The X Questions

Ten existential questions will make the difference between stumbling into the future and thriving

The questions have changed. The key strategy questions that the C-suite must be asking—and getting answers to—are different now than they were in the past, even from what they were last year. Most of today’s health care CEOs and C-suite leaders are missing many of the key questions they need to ask to drive strategy now, this year, this budget, in order to survive the next three to seven years. Which ones are you missing?

A New Mind-set

Today and for the next few years the weather of this industry will be dominated by pervasive, discontinuous change. Structures, revenue streams, relationships of every level: All are shifting in fundamental ways. Specifically, the weather will be driven by:

  • invention and propagation of new business models;
  • shifting risk onto both the provider and the patient, accompanied by building of new risk-based relationships, contracts and alliances;
  • smart primary care coming to the fore as the foundation of health care, driving most business models;
  • digitization and automation going wall to wall and beyond the walls—accompanied by powerful new info-capacities, from “big data” strategic analysis to new ways of reaching and bonding with customers; and
  • a striking new need for efficiency and effectiveness in response to rapidly rising demand as the baby boom ages, the baby boom health care workforce ages and disengages, and the newly insured increase their use of health care facilities.

Most of these factors, except the very last, are not dependent on the health care reform act, and will not change much if the act is altered or set aside.

Here are 10 strategic questions. There are lots of questions you can ask at the strategic level, but these 10 stand out as existential questions, the ones that, unasked or poorly answered, could cripple your organization, narrow your options and threaten your continued viability. So we will call them “the X questions”—X for the Roman numeral 10, for the existential nature of the answers, and for the key “X factor” role they will play in your future. If you are not asking these questions, asking them seriously, not rhetorically, in a venue that searches for answers that result in actions, you and your organization are flying blind into unknown territory.

The X Questions

1. Smart primary care: What would it take to derive the majority of your income and profit from primary care in three to five years? What would that look like? What capacity would you have to buy or build or ally with to do that? What structure would make primary care a profit center instead of just a source of patient flow for the real profit centers? Do you recognize the elements that make a primary care practice “smart,” lean, effective and a true “medical home”?

2. Risk: Are there definable populations in your market whose health costs could be driven down by improving their health status? While there are thousands of examples out there, focus on just this one: In the last 10 years, through basic, conservative preventive measures, Kaiser drove down the incidence of heart attacks in its members by 24 percent; it reduced serious heart attacks requiring hospitalization or surgery by 68 percent. Those are big numbers. Kaiser is financially at risk for the care of its members. You can probably imagine how the return on investment for preventing all that suffering and death looked on Kaiser’s bottom line.

These definable populations could be populations defined by payer (all the Blues members in your area, for instance, or all the members of your own health plan). Or by disease process (all the diabetics), by living situation (everybody in a particular retirement home), by income level (all the lower-income people in a particular part of town), by life stage (all the mothers of young children) or even by occupation (all those dock workers with the bad backs). How could you put your organization at risk—therefore at profit—for those particular health costs? Who might pay you to care for them? In what way might they pay?

3. Hotspotting: Eighty percent of your utilization and costs, typically, come from 20 percent of your patients; half of the utilization and costs come from 5 percent of your patients; and fully 20 percent to 30 percent come from the top 1 percent. Some of those patients just got hit by a bus or contracted a swift-moving cancer. This is their moment to need a lot of attention. But of that highest-spending 1 percent this year, 14 percent will still be in that category next year. Of the top 5 percent, the ones who use half of all the resources, nearly a third will still be in that category next year. Of the top 20 percent, those who use 80 percent of all the resources, more than half will be in that category the next year.

These are typically the long-term chronic patients who are not getting the real care and attention they need to stabilize their condition and keep them out of the ER or the hospital. If you are going to be at risk for some population, do you know who that top 1 percent or top 5 percent of resource spenders are? Do you know how to find out? Do you have a clear idea how you could lower their costs by serving them better?

4. Alliances, customers, partners: Who is going to work with you? Who will share the risk and the benefit of these new risk environments? Are there competitors—such as physician groups, specialty clinics, urgent care clinics or retail clinic chains—that are now potential allies? Are there employers in your area with whom you can work directly, either to be at risk for some aspect of their employees’ care (behavioral health, for instance, or spine care, or all primary care in a workspace clinic)?

5. Teams: What sort of clinical teams will you need to build to take on this kind of risk? What will make those clinical groups into teams, and not mere collections of clinicians with their own agendas? In what ways can the way you pay those clinicians tie them directly into the organization’s goals for each group of patients? How will the business structure, patient flow and workflow have to be different from what you have now?

6. Definition: How will the definition of “care” expand beyond your traditional inpatient and outpatient “sick care” concerns when you take on such risk? For instance, how can you affect outcomes and costs by putting behavioral health professionals into the care flow early and often? Consider this: The two top predictors of an individual’s health care costs are not physical. They are not body mass index, blood pressure or blood sugar level. They are stress and depression. Are you going to put yourself at risk for those health care costs without trying to do anything about those factors?

7. Setting: Where will such care have to be delivered? Through what kind of channels, and in what kind of environments? If your survival depends on managing the health risk and costs of populations, how do you bring the care to them? How do you snuggle up to your customer? What are the technologies that could put your relationship to your customer in her purse, on her desk, in her house?

How will your physical plant and built environment have to change? As you contemplate building, renovating and repurposing in a new risk-based environment, you will have to focus not only on getting closer to your customers, but on building a safer, more efficient and effective environment where your clinicians can work with them. How conversant are you and your executive team with the principles of evidence-based design championed by the Center for Health Design and encapsulated in its certification program? Are your architect and interior designer certified?

8. Benchmarking: Are there organizations of your size and level of complexity, in markets like yours, that have done something like what you are navigating, that you could benchmark? How could you best find them? How could you best work with them?

9. Digitizing: Everyone is gettin’ digital at once, but there is no mantra that makes it all work. It can be done seriously badly, even when working with market-leading companies. You can cripple your organization’s workflows, cut efficiencies and make your clinicians hate you—at the same time that you pay out checks as much as 10 times larger than you need to.

How much do you and your executive team actually know about the changing horizon of information capacities? How seriously have you studied it? Does that knowledge simply pad out your strategy, or does it drive it? How satisfied are you that the strategy and the company you are choosing to lead your digitization drive are the best for you? Or are you and your CIO simply buying the security of the imprimatur of a major company? How aware are you of the new technological capacities arising and being showcased in the Health 2.0 environment, in the open source movement or, in primary care, in the Ideal Medical Practice movement?

In your enterprise-wide digitization, are you using OpenVista and the Resource and Patient Management System (RPMS), the open-source software suites available for free from the Veteran’s Administration, one of the oldest, most tested and largest digital implementations in health care? If you are not, how good are your reasons?

Consider this: A couple of years ago West Virginia University Hospitals spent about $90 million to install commercial health software from a major brand-name vendor in seven hospitals. About the same time the West Virginia Health and Human Resources Department installed OpenVista in eight hospitals. The installation and customization by a private vendor in all eight hospitals cost $9 million. Are we to assume that the university system got 10 times the value? Why would we assume that?

In taking your smart primary care practices and other physician practices electronic, have you considered the free or cheap software-as-subscription packages such as Practice Fusion or Doctations? How strong are your reasons for spending money you don’t have on systems that cost far more?

Kaiser recently rebuilt its entire electronic system (and by all reports quite successfully), to the tune of $4 billion. Top managers involved 160 physicians from all parts of the system in the re-design, not just once, but repeatedly, as a task force. This really helped not only in building a good system that actually works for the clinicians, but in getting the doctors to really use it to advantage once it was implemented. How much have you involved your doctors in designing your system? Or is it just, “Oh, we have a doc on the committee”?

Ask yourself some functional questions from a doctor’s point of view, such as: Are the accounts and records transaction-based or patient-based? When an ED patient is admitted, does that become a new record? Or is all the clinical information on that patient brought forward as part of a continuing, longitudinal patient record? Can it display, for instance, variations in blood albumin level over time as a single graph? Or does the clinician have to burrow through dozens of transactional records to write down the data, then visualize it in her head? Can the system accept data from other hospitals’ systems, or from legacy data sources within your own system? If not, why not, when translational software is available?

If you don’t know the answers to these questions to a close approximation of on-the-ground clinical reality, you need to find them. They could be killing you.

10. Healthy communities: If you are at risk for the health of a population, what could you be doing to help members of that population be healthier? The least expensive way to deal with disease is to prevent it. Many prevention methods range far beyond the medical environment. They have involved everything from a bicycle helmet campaign to better day care centers to traffic lights, community gardens, yoga classes and healthy cooking clubs. Do you know what the key leverage points are in the community you are at risk for? Have you asked them? Have you done the community health risk assessment mandated in the reform law?

The amount of actual funding involved in partnering to build a healthier community can be so low that one CFO described it to me as “lost in the noise” of the budget. In a risk environment, the return on investment can be very high. The experience, the data, the expertise in improving the health of populations is now deep, wide and accessible, not least in the AHA’s Healthy Communities Fellows and its Association for Community Health Improvement with its risk assessment toolkit; and in the comprehensive turnkey software and databases available from the Healthy Communities Institute of Mill Valley, Calif.

Confronting Your Risk

In the environment that is developing right now, with the shift in underlying economics, demographics, technologies and business assumptions, every organization in health care is at risk of slowing its development, crippling itself or even falling by the wayside. At the same time, tremendous new opportunities are opening up, often in directions we have never had the possibility of even thinking about.

This is the time to ask and answer the fundamental strategic and tactical questions, the X questions.

With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. As a healthcare speaker, writer, and consultant, he has explored the future of healthcare with clients ranging from the World Health Organization, the Global Business Network, and the U.K. National Health Service, to the majority of state hospital associations in the U.S. You can find more of Joe’s work at his website, imaginewhatif. This post was originally published in Hospitals and Health Networks Daily.

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44 replies »

  1. Thanks for the point of view, Doctor Hart.

    I understand the point of view that nothing should influence the doctor’s judgment, and nothing should interfere with the doctor/patient relationship.

    But in reality, some things should influence the doctor’s judgment and “interfere with” the doctor/patient relationship, such as the standards of the profession or the specialty, the collegial judgement of other doctors, the advancing science of what actually works clinically versus the latest fad — and, yes, the cost. If two courses of action are equally beneficial, and one costs ten times as much as the other (as is often the case in medicine), it is not only bad policy, it is bad medicine and a moral wrong for the doctor to push the more expensive option.

    Because yes, “we” do pay for healthcare. In a society in which the abundant and flagrant waste of healthcare resources drives up the cost of healthcare to the point where many people actually die for lack of access, wasting resources is wrong.

    It’s a wrong committed not just by doctors, but by every part of the system, from insurers to patients to employers to device manufacturers to pharmaceutical companies. But forcing people to do the right thing mostly does not work. The more efficient path to efficiency is to change the incentives and smooth the workflow, so that being cost-effective is both rewarded and easy. Kaiser is not utopia, but my observation is that it is at least attempting to head down the “rewarding and easy” path, while so many other systems are not even trying.

  2. Joe,

    Very interesting to read all the points you have made about Kaiser. As a solo primary care physician with 15 years experience and 15 more to practice, I have been thinking along the same lines for the last 3 years. And at the end of the month, I leave my practice and start at Kaiser. It seems many of my colleagues here in Northern California want to do the same but at this time Kaiser is already fully staffed. I have been explaining to the patients I leave behind about the benefits of Kaiser, most importantly that Kaiser does well by keeping patients healthy, and that’s what primary care doctors and patients are all about. It is unlikely any true improvements in health outcomes could be achieved in a FFS setting (ie. Sutter).

    Additionally, I think the middle class is just about to cry “Uncle” on the constant increase in healthcare costs. If they can find another way, they are going to take it. With high deductible plans becoming the norm and employers passing on all increases in healthcare costs to their employees, patients increasingly see the profit motive as doctors are quick to order tests and procedures that do little to help overall health and spend very little time with patients discussing risks, benefits and alternatives such as waiting. A remarkably large percentage of my patients say they will be following me to Kaiser at the next open enrollment.

    I suspect that Kaiser is not utopia for a physician, but the feedback I hear constantly these days goes along the lines, “my brother-in-law is a doctor at Kaiser and he is very happy there”. Happy doctors, healthy(er) patients…. What’s not to like?

  3. “We” as a society do not pay for healthcare. “We” as a society steal healthcare with “allowables”, “contractual adjustments”, EMTALA, etc.

    Don’t tell me what you want the doctor to do. It is the patient who should tell the doctor what they want, not the payor. Then the doctor will evaluate and manage the case.

    Start there with your system.

  4. Good points, Vikram.

    There are two frames with which to look at this: “evidence-based medicine” and “evidence-based health.”

    “Evidence-based medicine” is strictly about how we achieve the best result using the tools at hand. It is necessarily, because of the difficulties of measurement, a relatively short-term and narrow focus. And it is manifestly a good thing, since it is way better to do the short-term obvious things well than to do them poorly and randomly. Only when they are done well and consistently can their real results be measured and compared to other possible regimens. Strictly and scientifically practiced, EBM could include non-allopathic, “alternative” or complementary medicine, since often that works best (and cheapest) even in the short-term. Acupuncture for back pain, for instance, or a change in diet for many things.

    “Evidence-based health” is about the longer term, the whole person, the deeper causes. So when someone shows up in the ER in diabetic shock, EBM is about all the best practices to stabilize the person, get their blood sugar under control, get them their medications, and send them home. EBH follows them home to see why they ended up in the ER in the first place, and see what could be done to help them control their diabetes. Establishing real evidence about long-term, complex outcomes is much harder, and the medical establishment has barely begun seriously researching the question, let alone taking seriously the results of such research. That is what must change—and when it does change, it will address your concerns.

  5. > I am not interested in being a corporate employee.

    Not all of these models are about being a corporate employee. Most of the four models I talked about way up in this thread are not about being a corporate employee.

    > I assume you are using the royal “we” in your comment.

    I mean “we” as a society. We as a society pay for healthcare. If we give better attention to what we are paying for and how, we will get better results for less money — and one important part of that is to re-design the way we pay for healthcare and monitor it so that we can get out of doctors’ hair and let them spend more of their time being doctors.

    > All of the parasites are getting paid because they have infested the care process. Get out of the way. You are a consultant for a reason.

    Thank you for your kind appreciation of my efforts to help healthcare smooth its processes, be more effective, and get out of doctors’ way.

  6. Joe, you have spoken about outcome based practice. What is your viewpoint on evidence based medicine? What is your timeframe to consider outcomes? Like statins do seem to work for period time when your cholestrol lowers or spinal surgeries do seem to give relief for a while.

    The reason I bring this question here is that alternative medicine follower consider evidence based medicine (allopathic) as good for symptom and pain control but failing to address root cause issues.

    Going to Kaiser’s reduction in heart attack, I looked at the study. Obesity and physicial activity didn’t improve for their population. However,strokes still went down. One reason is more medicines statins and aspirins are prescribed.

    Is it possible to change one disease type into another? So maybe heart stroke was prevented, but then what about potential liver and hormonal problems when you become a parennial pill popper?

    Kaiser mentions on it’s brochure that statins have little to no side effect and that’s what irritates me. Of course it helps them meet their targets and we here build our theories based on that data.

    My cost theory still stands that because it takes so much cost produce evidence based (allpathic) medical goods and services then only way to reduce cost is to build conveyor belt mechanism for treating patients. Kaiser found good way to run that conveyar belt, better than many othes. Since patients do not question their definition of health (lower strokes/symptoms at all costs) so one couldn’t complain.

    However if we claim to be scientific then its responsibility to collect all details about health regardless of cost it incurs. I would like to see long term comprehensive acuity of pateints before I consider them to be succesful in delivering health as I suspect their tools of delivering health.

  7. Sorry, but that is not what I said. I am not interested in being a corporate employee. I assume you are using the royal “we” in your comment. Well, that is not how it works. Doctors are forever told they must use a particular script to get paid for a particular wervice. Done incorrectly a record will be “downcoded”. Say the secret word and get an extra $47.

    All of the parasites are getting paid because they have infested the care process. Get out of the way. You are a consultant for a reason.

  8. I hope it can change your understanding as well. That’s my purpose in getting it out there: I believe there is a serious possibility of turning this thing around.

    True, it will not be simple and clean. It will undoubtedly be messy. But your examples do not convince me of their outcomes, because I have seen other outcomes of just such situations. In the case of a health system given a low rating, the alternative is that the health system goes to the payer and says, “Whoah, why are we rated that way? Give us a chance to change the rating by improving our quality and lowering our cost.” This is exactly what Virginia Mason did with Aetna and Starbucks. Your other example assumes that there is no way to serve poor populations without losing a lot of money, and I have examples of organizations doing just fine serving poor populations by being smart about it. Health systems are not all that mobile. They are more or less stuck with the populations they serve. They will find a way.

    This is not principally about the precise mechanisms. This is principally about the incentive structure. Organizations providing healthcare act the way they do because the fee-for-service system pays, allows, and encourages them to act that way. And it will continue to no matter who is paying. To the extent that incentives change to paying organizations to provide the best healthcare for the lowest cost, the organizations will act differently.

  9. That’s actually what a lot of these models, in various ways, are about — letting the doctor spend his/her time being a doctor, and paying the doctor directly to do the things we want doctors to do.

  10. There are an entire flock of people in the exam room with the patient and me. Get the IT folks, the compliance folks, the utilization review folks, the CMS folks, the Press-Gainey folks, the administration, etc. out of the room, and I can save real money and take great care of the patient. And get the nurse away from the computer and back in the room.

    In other words, get the flock out of here. Get out of the way. I have been trained, credentialed, certified, recertified, appointed and reappointed.

    What are you all doing in my way?

  11. Well, Joe, I envy your optimism, so I preordered your book on Amazon just in case it is contagious. I will also have to read up on the MA plan a bit more.

    When I look at the health care arrangements in my neck of the woods, I can’t figure out how this is going to work. If I was running a large all powerful ACO, I would not agree to a contract where the insurer lists me as a “large copay required” facility, and since without me you don’t have a prayer at getting anyone to buy your plan, I would probably win.
    If I was putting together a small ACO, I would get all sorts of sports medicine providers and OBs and Peds, preferably in nice neighborhoods, with very few endocrinologists, oncologists, cardiologists, etc. Bet you my population will be different than other ACOs. I have no idea how I contract with hospitals though, since they would have their own Big ACO and interests to advance, and no idea how I would contract with an insurer that has a contract already with Big ACO.

    The last sentence in your reply to MD as HELL above is my main concern though. Avoiding expensive and unnecessary ER visits and surgeries is not going to put a significant dent in costs of health care. Perhaps we don’t need to squeeze doctors out of income, but we do need to squeeze hospitals, and they in turn will squeeze doctors to minimize hits to profit margins, particularly since they now own a record number of doctors.
    There are too many degrees of freedom in these arrangements, and this somehow always translates into disadvantages for the little guy, in this case patients and doctors too, because once you accept employment from a big system, you turn into a little guy overnight.

    So in a round about way, I am back to my square one. Is this exercise aimed at maintaining the bottom lines of large organizations, while we go about limiting access for people and limiting income to doctors?
    I hope your book can change my understanding of these machinations.

  12. > No previous model has ever worked in the long run.

    Well, then I guess we should never try anything.

    “Managed care” was a theory. It was not really field-tested in the form that became prominent before it was rolled out massively across big parts of healthcare. It was supposedly a version of Kaiser-like HMOs, a way of unifying healthcare and so promoting proper care coordination. In practice, it was nothing like that. The model actually rolled out had little in common with true HMOs, and was just a gatekeeper model that had obvious systemic failure written all over it from the start.

    There are other possibilities than simply being cynical about everything all the time, or blindly adopting theories that sound good on paper and have been tweaked for the maximum profit and comfort of the big institutions.

    The most important other possibility is to find things that are working, study them deeply to understand what it is that makes them work, and copy them, just the way engineering has progressed over time. Every one of the models I have discussed in this thread actually exists and is working with at least some success somewhere. There are models in existence now that work better than the dominant commodified, insurance-supported fee-for-service model. We should pay attention to what they are doing.

  13. I am the unnecessary and expensive ER visit. It will still be mostly unnecessary and expensive. I can’t quite figure out who pays for it. The gatekeeper model from the nineties did not keep it from happening. My old hospital CEO still owes me a quarter. He bet ER visits would go down under managed care. They have doubled since tht time.

    Everything works well on day one, even managed care. Let’s see what day 1000 or 3650 looks like.

    No previous model has ever worked in the long run. Why should this? The patient is still a passenger, not a player.

  14. > none of the above entities presently buy reinsurance

    The AQC model includes reinsurance, for exactly this reason.

    > Since there is nothing in it for the doctor under ObamaCare

    I am not talking about ObamaCare. I am talking about the fact that the assumption of business risk is changing in healthcare, bringing new structures and relationships. The PPACA and subsequent CMS regulation set out some rules and definitions of Accountable Care Organizations, which is one type of shared-risk structure, actually a fairly limited type, not as comprehensive a model as the AQC model, which BCBS of MA has been working the kinks out of in the field for something like five years.

    What’s in it for the doctor (or more usually, the primary or multi-specialty physician’s group)? Actually, a lot of things. The business risk they are taking on is one that can be calculated fairly well, based on historical results. They know how many patients they can treat, and what the costs are, and they can typically see ways that they could control those costs better than they have been. The contracts are long-term, adjustable contracts, not year-to-year or ad-hoc arrangements. BCBS works with them over time to make it work. So it actually reduces business uncertainty, while they take on some risk for meeting their targets. So far, according to the BCBS MA people I have talked to, all of their provider groups have met their targets, and gotten the sizable bonuses for meeting their quality markers, and so have actually done better in the business than they did before. So far total costs have not come down, but the cost curve has bent a bit, and in some cases has gone flat. Some employers under BCBS MA got contracts this time around with no increase in premiums. Over time, it seems reasonable that the model will actually bring costs down, as the practice spreads and as the primary groups who are at business risk increasingly get a handle on what they can do to better coordinate care. The AQC model does project that, and that is the explicit expectation in the long-term contracts — costs will come down, not by squeezing the doctor out of income, but by avoiding expensive and unnecessary ER visits and surgeries, and better controlling chronic conditions.

  15. There is no way for a practice, practitionaer, hospital or ACO to estimate the risk they take when a particular patient walks in or enrolled. Population statistics do not apply to a small group or to an individual, and none of the above entities presently buy reinsurance.

    Furthermore, the only risk premium built in to medical fees is the liability insurance premium. If a doctor assume additional risk, there need to be something in it for the doctor. Since there is nothing in it for the doctor under ObamaCare, the only winning move is: Not to play.

    How about a nice game of chess?

  16. Margalit, your post sports a series of assumptions that I am not sure are supported — and that effectively display the difference between my optimism and your pessimism.

    > it is more likely that employers and CMS will be picking your ACO.

    I’m not sure why that necessarily would be. That’s not true of the AQCs. I think it likely that an employer might make deals with one or more ACOs, and structure the deal to encourage employees to use the ACOs by charging them a higher co-pay if they go outside it — and the ACO would pay for services outside its network, but on the basis that BCBS MA does it: Go to the one with the highest quality rating and lowest cost, and you have no co-pay. I would imagine that the employers (especially large employers) would like to encourage competition within their markets between ACOs, rather than encourage monopolistic behavior.

    > And employers’ interests are not exactly aligned with employees’ interests.

    They are if my thesis is correct, that better healthcare is cheaper — earlier, smarter, more proactive, more engaged primary care. They are not if you frame the employee’s interest not as having the best, most appropriate care, but having the most and most expensive care at every juncture, able to go to the ER for all of their primary care concerns, or demand and get a complex back fusion surgery for simple back pain, or any number of other expensive procedures that are medically contraindicated, without any financial consequences of their poor choices.

    > if insurers are not there, who is going to oversee that quality metrics are achieved? Surely it can be employers. And what happens with those that don’t work for large employers?

    [I assume you mean “can’t”.] First, maybe insurers are there — their reduced role in the marketplace may well be overseeing arrangements between self-funded employers and ACO-like risk-bearing provider entities. And why can’t it be employers? If there is a need, I am sure we will see a proliferation of private medical quality audit firms that can substantiate the quality claims of the ACOs. And those substantiations would be available to other clients of the ACOs, including small employers and individuals.

    > Spreading risks in chunks of 15,000 lives is a recipe for disaster, and a whole new way of creating ACOs for the healthy.

    I am not sure why it would be. It would seem that the ideal size of an ACO-like provider would be large enough to bear the risk and the cost of the extra infrastructure, but small enough to keep the risk close to the operational level. It sounds, also, like you are assuming that the ACOs as risk-bearers will have an ability that the PPACA denies to insurance companies — the ability to cherry-pick their customers. I don’t know why one would assume that.

    > I think who pays is probably more important than how it pays, because the much touted economies of scale are in the who, not in the how and not even in the what.

    Economies of scale in healthcare kick in at a pretty low level, if you are talking about how to provide medical care and healthcare to populations. A medium-sized urban health system with three or four hospitals, a number of clinics, medical practices, home care affiliates and so on, at revenues of $4 billion or so a year, is perfectly capable of taking care of whatever comes their way, with some outliers farmed out to specialized quaternary medical centers elsewhere. Beyond that size there are no economies of scale in the provision of medicine, only the opportunity for anti-competitive monopolistic practices by insurers.

    What we pay for, to whom, in what way, is vastly more important than who pays. That is the entire thesis of my book, “Healthcare Beyond Reform: Doing It Right For Half The Cost,” coming out next month. In the end, you do get what you pay for, and we are paying for items — tests, procedures, surgeries, pharmaceuticals. So we get lots and lots of items. But items are not what we want. What we want is health, and care that gets us back to health, and care that’s there when we really need it. When we find more and more ways of paying for what we actually want, for outcome instead of items, healthcare will get both better and cheaper.

  17. Joe, love Dr. Emanuel, but his attention to detail in that blog is a bit sloppy. I do agree that if ACOs proliferate, insurers have no significant role to play, but I am starting to think that this new reality is a transition from the fire to the frying pan.
    Unlike Dr. Emanuel’s rosy vision of people picking their own ACOs, it is more likely that employers and CMS will be picking your ACO. And employers’ interests are not exactly aligned with employees’ interests.
    Also if insurers are not there, who is going to oversee that quality metrics are achieved? Surely it can be employers. And what happens with those that don’t work for large employers?
    Either Dr. Emanuel is envisioning giant national ACOs, effectively lots of Kaisers, or he hasn’t thought the under 65 market through.
    Spreading risks in chunks of 15,000 lives is a recipe for disaster, and a whole new way of creating ACOs for the healthy.

    I think who pays is probably more important than how it pays, because the much touted economies of scale are in the who, not in the how and not even in the what.

  18. Makes sense, Walker, but I think that dynamic is not really happening. Health insurers found long ago that “price wars” don’t work. You cut your price to get more members, everybody flocks to you, you have difficulty servicing them all and can’t sustain the low rates — and then, of course, it turns out that those who came to you on price alone go away for the same reason. Insurers watch each other like hawks in each market, of course. They aim for premiums that are 1) competitive and 2) sustainable for them, as well as high enough that they believe it will return a profit but (now) not so high as to trigger a review or give them a lower medical loss ratio than the law allows.

    Kaiser is content, I believe, to not be the low-cost leader, but rather position themselves as providing a more reliable, full coverage service.

    Thank you for your compliment about trolls — and thank you for not being one!

  19. By the way, yesterday’s NY Times has a blog by Zeke Emanuel and Joe Epstein essentially saying the same thing, that as ACOs take on risk, the market need for health plans wither away, and they need to find a new job in the market or go out of business.

  20. Joe, I wonder if one reason Kaiser is not significantly cheaper than other health insurance is that they can’t afford to be. I think the problem would go like this:
    One open enrollment seasons Kaiser doesn’t raise rates as much as everyone else, by a noticeable amount
    Open enrollment comes, and people flock to Kaiser
    Kaiser does not have the internal capacity to handle so much growth, and since it works as an integrated delivery system, that’s a big deal
    Kaiser is forced to contract outside its own operation for care, and do that contracting under duress
    With the contract providers, Kaiser doesn’t get the same quality of care for its patients and doesn’t get the same quality of data back either (different EHRs, for example)
    Kaiser loses money on the contracted care, and its quality measures may suffer

    If such a dynamic is valid, and the societal goal is to lower health care costs for the population, how would this be changed? Right now, Kaiser has no incentive to undercut the for-profit operators by as much as they probably could. Bad things happen if they do.

    By the way, I really like the way you respond to the trolls. I don’t visit THCB nearly as often as I used to do because of their insipid comments. You handle them with more grace than most…

  21. > single payer could sell risk down to the operational level of providers as easily as private payers, and probably more efficiently as well

    Probably. Whole different discussion. Almost the entire public discussion has been about who pays. I believe the answer lies in the other direction: who gets paid, and for what, and how.

  22. Competition and risk mitigation are not completely different things. Risk mitigation, for provider in AQCs, is a method of competition. That is, they are competing to keep their customers by doing healthcare better, and to make a profit at it by doing it cheaper. The payer acts as proxy for the patient as customer, and here’s how: If the quality measures are well chosen, they not only are measures of key outcomes that would benefit a lot of the customers. They also measure systemic things that cannot be done to benefit only some customers. Disease registries, for instance, and someone to proactively track and contact chronic disease patients.

    Also, the consumer in an AQC is not “randomly assigned to a producer.” The AQCs start with their existing customer base. For particular procedures (such as an MRI, or a stress test), BCBS supplies the customer with quality and cost ratings of a number of local providers. If you go to the one with the lowest cost in the highest quality tier, you pay no co-pay. You can choose the highest-cost provider, but you will pay almost the whole difference out of pocket. So there is no incentive to choose less than the best quality, and every incentive to choose the lowest cost of the best quality.

  23. > What makes us think that this time around patients will be enthusiastic about the fact that their doctors make money by denying care?

    Kindly address this question to someone you think is advocating denying care, and identify where they said anything about denying care.

  24. What makes us think that this time around patients will be enthusiastic about the fact that their doctors make money by denying care?

  25. This is very intriguing, Joe. We usually look at successful markets and identify competition as the factor most responsible for success, and by success I mean better quality and lower consumer prices.
    Here, you seem to pinpoint risk at the operational level as the major driver for providing both quality and affordability of products.

    My concern is that taking risk and competition are two very different things, triggering very different behavior. We know that when two businesses are competing, they must find ways to make the customer happy, or at least willing to open his wallet. This effort can be augmented by marketing, but in the long term, it can’t be just empty marketing.

    When risk mitigation is the main driver, the consumer is largely irrelevant, particularly if the consumer is randomly assigned to a producer. This of course is why quality measures are added on top of these risk contracts, but how much of that is just PR or in any way relevant to an individual, is not very clear. So I am not at all certain that the so called triple aim can be achieved this way, assuming that the triple aim is not a PR effort in and of itself.

    I have to conclude with my usual pitch, of course, and point out that a single payer could sell risk down to the operational level of providers as easily as private payers, and probably more efficiently as well.

  26. An important topic this discussion touches on is the growing need for new techonology development and innovation that specifically targets number 9 on the list. In terms of technological development, the digitization of EHR have raised serious cost benefit concerns, as well as, data security issues. In the debate of Electronic Health Records, opponents often highlight the potential data breach as a rallying cry against the adoption of EHR.

    However, the introduction of new data breach products have silenced some of the critics of EHR adoption. For a discussion of one of the most recent data breach technologies be sure to check out the link below:

  27. > I don’t know if the care is better at Kaiser, but I do know that it is not cheaper for the patient

    Like any large system, Kaiser has its problems, so I am sure someone will pop up with some anecdote of Kaiser horribleness. But when people do that, I also like to ask when the incident happened, since Kaiser went through some real quality problems in the past, but has improved enormously since the late ’90s. Kaiser has been winning major quality awards lately. The reduction in AMIs I mentioned is one of a series of such quality improvements that require system-wide improvement.

    As for cost, two reasons Kaiser costs so much: First, as far as I can tell and what I hear, Kaiser does not practice one of the major risk mitigation principals of other insurers — rescission. They do not find some reason to throw you out when you get brain cancer. And they similarly do not design “doily plans” with all kinds of little cut-outs. Except for extra-cost add-ons like optometry or first-dollar pharmacy coverage, and different plans with different co-pays and deductibles, when you are a Kaiser patient, you are fully covered, even if it means sending a medi-vac helicopter into the Sierra in the middle of winter to fetch you off the ski slopes (as happened with a friend of mine). They don’t dick around.

    Second, Kaiser operates in the same cost milieu as everybody else. They have to pay competitive salaries to their docs, they build their own billion-dollar facilities, their supplies come out of the same supplier market.

    My theory is that what separates Kaiser from an ideal economic model is the extent to which it takes on too much risk at the system level, and does not distribute that risk to the operational level.

  28. Great question. Certainly all these new arrangements blur the line and beg the question: What is an insurance company? Certainly an ACO that takes on risk directly from the customer is acting as one. Kaiser, of course, is a set of interlocking companies, one of which is a health plan.

    It’s a little difficult to talk about ACOs with precision, since there are a number of ways to be an ACO. But if we look at BCBS of Massachusetts’ Alternative Quality Contracts, we can see that there is a lot more to it than “selling the risk downstream.” What they sell downstream is a carefully-modulated, contract-limited amount of risk, calculated to be the size that the provider can functionally take on. Along with it, BCBS gives a huge amount of information about where the provider’s clients are showing up in ERs or hospitals, for instance, in real time, so that the primary care docs can intervene. And there is a certain amount of reinsurance, so that a few outsize cases don’t wreck the whole enterprise. And finally it is a broker, or conduit, by which the resources spent by clients elsewhere (in hospitals, for instance), gets paid to the hospitals and charged to the providers with the AQC contract. There would otherwise be no mechanism by which the contracted providers could take on the risk for all the patient’s care, even care rendered elsewhere.

    These all seem like vital, legitimate financing/insuring functions that are necessary, whether the payer is public or private. I would argue, as well, that there are reasons to think that an AQC-like system that transports measurable risk, costs, profit, and information between differently-owned parts of a system is actually a superior system structure than one in which one entity (the government, for instance) owns everything. Here’s why: If one entity owns everything, all risk is assumed by the entire system, not any of its parts. Which means that there is functionally no risk at the operational level: The individual practitioners and small groups that make operational and utilization decisions have no compelling financial stake in coordinating care, in efficiency, in seeing that the patient’s overall experience is as efficient and effective as possible. As we have seen in many situations in medicine as it is practiced today, in that kind of situation the individual practitioners and groups default to whatever pays them the most, or is the most comfortable for them.

  29. Or they will share in the risk through contractual relationship with some larger, risk-bearing entity, such as a health system, an ACO, or an HMO. I actually believe that such relationships could be more profitable and more sustaining than traditional small practice, if done right (and there are lots of ways to do them poorly). I think the lower bound on sustaining a small practice will be set not by the need to take on risk, but by the need to sustain the minimal infrastructure of a team-built medical home, which includes a data nurse maintaining patient registries, outreach capabilities, lots of stuff like that. If the docs get funded through any means other than individual fee-for-service insurance claims, that frees up a lot of their time and administrative staff to see more patients. I am not at all convinced that it is the end of the line for medium-sized practices, at least, or even small practices in the alternative models I outlined above.

  30. We agree then. The small guys will not share in the risk because it will not be profitible for them. Instead they will avoid it through one of the mechanisms you describe. I am pleased also that you appear not to hold a negative view of these alternatives. It is putting it mildly when we say it will not be an easy transition for American society as so much of our current health care is actually delivered by the small guys.

  31. Insurers can adjust rates to make sure they ALWAYS make a profit.

    Will doctors, when they take on risk, be given the same privilege (whether in a FFS or global payment situation)?

    I think not.

  32. Yes, Joe, but insurers usually take a profit because they take risk. If all they do is sell the risk downstream to providers, I am not sure what exactly their function is any longer. People could go buy insurance directly from the ACO, which is essentially what Kaiser is. Maybe smaller ACOs will need to reinsure somehow….
    I don’t believe provider in Switzerland and the Netherlands take risk, or anywhere else for that matter.
    From your response above to Dr. Mike, it seems that the average person seeking average care will not be finding that at the average private practice any longer, but instead it will be some type of Kaiser institution.
    I don’t know if the care is better at Kaiser, but I do know that it is not cheaper for the patient, so why are we doing this? To help institutions improve their bottom lines?
    I also know that wealthy individuals don’t choose HMOs and don’t seem to be having a quality crisis.

  33. > So why will we need insurers? To package derivatives?

    Hey, Margalit! I am not quite sure what you mean here. We need some kind of financing mechanisms to lay off risk across populations and across time. The risk of needing healthcare services is so wide (everyone has a body, but only one each) but so highly varied, over time (old people need way more), by lifestyle (kite-surfing, salmon fishing) and randomly (cancer, virus), and people are notably poor both at estimating their own real risk, and providing for it over their lifetimes and across their families. That’s why many countries opt for spreading the risk across the entire economy through taxation and universal coverage. Others outsource the risk to private insurance companies. Where they are tightly controlled (such as Switzerland and the Netherlands), this seems to work well. Where they can dictate their own terms, as they have been in the U.S., not so well.

  34. > the small guys will never survive in the environment described

    Actually, if we begin to mix up the almost monolithic fee-for-service environment with a variety of risk-bearing structures, I see the healthcare marketplace becoming more highly varied. There is room in a risk-based environment even for “small guys.” The key is matching the risk you are biting off to your capacity to control your cost and your risk exposure. You can do that in a number of ways, such as:
    o Urgent care: Provide care outside the usual risk structures for people who for whatever reason feel better served at that moment by an on-demand, out-of-pocket model.
    o Direct pay primary care: Subscription model — individuals $35-$50 or so per month, employers pay lesser amounts in package deals for their employees, and in return receive a complete package of primary care, including on-call advice 24 hours, and everything a “medical home” model includes.
    o On-site clinics: Small-to-medium size practice contracts to staff and run an onsite clinic for a company, a union, a large convalescent home, etc. Patients are free to use other doctors under their usual insurance arrangements, but the clinic is convenient, has no co-pay, and most drugs are provided. Doctor simply bills the client monthly for actual itemized costs plus the contracted profit margin.
    o Specialty clinics: A full-service specialized clinic can offer, say, back care on a contract per-person per-month subscription basis to, for instance, all the warehouse workers of a large shipping company, rather than on a fee-for-service basis.

    Notice that all of these examples involve no insurance company, which is a great savings of time and money for both the doctors and the clients. On the other hand, the doctors have greater need for business acumen in getting the model, the contract, and the prices right—but that kind of acumen and experience is building across healthcare. Increasingly, there are consulting organizations that can help physician groups set up these kind of arrangements and get right.

  35. > Kaiser may be an example of what works…kaiser went broke in Raleigh

    What I proposed here was not a simple up-or-down vote on whether Kaiser is the perfect system, the model that we all must emulate. I am using one example of how an at-risk organization can profit by improving the health of the people it serves. It’s not mere coincidence that we see that kind of large, long-term systemic effort at population health improvement coming out of Kaiser and not out of other equally excellent organizations like Intermountain or Mayo or Johns Hopkins.

  36. You may think, BobbyG, that I am being schooled by the master, but I wonder if, when the dust settles, we are going to be satisfied with the large corporations that employ America’s healthcare workforce – the small guys will never survive in the environment described. Kaiser may be an example of what works, but it remains to be seen if others will duplicate it or choose to create something else. Yes, healthcare providers will take on more risk, and those that do it well will do better financially than those who do it poorly, but, for as long as there are insurers in the mix, it will be very dfficult for the pie (overall healthcare spending) to decrease.

  37. I can’t quite parse what you are saying, Dr. Mike. In any business, one is always “at risk” for producing the product. In a fee-for-service healthcare system, the provider is only at risk for producing the service (test, procedure, office visit), with no relation to the quality of the service, or whether it actually helped the patient. An office visit is an office visit, and you get paid. We are going to increasingly see business arrangements in which in one way or another the provider is at risk for the outcome: They make their money not just by providing some individual service, but by actually making the patient healthier, or by (for instance) providing an entire package of primary care services rather than charging for the individual services. This can be risky, but it can also be quite a business opportunity, provided that you can be at risk for something that you can actually improve, or that you can produce in a more efficient manner.

    That’s what I meant about the Kaiser example: Kaiser not only saved its patients a lot of suffering, pain, and death by preventing heart attacks, it also made more money by avoiding unnecessary hospitalizations.

    This is the kind of arrangement that providers will have to learn to manage very soon.

  38. I always have to laugh when insurers start talking about “sharing risk.” The salespitch to docs always goes something along the lines of “share in the risk, share in the profit.” But that’s not what they are thinking at all. And why would they? With their current risk, they make unbelievable profits. Why would a company with shareholders to please, give up “risk” when that might mean lower profit? They wouldn’t. No, they are only willing to share the risk when it means the same or higher profits, and no amount of efficiency on the provider side ever seems to matter because it can’t. How is it any advantage to society or the patients when providers and insurers split up the same expensive pie? The only advantage is when they split up a smaller pie, and when the pie shrinks, the insurer always gets the bigger piece.

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