Something I wrote not long ago struck a nerve with an advisor and source that I trust. That's not particularly unusual—they write to me all the time. But this one had a complaint phrased in the form of a question. And that got me thinking, because it cut to the very heart of why we do what we do.
It doesn't matter what the subject was, but, essentially, his complaint was that I interviewed a CEO whose hospital had not achieved a 2% operating margin in any of the past five years.
The complaint, while legitimate, was that executives who can't do significantly better than that are not the top performers in the industry, and certainly shouldn't be held up as an example of someone to emulate for leaders of other hospitals and health systems. I had reported on this person's resistance to embrace some of the restructuring work that other hospitals and health systems are doing as the healthcare business model shifts.
But I disagreed with my correspondent's contention that this was a poor choice of interview subjects. Maybe for this hospital, in this market, some of the investments surrounding ACOs, for example, or employing physicians, or acquiring affiliated healthcare providers, either were not right or were too expensive.
Certainly hospitals and health systems, even non-profit ones, must make a margin. But many of these executives have seen healthcare "revolutions" before, and they remember that some of those at the front of the curve suffered the most when the premise of the investments they made failed to ultimately pay off.
As an organization dedicated to peer-to-peer learning and insight, my colleagues and I are tasked with bringing our readers in-depth, practical solutions from people across the country who are responsible for tackling the difficult transformational work required to make healthcare safer and more efficient.
That work requires us to be always persistent and skeptical, but also to be available to consider many different solutions to problems. And that includes the wait-and-see approach.
Healthcare executives are overwhelmed with regulatory changes, not to mention the drastic stresses that are now being placed on the traditional healthcare delivery model.
Some are early adopters.
Generally, they embrace the changes and look to invest in technologies that they think will make their work safer and more efficient, and which will eventually translate to the bottom line. But there is significant risk involved in being an early adopter.
Others are not as inclined to risk-taking and definitely have less available to invest in new ways of doing things.
We struggle with this editorially. Most of the executives we speak with for stories in the magazine, for our research reports, books, roundtables and Breakthroughs reports, are innovators. We know our readers want to see what's new, who's taking risks, and how much, how other executives expect those risks to pay off.
Healthcare requires innovation, so the early adopters and industry leaders in finance, patient experience, ACOs, patient experience—the list goes on and on—are usually the ones we speak with most. But that doesn't mean that others who aren't moving so fast aren't being prudent.
The innovators have a story to share, but the watching and waiting perspective is also valuable, and probably is more in line with the majority of our readership. It's our job to reflect the diverse opinions of our audience-—whether or not we agree that their strategic approaches are the right choice.
Of course, my friend is right about the operating margin. Less than 2% over the long term is not likely to ensure the long-term stability of an organization. But let's say I eliminated speaking and reporting on hospital executives who achieved less than a 2% annual margin.
That would preclude me from talking to the CEO of Fairview Health in Minneapolis, Mark Eustis. At the recent American College of Healthcare Executives Congress, Eustis shared that Fairview recorded a margin of just around 1% for 2011. Certainly long term, a 1% margin isn't going to cut it, and Eustis knows that. He's taking risk though.
Fairview is embracing many of the most talked about aspects of healthcare reform, from joining the CMS's Pioneer ACO program to signing long-term risk-based contracts with commercial insurers. Essentially, Eustis is cannibalizing some of his system's potential fee-for-service revenue to be well-positioned for the future. But that doesn't necessarily mean he'll be right.
We're available to talk with any hospital, health system, physician practice, or health plan executive who is trying to address the very real issues we have in this country, whether we agree with their approach or not.
Debate about these potential improvements is crucial. It's the only way we'll make progress. Our job is to show you the depth and breadth of the choices available, with a dollop of perspective. It's your job to decide which approach is best.
This article appears in the March 2012 issue of HealthLeaders magazine.
Some hospitals and health systems nationwide have informally staked their long-term viability on being profitable on rates that are equal to Medicare's reimbursement rates. Some have even taken to calling the drive to meet regulatory requirements the Medicare Profitability Project.
How to get to that point is the problem. Not so in Alabama, where in many cases, Medicare is Baptist Health System's best payer, says Alan Bradford, chief human resources officer for the four-hospital system based in Birmingham.
"We have had to learn how to thrive on Medicare rates," he says. "My opinion is that's where everyone will end up someday. It's strongly conveyed through our organization that we have to be profitable on Medicare rates, and we've worked hard on achieving the cost structure and efficiencies that allow us to do that."
It's a smart strategy, says Paul Keckley, executive director of the Deloitte Center for Health Solutions, who presents a compelling scenario in which profitability under Medicare rates will be essential.
"What if, in 2016, the health insurance exchanges are operating and inflation is exceeding 6% a year? We envision large numbers of employers will consider exiting the business of providing traditional health benefits."
Keckley and his team are running with that assumption. They are predicting that by the end of the decade, about 65 million people will lose their traditional employer healthcare coverage.
If that happens, "the impact on the hospitals will be profound," he says.
Some number of that group will be uninsured. Another smaller group will be eligible for Medicaid, but the majority will end up in exchanges, he says.
"If states get slammed with large numbers of exchange enrollees, the exchanges will likely pay providers less," he says. "Our overly simplistic conclusion is that hospitals ought to be able to operate at Medicare rates or lower because you can't factor in a cross-subsidy in the future."
This article appears in the March 2012 issue of HealthLeaders magazine.
This article appears in the March 2012 issue of HealthLeaders magazine.
One common complaint about the transition from fee-for-service reimbursement to value-based schemes is that such groundbreaking changes cannot be done overnight, and must be phased in. That's a problem for healthcare organizations that seek to be forward-thinking yet must continue to exist under current rules. A common refrain is that senior leaders feel as unsettled as a person with one foot on the boat and the other foot on the dock.
But there may be a way to bridge that transition through vehicles such as a the physician hospital organization, which many hospitals and health systems formed under capitation more than a decade ago, and many subsequently discarded as HMOs gave way to preferred provider organizations and as government payers continued to use fee-for-service reimbursement. However, the PHO, or at least something like it, is making a comeback as payers and the government make slow progress toward accountable care.
Commercial negotiation leverage PHOs were developed in the 1980s as joint ventures between groups of independent physicians and hospitals or health systems as a way to pool risk and, in a key role that would signal their later downfall, offer more negotiating strength with payers. The PHOs were also expected to manage the continuum of care, and payers expressed a willingness to share some of the savings in utilization they were supposed to achieve.
But over time, many PHOs failed, largely because they were either unsuccessful in developing the technology and process infrastructure needed to manage utilization cost-effectively, or they broke down among infighting between the hospital and groups of physicians. They also faced antitrust scrutiny.
"The way they were classically conceived came along when HMO risk contracts were in vogue," says Marty Manning, president of Advocate Physician Partners in Oak Brook, IL, a Chicago suburb. Advocate operates one of the relatively few PHOs remaining from their inception in the 1980s and early '90s. "They would do credentialing, claims processing, some utilization management, contracting, and set fee schedules. Of course, the docs felt the hospital kept too much, and vice versa."
But most stumbled because they were constructed chiefly to gain negotiating might. The Federal Trade Commission subsequently essentially outlawed any PHOs that weren't demonstrating better quality, efficiency, and lower overall cost.
"If they thought of themselves as an HMO risk vehicle, then the product life cycle ran its course because most areas don't have those risk contracts anymore," says Manning.
They also fell out of favor as many physicians found ways to gain bigger pieces of the reimbursement pie by operating their own surgery centers, labs, and imaging centers. But many of those disincentives have withered as reimbursement for ancillary services operated by physician practices has been whittled away, as technology to help focus on care coordination has improved dramatically, and as the antitrust problems have been solved to the FTC's satisfaction. In fact, an FTC challenge to Advocate's PHO may have set the ground rules for a proliferation of future PHOs.
So why are many hospitals and health systems revisiting the structure as a way to better align the concepts of coordinated care with their independent physicians? Some never left, but many others are realizing that in a reimbursement system where hospitals' and doctors' financial fates are tied more closely together than ever, they have to work closely with their physicians, whether they are employed by the system or not. The PHO can serve as a platform to unify the care protocols of both employed and independent physicians.
Recycling a relic? It's helpful to get away from the vision of the PHO of the past. Manning says the new vision is a way for hospitals and physicians to begin to work together, with both employed doctors and those not ready to enter into full employment models.
"A PHO is a way to connect with the community-based physician practice model," Manning says. "Organizations dedicated to the employment model might see less value in a PHO than those who want a more pluralistic approach like we have chosen. The key is the value that can be created by truly integrating or engaging with physicians."
This is why the integration factor is so important.
Iowa Health System, which includes 15 hospitals across Iowa and Illinois and more than 800 employed providers, seeks that pluralistic approach, says Alan Kaplan, MD, the system's vice president and chief medical officer, who has been building a PHO-like organization there for the past two years. The clinically integrated network or CIN, he says, is a nonprofit corporation based upon improving quality, enhancing patient experience, and increasing the overall value of healthcare. It's part of the longer-term strategy of engaging physicians as the system enters into risk- and performance-based contracting.
"When I came here, my boss, Bill Leaver, IHS president and CEO, told me that my main job is to build an ACO."
In developing the ACO, Kaplan set about creating a CIN, which he says is taking place along with plans to integrate all of the owned physician practices at IHS under one structure. Physician alignment with IHS's employed groups began January 1, but Kaplan still needed a way to bring the area's independent physicians into the fold, because forming an ACO, the ultimate goal, can't happen without them.
"It's great that we have employed physicians, but two thirds of our medical staff is independent," he says. "They are our partners, and we cannot deliver care without them. So we have to engage them in our efforts to improve quality and create a better patient experience."
A critical part of that strategy is the CIN, he says, because it provides the platform for independent and employed physicians to work together to develop a care management infrastructure. One potential difficulty is that the CIN is not a joint venture—it's owned entirely by IHS.
To make the organization more physician-driven and welcoming of independents, the board of directors delegates significant authority to an operating committee composed of independent and employed physicians and physician group leaders. Only two IHS executives, Kaplan and Kevin Vermeer, the system's chief financial officer, sit on that committee.
More than physicians "Today's payment system doesn't support care management, but in the future, it will be demanded," says Kaplan. "We created our integrated care organization—which is more akin to an independent practice association than a PHO—around a platform that focuses on quality improvement, not contracting."
The ICO that IHS is developing will administer value-based contracts throughout the health system's network, but will not operate as a contracting entity for fee-for-service.
"What success looks like is improved quality, enhanced patient experiences, and lower overall healthcare costs," Kaplan says. The ACO that IHS is developing will include physicians in key leadership positions because "the physicians are the heartbeat of the ACO."
But in building an ACO, the infrastructure to create value often spans beyond the direct physician sphere to include IT-enabled clinical analytics, call centers, palliative care, home health, and skilled nursing.
Kaplan and others are busily putting these pieces together, which included hiring additional staff and reshuffling some internal talent.
"We didn't have trained people for care management," he says. "It's a lot of work to build the right care management teams and develop their skills so we can build a network."
A pathway to employment As usual, a burning platform is needed to lead change, Kaplan says. In his market, it was healthcare reform leading to likely CMS shared savings and commercial ACO contracts. But he questions whether the CIN will be a permanent fixture in the healthcare landscape. In this climate, even the definition of hospital seems up for debate.
"It's a comeback for the concepts of the original PHOs," he says. "These are bridging strategies, which allow us to work together. If external factors support CIN structures in the future, they may last."
But Kaplan acknowledges that environmental forces encouraging greater levels of coordination to improve quality and lower costs may end up forcing increasing numbers of healthcare organizations to adopt the integrated delivery system model.
"The ICO is a vehicle whereby our independent physician partners can remain independent, but if the market changes and we need tighter alignment, we will be in a better position to migrate there," Kaplan says. "I believe ultimately that's what's going to happen."
Even Advocate's Manning, with his perspective as part of perhaps the oldest and most vetted PHO in the nation, says the PHO role is the transitioning structure that will increasingly serve as a nerve center for dialogue about improving clinical outcomes, efficiency, and patient experience.
"It has its own culture and a sense of citizenship, but what is the meaning of independence in an accountable care world?" he asks rhetorically. "At the same time, most of the physicians who become employed are currently members of our PHO. Almost exclusively here, any physician who becomes employed starts in the PHO. But it doesn't matter if you're employed or private practice. The only thing that matters is performance."
Reprint HLR0312-4
This article appears in the March 2012 issue of HealthLeaders magazine.
Whatever the court ultimately decides will only minimally alter the business of healthcare right now. Reform has been coming organically because payers can't—or won't—suffer double-digit premium increases any longer.
If you want to bash healthcare these days, get in line.
For years, many influential people have rightly decried the high variability in healthcare.
They've also critiqued the high cost of healthcare as unsustainable. They're right. You won't get much argument from anyone that healthcare costs are a huge drain on our nation's productivity.
Some of those costs, unquestionably, come from adverse selection—that is, people don't try to obtain health insurance until they get sick—and by then, they usually can't get it. Yet in most cases, they aren't left to die; they get treatment.
Maybe their care isn't as good as care delivered under so-called “Cadillac health plans,” but you can be sure the bills will be astronomical. And often, such patients are in no position to pay those bills.
But the rest of us are, through higher deductibles, co-pays, insurance rates, and government debt. Of course, the calculus on this issue is far more complex than this example, but the end result is the same—healthcare costs rising much faster than the rate of inflation, ad infinitum.
For its part, the Supreme Court has been taking its hacks this week, too, via the hearing of oral arguments on the Patient Protection and Affordable Care Act. The future of cost control and healthcare access, whether you like it the way it is now or whether you hope for something better, seems to hinge on the decision of nine men and women in black robes.
In fact, although I won't get into the too much into the legal reasoning, the Court's decision, when we finally have it in June or July, will rest upon that hypothetical patient I just described. Is he a participant in the market by simply requiring healthcare? Or is it possible for him to freely choose not to be a participant in the market because he doesn't require healthcare “right now.”
Whether the so-called individual mandate violates the Constitution rests on the answer to that question, which is ultimately subjective.
Many handicappers say that based on the questions asked by the justices identified as possible “swing votes,” that answer will more than likely be yes, our patient can choose not to be a participant in the market, and thus the individual mandate is illegal.
The court may also rule on other issues within the act, it they will certainly decide on the individual mandate. Many on both sides of the political aisle believe that a determination that the individual mandate is unconstitutional would spell the death of the Act entirely.
But regardless of the outcome, does the Supreme Court's decision really alter the calculus that's changing the business of healthcare right now?
Not by very much.
Yes, it looks like lawmakers will go back to the drawing board on some or all of the Act, but much of the pressure for reform has been coming organically, in fits and starts in some regions, in leaps and bounds in others, through commercial contracting relationships with both health plans and directly with employers.
Unlike three years ago, when this legislation was being debated, hospitals, health plans, physician practices and other affiliated healthcare providers have already begun building the structures that will deliver more value for the payer. If you're an executive leader, and you're counting on the Supreme Court to return you to the good old days, you're counting on hope instead of innovation, and there's not much future in hope when the business model is changing underneath you.
I think most hospital executive leaders are keeping their head down on this. I don't mean to minimize the impact of this decision. Yes, they're following the decision, because it could cause a crisis in healthcare. Many variables will be thrown back into the mix if the law is gutted, but the new goal will not change.
Whoever is paying for healthcare is tired, and in many cases unable, to subsidize the old status quo of volume being the key success factor for healthcare businesses. They can't, or won't, suffer double-digit premium increases anymore and they won't write blank checks to “do stuff” to the patients they cover.
Instead, many healthcare executives know that they have to figure out how to work with their partners to absorb some of that risk. This would have sounded absolutely insane around the time PPACA was first being debated, but those partners now include the employer, the patient, the health plan, the physician, and many others in allied care. All will share risk. The multiple pilot programs going on across the country with almost every payer is evidence of that.
The problems a rejection of the legislation will cause will be severe, but it won't change the work you need to be doing.
In fact, it will make delivering on value even more important.
Two years ago, the last time I attended the American College of Healthcare Executives' annual Congress on Healthcare Leadership (I had a son being born during last year's event), hospitals were getting their first gander at healthcare reform.
In fact, days prior to the event, the Patient Protection and Affordable Care Act had finally passed amidst much rancor. In the political realm, that fight has hardly diminished, with Republican primary candidates uniformly are promising to repeal it (something they certainly can't deliver on their own) if they are elected President. But where reform really matters, where it's operational, leaders at hospitals and health systems are getting on with the work to transform healthcare's business model.
Back in 2010, attendees at the world's largest annual event featuring healthcare leaders (that's how ACHE bills it, at least) seemed almost uniformly dispirited. Wringing every last dollar out of a fee-for-service business model wasn't why most of them had chosen a career in healthcare, but it's all they knew. And as a reimbursement system, fee-for-service was pretty clearly on the way out, if slowly.
Unsurprisingly, initial impressions of the PPACA bill were negative in 2010. The prevailing opinion was that the legislation was terrible for hospitals and addressed only one of the many problems plaguing healthcare—coverage for the uninsured. Many executives said the bill did very little to address a rapidly steepening cost curve in an industry that was already guzzling down nearly 20% of the nation's annual gross domestic product.
Neither did it meaningfully address patient noncompliance, I was told by dozens of healthcare executives, both in educational sessions and outside in the hallways. But most importantly to them, the law represented an irresistible tide of change coming their way, as they sought ways to compete for a shrinking reimbursement pie. Thus the long faces. One theory had it that the bill would hasten and even worsen the healthcare crisis, leaving a true opening for single-payer healthcare—something favored by many Democrats—to pass later on as the crisis spun out of control.
The jury's still out on that prediction, but I must say that the mood at ACHE has improved significantly, and I'm pretty sure it has nothing to do with the beautiful, summerlike weather we had this week in Chicago.
Two years into healthcare reform, the roof hasn't caved in. In fact, many healthcare organizations are doing just fine, thank you, in making the transition to a new business model of healthcare based on value instead of volume. I sense a genuine optimism among the group (though it's hard to get a true handle on how a thousand or more people are feeling without a scientific poll). I have talked to several executives in the hallways, however, and what's different is that healthcare administrators truly seem to believe that they are getting the tools to turn around a wasteful, harmful healthcare system.
Not that credit necessarily is given to the legislation, mind you. Employers, health plans, and other payers were already hard at work on the problem in a piecemeal fashion, but when your biggest payer (CMS) still pays by the procedure, it's hard to get traction. Now that the government will no longer be writing the equivalent of blank checks, a burning platform has been created, as business types like to say.
Much of the buoyancy I have seen at the Congress on Healthcare Leadership this week stems not from government mandates or pressures from payers, but from the work that health systems have done to surmount those hurdles. The focus on value instead of volume has created a real need for healthcare providers to work together for the benefit of the patient. Lots of good work went on in healthcare in the past, but let's be honest, the long-term health of the patient was too often secondary.
Still, there's no doubt that the transition to value is rough, even for top performers. Mark Eustis, president and CEO of Fairview Health in Minneapolis—one of the top 10 health systems in the U.S., according to Thomson Reuters—says this period is highly stressful even at his organization. Fairview made only a 1% margin last year, as it had to work hard to get critical mass with value-based commercial contracts.
That's a huge oversimplification of the transformational work that Eustis's system has done, but there is one big reason for the smaller profits: Fairview cut utilization, which meant an immediate revenue hit as the organization transitioned from fee-for-service.
Fortunately, Eustis sees that 1% margin as a temporary blip. Fairview predicts a 3% margin in 2012 and 5% in 2013, as it moves almost entirely to value-based reimbursement. In describing the transformation, it's difficult to avoid terms like "capitation" and "managed care," which are still dirty words to a lot of healthcare people. Although that language is close to describing what's going on, what has changed is who's managing the care.
The difference this time, executives say, is that the healthcare provider is incented to keep its patients healthy because the provider keeps some of the savings, rather than the health plan. Better yet, the parties share the savings. The tools to manage care are also much better now, and the team-based approach to improving health is a welcome change.
So there is light at the end of the tunnel if you manage the volume-to-value transition well. The important thing, so many healthcare leaders seem to be saying, is to get started.
This article appears in the March 2012 issue of HealthLeaders magazine.
Talk to many hospital and health system CEOs these days, and it's clear they see the healthcare glass as half-empty. Drastic changes to the way their business is conducted—from ICD-10 compliance (even with HHS' deadline delay) to meaningful use directives to value-based purchasing rules—mean CEOs have lots to complain about.
A litany of expensive mandates face healthcare organizations, and the bill for them is coming due in the next decade. In many cases, these costs can't be recovered, at least not in a traditional measure of ROI. In fact, there's good reason for pessimism among hospital and health system leaders, says Paul Keckley, executive director of the Deloitte Center for Health Solutions, an industry think tank in Washington, DC.
These regulations are "not about an expanded revenue stream," he says. "It's a matter of how much they'll be impacted by the costs."
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Even outside of regulatory costs, he says, the reimbursement environment is weak at best. For example, a 2% Medicare cut mandated after the so-called congressional debt super committee failed at its task of reducing the federal budget deficit will result in $123 billion in cuts to Medicare if Congress cannot agree on an alternative.
Hospitals would shoulder about 40% of those cuts ($49 billion) through reductions in reimbursements for inpatient and outpatient services, according to Avalere Health LLC, a Washington, DC–based consultancy and research firm.
Even if that calamity is averted, hospitals "can look at market basket updates shrinking, and that's before the additional cost of complying with new reporting," Keckley says. "So it's a pretty perilous time. One out of four hospitals will not survive this."
Despite that dire prediction, through a series of interviews with HealthLeaders, it becomes clear that many leaders are less pessimistic than it would be reasonable to expect about their ability to succeed in the new environment.
They see regulatory changes ranging from CMS's value-based purchasing initiative to ICD-10 implementation as severe challenges, of course, but they also see them as ways to transform a calcified and hidebound payment system into something that yields payoffs for necessary investments in quality, revenue capture, and efficiency, not to mention better responsiveness to their customers' needs and desires.
"We're at a very significant time in the history of healthcare, where through healthcare reform, the government, our primary payer, is trying to make a significant shift in the way healthcare organizations operate by changing the incentives to get a better product," says Michael T. Rowan, executive vice president and chief operating officer at Catholic Health Initiatives, which is based in Englewood, CO, and operates 76 hospitals and other facilities in 19 states. "Behind that is the notion of moving us to cost-effective care, with the idea that high-quality care can be delivered at a lower price than we have now."
Revenue on the wane
While that is a laudable goal, and sorely needed in healthcare, leaders are challenged by the fact that all of this re-engineering must take place not only under a backdrop of declining reimbursements, but essentially simultaneously, making the tasks more difficult and expensive. However, without mechanisms to punish healthcare organizations for noncompliance, the goal would likely be unachievable.
Like many healthcare organizations, CHI loses money on Medicare patients. So senior leadership is implementing a variety of solutions to become more cost effective, Rowan says.
"In the past we've done some significant cost cutting and we, like most others, have done that by going after the administrative, back-office stuff," he says.
In 2009, through those efforts, CHI cut $250 million in costs from the system, which has $9.6 billion in total annual operating revenues.
"That improved our financial performance in the trough of the recession and got us to a place where we were able to absorb decreases in reimbursement," Rowan says. "But now we're back there again, and there's a limit to how cheap you're going to buy Band-Aids."
Since the relatively easy work in the back office has already been significantly accomplished, CHI's work on information systems and, more important, changes in the ways its clinical personnel interact with the patient and the patient's information, is what's most critical now.
"The real opportunities are not in those back-office areas anymore," he says. "The primary cost drivers are actual clinical processes because that generates 85% of the cost of care."
Necessary investments, uncertain return
Spectrum Health, a Grand Rapids, MI–based integrated delivery system with nine hospitals, a health plan, a medical group, and various ancillary services, seems well-positioned structurally to deal with many of the regulations, which are meant to encourage more specific diagnoses (ICD-10) and coordinated care (VBP and, to an extent, the HITECH Act). However, even with the advantages of an IDS, the organization is far less integrated than it needs to be, says Joe Fifer, vice president of finance with Spectrum Health's Hospital Group.
He says the system is spending investment capital to redesign how care is delivered throughout the organization and is especially investing in acquiring primary care capabilities.
"We're not only employing physicians but we are redesigning how care is delivered in a primary care setting," he says. "It's simple in concept but really challenging. It's directionally correct, but it sucks up resources—time, energy, and money—to break down some of these fragments that have been there for multiple generations."
Still, there is an element of faith in some of the investments they're making because of regulations.
"We know financial pressures will continue," says Fifer. "We like to think that investing in what is truly an integrated health system from insurance to care delivery is the right direction, and outcomes will be better. As time passes, more care will be delivered entirely within our health system."
At CHI, Rowan says the leadership team's response to the new regulations will not only allow it to further streamline its operations, but also will position CHI to compete with other healthcare organizations on a risk basis, something hospitals and health systems have previously only done in unusual circumstances. He predicts that the data and coordination the organization will be able to achieve will allow widespread risk-based contracting directly with employers and third-party payers.
"Going at risk is important. For example, if we have a group of patients where it currently costs $15,000 for an episode of care, if we do it right, could we bring it down to $12,000 and commit to it and keep a piece of that savings?"
He thinks the answer is yes, and with expanded hiring of people in leadership areas with risk-based contracting experience, coupled with the data mining capabilities that will come from reaching meaningful use targets, CHI will eventually get into managing population health. That will allow it to approach large employers and make a contract offer based on their employees' epidemiology and cost of care.
The big three mandates
Value-based purchasing, a sort of pay-for-performance initiative for Medicare; ICD-10, a new coding regime; and "meaningful use," an evaluation of how well organizations are meeting the mandates of the HITECH Act, are among the top five regulatory challenges that are currently worrying hospital senior executives, according to Reform's Impact: Staff and Service Cuts Expected, a December 2011 HealthLeaders Media Intelligence Report.
"If you're not setting aside investments in ICD-10 and meaningful use, you're teetering on being noncompliant, and that's where someone other than leaders in your organization will determine your fate," says Keckley.
Any one of these requirements alone would present quite a challenge, but with deadlines that have to be met within a tight timeframe, all three are the focus of significant investments in information technology solutions, consulting work, retraining, and labor costs—not to mention a significant disruption of entrenched processes that in the past were, and in some cases currently are, successful in keeping the organization financially viable, but that will be hindrances in the future.
So which ones are smart hospitals and health systems focusing on?
"We know financial pressures will continue," says Fifer. "We like to think that investing in what is truly an integrated health system from insurance to care delivery is the right direction, and outcomes will be better. As time passes, more care will be delivered entirely within our health system."
At CHI, Rowan says the leadership team's response to the new regulations will not only allow it to further streamline its operations, but also will position CHI to compete with other healthcare organizations on a risk basis, something hospitals and health systems have previously only done in unusual circumstances. He predicts that the data and coordination the organization will be able to achieve will allow widespread risk-based contracting directly with employers and third-party payers.
"Going at risk is important. For example, if we have a group of patients where it currently costs $15,000 for an episode of care, if we do it right, could we bring it down to $12,000 and commit to it and keep a piece of that savings?"
He thinks the answer is yes, and with expanded hiring of people in leadership areas with risk-based contracting experience, coupled with the data mining capabilities that will come from reaching meaningful use targets, CHI will eventually get into managing population health. That will allow it to approach large employers and make a contract offer based on their employees' epidemiology and cost of care.
The big three mandates
Value-based purchasing, a sort of pay-for-performance initiative for Medicare; ICD-10, a new coding regime; and "meaningful use," an evaluation of how well organizations are meeting the mandates of the HITECH Act, are among the top five regulatory challenges that are currently worrying hospital senior executives, according to Reform's Impact: Staff and Service Cuts Expected, a December 2011 HealthLeaders Media Intelligence Report.
"If you're not setting aside investments in ICD-10 and meaningful use, you're teetering on being noncompliant, and that's where someone other than leaders in your organization will determine your fate," says Keckley.
Any one of these requirements alone would present quite a challenge, but with deadlines that have to be met within a tight timeframe, all three are the focus of significant investments in information technology solutions, consulting work, retraining, and labor costs—not to mention a significant disruption of entrenched processes that in the past were, and in some cases currently are, successful in keeping the organization financially viable, but that will be hindrances in the future.
So which ones are smart hospitals and health systems focusing on?
"Well, all of them," says Spectrum Health's Fifer. "We don't have much of a choice. They're all on timelines."
ICD-10 implementation, for example, seems like a pretty straightforward process of changing over literally hundreds of information systems touched by coding. But it also involves cultural change. The systems can be in place, but coders, and especially clinicians, have to be taught how, and more important, why, they must use it. At Spectrum Health, Fifer chairs the ICD-10 work team, which has leaders from hospitals, medical groups, and the health plan to evaluate systems and processes.
"It's a ton of work, but it's pretty clearly identified what we have to do," he says. "That's different from meaningful use."
There, not only does the health system have to coordinate coding with the electronic health record, but documentation has to evolve so that those standards are auditable.
"That's a job in itself," Fifer says.
Fifer says many of the changes under way at Spectrum Health would have been done eventually, but deadlines are ramping up efforts considerably. He cites the example of problem lists, which is one of the standards for achieving meaningful use designation.
For example, "what that means is in the EMR, that problem list is populated by physicians. It's as simple as that."
Simple, but not easy, because it involves significant culture change among physicians.
"The idea is spot-on, and this has happened informally for years with physician talking to physician, but it's not been documented. We're changing culture with that, and that's difficult."
Further, the standards mean the organization has to develop an audit trail so that when an investigator makes Spectrum Health prove that it complied with the standards, "we have a document we can pull out," says Fifer. "That audit trail process is a real challenge and time consuming."
Spectrum Health has developed scorecards that show leaders where it stands on achieving standards on both the hospital and physician sides. But the work has to take place physician by physician and practice by practice. And while the investment will pay off in the sense that meaningful use targets will be achieved and incentive payments will come from the government, Fifer says it's difficult to truly isolate the investment and whether it will pay off.
He says work on VBP standards is even more challenging because it is less specific than the other two.
"Most of the VBP criteria we really already are working on," he says. "In tracking our numbers and where we're close or short of the thresholds, we pay attention, but don't have to develop extra infrastructure to comply."
Regarding value-based purchasing, CHI's approach is strategic, says Rowan.
"As we look at the handoffs surrounding improving care, the idea is that when a patient has a problem, they don't experience four to five discrete events in our system," he says.
For instance, a patient might see a physician. Then, the patient might come in to the hospital for testing. Then he or she might be admitted and may need follow-up care and lab work in between.
"We need a clinical person who looks at [the patient] across all five events," he says. "Meaningful use is about that, but when you come in, we shouldn't be scratching our head on what started this whole thing out on the ambulatory side, and we shouldn't have to do expensive things like taking new imaging."
While larger systems like CHI and Spectrum rely on developing or hiring internal expertise on the big three, at Baptist Health System in Birmingham, AL, a smaller system with four hospitals, the compliance push is using outside as well as internal resources, says Alan Bradford, Baptist's chief human resources officer.
"On the revenue side all the VBP formulas continue to be refined. If you miss any of that detail, you're really going to cripple yourself on your revenue, so we've leaned on internal and external resources to make sure we fully understand our obligations," he says.
Of the three, ICD-10 might be the easiest to understand, at least procedurally, but that doesn't make compliance any less challenging.
"We have a pretty detailed plan, and each component has its own milestones," Bradford says. "We're on target with ICD-10 because we have an education and training component for both the clinician and revenue cycle team."
Baptist is also working on training what Bradford calls super-users on the IT side who can help clinicians and revenue cycle team members reconcile errors.
Further, Bradford says he doesn't see a future need for additional coders to handle the complexity involved in ICD-10 compliance, but he says the organization will probably have to reorganize its coding staff to include more specialized coding competencies that reside within a few people as opposed generalists who can operate in any clinical theater.
Fifer, of Spectrum Health, does see additional costs from the conversion.
"ICD-10 absolutely affects labor costs," he says.
He says he's seen high estimates of what ICD-10 implementation will cost from other organizations that range as high as $30 million–$40 million.
"That seems high, and it all really comes down to what you count. But when we went through budgeting—and we're pretty conservative—the request was to spend an additional $4 million annually on infrastructure to deliver ICD-10 results," Fifer says.
Spectrum Health pared that back significantly by redeploying people within the organization as opposed to hiring consultants, but the transition costs will still be $1 million annually, and that's without tracking time spent on retraining.
"What we don't know is what ICD-10 will do to coding productivity," he says.
What will mitigate those investments is a likely increase in productivity from computer-assisted coding. At least Fifer's hoping so.
"Absent that, I would expect a decrease in productivity by 30%–50%, and I don't know if I could find that many coders in the future."
Janice Jacobs, a director with IMA Consulting of Chadds Ford, PA, says she thinks labor costs associated with coding will increase permanently.
"Coders' methodology is changing dramatically and it requires more time to assign codes, so even after the learning curve is over and they're recertified, they only regain about 85% of initial productivity," she says. "On the other hand, we will be talking about computer-assisted coding more and more. This will not eliminate the coder, but will move them into an audit role and may alleviate some of the loss in productivity."
Bringing it all together
One way some organizations are trying to limit their investments in compliance is by trying to make sense of the new regulations as a whole. In that way, perhaps it's ironically helpful that most of the deadlines are within a relatively short five-year time frame.
"Leaders are overwhelmed that all of these initiatives are really happening at the same time. It's very expensive for healthcare organizations and very labor intensive, and mandatory regulation compliance issues are exhausting their budgets," says Jacobs. "I've been in this industry for 30 years, and I don't remember so many things going on at the same time before."
Still, Fifer says finding a way to look at all of the work holistically is important so that duplication of efforts doesn't happen or that work by one group on ICD-10, for example, doesn't set back work on meaningful use.
"We're trying to find the common ground among all of these regulations so everyone is not duplicating efforts," he says. "That's hard to do because they are so specific and we have totally different work teams. But we're trying to raise that level of awareness."
How? By encouraging the groups to meet together formally and informally such that "you've got hundreds of people looking for that common ground instead of one or two," Fifer says.
For his part, Rowan says it is helpful to integrate the regulatory requirements and compliance into a plan that incorporates the strategic goals of the organization, so that compliance doesn't feel like mandates that force investments that will never pay off.
"First, we're trying to get paid for high performance by utilizing some of the metrics and indicators they have out there with HCAHPS and lowering readmission rates, and not reimbursing for mistakes that are made. They're trying to create a focus on preventive appropriate care, and move away from the idea that we get paid more for doing more volume," says Rowan. "Third, we'll all be better off if we digitize and automate all the data. Putting all that together has created a number of significant strategic initiatives for us."
For Baptist's Bradford, he sees the regulations as a framework that hospitals can use to create tools and processes to meet the goal of better care and cost control.
"Process is very important. We utilize Lean throughout our organization, and it works on all things we're talking about. It's part of the equation."
Hospitals: An endangered species?
All of this is fine for these organizations, which are multihospital systems with entrenched positions in their respective marketplaces. But what about smaller hospitals without the scale these organizations have?
Deloitte's Keckley argues that senior leaders of organizations without these advantages have good reason if they are among the pessimistic.
"It's going to be very Darwinian over the next six to eight years," he predicts. "The insurance market will shift dramatically, the economic recovery will be slow, and there will be a lot of pressure on folks to compete."
Keckley, as part of his research, recently completed interviews with 25 different hospital and health system CEOs about their coping mechanisms and strategies surrounding healthcare reform.
"And I'm hearing the same things," he says. "Many of them are just tired. It's almost a thankless job."
In these economic times, perhaps it's a little hyperbolic to call such a well-compensated job thankless, but the turmoil is causing even some of the bigger organizations to rethink their role in the care delivery process.
"We're recasting ourselves from a hospital company to being an integrated delivery system," says CHI's Rowan.
CHI now employs a vice president of hospitals, a VP of ambulatory care, and a VP of home health, for example.
"They're not subsets of the hospital; now they're on peer," he says. "To lead in the market, we're no longer looking for hospital administrators, but market leaders who have an understanding of the whole continuum."
Technically, says Keckley, many hospitals that are too small to compete won't completely go away, but a number will.
"There will be a shrinking of the market. A number [of hospitals] will be converted away from acute care and into something else. They cannot operate with high safety and quality, which require a certain volume level. That will force small hospitals to either be absorbed or relicensed to long-term care."
That also means scale is the key to sustainability.
"You can't assume acute care can be delivered safely and efficiently where you're operating fewer than a couple hundred beds. There will be exceptions to that in rural areas," he says. "But mapping to all of these incentives that change from volume to value or outcomes means these hospitals have had or will have to put 6%–8% of revenue in IT systems. You just can't survive. You're not big enough to do everything you have to do."
Reprint HLR0312-2
This article appears in the March 2012 issue of HealthLeaders magazine.
Recently I've talked to a lot of senior healthcare executives about healthcare reform. It's a broad topic, but it seems reform is all we talk about.
One of the most pervasive themes in our conversations is the concept of teamwork in the struggle to transform the healthcare system into one that manages the health of the patient rather than one that treats problems on an ad hoc basis, often long after patients have gotten worse due to delays or gaps in care.
The concept of teamwork in what has been a pay-per-encounter business is, admittedly, a warm-and-fuzzy notion. It evokes a generally accepted ideal in healthcare: Preventive and connected care is better care.
But senior executives are sometimes not as tuned in as we'd like to think they are about the actual progress that's being made in their organizations toward that goal of team-based care. Sometimes they don't realize they have valuable team assets in unexpected places.
Carol Quinter is not one of the most senior leaders in her healthcare system, yet she has a critical role as the senior leader of the lab at Kettering Medical Center, the flagship hospital of Kettering Health Network in Dayton, OH. And from what I learned through talking with her, the teamwork message is getting through, at least at Kettering.
The lab as catalyst for efficiency
The example we talked about was the dramatic downstream effect that efficient lab work can bring to the difficult-to-solve equation of providing the right care and the right time, with as little waste as possible.
Late in 2010, Quinter, Kettering Medical Center's director of laboratory clinical services, evaluated a new testing system that could diagnose infectious diseases faster and more accurately than traditional testing. In fact, in most cases, it provides results in six hours instead of the traditional 48. As might be expected, the acceleration has a tremendous effect on patient care, quality, and length-of-stay.
"If we know what they have with a high degree of reliability, that is 98% or better, and a clinically relevant turnaround time, that helps us decide whether patients can be managed in an outpatient setting or in the hospital," she explains. "Patient populations aren't defined. The only way to define is to do a test. But we need those results in a timely fashion in order to do what we want to do interventionally."
Quinter and I talked about the many scientific evaluations that she and her team had to make in deciding whether to introduce the new technology, and I have to admit I got lost a few times. But the essence of her decision was based on accuracy, (the Diatherix-based testing program now used is as high as or higher than culture tests) and, at least as importantly, treatment time.
"If we have a critically ill infected patient, their organism won't grow [in a culture] for 2-3 days, but this test is accurate within hours," she says. "That allows us to shift the balance toward recovery. Knowing the organism that's causing the problem dramatically shifts that balance."
Fast, accurate decisions lead to better outcomes
Critical to Quinter's decision-making was the big picture: getting patients treated appropriately, and quickly, so their stay is shorter, less expensive, and less traumatic.
Speaking of expenses, ROI for the testing system in the first year of use, 2011, yielded $3.7 million in terms of hospital savings directly tied to reducing patient infection rates, decreasing the days patients need to be kept in isolation, and prescribing fewer antibiotics.
Kettering's financial expectations for the new testing regime had been low—about $225,000 the first year. In addition to the financial piece, Kettering saved about 2,000 isolation days and prescribed fewer—and Quinter would say more accurately targeted—antibiotics.
Critically, the decision to use the new test was left largely to Quinter, a 30-year veteran of the lab, and to a broad patient care team. Quinter says the effect on patient care was dramatic, which is what ultimately sold them on the testing procedure.
However, financial success of the technology was also important, says Quinter.
"We all have the responsibility to drive financial integrity in our organization," she says. "We can't look outside the lab and say that's someone else's problem because we all have to understand that we need to deliver care in a fiscally responsible way."
But she's even more proud of the results because it took teamwork from across the service lines of the organization to make it successful, as well as empowerment from the highest levels of the organization.
"In that environment, people come together focused on the same results," she says. "I often get the question ‘how do you get your docs to do this or how do you get nurses to do that?' I can't help them, because when we approach any patient care models driven by technology, we're a team."
While decisions on such specialized scientific and technological changes can't be driven from the top levels of the organization, says Quinter, culture is and should be.
"Because we embrace innovation, our administration places trust in us, but we have to prove it at the same time," she says. "Fundamentally, the most important thing is that the administration has trust in people they've selected to drive patient care models."
The impact of such a small change in process likely goes far beyond the tangible. And while this particular change in testing protocols has had a dramatic effect, it was enabled by Kettering's focus on process improvement generally.
"We map the course the patient should take without waste," says Quinter, "Every time the diagnostic doesn't meet our needs, we send the patients off that direct path. If you have a conventional lab test that takes too long and isn't sensitive and specific, that creates waste and costs dollars."
Quinter often speaks at professional conferences about her experience in cutting waste and improving accuracy in the lab, and she's often asked where to start.
"The bottom line for that is you have to define and understand your current process. That's where organizations fall short," she says. "You have to understand your current process in order to improve it."
Hearing constant chatter about healthcare reform as I do on this job, you would think any hospital or health system CEO who isn't busily making job offers to all his physicians or feverishly putting together the pieces of her institution's accountable care organization structure is also not too focused on keeping his or her job for much longer.
But that's not necessarily so. While indeed those two strategic moves are very popular and might ultimately prove essential to many hospitals or health systems, they're certainly not any kind of panacea—and they may not be right for everyone—even in the long term.
HealthLeaders Media Industry Survey 2012 The priorities and concerns of nearly 1,000 of your colleagues in healthcare leadership are revealed in this year's comprehensive multi-part survey, our fourth annual HealthLeaders Media Industry Survey. Download the Free Reports
Ultimately, your institution will be judged on your ability to add value to healthcare delivery and improve health, which is why it's no surprise that in our just-released (and free) 2012 HealthLeaders Media Industry Survey, care coordination and quality of care is the single biggest strategic challenge for 30% of organizations.
(Incidentally, respondents were only allowed to pick one of 10 possible answers so this choice by 30% of respondents represents a huge amount).
For perspective, improving patient experience and patient flow was the top priority for only 17%, the next most common choice. These findings, however, arrayed against others in the report, don't suggest that there's a universal prescription for achieving care coordination and improving quality of care.
In fact, the dominant idea that physician employment and the move to an ACO is essential to long-term survival may yet be proved a myth—at least for some organizations.
Mina Ubbing, chief executive officer of 222-bed Fairfield Medical Center outside Columbus, OH (in Lancaster, to be specific), is doing neither of these things—at least not in the strictest sense. Yet the 25-year veteran of the health system and 11-year CEO isn't standing still on business strategy either. So let's attack these two possible myths using Ubbing's logic.
1. You don't have to employ all (or even most) of your physicians
"By definition our hospital is a tweener," Ubbing says. "We're a voice in the healthcare industry that's sometimes missed. We're not rural, but we're also not in the same box as the major metros."
Fairfield, she says, only employs about 10% of the physicians with privileges at the hospital. And she's fine if it stays at about that level. She's also fine if it starts to creep up, but that will be dictated by market conditions, not by a free-for-all of recruiting inducements and salary guarantees that often come with physician employment.
"Everyone around us has their physicians employed," she says. "We're fine the way we are."
She concedes that many new graduates from medical school and residency programs are the ones who are currently seeking employment, but for now, the many joint ventures and other agreements she's signed over the years with physicians are doing just fine, she insists.
"We are not seeking to buy practices. Instead, we're doing a lot of work through co-management agreements to align with our staff, and that's going very well." With the uncertainty surrounding healthcare reform and the emphasis on work/life balance from new grads, however, she's open to employing them. The key there is in being selective.
2. You don't have to develop an ACO
Ubbing says Fairfield is operating under the philosophy that if it can manage and coordinate care for its own employees and bring down costs, there's not necessarily a driving need to focus so much on creating, or especially owning, the ACO structure.
Having achieved demonstrable success with its own employees over three years, Fairfield is beginning to market its own internal health plan model to other self-insurers in the county.
Ubbing is careful to take a measured approach to the idea, and to stay nimble enough to switch gears if that plan fails to yield the expected results. For that reason, she says Fairfield won't bear risk under such deals.
"That's the kind of model, working with our physicians, that we're offering to other employers," she says. "I'm hopeful that is the right decision. We're not the size to do an ACO."
She's hoping other employers will see the value created when certain expectations for health are placed on employees, and that tiered premiums based on health risk factors will encourage patient compliance.
"What it will take on our part is to price the model and teach them how to do it." The program starts with a health screening.
"We have done it for two years officially following one year for practice," she says. "It's voluntary, but if you don't participate, you will pay a higher premium." Lowest premiums, naturally, go to employees who pass all screens.
"Beyond that your premium is increased," says Ubbing, and all have the opportunity to appeal. "You have to lead from the top," she says, in selling the idea to employers in the community. "This starts from inside your hospital."
Creating an ACO, she says, would mean much more capital risk. Developing an ACO "depends on the breadth of the organization. We do not own a home care, hospice, or a nursing home. Consequently, the care coordination in our market has to be done with other entities."
But Fairfield has good partners, she says. The federally qualified health center for the area is on the hospital campus, and it does own a palliative care unit.
"We all realize that in healthcare reform, an unfunded mandate is the idea that we implement community case management. The penalties for not doing it are extreme."
She recognizes the hospital's leadership role, but bristles at what she calls an "unfunded mandate" from the federal government.
"We have to have a quarterback, which has to happen sooner rather than later," she says. "To do that we have to measure the quality of care our partners are providing, and we may have to narrow the field. The federal government expects the hospital to take the lead but it's an unfunded mandate."
For whatever reason, if you've decided that creating an accountable care organization structure is not on your immediate wish list, you're far from alone.
Many institutions are taking a wait-and-see approach, and can afford to. Just make sure your attitude is one of learning, not active avoidance, because what first might have looked like a flavor-of-the-month is becoming a regular healthcare business staple. And contrary to popular belief, much of that transformation is coming not from government, but from private market experimentation.
Webcast: Commercial ACOs— Strategies from Early Adopters On March 22, join HealthLeaders Media for 90 minutes of commercial ACO strategy and solutions, direct from top executives representing both providers and payers. This customizable webcast allows you to pre-submit questions to our speakers to help guide the discussion.
Recently, I authored a free impact analysis report: ACOs: Tailoring Your Own Solution, based on detailed interviews with a group of top chief financial officers. We discovered that despite a generally tepid response to the prospect of ACO creation, coupled with the small test group of institutions that have been approved for the CMS ACO structures, plenty of hospital systems are experimenting with so-called commercial ACOs.
At the basic level, these constructs are little more than traditional insurance company/hospital contract negotiations, However, there's a big twist.
Risk.
Hospitals haven't had to price risk very often in the past. Where they have, they've often relied on outside advisers for help. This has happened in situations such as mergers or capital access, but they've certainly never needed that kind of expertise on reimbursement.
The addition of risk to hospital contracting is a valuable tool for extracting maximum value from healthcare, but it's fraught with potential landmines. With risk, however, should come the promise of return, and hospitals and health systems that are ready to take it on should have a solid foundation for the future.
What resulted from my roundtable on ACOs with hospital and health system CFOs was a discussion on innovation, because what these organizations are doing is far from trying to fit into a predetermined definition of accountable care.
Instead, they're testing innovative approaches with commercial payers to reward for quality and to more closely align the pieces of the healthcare delivery chain as patients experience them.
They're experimenting with new skills necessary for their labor force to put more emphasis on total, or "population" health instead of volume. If they're not big enough, they're not only taking on risk through their commercial contracting, but taking and passing on risk through subcontracts with nursing homes, home health agencies, skilled nursing facilities—you name it.
We've said it before, but the key is aligning all of those incentives in such a way that patients' health improves, and that fewer medical mistakes and unnecessary treatments or procedures occur.
Hospitals are also exploring partnerships with local and national employers who are interested in limiting—or cutting out entirely—the payer middleman role. Finally, the bigger systems are forming alliances and acquiring physician practices, home health facilities, labs, and even other hospitals in an attempt not only to standardize, but also to increase scale and decrease healthcare's high rates of waste and inefficiency.
But these are the innovators, the first movers. Not all can afford to take on that kind of risk. That's why it's important to learn from these early adopters—what's worked and what hasn't worked—because if you haven't already, you're going to have to taste commercial ACOs.
My colleagues are presenting a pretty interesting 90-minute webcast soon that deals with these very topics in minute detail. The speakers have already taken the dive into commercial ACOs from both the payer and the provider side, and you'll find that their insights are instructive and valuable.
I know there's still a lot to learn, but it's an exciting time to be in healthcare if you aren't happy with the status quo. Let's see what the innovators can—and have—achieved.
What hasn't been said about the "surprise" decision by the Department of Health and Human Services to extend the existing Oct. 10, 2013, ICD-10 implementation deadline?
Well how about this: Despite the fact that the decision may allow a few organizations more time to meet the deadline, the bigger danger is that it will set back the pace of what many feel is a sorely needed, radical makeover of the healthcare system so that it becomes more transparent, safer, and more fraud-resistant.
Not that ICD-10 implementation by itself will achieve transparency, relief from high costs, and poor quality. It won't. Not by itself, that is.
As you already know, ICD-10 is essentially a coding system that costs a lot to implement, and the returns from using it will largely accrue to payers, according to some. Indeed one of the benefits of the new coding regime, although it's supposed to be revenue-neutral, is that it will be a tool for improved healthcare cost control.
On the other side, there are those who argue convincingly that over time, ICD-10 could improve payment accuracy, allow providers to anticipate higher patient volumes, and deliver reams of data that will help improve quality of care.
But what's particularly worrying about last week's announcement that ICD-10 implementation will be delayed is the fact that many, if not most, significant healthcare groups are actually opposed extending the deadline. That might be a first.
In the past, under fee-for service reimbursement, there was very seldom an incentive to being a first mover on new technologies and operational techniques—even if the government set a deadline. When everyone got paid essentially the same for performing healthcare procedures, whether you mailed in your billing or submitted it electronically, a large number of hospitals just goldbricked the deadline as long as they could, knowing it was likely to be extended.
Meeting the deadline just meant you spent your capital dollars in making the conversion—such as is necessary with ICD-10—early. In the old days, all providers would have had to be dragged kicking and screaming into a new operational paradigm.
This time you have big groups complaining vociferously about the delay. I'm talking about HIMSS, as well as hospitals and health systems that decided to lay out the cash and experience the disruption necessary for implementing ICD-10 by the original deadline.
Though it's unusual to have the majority of healthcare bemoaning a deadline extension, the delay itself is nothing different than what has happened ad nauseum since I've been covering healthcare.
The government sets a deadline, bleats on and on about the penalties for missing it, then when the heat gets turned up as the deadline approaches, moves it back. There are legitimate reasons for doing this in all cases. But when it happens every time, providers start to ignore the deadlines, anticipating the delay, as a very vocal bunch clearly has with ICD-10.
What does the government want? No one seems to know. It's running a race, but the rules are ever-malleable. The finish line keeps getting moved back. Sure, there are arbitrary deadlines, but they're often shoved aside because of political considerations.
So what motivates a healthcare provider to invest? To innovate? To move forward?
