Many hospitals and health systems have experimented with the ACOs concept by working on small population groups such as their own employees, but they don't have the scale to bring the science and technology to the equation. That's where Medicaid might be an ideal proving ground.

ACOs have been with us for a couple of years now, but most hospitals and health systems, if they have experience in them at all, are most familiar with the Medicare Shared Savings and Pioneer programs.

More recently, commercial payer-provider partnerships have become more common, as big-brand health plans are partnering with physician practices and several hospitals in a regional array to construct accountable care organizations that seek to lower healthcare costs and eliminate waste.

Medicaid has been left out of many of the innovations toward accountable care. But perhaps, as the Bible passage says, what was last may be first.

Part of that Medicaid experimentation stems from the fact that providers, including hospitals and physician practices, are cautious. Where things can and will go wrong is in linkages in monitoring patients, especially the highest cost patients who account for the majority of healthcare spending.

"There's a whole revolution going on in that space," says Tom Enders, senior managing director at Manatt Health Solutions. "Those changes [in care protocols] have to be made in advance of the payment model changing."

Because of that, systems that are conservative want to leverage a partner's capability to get into the business without putting themselves all in without a payment model that supports it, Enders says. Aetna and United are most into this, but they have their own prescriptions for how to build commercial ACOs. Most of them involve the health plan doing a lot of the medical management work.

"The philosophy behind them can be described as a tug of war," says Enders. "Providers feel like they should do the medical management," he says.

Where you see innovation in business strategies, structure, and payment methodologies surrounding accountable care organizations, Enders is usually right in the thick of it, especially as it concerns governance and contractual structure.

His firm has been engaged by many in setting up the structures behind these entities, which often can take the form of joint ventures or contractual agreements. But the big difference between what he and his team are setting up and Medicare Shared Savings, for example, is that they are often full risk.

This is a contrast to Medicare shared savings, and more akin to the CMS Pioneer ACO program, which several organizations recently dropped, presumably because they couldn't make the numbers work. But further examination of the Pioneer "dropouts" will reveal the fact that providers have a tough time stratifying their patients, which is the hinge on which shared risk pivots.

"There's certainly a perspective that payers have spent years developing the claims-based system, and that gives them the ability to stratify patients," he says. "Patient stratification requires algorithms that are able to draw on a large data set and provide predictive modeling. Payers have that and providers don't. So providers who are rapidly transforming themselves into systems of care realize they don't have the ability to manage risk or manage care from stratification of patients."

Part of that is because of scale. While many hospitals and health systems have dipped their toes in the water surrounding ACOs by working on small population groups such as their own employees, they don't have the scale to bring the science and technology to the equation.

That's where Medicaid might be an ideal proving ground, says Enders.

Much of the thinking behind Medicaid population health management experimentation shows that hospitals and health systems, as well as state Medicaid payers, are leaning toward a prepayment model.

Otherwise known as capitation, it would require providers to manage toward a certain per-member-per month pay scheme, not unlike many structures that have been attempted in the past. But with today's greater IT capability, Enders says managing toward a number that will be profitable for providers and reduce cost for payers is more achievable, without restricting care.

The prepayment model is "not a big issue if you have 5,000 in your medical home, but if you have 100,000 or 200,000 it's a big deal to stratify those patients who require more or less assistance and it's expensive to build," he says.

"It requires access to lab, pharmacy, and claims data, and linking all that data together around the patient, that investment can range anywhere from $50 million to $200 million. Most don't have that kind of money and can only get it through partnership or contract."

Most of Enders' work is related to one or more of the groups involved in this tug of war, as he provides guidance in provider strategy, system development and formation, JVs, and linkages between institutions.

What will determine success?

All parties in these relationships have to produce a value proposition in terms of lowering the cost trend.

"With a commercial ACO, you have to create an affordable product that employers will buy," he says. "That includes a limited network footprint.

But this evolution is not entirely commercial.

"The Medicaid space is where a lot of this is going on," he says, particularly because Medicaid is going to be disrupted by the entrance of the insurance exchanges. To what degree is still unknown, but Medicaid is already a poor payer in the eyes of providers, so if there's any way to better manage the dollars that are available, it makes sense to start there.

"Providers want to draw out fee-for-service on the commercial side, so they're going slowly," Enders says. "A lot of my clients are still high-cost so they are cautious, but they're moving much more rapidly on the Medicaid side. They are in large part the Medicaid providers already."

He cites one project in Alabama being piloted with the help of the American Hospital Association. It's a Medicaid reform program that is set up around regional care organizations. These multi-stakeholder organizations would contract directly with the state on a prepaid basis to cover Medicaid beneficiaries in the designated territory.

Legislation to implement the program has passed, and Enders says the regional organizations are now in the process of working through details in how to implement them and the regions will be announced in the fall.

"That's a concept for Medicaid that is very innovative," says Enders. "Oregon has done a very similar thing and it's transferable for other states. In effect they're Medicaid ACOs."

Deciding when and how to enter an ACO of any kind is putting unique pressure on leaders of hospitals and health systems, Enders says, but that breeds dynamism of action as many of these structures ramp up.

"Many feel there is a window of opportunity to line up their team," he says. "In a lot of markets, everyone's talking to everyone, so if I'm not forming or participating in an ACO, that could materially affect my future chances."

One thing is clear: Reimbursements from Medicaid and Medicare will go down, and commercial reimbursement will also go down to reach the level of inflation, Enders says.

"It's a time of very significant change," Enders adds. "Many of these CEOs realize they need to prep for an alternative model and need to test and organize within their organizations."

Integrating physicians under one management umbrella can be a huge challenge. It's not the acquiring that's hard. It's the integrating. Lack of a cohesive practice strategy is often the culprit.

As hospitals and health systems seek to broaden their offerings and the cohesiveness of their care pathways, acquiring and employing physicians and physician practices has accelerated. The strategy is in part a reflection of the incentives being placed on healthcare to develop a cohesive continuum of care, and in part a reflection of physicians and practices being squeezed for revenue and desiring employment.

Regardless, integrating physicians under one management umbrella can be a huge challenge. It's not the acquiring that's hard. It's the integrating.

Or so says Steve Corso, managing director of physician engagement at Medsynergies. But why is there so much challenge in engaging them? Part of it stems from the reasons a practice might be acquired.

"All parties are smart people, so everyone's working hard and has the smarts, but one of the key factors is that what's causing physician enterprises to grow is so dynamic," he says. "A lot of times you have an acquisition that's simply filling a hole. An acquisition like that is completely different in its expectation than an enterprise that's growing to cover a population. And those are just two variations. There are hundreds."

Corso says that chaos can result from a basic disconnect between the expectations of the system and that of the physicians they are acquiring. 

Medsynergies is perhaps best-known for taking away practice headaches from hospitals and health systems by managing and providing them directly. For instance, it will staff and be accountable to service and revenue goals to a hospital or health systems, effectively removing them from the pain of managing a hospitalist, anesthesia, or emergency physician group. Outsourcing, in other words. 

But Corso is leader of a new business offshoot that seeks a very different customer: hospitals and health systems that want to integrate previously independent physicians and their practices into the whole.  

Rapid consolidation is partly the result of incentives for organizations to better coordinate care—the idea being that it's better to own all the pieces. This is a way to maintain control over processes that are known to keep patients out of high-cost areas of care, and to manage the health of populations versus the previous best business practice of maximizing procedures.

That's a gross oversimplification of the integration challenges hospital and health system leaders face, but regardless of the reasons for acquiring practices, the road to achieving the efficiencies they can provide is fraught with landmines.

"It would be one thing if you could just begin with a clean sheet and competition could be quiet, and you'd present a great value proposition, but I have not seen a place like that," says Corso.

Instead, most acquired practices are facility-specific—that is, they refer and do their work at one facility.

"The reality of what systems are challenged with is changing an array of different practices into a true physician enterprise that shares unity of purpose."

If you can achieve that, Corso says, you'll reap the benefit of less drama; the enterprise will be less costly to run; and you can more effectively comply with best practices and gain efficiencies, thus lowering costs.

"That platform works best for when we get to changing clinical patterns," says Corso, echoing dozens of healthcare cost experts who claim the real waste in healthcare lies not in the supply chain or in revenue cycle enhancement, but in getting doctors to change the way they practice medicine into a standards-based and team-based alignment. 

"The challenge is that you're starting from chaos. And to see your way through that is difficult because some of these relationships already have tension built into them from past misunderstandings," he says.

Despite the myriad forces driving hospitals and health systems and their physicians closer together, physician practices continue to be largely facility-specific, and old relationship patterns that continue post-acquisition can undermine the success of the combination going forward.

"We try to establish where there's a gap between physicians' expectations of employment and the difference between what the system expects to get from that employment," Corso says. "You find gaps not so much in contractual terms but in the implied conditions of employment."

One such gap—the implication that despite their employment status, physicians have been promised autonomy. But autonomy means different things to different people.

"If, as a physician, you expect that, and the system wants to centralize, that's not autonomy," he says. "You had an implied expectation of autonomy that's now being moved. But it's to everyone's advantage for that compact to change, to be interdependent."

The problem is effectively conveying that message to a powerful group of people who think they were promised something else.

If not autonomy, engagement and participatory governance is now their expectation, he says.

"The physician is looking for ways to align. That means allowing for changes to take place and means leading through influence instead of dictating. We try very hard to open a dialogue where everyone can share and provide input on what needs to be changed with the hospital-physician relationship," says Corso.

Rather than integrating one culture to another, those who are aggressively acquiring physician practices face integrating several, sometimes dozens of practices, into a cohesive unit based on the of the health system—not the individual hospitals or practices that make it up, and which may have come into the fold at different times and under different conditions.

This is most true for systems with several hospitals, but can also be a problem for standalone hospitals that are integrating cultures through many practice acquisitions, including those of different specialties.

Corso says organizations should begin to think of physicians as a whole enterprise—an entity unto itself. It's greatly impacted by the physicians they choose to participate in it, he says, adding that the physician enterprise is a political entity as well.

"We're suggesting that if it's solely tied to a facility-centric model, you might find yourself not optimizing it in the end," he says.
Establishing a physician enterprise is harder to do than say. Also, until now, most organizations have been fairly successful with facility-centric physician enterprise, he says.

"It's very expensive, and it's not optimal, but for most part it has been profitable in the past," says Corso. "We think there's a better way, but you're not induced to that better way today."

Yet move away from fee-for-service reimbursement is changing that dynamic, if slowly. Not to mention that generally, physicians seize on the system-wide approach to managing their colleagues. They have an active role (or at least as active as they want to be, says Corso). That gives them a way to impact a practice.

"It's a big thing and they're still involved with the character of it. That environment will suit a system best," he says.

Still, transformation takes a long time.

"It involves a massive number of conversations, person to person, but it's worth the effort," he says. "If you have participatory governance, that's a better platform to work on as you build your physician engagement."

Glenn Steele, MD, discusses the need for healthcare organizations to collaborate and learn from each other with shared data that can offer real-time insights as healthcare leaders re-engineer the industry to provide real value.

Glenn D. Steele Jr., MD, PhD

Some time ago, I had a wide-ranging conversation with Glenn D. Steele Jr., MD, president and CEO of Geisinger Health System in Danville, Pa., about the need for healthcare executives to share information as the industry transforms. Geisinger, you may remember, is a staple of the effort to change the way healthcare works, to make it more interactive, safer, and less costly.

The $2.9 billion system, which serves more than 2.6 million residents in central and northeastern Pennsylvania, has long been held up as an example of high-quality, low-cost healthcare; even the President of the United States touted the system as an ideal to which other healthcare providers should aspire. Steele himself was widely rumored to be Barack Obama's pick for CMS administrator before Donald Berwick was appointed. I spoke with Steele on a range of topics, mostly dealing with what often obstructs the goal of coordinated and less wasteful healthcare.

HealthLeaders: Are senior healthcare executives working together more than in the past to solve the big problems in healthcare?

Steele: They are but there are a number of ways to focus on this. What we do in our own system can serve as a good example. We have three very different demographics we're dealing with: the hospital, the payer, and the doctor group. We have a remarkable interaction between physician leaders and finance people and senior administrative leaders, and the key is we don't expect everyone to have expertise in every area but we expect them to combine their expertise to approach problems. … We're facing an oncoming transformation that is one of the most remarkable in 100 years. There's a growing understanding that no single template is going to work, so I'm not arguing for our specific template.

HealthLeaders: What are some of the factors encouraging or enabling that increase in communication and collaboration?

Steele: I'm biased as the chairman of Premier, but organizations like that represent a huge amount of enabling for systems getting ready for a new payment system. They're effective conveners where we're essentially trying to learn from each other through shared data. When I go to my board it's more convincing when what I'm proposing is backed by metrics that come from 200 of the best, most aspirational organizations in the country.

HealthLeaders: In what areas does it make sense for senior executives to network with each other? For example, on strategy, utilization, costs, efficiency, quality?

Steele: Our assumption is that with so many changes going on in how healthcare is practiced and delivered, thanks to payment reform (whether by government, employers, or payers), this kind of networking increases the knowledge base among leaders, and they are able to quickly experiment among themselves and reach conclusions on best practices in many of these areas. A few organizations have moved into this convener role.

HealthLeaders: Why is it important to have a neutral "convener," as you put it? Is more data by definition better data?

Steele: Yes. We've got a ways to go not only on EHR functional initiation but also with data warehousing. Organizations like Premier are creating their own data warehouse that can be used as outsourced capability for those who don't want to or can't build their own. When we do all our road tests, whether in hospital care re-engineering or focusing on a different way to provide ambulatory care for those who have chronic disease, our most important metrics are total cost of care and whether we have achieved lower cost of care without sacrificing near- and long-term quality.

HealthLeaders: Why is it so difficult to come up with usable information on the cost of care and whether the healthcare dollar is well spent?

Steele: You would think that looking at total cost of care would be an easy task. It's not easy at all. Being able to use data that is aggregated and understanding how to define precisely what goes into the calculation of cost of care has more credibility if you can do it with other organizations that are aspiring to same goal. Ideally you could do that from CMS data. But they're under such duress on analytics that often there's huge lag time between what you do and getting data fed back. Medicare Advantage data, which we have because we have a Medicare Advantage plan, is more accessible. We use that data as a surrogate to determine the effects of the changes we make. For physician demonstration projects, the data coming out of CMS is 15–18 months after the fact. If you're looking at actually getting docs and nurses and community resources to do things differently in caring for patients, that data has to be fed back to them almost in real time to be usable.

HealthLeaders: Are technological innovations making it easier? In what ways?

Steele: At Geisinger we started with Epic in 1995. At the time, we realized that decision was either very silly or very wise, but it's turned out to be wise. Starting almost 12 years ago we began this data warehouse effort. Not only on healthcare provision but also on the cost and transaction side. We spent 4.5% of our revenue per year on maintaining and improving our data warehousing capability. That's a huge amount, and we're constantly upgrading. But the fact is, we couldn't do what we do in value re-engineering without having real-time feedback. The fact that now other systems in the country have this capability gives us a scaling and generalizing capacity that wasn't available before.

HealthLeaders: Are there competitive or antitrust concerns that must be addressed in these types of collaborations?

Steele: As we do this, we have to make sure we're in the regulatory compartments that don't allow us benefit from the things that Econ 101 says is possible in terms of colluding. Secondly, one of the major compelling reasons for consolidation is to allow us to integrate in ways that are only possible in the same fiduciary. But you have to prove that you're bringing value to a population of patients—that you're not ripping them off. How we actually regulate what is becoming a consolidating payer and provider market—there will have to be a different functional metric to show they bring value to a population.

Hospitals and health systems are getting squeezed at both ends of the revenue spectrum. To survive they must effectively integrate a number of healthcare services and add value. But how?

This article appears in the June issue of HealthLeaders magazine.

Whether their operational strategy is dominated by the patient-centered medical home, the ACO model, or other clinical integration strategies, hospitals and health systems are moving heavily into acquisition of physician practices.

In many cases, leaders perceive such acquisitions as a bulwark against revenue declines and a source for continuing referral patterns, despite sometimes steep financial losses from the practices themselves. Meanwhile, lower-level primary care is being commoditized by retail clinics and urgent care clinics operated by drugstore chains or even Walmart.  

Although hospitals often lose money operationally on physician practices, hospital leaders feel they can justify employing the physicians because of the downstream revenue. But with low-cost providers nipping at practice revenue and reimbursement pressures bearing down on high-end inpatient services, hospitals and health systems are getting squeezed at both ends of the revenue spectrum.

To survive in the long term, they know they must effectively integrate a number of healthcare services. In other words, they must add value. But how?

Hospitals have begun to think strategically of low-end services as led and managed clinically by them and physicians who are clinically integrated with their care protocols, but they are increasingly interested in providing more care with physician assistants and nurse practitioners as part of a care team. Getting to the end state likely means gambling on lots of steps and complex revenue sharing, but leaders have little choice but to transform. Execution will be the key.  

A brief window of opportunity  

Almost 1,400 store-based clinics operate now in the United States, mostly in urban and suburban areas. The only substantial requirements: a nurse practitioner, a self-check-in system, and a storefront. Right now, in most communities, such locations complement rather than directly compete with primary care practices.

"There's enough demand for primary care that in most markets the docs aren't feeling the direct impact of these clinics," says Paul Keckley, executive director of the Deloitte Center for Health Solutions, the health services research arm of Deloitte LLP.  

But that will change relatively quickly, Keckley says. "There's a race to own the front door to revenue, and that's primary care."  

Right now healthcare access, especially in primary care, is constrained. But when most states' Medicaid rolls expand next year under the Patient Protection and Affordable Care Act, and as health insurance becomes a requirement under the same statute, the journal Health Affairs says the demand from this influx of insured patients will mean the nation will require an additional 7,200 primary healthcare providers, 2.5% more than the current supply.  

As the system digests the demand for more primary care, a brief window of cooperation opportunities is open for hospitals and health systems to work in partnership with store-based clinics as they seek trusted local partners to help supervise their nurse practitioner and physician assistant storefront practices.

Some already have an urgent care or retail strategy on their own but also see a need to partner within the next three to five years. Michael Murphy, UnityPoint Health's senior vice president for population health strategy, is in the developmental stage of such partnerships even though the health system owns a group of 15 urgent care clinics in its top metro areas of Des Moines, Cedar Rapids, and the Quad Cities, among others.  

"We need to move to team-based care where physicians are working with high-risk patients," he says. "An increase in the insured population will start challenging our primary care access models significantly."  

Murphy contends that partnerships with low-end providers such as urgent care clinics need not be seen as dilutive to the health system, but instead as another entry point for patients.  

"Everyone is concerned about these places taking their business away, but the challenge of primary care is you're always going to have innovation and low-cost providers trying to nip at low-risk easy-patient interaction," he says. "But at the same time, we also look at where the spending is and where the population is moving to. The majority of costs is 55-plus."  

That means better care coordination of such patients can pay off more substantially, and, to Murphy's thinking, means the idea of providing clinical oversight and team-based care for such high-cost populations is a great opportunity for hospitals and health systems where urgent care clinics can't and don't want to compete.  

Many hospitals' strategies surrounding primary care involve acquiring practices and employing physicians with an idea of introducing such team-based care strategies. But even with the opportunities such partnerships can represent, the physician practice acquisition boom has detractors who suggest it's not a strategy to pursue in hopes of downstream revenue, says Ron Wince, president of Guidon Performance Solutions, the Mesa, Ariz.–based consulting unit of TeleTech, an Englewood, Colo.–based business process outsourcing company.

"I see the primary care acquisition binge as a shortsighted grab for referrals," he says, referencing the rules of the fee-for-service world. "I don't know of many organizations that are not doing it, and moving fairly quickly, but there's a fairly decent amount of cannibalization on the primary care side. The relevance of the primary care referral network will be less and less, and people will self-refer to what's most convenient."

So if you can't compete on price (low-cost storefronts) and you can't compete on volume (high-dollar inpatient procedures), then where can you compete?  

Wince says the answer lies in connectivity and what you do with it: "The health system of the future won't be a building or group of buildings, but it will be a cloud."

Wince uses the term to refer to the similarity he sees with cloud-based computing, but he could just as easily be talking about team-based care.

Changing definition of primary care  

So how does a leader create the "cloud" that keeps patients and future patients under the organization's management umbrella? Like most successful ventures, it involves a team of people with varied talents working toward the same goal: management of populations.

"The model of the future is much more team-based with interdisciplinary roles," says Deloitte's Keckley. It's a very different operating model, which includes prophylactic dentistry, mental health, nutrition, and vision care as part of a comprehensive view of primary care, he says. Hospitals and health systems can't and shouldn't want to own it all.

"It's a much bigger set of services than most primary care docs are comfortable with, so you'll see entrepreneurs enter the community and become the mainstream," he says.

That suggests partnerships with such entrepreneurial groups (including but not limited to storefront clinics) can be effective. Hospitals and health systems should go about their primary care strategy with forethought but instead, they're often responding to market opportunity.  

"That's nonstrategic and reactionary," Keckley says. "Only in communities where insurance companies or a large employer have forced health systems to be strategic on primary care is there evidence they've built out a strategy."

Instead, most CEOs are spending time and effort on opportunities to reduce costs substantially and quickly, he says. Primary care may come into the discussion as a lower priority, which leads Keckley to believe that hospital and health system leaders are misjudging the strategic threats they face as healthcare transforms.  

Traditional practices noncompetitive?

Partnering with big national chains is not the answer, at least not by itself. While a partnership with retail clinics may broaden your reach, and it's better than pretending a threat doesn't exist, hospitals can get caught in the crossfire between the economics of such clinics and those of a traditional practitioner, Keckley says.

That's because the profitability of the storefront clinic is not dependent on the visit itself. Though retail clinics will see fewer and less-complex patients generally than the physician office, the cost structure is substantially lower than that of a physician office–based clinic. For instance, retail clinics treat people at half the cost of the doctor's office, but average only 1.5 full-time equivalents compared to the average practice, with 3.5 FTEs, Keckley says.

"These clinics maintain contact with patients following the visit, they push them 10 feet away to get their prescription filled, and while they're waiting they might pick up Diet Cokes and Cheetos," Keckley jokes.  

The storefront clinics have processed a key detail about healthcare reform writ large: Not only do hospitals and health systems need radical cost reduction in core inpatient businesses, "but you've got to have revenue streams that are not third-party–dependent," he says. "You can't depend on the government or insurance companies to be your top line anymore."

Approach No. 1: The integrator

So is everyone acquiring physician practices making a strategic error?

Far from it, but the acquisition strategy is only the starting point. Murphy, of UnityPoint Health, is charged with developing the connections among various sites and acuities. The integrated health system, with annual revenues of $2.8 billion, has been active in targeted partnerships with providers not owned by UnityPoint Health as part of its accountable care organization strategy.

Murphy is anticipating a difficult transition, but says a critical issue is the ability to offer a variety of services stratified by patient age. Among younger patients, he sees a big move to telemedicine, and says technology will erupt and lead this transition. Telemedicine, e-visits, and self-scheduling, under which a patient can interact virtually with a physician or physician assistant to determine further treatment, will be big among this age group. He envisions an escalating suite of services depending on acuity and severity.

"That will create a whole new construction on how we deliver and access care," he says.  

Murphy anticipates adding some pieces to the puzzle as the system deals with demand from people who are just moving into the insured market. He cites a need to move to team-based care, and to a model where physicians are working with high-risk patients and funneling low-risk, low-acuity patients to physician assistants and nurse practitioners.  

"But right now, we don't have a reimbursement system that supports that," he says. "That will change in the next three to five years and will open up new opportunities. It will also start challenging our primary care access models significantly."

The business model he and UnityPoint Health favor starts with a primary care base but, critically, involves looking at risks in patient populations. Those in the low-risk categories are likely to gravitate toward convenient care, such as store clinics and e-visits. Murphy wants to partner with those entities "so we can bring clinical expertise." He sees in-house physicians—primary care and otherwise—working with the more medically complex and compromised patients and developing systems of care for that cohort because it is complex clinically, requires care coordination, and in some cases transportation, behavioral health, and other services, and thus is most costly per capita.

The real challenge, especially under a capitated, full-risk situation, which is where commercial insurers are likely to gravitate, is developing what Murphy calls organized systems of care in each of UnityPoint Health's 27 metro and rural markets.  

"Today, many insurers would fully capitate and put us fully at risk," he says. "We are preparing the key capabilities to perform under full capitation to know how well we perform under that."

He says UnityPoint Health's experience with Medicare Advantage plans is a plus under an arrangement like that, and would be instructive, but if he wanted to protect his markets from low-cost competitors tomorrow, he'd accept full capitation indexed to the consumer price index.  

"Now, all my work would be around care coordination," he says. "At the same time, we're not there, nor can we succeed in that world right now because we are still building the capabilities."

But the first steps are there. UnityPoint Health has more than 110,000 lives in a commercial ACO contract, more than 90,000 in Medicare shared savings and in a CMS Pioneer ACO. The system has more than 230,000 lives in value-based contracts today.

The timing of entering into fully capitated care will be different in each of its regions, but the era of collaboration is intensifying, he says. Although he doesn't mention the chain specifically, the trick may be in getting entities, such as Walgreen's, HyVee, and CVS, for example, embedded into this innovation.  

Murphy and his leadership team recognize that in addition to its core competency of acute care hospitals, UnityPoint Health must expand to an organized system of care in each of its regions that brings care at the most appropriate time to achieve optimum cost and quality results.

 "We'll have to adjust where we place our capital. That's why we'll have to work in regions, so independent and employed physicians are all looking at populations, stratifying the risk, while we'll be looking at additional partners we need to bring to the table."

Approach No. 2: The player-coach  

James LaBelle, MD, the chief medical officer at Scripps Healthcare—a San Diego–based four-hospital system with 1,411 total licensed beds and $2.6 billion in total operating revenues—is in the midst of engineering transformation as well. But that transformation involves many moving parts and can't be accomplished quickly. Like Murphy, he sees a three- to five-year period of reengineering processes, reimbursement, and partnerships with outside organizations before Scripps can "flip the business model."

The first phase of transformation, which LaBelle estimates is 85% complete at Scripps, centers on standardizing the supply chain: physician preference items and pharmaceuticals. He calls that work low-hanging fruit. The second phase centers on reengineering care on the care units, primarily in the inpatient setting. It involves driving out the waste in the inpatient unit and standardizing the clinical processes that support them. He estimates Scripps has completed 15% of that work.

"The really hard piece is the third phase of our process, which is taking the efficient systems we have and flipping the business model so that instead of being in a heads-in-beds business model, we're reimbursed for population health," LaBelle says.

That requires new competencies in reengineering the continuum by disease state, he says. Put differently, he says Scripps as a healthcare system only adds value at the level of the medical condition.  

"The patient doesn't necessarily care about the individual encounter, but the improvement of their condition over the entire episode of care," he says.  

Even now, in most of healthcare, the predominant reimbursement is around those encounters, and not in driving value at the medical condition over the cycle of care. Capitation, which has long held sway in California even after it was largely abandoned in many other regions, starts to get there, but even a renewed focus on utilization management and outcomes is more of a general indicator of performance, and not around particular disease states, he says.  

"This third transition will be data- and knowledge-heavy," he says.

While many of his colleagues at health systems around the country have taken to saying that primary care is king in healthcare reform, LaBelle says that's the wrong metaphor.  

"In order for the transition to occur, the primary physician can't be a king, but a player-coach," he says.  

This physician has to coach other members of his or her team to manage a much larger population of patients, supported by chronic disease management infrastructure. Patient interactions with such physicians will not be one-on-one, but the physician will manage a population of patients with a team.  

"That transition will be as hard as the one the specialists will undergo in terms of being accountable for outcomes and appropriateness," he says. "A lot of primary care physicians experience frustration about not being able to manage complicated chronic diseases because they need to see 30 patients a day. The work becomes a lot more meaningful if you can move them toward that."  

Still, he's concerned that Scripps has the right partners as some of the simplest primary care becomes commoditized.  

"It's being commoditized right in front of our eyes. Look at Rite-Aid," he says. "When do we want to admit that the commodity part of the physician workload doesn't really add value?"

What adds value to the patient is physicians' judgment around complex presenting conditions. If your strategy as a hospital or health system is to acquire primary care physicians, that's only the beginning.  

"But you haven't added value if you're just doing it for referrals," he says. "You've merely locked in your referral patterns."

In competitive markets, your strategy should center on partnering those primary care physicians with specialists, postacute care, and disease management systems to add value at the level of the medical condition.  

"If not, maybe in a few years, you're not competitive."

He argues that small store clinics, being high touch and low cost, can be managed by algorithm. Hospitals should think about partnership with such clinics to leverage the technology and the primary care physician to manage a team of nurse practitioners in storefront locations.  

"These venues of care will be essential to being successful in this new system and will become really important as referral patterns are disrupted and access to primary care is disrupted."

Approach No. 3: The disruptor

Allen S. Weiss, MD, president and CEO of NCH Healthcare System—a Naples, Fla.–based 715-licensed-bed system with net operating revenues of $480 million—is seeking to be the disruptor as health reform accelerates. Even though NCH is only a two-hospital system, Weiss is seeking to collaborate, affiliate, and consolidate to remain relevant on both the low and high end of healthcare services.  

As for competition from low-cost sites of care like storefront walk-in clinics, Weiss is thinking ahead to another revolution that may supplant the walk-in clinics: the home visit. But such visits will not be in person. Weiss makes the argument that existing in-home IT already allows home visits through Skype or other online means. Remote monitoring is also gaining acceptance and is proliferating, and regular in-home visits from nurse practitioners and physician assistants will be part of the home care revolution, he envisions.  

"We need to be location-agnostic and take care of patients where it's most comfortable for them," he says. "Wouldn't you rather have care provided at home? Not being exposed to C. difficile and MRSA and other bugs has a lot to recommend it."

To develop a working model for such interaction, NCH is on the move. The leadership team has charged the system's CIO, CNO, and the chief administrative officer of the system's 100 outpatient providers to do checkups using Skype or Apple's FaceTime within six months.  

"We have a fair number of patients who go home [away from Naples] in the summer," he says. "What if they could have virtual visits in the summertime? Why start up with a new caregiver?"

In August, NCH joined the Mayo Clinic Care Network, a collaborative with the famed Minnesota health system to address patient care, community health, and innovative healthcare delivery, but Weiss is under no illusion that it will secure NCH's future. In narrow operating margin industries, which Weiss insists healthcare is destined to become because of cost pressures, "you need economies of scale and scope," and that means an independent existence is not only impossible for a system like NCH, but is undesirable as well.  

"We cannot persist independently when you've got to integrate the care we're providing to include prevention, patient engagement, and avoidance of hospitalization," he says.

More tangibly, the partnership allows NCH to introduce new methods of interacting for primary care that Mayo has already pioneered, such as the virtual visits idea.

Reimbursement for such innovations is often the first concern for leaders, but Weiss contends that worrying about reimbursement hampers innovation and cedes patient relationships to organizations that don't use third-party reimbursement as an excuse not to innovate.  

"Right now, reimbursement for virtual visits will be cash, but in the very near future we're talking to the major insurers about getting paid," says Weiss, adding that in California, Kaiser Permanente, which has the luxury of its own captive health plan, already gets third-party payment for such interactions.  

"We'd be getting $44 a visit versus twice that for an office visit," he says, but half is better than nothing, and doing a lot of work this way is frequently better for the patient. "About 80% of the office visits done right now by primary care can be done by midlevel providers, and 80% of what the midlevels do can be done over the telephone," Weiss says. "That means overall, two-thirds of visits can be done over the telephone by midlevels. Primary care practitioners will be captives of a team that includes a physician, a midlevel provider, an exercise physiologist, a pharmacist, and a dietician. This individual one-on-one doctor thing was adorable for 1980, but it's not going to work in 2020. Neither the government nor this nation can afford it."

Reprint HLR0613-2

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This article appears in the June issue of HealthLeaders magazine.