The Bundled Payments for Care Improvement initiative, a three-year pilot program from the Centers for Medicare & Medicaid Services offers a challenge to participating hospitals and health systems: Instead of issuing multiple payments to multiple providers surrounding a single episode of care, accept one payment for a variety of services performed under that care episode.
The thought is that doctors, hospitals and other affiliated care providers will be incented to coordinate patient care better because it better aligns financial incentives with patient care.
And bundled payments, under which organizations can share any savings between the payment and the cost of care, will also reduce complications and cut the cost to Medicare of paying for the services associated with a particular episode of care, for example, in a total knee replacement surgery and its follow-up care.
Such payment regimes are a critical part of the now-affirmed Patient Protection and Affordable Care Act, but at this stage there are only pilots.
The current one, which will last for three years, with a possible two-year extension, is just a first step. But clearly, Medicare and even some innovative commercial insurers are experimenting with bundled payments in the belief that they will reduce the overall cost of care for patients.
As a result, many hospitals, health systems, and other providers will at least learn how they would likely fare under such a radical departure from traditional fee-for-service payment regimes. Yes, it will be at least three years before Medicare's bundled payment program can be thoroughly evaluated, but senior healthcare leaders with an eye toward their organizations' long-term viability should themselves test and evaluate how such a payment methodology would affect their bottom line.
Jumping right into a bundled payment initiative without thorough evaluation of how your organization might perform would be foolhardy. Hospital leaders should take advantage of the time lag between the launch of a pilot project and its possible full implementation to evaluate how various reimbursement models might affect their viability.
Fortunately, there are several ways to get your feet wet on bundled payments without taking risk. For one, the Premier healthcare alliance has its Bundled Payment Collaborative, which involves more than 50 hospitals in 18 states. The program will help hospitals and health systems redesign care without the risk-taking that's involved in joining one of the pilot projects (there are four under CMS, with varying levels of immersion, risk and a choice between prospective and retrospective payment models).
Under the Premier program, launched July 23, participants will share best practices and data with other members, and focus on improving care and reducing costs in hip/knee replacement, lumbar spine fusion, coronary artery bypass graft, heart valve replacement, percutaneous coronary intervention, and colon resection.
Premier participants are focusing on Model 2 of the CMS pilot project, which covers the episode of care defined as including hospital, physician, post-acute provider, and other Medicare-covered services provided during the inpatient hospital stay as well as following discharge. The promise of the program, as in all the bundled payment programs, is to share gains arising from better coordination of care.
Premier's Wes Champion says the program "is based on a decade's worth of experiences and lessons learned through our collaborative that have shown substantial cost and quality improvements."
Some of the Premier participants have already joined CMS's demonstration project, but you don't have to do so to learn how best to structure your approach to bundled payments.
A second opportunity to learn how to approach bundled payments, launched at the beginning of this year, comes from VHA, another national healthcare network, through its Bundled Payment Simulation project. Similarly, that initiative helps simulate volume and reimbursement projections for total knee replacement episodes of care, thus helping senior leaders on both the clinical and financial sides to assess risks and analyze the return of the potential investment in changing care patterns.
For most hospitals and health systems, a change to a bundled payment is fraught not only with financial risk, but also the risk of a change in work patterns and culture within and outside the organization. Like a marriage, such massive changes shouldn't be entered into lightly. Through simulations such as these, changes can be made over time and don't have to be so jolting and risky.
After all, you can't afford to ignore the demand for better value in healthcare, allowing other systems to leapfrog yours in the transformation.
Harvard Business School professor Clayton M. Christensen, one of the keynote speakers at this year's American Hospital Association Leadership Summit in San Francisco, spoke to hospital leaders about their impossible mission and how they can work to make healthcare more affordable and higher quality.
Christensen, 60, also spoke of his multiple battles with health problems in recent years, and tried to shed light on some strategies hospitals could use to deal with the disruptive innovation that he believes will soon place leaders in the crosshairs of significant competitive pressures.
Having survived a dangerous heart attack, a battle with lymphoma, (now in remission) and a stroke that affected the part of his brain where speech is generated, Christensen speaks from experience with a healthcare system that he says is set up in most cases, by mission, to do "anything for everybody."
That results in tremendous overhead costs which place hospitals at severe risk of disruptive innovation from future (and current) competitors.
"If you were suckered into taking a job as a CEO of a hospital, that is a really bad choice, because you have a job that's impossible to do," he said, only half-jokingly.
Based on his research, he says about 85% of hospitals' costs consist of overhead. He compared the dilemma to that of a Michigan truck axle plant that could custom-build any axle for any application. The factory did fantastic work, he said, but because of the time, effort, and processes that must take place in order to offer this level of customization, the factory supervisor was told that if changes couldn't be made, the parent company was prepared to shutter the factory. Another factory in Ohio owned by the same company boasted less than half the overhead.
"The other plant wouldn't do anything for anyone, but they told customers that if you have a design that incorporates one of two processes, we can do it at low cost and high quality," Christensen said.
He said a colleague who studied the company found that every time the pathways to completing the manufacture of the axles doubled, cost per unit increased by 30%.
The complexity of this plant is what drove the overhead costs so high, he explained.
"The plant wasn't inefficient, but the overhead exists because of complexity involved in promising that they would do anything for anyone," he said. "You have the same proposition. No matter what's wrong with you, bring it here."
As a consequence, the overhead costs are enormous.
One of Christenson's colleagues tried to figure out how many pathways patients could go through at UC Irvine. He found 110, "but it's infinite numbers, really."
He argued that most hospitals need to "fragment themselves. You can only address overhead through simplification."
Congress's 2010 attempt to impose fiscal discipline on itself through a blunt instrument of sequestration might be crude, but should it happen next January, healthcare reimbursement might suffer much less than other parts of the federal budget.
A panel of experts at the American Hospital Association's Leadership Summit in San Francisco, while calling such an outcome a "super failure," say that a provision in the sequestration law that limits Medicare funding cuts to 2% will be much less painful than the cuts to defense and other domestic programs, which would be higher than 10%.
This makes sequestration possibly the least bad option for a healthcare industry already reeling from demands that it cut the rate of cost growth in a sector where spending has grown at more than double the rate of general inflation for most of the past two decades.
While Congress may yet revisit the automatic spending cuts set to kick in on January 2, 2013, they must find enough votes to do so, something that has been elusive in recent years. Republicans seem intent on preventing the automatic $54.5 billion cuts to defense spending, instead seeking to shift those cuts to domestic programs, while Democrats seem determined to push for the opposite.
If Congress were to override the cuts, the expert panel agreed that Medicare, and thus, healthcare providers who depend on its reimbursement, might not get off so easy a second time around. Medicare and Medicaid make up 42% of the national budget, but cuts to them are excluded or severely limited under the sequestration plan.
Congress probably never intended for the sequestration to actually happen as scheduled. Instead, many members who voted for it suggested that the pressure from the looming draconian cuts would force the recalcitrant lawmaking body to find compromise that would more equally allocate the burden of balancing the budget, which faces pressure not only from the sequester, but from the debt ceiling, also set by Congress, which might reach its limit by February 2013.
"An alternative budget strategy might well dig deeper into the Medicare program," said Sheila Burke, a senior public policy adviser at the law firm of Baker Donelson, Bearman Caldwell & Berkowitz. "It might also put Medicaid on the table."
Burke, who served for 19 years on Capitol Hill, ultimately as Deputy Staff Director of the Senate Finance Committee, speaks from experience.
"We're building to this," she says. "People are taking a hard line and there's not much middle ground."
The group of experts also discussed Medicaid expansion. Thanks to the recent Supreme Court decision on the Patient Protection and Affordable Care Act, while the individual mandate to obtain health insurance or pay a tax was upheld, the Court also decided that states have the option of refusing to participate in the law's signature Medicaid expansion, designed to assist in providing coverage to the nation's millions of uninsured.
Significantly, the law's provision to penalize states for not participating was struck down. Much of the resistance to expansion seems overtly political, with key large states with Republican governors, such as Florida and Texas, insisting they will not participate.
But the panel of experts also said that some of the reluctance stems from the fact that although the law currently funds the entire cost of that Medicaid expansion for three years, and federal funding is cut to 90% of the cost to states thereafter, there are no guarantees beyond 2020.
There is some fear on the part of states that if they do make this commitment, they can't necessarily assume that the 100% and 90% figures will remain in perpetuity. The fundamental fear is that if they sign on expecting those rates, any changes could put them at serious financial risk beyond 2020.
Federal dollars funded pre-PPACA Medicaid at about 57% of costs, with the states picking up the rest of the bill. Such an outcome following an expansion could put an unsustainable burden on the states.
Even outside of stark political differences over the law, it's easy to understand why states may be wary.
Jack Ebeler, one of the panelists and a former vice chairman of the Medicare Payment Advisory Commission as well as one of the architects of the new law as a member of the staff of the House Committee on Energy and Commerce, believes states are likely to sign on to the expansion slowly, as they did when Medicaid was first created in 1966.
"In January of 1966, when Medicaid was introduced, only six states signed on," he said. "There were 27 states next year, then nine more, and eventually every state signed on to the Medicaid and S-CHIP (State Children's Health Insurance Program)."
Of course, he admitted in response to a question that it's theoretically possible that states would be able to take advantage of the first three years of "free money," and then decide to get out of the expansion.
Given the difficulty governments have with removing an entitlement program once it's established, however, that would seem to be a dubious strategy.
The announcement earlier this week that 89 ACOs have been chosen by CMS to serve the healthcare needs of some 1.2 million Medicare beneficiaries is important—but not because it reflects a validation of the process by which the government hopes to get better value for the dollars they spend on Medicare beneficiaries. It doesn't. The news also doesn't reflect a validation of the contention that routing patients through so-called accountable care organizations will save money. It might. Finally, it doesn't mean that the "baseline," on which cost of care growth will be measured (which is yet to be determined, by the way) will be able to balance the reward for cost-limiting with the risk of joining the program.
The ACO announcement is important because it shows willingness by a large percentage of organizations to change their work patterns in order to find ways to better coordinate care for their patients. It's an important first step in an industry that has never had to be judged on results.
In that way, the notice to the 89 is sort of like a college acceptance letter. Great work so far. You got in. Now the real work begins.
The program has proved enticing enough that a large group of providers are willing to join, and that's a good start. But let's not fool ourselves that by signing on with this initial ACO demonstration, providers are enthusiastically looking forward to taking risk on patient outcomes. Because the fact is, most of them aren't taking much risk.
Of the 89 who were approved, only five took risk on both sides of the equation. That means 84 of the groups will face no risk of loss through the ACO demonstration. Let that sink in for a moment. They can benefit from any cost savings they achieve over traditional fee-for-service reimbursement, but they can't lose. In short, for providers, what's not to like? The majority of these ACOs are physician-oriented organizations, and much of the savings they are expected to generate for CMS will come from decreased hospital utilization. Therefore, most of these organizations won't be goring their own oxen.
The five that chose to accept risk of losses are taking on true risk, but the others are not. They're smart not to do so.
Here's why, according to a sentence buried in a release from CMS: "Because the Shared Savings Program is part of the original Medicare fee-for-service program, beneficiaries served by these ACOs will continue to have free choice about the care they receive and from whom they seek care, without regard to whether a particular provider or supplier is participating in an ACO."
That's the rub. You can hope patients will seek all their care from your ACO, but you can't make them, and therefore you have little control over the costs they will incur for their care.
CMS says this and other Medicare Shared Savings programs (including the 32 organizations in Pioneer ACO program and the six Physician Group Practice Transition Demonstrations) could save up to $940 million over four years.
I hope they do. But the fatal flaw of patient attribution needs to be fixed. None of this can work without patient compliance, and other than the hope that such well-coordinated care organizations will sell themselves to patients and make them want to receive all their care under one roof, there's nothing to compel them to do so.
We'll really find out if this project is viable only when it comes time for ACOs to sign up for their second contracts, which will require two-sided risk. An educated guess based on the initial response is that, without some way to ensure that ACOs have some control over where patients receive care, the risk rules of that second contract might make initial participants think twice.
Until then, success will be gauged only on the hype.
In an environment of extreme ambiguity, hospital and health system board members need a wealth of diverse experience and skills to navigate a business environment as uncertain as any healthcare has ever seen. A premium is being placed on strategy and policy experience.
Consolidation within the industry leads to often-complex and political board recomposition dilemmas. Heavy investments are being made in technology and informatics, and in many cases, that's a skill set that's underrepresented on many boards, given the size and scale of those investments.
Further, many hospitals and health systems are undergoing a rapid restructuring of business units due to the changing dynamics of reimbursement. And finally, there's the renewed focus on quality, which Jim Gauss, chairman of board services at Witt/Kieffer, says, "is no longer a nice-to-do but a must-have."
The list of evolving responsibilities facing hospital and health system boards could go on and on, but Gauss says boards are having a tough time keeping up with the rapid pace of change.
"There used to be three to five people in established leadership roles on boards, and the thinking was that the others could be trained up, but that's no longer the case," he says. "There's a lot written on competency models for boards, and looking at those very carefully, they're frankly looking a lot different than current membership."
A legacy of self-nominating
That's a legacy of many hospital boards being constituted from a self-nominating process, and largely made up of community members who were willing to serve—not based on the skills needed for a complete board to do its job of leading the organization based on industry knowledge.
Not surprisingly, big, regional health systems are far more advanced than standalone hospitals in evolving their boards based on narrow skills sets, not only because they have a richer pool from which to draw, but also because the prestige level may be seen as higher.
Also, though unheard of in the past, some nonprofit hospital boards are at least considering paying their board members a small stipend.
You can't change those variables, but Gauss argues that small systems or standalone hospitals hamstring themselves in other ways that are addressable. "Even in communities where there are good members representing broad disciplines, there are still areas of expertise that are missing, such as technology and quality," he says.
Sometimes, it's helpful to have a few voices on the board from outside the area, for example, and areas where there is a shortage of local talent may be good opportunities to add people from outside the region who may be recognized experts not serving on a board in their local, more skills-rich area.
"That's why they need to plan meaningfully so they can identify skills where they need to go out of the local area, which may require bylaw changes as well," Gauss says.
Widen the net Given that most of these positions are unpaid, it can be a hard sell, however. The best way to attract those kinds of members is to widen the net, Gauss says. For instance, while the pool of recognized experts in any one discipline is shallow, there are unattached experts.
"So you can't get Don Berwick, but there are lots of his disciples who would be willing to do this," Gauss says.
How do you go about it?
Gauss recently worked with an academic medical center that was reconstituting its board. They started by developing a grid of competencies, tailor-made to the hospital's needs and interests.
"Once we did that, there's no question the candidate pool was narrow, but by being narrow, it made the recruitment much easier in terms of explaining why that person's level of expertise was needed on this board," Gauss says.
And time may be short, because hospitals and health systems will have to become more nimble than ever before.
"High-performing boards in healthcare will separate the winners and losers, just like in corporate America," says Gauss. "There's a talent war out there, and it starts with the board. This is happening. It's not a hypothetical."
Unless you've been watching Euro soccer nonstop, you know that the Supreme Court upheld the key parts of the Affordable Care Act with its historic decision last Thursday. Most people thought what came to pass would have been the least likely outcome given the tone of the arguments before the court back in March.
The ruling seemed to hinge, as many expected, over whether the mandate was a tax or not. That put the administration and its lawyers in a tough bind. Only Chief Justice John Roberts could bail them out of failure. Somewhat surprisingly, he did.
Of course, the administration and congressional supporters of the law had been careful to avoid calling the penalty for not carrying insurance a tax in crafting the legislation (because it wouldn't have passed) and even in their arguments before the court itself. Chief Justice John Roberts bailed them out by calling something that walks like a tax and sounds like a tax, a tax, and therefore Congress has the power to implement it.
Leading up to the decision and immediately after, I had never seen such a rush to give an opinion among healthcare stakeholders in years, if ever. Even the original passage of the Affordable Care Act in 2010 seems to wither in comparison to the hundreds of emails (exclamation point!) and requests to speak with a reporter from vendors, associations, individual hospitals, physician organizations and even non-healthcare related entities.
They all want their opinion to be heard. That's not surprising in itself, but imagine my surprise when I did talk with a few CEOs immediately leading up to and following the decision. It's not that big of a deal, they said, and it won't make a huge difference in their strategic planning.
As for the long period of uncertainty between the announcement that the Court would hear the case challenging the law, it's had little impact on long-term strategic planning, says Catholic Health Partners CEO Michael Connelly.
"Honestly it's had no impact. We think that what needs to happen is fairly clear regardless of the legislation," Connelly says. "We need higher quality care at a lower cost and to design systems with our patients to make that happen. Some reimbursement gymnastics come into play, but the law didn't enact payment reform and wasn't helpful in making financial decisions."
Given attention surrounding the decision on the Affordable Care Act, and yes, the hype associated with such an important decision, hospital and health system CEOs seem happy that the individual mandate was upheld, yet convinced that the most important work remains to be addressed: rising costs.
So if you thought the legislative work surrounding healthcare is over, you're in for a rude awakening.
Connelly says he believes it's good public policy to have an individual mandate, and credits the law's insurance eligibility reform elements as "well done," but he says the most important threats to healthcare and the economy at large have been ignored. In other words, the "affordable" part of the title of the act, which, as I've written about before, is false advertising.
"The most important thing we needed to do, which is changing the payment model—the law didn't do," he says.
Under the pilot programs that have been enacted, such as value-based purchasing rules, ACOs and Medicare reform pilots, "it would take 15 years to change the payment model," says Connelly.
One of the many problems with healthcare costs reflect the lack of coordination of care and the duplication of services that result, in part, from the fact that many healthcare providers bear little to no responsibility for efficiency, even now, said Geisinger Health System President and CEO Glenn Steele, in an interview conducted prior to the Court's decision.
That lack of responsibility is not the case for health systems that include a payer function, such as Geisinger and many other health systems the Obama administration holds up as examples of efficient care delivery.
For its part, Geisinger has made big investments in reducing waste and duplication and increasing transparency. It spends a whopping 4.5% of its annual revenue on maintaining and improving its data warehousing capability, for example. Though a huge number, that investment pays off for institutions like Geisinger, which make up only a fraction of the healthcare provided in the US each year. Other healthcare providers, including physician practices, hospitals and health systems, have little in common with Geisinger, and Steele knows it.
"We're constantly upgrading," he says. "We couldn't do what we do in value re-engineering without having real-time feedback and this capability."
While calling the Court's decision "an important step forward in healthcare reform," speaking of high healthcare costs and the high variability between regions on health spending, Steele says "the fundamentals are the fundamentals and we're in for a long-term attempt to address this."
The decision will have an immediate effect on politics, of course, says Joe Lupica, chairman of Newpoint Healthcare Advisors LLC in Phoenix. First, he says, members of Congress "woke up Thursday to learn that they passed a massive tax, not some Commerce Clause fee," he says. "That's some strong coffee. Expect some action in response."
Particularly expect some action surrounding the Court's decision to limit federal penalties for states that choose not to expand Medicaid eligibility. Lupica says state legislatures will soon be in the crosshairs of scrutiny, because they will be faced with a real choice over whether to accept or reject additional federal funding in return for raising their Medicaid entitlement threshold to 133% of the federal poverty level. They won't, however, have to risk their entire federally appropriated Medicaid budget.
"What was once a ‘Godfather offer you can't refuse,' is now an economic offer for each state to consider," Lupica says. "So, now we have all those state legislatures to watch."
That makes sense to Connelly, who says absent big decisions by state legislators, CHP's seven regional health systems will struggle with how to deal with increased eligibility, which creates problems of its own.
"What's going to happen here is that a million more people in Ohio will be covered under Medicaid while [Medicaid] is still not paying primary care docs enough to take on these patients," he says. "As a result, they'll come to our ERs and we'll spend 3 to 4 times as much to care for them as we should but regulations hamstring us on that."
Connelly suspects a legislative battle will focus on how to modify the health insurance exchange plan to loosen some of the regulations and to accelerate the issue of payment model reform.
"Unless payments change, we can't afford costs of expanded coverage," he says. "There's universal acceptance that we can't afford the cost of healthcare. It's 20% of the economy and it is the primary source of the government's deficit. All know we need to fix the deficit and we can only fix that with Medicare and Medicaid reform."And don't count on the commercial market to significantly drive the change to a more accountable and value-based approach to care, at least based on his experience, Connelly says.
"We don't see the commercial market leading this change. The insurance payers actually do better financially in the old model," says Connelly. "All their systems are set up to pay fee-for-service, and the vast majority of insurers' business is still self-insured so they make their margin off of volume. Getting them to move has not been very successful."
Whether we have reform based on legislative and regulatory action or based on market demand, the healthcare sector still desperately needs to change its approach, says Newpoint's Lupica.
"We still need to move from encounter-based to value-based payment, and to design the network structures, information tools, and cultures to match," he says. "Society's explicit message may just be to bring down costs. But the message, now a scream, may prick our sector to change the way we deliver and manage our care. Our providers may do so to save costs, but a more rational delivery of care may come along with it."
If, as many pundits are predicting, the Supreme Court invalidates the individual mandate portion of the Affordable Care Act, the private market will likely be much quicker to implement draconian reactions than will Congress. That's a big problem, because Congress, which doesn't seem to be able to get anything of substance done these days, would be expected to fix the problem of guaranteed issue (that is, no excluding people for pre-existing conditions) coupled with the lack of a mandate.
Among the many cascading effects of such a ruling, the most immediate might be a huge increase in premiums, if insurers choose to remain in the market at all.
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"If you don't [fix that problem], overnight you'll immediately see premiums just go out of sight," says Paul Keckley, executive director of the Deloitte Center for Health Solutions.
That's because the only way the commercial market can accept the terms of the ACA, given the risk, is if there is a strong individual mandate. That is, if you increase the base of the insurance "pyramid" with large numbers of young, mostly healthy people, you can take more risk for people with substantial health problems at the top of the pyramid.
If the rest of the law is upheld, that means insurers can't make increases of more than 10% without federal approval, and can't charge a co-pay or deductible for preventive health. That might be a recipe for bankruptcies and major dislocations in insurance coverage, among other consequences, absent major and quick Congressional changes.
The first of those changes might happen sooner than you may think, and Congress has been anything but fast-moving in recent years.
"[Insurers] will say they can't operate under these terms," says Keckley. "They'll say that unless you let them dramatically increase premiums to cover this new level of risk, they're not in your market."
Some saw this coming with waivers HSS has granted under the medical loss ratio provision of the law. HHS gave waivers to states such as Maine, where, pre-ACA, there was a 70% threshold for MLR.
The health insurance industry, despite focus on quarterly earnings at the big national companies, has always looked at a very complex set of variables around the risk they're taking on not just for the immediate future, but for years to come. The insurance model is based on years from now. By definition, insurance is betting against risk. It's not just year-t- year risk, but multi-year risk, and if there is no mandate, all bets are off, says Keckley.
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"It's popular to beat up on the industry, but you have to imagine: What if we didn't have it?" he says.
And insurers do have other opportunities.
"They're looking globally, monetizing their data, expanding wellness and healthy living, and looking at other countries where they truly are managing population health," he says. "At least the seven big national insurers are leveraging their bets against a variety of scenarios and they won't operate in markets where they can't at least break even."
Another risk of a period of uncertainty?given that Congress may be unable to act very quickly?is that commercial health plans will more aggressively negotiate with hospitals and will push much more risk on them than they've seen so far.
"I'm not talking about accountable care and medical homes," Keckley says. "Those are interesting, but in the near term, they don't impact hospital revenues that much. Bundled payments and value-based purchasing do, and I think you'll see insurance companies walk in the door with some very aggressive, risk-based bundled payment proposals for hospitals."
Keckley says he can envision insurance companies quickly expanding the four approaches to bundled payments outlined in the ACA. He sees as many as 15 bundles as possible. Conflict with medical staff has always been over money and clinical autonomy, but if all of this uncertainty results in accelerated bundled payments, then physicians and hospitals will fight over standards of care, how to divide the money, and who's responsible for various outcomes.
"If this comes unglued, you'll have mass uncertainty, the insurance plans will focus on the only real issue, which is costs, and they will come at the hospital on bundled payments: Fast, furious, expanded, and the hospitals are going to be on their heels unless they have prepared a good response," says Keckley.
This concept of managed uncertainty is not new to most businesses, but healthcare's current business model requires big capital bets around clinical innovation coupled with a regulated revenue environment that's very short-term focused. Uncertainty plays havoc with those bets.
It's time to plot how you'll respond to various scenarios.
"I have eight different scenarios I'm running with different inputs," Keckley says, with variables including what's likely to happen if the mandate goes away to what happens if exchanges are operating or not, he says.
"What you want is board members and managers to understand the inputs into those scenarios, and then to make some educated bets on what's likely, but not place the bet yet."
So when should you place those bets, if uncertainty continues to rule the healthcare strategy discussion?
If anything has been made clear over the past several years of wrangling over healthcare costs and quality, it's that you can't expect Congress or the courts to solve the problem for you.
"I heard (former HHS secretary) Mike Leavittsay we have entered into an era of dispassionate healthcare, where it's about business and survival, it's not about loyalty or reputation," Keckley says. "And I think he's spot-on. That's where we've gone."
What's the price of regulatory uncertainty? Nobody knows for sure. But it's high. As leaders in the healthcare industry wait and wonder what the Supreme Court is going to decide about the Affordable Care Act, a casualty of the uncertainty is innovation.
Despite the acrimonious nature of attempts to fix the fact that healthcare costs too much, is unevenly distributed, and hurts too many people, disagreement on how to make repairs stems from the how, not the why. Let me explain.
Very few people, even those in the industry itself, will dispute that healthcare doesn't provide the value it should, and that people and organizations pay way too much for it. It needs to be fixed. But because healthcare is already so highly regulated and dependent on government reimbursement and regulatory decisions, the endless tug-of-war over the how prevents much of the work on the why.
It's tough to get traction when the fixes never get the chance to be fully implemented because the fight over policy is never really over. Especially this time, where despite the passage of a labyrinthine omnibus law—which I'm convinced nobody has read in its entirety—we still don't have a resolution, because the Supreme Court decided to weigh in on the constitutionality of key parts of the law.
Many people, including (and especially) our news staff, wait with baited breath on the decision, which could happen at any time (my guess is a Friday afternoon, when the least media firestorm could be expected, sometime in the next two weeks). Don't expect that move to decrease the uncertainty—and the risk—of operating a healthcare entity.
In fact, Moody's just released a report (registration required) that no matter what the Court decides, nonprofit hospitals and health systems will be worse off. How encouraging. Heck, even if the justices leave the law alone, Moody's says the effect will be a long-term negative for nonprofits, as they predict annual Medicare reductions will "outweigh the benefits of lower uncompensated care."
The report goes on to outline three possible scenarios should the Court decide to invalidate certain parts of the law—all of them negative for nonprofit health systems. For what it's worth, here's what Moody's says about the three most likely decisions:
SCENARIO 1: The Court rules the law is constitutional. This is what Moody's calls a "credit-neutral event" because nonprofit hospitals have been preparing to operate within the law since April 2010. But analysts add that the healthcare reform law is a long-term, credit-negative event because it mandates annual Medicare reimbursement reductions to hospitals, which outweigh the benefits of lower rates of uncompensated care.
SCENARIO 2: The Court strikes down the individual mandate, but upholds the rest of the Act. The individual mandate is the most credit-positive feature of the law for nonprofit hospitals, according to Moody's. The result of the mandate's removal means the number of uninsured Americans will remain high and result in continued growth in uncompensated care, while Medicare reimbursement rate increases would slow.
SCENARIO 3: The Court rules the entire law unconstitutional. The resulting absence of legislative and regulatory framework for diminishing unsustainable Medicare spending creates new uncertainty.
I can't disagree with any of that, but even outside of the nonprofit sector, which Moody's monitors closely because it rates the creditworthiness of such institutions for bond buyers, uncertainty creates a vacuum for innovation.
Generally, consolidation in the healthcare industry continues apace, but that doesn't represent innovation. Rather, in many cases it represents defensive posturing and vertical integration strategies to better insulate against threats to revenue and margin. These not only rise from the law, but from nimble competitors in the private market that seek to carve out their niche of profitability in the rapidly shifting healthcare playing field.
One could argue that the decision will remove a lot of uncertainty in the market, but that's true only if you don't already have anything invested in meeting any of the possible outcomes. Most hospitals and health systems have invested heavily in gearing up for the changes, some of which have already been implemented. What's the cost of recalibrating expectations, the cost of waiting for another Congress to take up and address what the Supreme Court deactivates?
It's high, and it doesn't do anything to address the affordability or safety of healthcare.
I spent Wednesday afternoon in a couple of informal meetings with hospital and health system CEOs and CMOs. We talked about a lot of things, and of course, some of our conversation centered around the upcoming Supreme Court decision on the Patient Protection and Affordable Care Act (or Obamacare; you decide the terminology).
Most of us assume that the decision hangs like the sword of Damocles over the heads of healthcare leaders, employers, and indeed, the entire economy. It's difficult to argue with that assessment.
Even though I expected a predictable answer in that vein, I had to ask the questions: Are they handicapping how the ruling might go? Are coming up with contingency plans? Most agree the ruling will have a big effect on the global healthcare industry, but that in their day-to-day-lives, it largely won't affect the 180-degree shift they're making in reimbursement philosophy. For most systems, those changes are taking place largely at the behest of commercial plans and local employers.
But when you ask one question, you might get an interesting answer about something else entirely. That's the way my sources for this off-the-record conversation surprised me. They agreed they are much more concerned about disruptive innovation than what nine people in black robes are going to say at an indeterminate date sometime this month.
The roundtables, set up for me by the good folks at Premier Inc., which is holding its annual "Breakthroughs" conference here in Nashville this week, revealed that these leaders fear less what the government may do in response to whatever decision the Court makes, and more what nontraditional competitors may do to their resource and capital-heavy healthcare delivery systems.
For instance, I wrote back in February about direct primary care, a concept that is helping primary care doctors go the direct-to-consumer route—that is, they don't take insurance. That in itself is not revolutionary, but in contrast to some of the few so-called "concierge clinics" that have sprung up over the past half decade or so, many of these practices are pretty affordable for the regular guy or gal, especially when considering the increasing burden many employers are placing upon their employees to fund a portion of their own healthcare costs.
In a short amount of time, those practices have made significant headway in certain markets. And now that the New York Times has noticed, it seems, it's news.
And it's unwelcome news for leaders of hospitals and health systems that are making an attempt to structure an accountable care strategy. ACOs require changes in reimbursement methodology and care protocols and those are big investments for hospitals, health systems, and others that have no choice but to continue to operate in the third-party payment system.
Those changes require huge capital investments that can only be recouped over time. In the case of disruptive innovation, by definition, time is not on the incumbent's side. One of the most intriguing disruptors evident in the direct primary care model is the ditching of the third-party payer.
One key to most accountable care strategies involves hospital-centric organizations building out primary care networks, often with employed physicians. They realize not only that revenue growth will be constrained on the hospital side, but that in addition to diversifying the revenue stream, primary care practices will help close the loop on the accountability missing from today's predominant fee-for-service payment system.
You hear CEOs talk a lot in terms of gambling metaphors these days. As in, where are they placing their bets to ensure long-term survival and success? Accountable care strategies are all different, but even if not fully formed or built out, they require huge investments in facilities, acquisitions, and manpower in realization that payers are moving quickly toward reimbursing them not on how many services the patient consumes, but how well the system keeps the patient healthy.
Yet no matter how innovative such strategies are, they depend on the third-party payment system.
If that system can be effectively circumvented on a large scale, many health systems worry they won't be able to compete. They may be right. Direct primary care is only one of many disruptive innovations that might dramatically decrease the competitiveness of hospitals and health systems. But apparently, it's of much greater worry than the decision the Supreme Court is about to make.
This article appears in the May 2012 issue of HealthLeaders magazine.
One of hospitals' most vexing problems is absorbing the cost of care from the uninsured. For years, these patients have been called self-pay, but that term is a misnomer. In most cases, it's code for non-pay. The reasons they don't pay are numerous and complex, but some hospitals and health systems are starting to figure out there's a better way to get reimbursed, one that is less stressful for the patient and more efficient for the provider.
Hospitals can try to help patients achieve coverage, but such efforts can be uneven because of the huge variety of assistance programs other than Medicaid, each with its own bureaucracy. There are also time limits for reimbursement dependent on the date of service, and the patient has to take some action, which is often overly burdensome.
The way some hospitals deal with this group of patients has sometimes led to embarrassing outcomes—some have been taken to task for aggressive collection efforts. Such relationships are hardly good grist for a great patient experience, either. Historically, attempts at solving this problem have proved laborious—for little tangible return.
In the emergency department, hospitals are required to provide care regardless of a patient's ability to pay, but many hospitals also provide needed care outside the ED to those who cannot afford to pay for it. Whether the hospital or health system ultimately receives any reimbursement for that care depends on a confusing mishmash of collection efforts and patient-dependent navigation of public assistance programs, often compounded by patient embarrassment or sometimes plain indifference. But many—even a majority—of these patients qualify for some form of financial assistance, according to the Foundation for Health Coverage Education. Both hospitals and patients are left clamoring for innovative solutions to cut down on the complex, labor-intensive bureaucracy that stymies their ability to access these sources of reimbursement.
PPACA doesn't necessarily help
Until enrollment is greatly simplified, hospitals and health systems will always be looking for better ways to find coverage for the uninsured. For hospitals and health systems, losses stemming from the uninsured can be huge. Hospitals write off millions in bad debt and provide charity care dollars for patients who can't easily find coverage—and seem poised to continue to do so. That's despite the looming implementation, through the Patient Protection and Affordable Care Act, of the requirement for citizens to obtain insurance, slated for 2014. Even in 2014, when the health insurance exchanges and penalties for not obtaining health insurance kick in, patients will still have to take action, and that's exactly where the current problem lies, says Phil Lebherz, executive director of the FHCE, a nonprofit he founded in 2004 to help find already-existing coverage for uninsured in California.
"They've made it very difficult for people to sign up," he says, speaking generally of programs that provide assistance to the uninsured. "It's a big bureaucracy, with a fragmented system that's difficult to navigate."
FHCE started with a simple pamphlet in 2004 that listed all the available options for uninsured patients to obtain coverage. The pamphlet was simple, but the number of healthcare coverage options was extensive, and navigating from there was difficult for patients who, in addition to medical concerns, often have difficulty reading and comprehending. Add to that the waiting at the various assistance agencies. Given the huge bills hospitals generate for even the most mundane of care, for many patients it's easier just to ignore the question of payment.
Since 2004, the FHCE, which is funded in large part via donations from a mix of foundations, companies, and individuals, has gone digital. Users navigate to the main webpage, answer five simple questions, and the site "funnels" them, Lebherz says, to programs for which they are eligible. It provides them the forms they need to fill out, instructions on where to go to file the form, and what they need to take with them (e.g., a birth certificate or a copy of a recent tax return). Anyone can use the site, and it's free; many do come there on their own. He estimates that based on what he's learned since the site went live, first in California and then nationwide, that up to 30 million of those counted currently as uninsured are eligible for some kind of assistance.
But depending on patients to do all of this on their own is not the idea, says Lebherz, who in his day job is founder, chairman, and CEO of LISI, a San Mateo, Calif.–based company that provides eligibility support services for employee benefits insurance brokers. Neither is it the idea to just determine whether the self-pay patient is eligible for assistance, which is all the site is able to do now.
Point-of-care enrollment is the ultimate goal, he says, and that means hospitals have to get involved.
Many, especially in California, already have.
Sharp's case study
In 2009, Gerilynn Sevenikar, the vice president of patient financial services at Sharp Healthcare, a nonprofit integrated delivery system in San Diego, says her team started noticing a sharp decline in self-pay payments (7%) coupled with a sharp increase in self-pay volume (17%). That coincided with a sharp rise in unemployment in San Diego County, from around 5% to 12%. Looking for a way to improve payment through better navigation of federal and state payment sources, she brought in Lebherz to speak to her 25-person collection staff from all the health system's departments. She says that's when the idea of teaming up with FHCE came up. Starting with the ED population, which because of their short stays are particularly hard to help, Sevenikar says her team began integrating use of the site and its tools at patient registration.
"Phil designed a component of [FHCE's] website where it has the Sharp logo and a direct link from my patient registration to the website screening, so I could produce a custom matrix of those funding options they would be eligible for," she says. "Now we have it embedded in our registration process."
She says most self-pay patients, in her experience, don't want to stick the hospital with the bill, but because of the laborious nature of qualifying for assistance on both the patient and hospital end, that's the way it often ended up.
"Now, not only can I follow up with patients but I can make intelligent decisions about how to settle their balance," she says.
Patients feel better because they're presented with workable options for getting coverage, even if the problems with bureaucracy at the agencies providing assistance are still a big barrier. Sevenikar also says that more than 80% of Sharp's patients classified as uninsured are eligible for some assistance if they follow through with the process.
A better relationship
That's where the relationship between the hospital and the patient has changed markedly, she says. And it's not just the patient's attitude that is changing.
"It's actually changing the mindset of my team that collects from self-pay patients," she says. "We work with them, hear their story, and do what's right as opposed to pushing patients into situations that make them feel uncomfortable. I changed the tone in all my self-pay letters from 'This is a collection effort' to a more of an approach of 'We're here to help you. You're eligible for a discount. Please call us.'"
It turns out that patients are a lot more receptive to the idea of people helping them "versus just trying to get their credit card information," she says. "The more important thing for my team is—because they're asking the five key questions on the eligibility quiz—they go into a really informed discussion with the patient instead of not knowing where they're starting from."
Perhaps best of all, given Sevenikar's position, is that over the three years that Sharp has been partnering with FHCE and through other internal initiatives, it's recovered $4.7 million in revenue that would not have been available otherwise.
"Had we done nothing, I would've expected our self-pay to decline or stay flat," she says. FCHE has done similar work with Catholic Healthcare West and the Daughters of Charity Health System in California, and is a referral resource for patients who contact the American Cancer Society, the American Diabetes Association, the American Lung Association, and the American Heart Association seeking assistance
for care.
Lebherz says what's happening now is great, but a real revolution will occur if agencies begin to allow point-of-care enrollment in public assistance programs. Though it's a nonprofit, FHCE is considering making the software available to hospitals. The software will allow hospitals to assess eligibility through a predictive-modeling structure at the point of care, improve work flow efficiencies by identifying all health coverage options available, and interfacing in a cloud delivery model with the hospital's electronic medical record system.
Self-pay as your profit margin
Hospitals and health systems, generally, operate on such thin margins that a small percentage of revenue either way makes the different between profit and loss on an annual basis. Given Sharp's example, and that of countless other hospitals nationwide, getting coverage for the uninsured can mean the difference between a year in the red or in the black.
T. Ulrich Brechbühl, CEO of Chamberlin Edmonds, now part of Emdeon, and senior vice president of Emdeon Revenue Cycle Solutions, says the number of uninsured has grown in the United States by about 15%–18% since 2008. Chamberlin Edmonds, an Atlanta-based for-profit company, has helped hospitals with eligibility services for the uninsured for 25 years. It focuses on optimizing institutions' eligibility and enrollment activities without creating a burden on public agencies, as Brechbühl says many of them are dealing with a huge workload due to the increase in outpatient assistance requests.
For example, he says, the average outpatient visit is only worth a fraction of the inpatient visit.
"If the average inpatient reimbursement is $20,000, the average outpatient reimbursement is less than $1,000," he says. "All these applications get submitted to the same agencies. The problem becomes when you flood the agencies with a bunch of low-dollar visits, the agency is obligated to process them in order."
That can be a problem for a hospital looking to maximize its return on investment for patient eligibility work, especially with the dramatic increase in outpatient demand, he says, adding that five years ago, less than half the patients referred to his company for eligibility work were outpatient based. Now, he says, it's two to one in favor of outpatient, yet the payment disparity obviously remains.
"At the end of the day, the basic situation hospitals find themselves in is being mandated to give care long before they know whether they will be compensated," says Brechbühl. "Time has proven that the best approach is to be very proactive—ideally before the patient receives treatment."
Carol McDonald, the vice president of patient financial services at 651-staffed-bed Albany (NY) Medical Center, an academic, urban, Level I trauma center, has spent a lot of time and effort trying to figure out such proactive, tailored solutions—difficult given the variety of uninsured patients that are her responsibility, as well as the variety of public assistance programs and their unique eligibility rules.
"We've had a fairly large indigent population for many years. If you've got it, you tend to figure out how to mitigate it very quickly," she says, adding that "There are significant resources going toward meeting the needs of this population."
One option is to refer patients to the hospital's self-funded charity care program. But with limited resources, she and her team have to make every effort to exhaust other payment opportunities from social service agencies as well as the state Medicaid program.
"We really have a very broad group of players with an algorithm about how we identify and roll out the right program to the patient," she says.
A lot of effort is spent as early as possible. Especially with nonemergent cases, AMC seeks to get patients eligible prior to their procedure and makes an effort to educate patients about the financial process, ease their minds about how their care will be paid for, and explain their responsibilities, if any, in the process. Plus, it makes the billing process a lot smoother to have a patient prequalified.
"The last thing you want to do is send a patient a bill and say, 'Three months ago, you could've applied for this or that program. Too bad, now you owe me all this money.' That's just not going to work."
McDonald and her team have arrived at a variety of solutions that funnel patients to the proper person who can help.
For instance, AMC worked out agreements with three local social services departments and has been designated in nine primary counties to administer financial aid and charity care. A combination of staff, which includes a senior Medicaid examiner, a contract with Chamberlin Edmonds, and AMC case management personnel makes sure the proper applications are filed so that patients can receive aid after discharge and will be eligible if they have to come back to the hospital or any community entity. It's all part of a broader strategy of working on the continuum of care for all patients, but it results in a more cohesive patient payment and care strategy as well.
This method of segmenting the population for tailored payment interventions has paid off. In 2011, AMC collected more than $12.5 million that would likely have been classified as uncompensated care. That resulted from segmenting probable qualified patients to get those consultations. Of 1,427 patients receiving care who were referred to the program, 477 were accepted for both federal and state coverage for their care. Many of those not approved due to eligibility issues received some assistance from the hospital or other sources.
Some of the internal application programs have also helped in less tangible ways, McDonald explains, in improving the hospital's relationship with the patient.
"It's a more friendly environment. Many of our patients, certainly over the past few years, were folks who have always been able to fend for themselves," she says. "There's a certain sense of pride when one does not have to stand in line at the department of social services."
This article appears in the May 2012 issue of HealthLeaders magazine.
