points and participation in experimental or pilot programs (22%) is down seven points, these modest changes in response are within the survey's margin of error.
But, as we delve further into the population health management story, survey results show increasing momentum in risk-based population health revenue.
For example, 40% of respondents say that 25% or more of their organization's net patient revenue is attributed to risk-based population health management activities, up 18 percentage points from last year's survey.
Also encouraging is that fewer respondents say that this activity represents less than 10% of net patient revenue (34%), with results down 14 percentage points from 48%.
These results suggest that a greater share of respondents is taking on risk-based population health activities and making a deeper commitment.
Note that the use of risk-based financial models is a key indicator that population health management is occurring at an organization as providers face real consequences if they misjudge their capabilities or lack insight into the quality of their risk pool.
Up until now, providers have generally taken a cautious approach, but momentum appears to be building toward assuming greater risk.
Importance of financial resources
As with many aspects of healthcare, scale is critical to success. Provider organizations need sufficient financial resources to support innovation and investment in population health programs and infrastructure along multiple axes and over a long duration of time.
Further, population health programs also need a sufficient number of covered lives to help offset costs.
This necessity for scale is partly behind the correlation between organizational size and the level of commitment to population health management programs in our survey.
For example, a greater share of health systems (65%) than hospitals (45%) and physician organizations (34%) is fully committed and has programs underway, and based on net patient revenue, a greater share of large organizations (74%) than medium (50%) and small organizations (44%) is fully committed and underway. It takes both infrastructure and resources to make population health work.
Helen Macfie, PharmD, FABC, the lead advisor for this Intelligence Report, is chief transformation officer at MemorialCare Health System, a nonprofit integrated healthcare network with over 11,000 employees and 200 locations, including five hospitals, a medical group and an independent physician association, a health plan, and numerous outpatient health centers, imaging centers, and surgery centers throughout Orange and Los Angeles Counties.
She says that financial resources and subscriber scale are critical challenges for providers.
"To engage in managing the health of a population, you just have to accept that the financial and resource investment is for the long haul, and that the return—if there is one—generally won't be made in the same year. Also, while testing and innovating, try and do that as fast as you can, so that you don't have a decrement on your operations," says Macfie. "Much of this is being paid for out of our hospital operations and our ambulatory growth as we evolve to scale.
"At MemorialCare, we're up to about 259,000 covered lives, with some experts saying 200,000 is a tipping point. We had to put the infrastructure in place and then started to leverage that infrastructure more effectively. The more scale we gain in terms of the number of at-risk lives we're managing, the better we are able to perform. Taking on increased responsibility really forces you to look at the systems, processes, and infrastructure that you need to do this well."
Financial risk structures
Survey results for financial risk structures that organizations currently use in caring for an identified population indicate a continued preference for structures with shared risk, and a gradual trend toward assuming greater downside risk.
For example, shared savings programs with payers (48%) and bundled payments (47%) are the top two financial risk structures by a large margin, with direct contracting with employers (28%) rounding out the top three.
Note that the response for shared savings programs with payers is up five percentage points, bundled payments increased four percentage points, and direct contracting with employers is up six points over last year's survey.
More importantly, the response for shared profit and loss arrangements with payers (23%) is also up five percentage points from last year's survey (18%), an indication that respondents are gradually adopting risk-sharing financial models with downside risk.
However, respondents indicate that this trend is expected to accelerate over the coming years.
For example, while respondents cite that shared savings programs with payers (62%, up 14 percentage points), bundled payments (61%, also up 14 percentage points), and direct contracting with employers (46%, up 18 percentage points) will remain the top three financial risk structures their organizations use in caring for an identified population in three years, the biggest gain in response in three years is for shared profit and loss arrangements with payers (43%, up 20 percentage points).
This risk structure moves to fourth position on the list of responses, up from sixth currently.
The survey results are a clear indication that respondents expect to take on more financial risk in the next three years.
Note that the increase in response for joint venture with a health insurance company (33%, up 20 percentage points) is tied with shared profit and loss arrangements with payers for the biggest gain.
Macfie points out the importance of spreading the risks associated with population health program experimentation over multiple initiatives.
"One of the things that we've talked about is that, if we diversify our innovative ACO and bundled payment portfolio, it balances out over time. We might be taking a little bit of a hit on this one, and we have upside on that one. Meanwhile, we're investing in all this learning and infrastructure for the future to be more ready for what may come. So strategically it makes sense, but we are taking risk and more than we probably would normally; however, we believe it's a great strategy for the long haul."
Survey responses indicate that respondent organizations are allocating resources and developing population health capabilities in a balanced manner across care delivery, infrastructure, and financial capabilities. This balanced approach has enabled a moderate amount of progress, but with no one capability standing out.
For example, 57% say that their level of strength is very strong (15%) or somewhat strong (42%) regarding overall preparation for population healthcare delivery changes; 54% say that their level of strength is very strong (15%) or somewhat strong (39%) for overall preparation of a population health organizational infrastructure; and 54% say that their level of strength is very strong (10%) or somewhat strong (44%) regarding overall preparation for population health financial changes. All three capabilities are at relative parity.
Viewed another way, the results also reveal that the level of weakness across the three aspects of population health development is also relatively equal.
Forty-seven percent say that their level of strength is very weak (10%) or somewhat weak (37%) for overall preparation of a population health organizational infrastructure; 45% say that their level of strength is very weak (11%) or somewhat weak (34%) regarding overall preparation for population health financial changes; and 43% say that their level of strength is very weak (8%) or somewhat weak (35%) regarding overall preparation for population healthcare delivery changes.
It is significant that nearly half of respondents say that their level of strength is very weak or somewhat weak for each of the three aspects of population health development. While progress has been made, there is still ample room for improvement.
Barriers to population health
Respondents say that the three biggest barriers to successfully deploying population health programs are engaging patients in their own care (47%); up-front funding for care management, IT, and infrastructure (44%); and aligning independent physicians/providers (40%).
Note that the response for engaging patients in their own care is up eight percentage points, and up-front funding for care management, IT, and infrastructure and aligning independent physicians/providers are both up two points compared with last year's survey.
The good news is the majority of providers are investing in solutions to remedy these barriers.
For example, respondents say that the top three patient engagement areas in which their organizations are investing in population health management are patient portals (78%), wellness- or condition-related outreach programs (69%), and patient access to medical records (63%).
It is worth noting that the top five responses for this survey question are all greater than 50%, an indication of broad-based investment in patient engagement.
Likewise, respondents indicate that they are making IT infrastructure capability investments that are directed toward population health management, with the top three areas being analytics using payer claims data (61%), and analytics using population data (56%) and data warehouses (56%) in a tie.
The results reveal a high level of respondent interest in applying analytics to population health management.
As mentioned earlier, the need for greater scale and resources when implementing population health programs is a key requirement.
Perhaps because of this need, our survey reveals a correlation between organizational size and investing in IT infrastructure capabilities that are directed toward population health management.
Based on net patient revenue, a greater share of large (76%) and medium organizations (74%) than small organizations (49%) mentions analytics using payer claims data; a greater share of large organizations (68%) than medium (50%) and small organizations (48%) cites analytics using population data; and a greater share of large organizations (82%) than medium (57%) and small organizations (43%) indicates data warehouses.
In fact, the correlation exists for all responses for this question, with the exception of "None" and "Other."
Macfie cautions that technology alone is not the answer, and stresses the importance of patient engagement. "My takeaway on this is, in addition to all this technology, the people part of care navigation is really important. You could have all these tools, but if you don't create the human connection with Mrs. Jones, you may not understand what's really causing her trouble today. These are just technology platforms, and they need to be linked with processes and workflow."
Care redesign is an essential element of population health management success, with the majority of respondents engaged in some form of this activity.
According to the survey, the leading delivery of care areas that have been redesigned with the intent of supporting population health management are care management with risk-based patient panels (58%), clinical programs organized by disease state (51%), and team-based care in patient-centered medical homes (43%).
As with other aspects of population health management, survey responses reveal that the use of technology in redesigned delivery of care is correlated with organizational size.
For example, based on net patient revenue, a greater share of large organizations (58%) than medium (41%) and small organizations (29%) mentions telemedicine, and a greater share of large (29%) and medium organizations (26%) than small organizations (18%) cites remote monitoring.
Note that respondents say that their organizations have achieved a high level of strength in those areas where they have redesigned the delivery of care with the intent of supporting population health management.
Combining responses for very strong and somewhat strong levels produces the following list: team-based care in patient-centered medical homes (82%), clinical programs organized by disease state (73%), care registries organized by disease state (72%), and care goals, incentives aligned across continuum (70%).
All responses but one—remote monitoring (45%)—have a response greater than 50%, indicating the level of progress respondents have made in redesigning care delivery for population health.
On the other hand, remote monitoring (55%) and telemedicine (44%) receive the top results for combined very weak and somewhat weak responses for level of strength, which might be an indication of their evolving role in population health management.
Triple aim goal
The survey provides a snapshot of the current state of population health competency by asking respondents about triple aim goals.
Respondents say that their organizations' level of strength for population health's triple aim goals is stronger for improving patient experience of care (79% very strong or somewhat strong combined, and only 21% very weak or somewhat weak combined) than improving the health of populations (53% very strong or somewhat strong combined, and 48% very weak or somewhat weak combined), and reducing the per capita cost of care (42% very strong or somewhat strong combined, and 58% very weak or somewhat weak combined).
The response for improving the patient experience of care is not surprising given the emphasis that providers and the Centers for Medicare & Medicaid Services are currently giving patient experience.
And the response for improving the health of populations is also encouraging, indicating that population health programs are producing improvements in outcomes.
However, the result for reducing the per capita cost of care indicates that lowering costs remains a challenge for many providers.
Macfie describes industry progress on population health this way: "Part of this is, as we get more informed, we learn that improving the health of populations is a longer-term goal. You don't actually know in year one what you've accomplished. You might know in year three or five if you've actually accomplished the triple aim, because it's a delayed response as far as health outcome statistics."
Only a small percentage of healthcare organizations use a software platform with AI capability, but potential for strong growth exists within the next three years.
Healthcare analytics is evolving from analyzing what has happened (descriptive) to anticipating what will happen given past data (predictive) and, in its most powerful iteration to date, expecting what will happen plus providing proactive solutions based on those predictions (prescriptive).
So, what comes next?
The next step in this evolutionary process is the application of artificial intelligence to healthcare data to help providers make the most effective decisions possible, both financially and clinically.
While AI is still in its early stages and has yet to be fully embraced by healthcare leaders, many believe that AI offers tremendous potential for analyzing the vast amount of data generated by the industry.
However, 35% of respondents say they don’t currently have this capability but plan to within the next three years, indicating that there is potential for growth. That said, AI is not for everyone, and 35% of respondents say that their organization does not plan to have this capability.
A fairly large share, 17%, don’t yet know how their organization will proceed.
Survey respondents also say that the three most promising areas for analytics development in general are clinical best practices (56%), real-time delivery of actionable information (54%), and population health data (47%).
Steve Hess, chief information officer at UCHealth, an integrated health system serving the Colorado area that includes seven hospitals, 1,620 hospital beds, and more than 17,000 employees, says that the difficulty today is not access to data or having enough tools to analyze it—far from it; the real challenge is not having the time to extract analytical value from the data.
"We don't have a shortage of data. We don't have a shortage of dashboards. We have plenty of tools. What we don't have is plenty of time to analyze all of that data. Prescriptive analytics are what the healthcare industry needs to move the needle."
Clearly, the solution is not more tools, but more intelligent ones.