What a week last week! First the disgraced cyclist confession and later the baffling college-football-player-and-his nonexistent-(dead)-girlfriend story, with the RAND report sandwiched somewhere in between. It’s positively a scandal-palooza.
What’s that? You don’t feel like the recent RAND report, which basically says that a 2005 RAND study financed by GE and Cerner was wildly optimistic in predicting about $81 billion in potential health care cost savings through widespread adoption of electronic health records, qualifies as a genuine hoax, controversy, scandal?
But it does neatly frame what is arguably a unique characteristic of the healthcare industry—a trait that extends to peripheral industries as well. Basically, healthcare is an interconnected environment. Call it the systems theory of healthcare, co-dependency … or just regular dependency. Call it what you want, but there is an interconnectedness in healthcare that we ignore at the expense of national wellness.
Witness key data points provided by the RAND report:
- Modern health IT systems are not interconnected and interoperable, functioning “less as ‘ATM cards,’ allowing a patient or provider to access needed health information anywhere at any time, than as ‘frequent flier cards’ intended to enforce brand loyalty…”
- Neither are they widely adopted, with an estimated 27 percent of hospitals utilizing a basic electronic record. Without broad adoption, interoperability is far less relevant.
- Improvements in quality of care / patient safety and reductions in healthcare costs (which have grown by $800 billion since 2005) are not manifesting with EHR adoption, in part because hospitals and clinics are rushing to adopt mediocre solutions and garner federal funds.
- The provision of care is the same as it ever was, even though EHRs are frequently promoted as the optimal tool for a different kind of care.
The reasons for these disappointing stats are readily apparent and unalterably interconnected.
We physicians like to think that we are really different from other workers.
We physicians, perhaps thinking back to that medical school application essay we all wrote, really believe that we went into this career to simply help others. We physicians truly believe that we always put our patients first.Because we sincerely believe all of the above, we are shocked when someone like Uwe Reinhardt points out that collectively we act just like any other worker in the economy.
The classic 1986 letters between the Princeton professor Reinhardt and former New England Journal of Medicine editor Arnold Relman highlight the tension between how we think of ourselves and how we act.
Relman thinks physicians are special and he asks Reinhardt the following question:
“Do you really see no difference between physicians and hospitals on the one hand, and ‘purveyors of other goods and services,’ on the other?”
Reinhardt is ready with a long answer that should be read in its entirety. The short answer is that doctors act like any other human beings. A portion of his answer includes the following:
“Surely you will agree that it has been one of American medicine’s more hallowed tenets that piece-rate compensation is the sine qua non of high quality medical care. Think about this tenet, We have here a profession that openly professes that its members are unlikely to do their best unless they are rewarded in cold cash for every little ministration rendered their patients. If an economist made that assertion, one might write it off as one more of that profession’s kooky beliefs. But physicians are saying it.”
The 21st century challenge for the American health care delivery system is to deliver higher quality care for less money. Republican and Democratic experts agree that payment reform involving transitioning from fee-for-service to global, value-based systems is necessary for us to achieve that goal. Accountable care organizations (ACOs) are the new entities that will receive the new global payments and distribute them to the doctors, allied health professionals, hospitals, and post-acute care facilities that care for the patients; Medicare ACOs are being piloted under provisions in the Affordable Care Act (ACA) and Commercial ACOs are being developed by private insurance companies, hospitals, and physician groups.
The ideal payment system would support the ideal value-driven health care delivery system. Distinguished expert panels convened by the Commonwealth Fund and the Institute of Medicine have described the attributes of a system that would be far superior to our current delivery system:
· Care would be patient-centered
· Care would be safe
· Care would be timely and accessible
· Care would be efficient with little waste
· Care would be coordinated among providers and across facilities
· Continuity of care and care relationships would be facilitated
· Collaboration among providers would deliver high quality, low cost care
· Patients’ clinical information would be efficiently exchanged
· Caregivers would engage patients in ways that would maximize health
· Accountability for each aspect and for total care would be clear
· Continuous innovation, learning, and improvement would occur
Last week veteran analyst Vince Kuraitis reviewed a report from the consulting firm Oliver Wyman (OW), arguing that the trend toward reconfiguring health systems to deliver more accountable care is more widespread than any of us suspect.
“The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise,” our analysis finds that 25 to 31 million Americans already receive their care through ACOs-and roughly 45 percent of the population live in regions served by at least one ACO.”
OW provides a well-reasoned analysis and conclusions, but I’m skeptical. In discussions with health system executives around the country, I hear some movement toward change, but relatively few organizations are materially turning their operations in a different direction. The specter of policy change is looming, but it is still abstract. As I’ve described before, market forces are intensifying, but they’re mostly still scattered and immature.
Fee-for-service remains the prevailing paradigm, and there is no palpable threat to the health care excess that is business-as-usual. Several health system CFOs have told me: “Why should we take less money until we have to?”
There’s no question that Medicare’s ACO programs have the bulls-eye on reimbursement for health systems, which are a convergence point for a large percentage of appropriate and inappropriate health care costs. But there is a silver lining. American health care is so replete with waste – on the order of half or more of all health care expenditures – that any system that tries could deliver dramatically lower costs and improved outcomes.
The US healthcare system’s myriad of problems again seized the headlines recently with the release of an Institute of Medicine report, which found that 30 percent of healthcare spending in 2009 – around $750 billion – was wasted. Citing the “urgent need for a system-wide transformation,” the report blamed the lack of coordination at every point in the system for the massive amount of money wasted in healthcare each year.
One critical area in particular need of transformation is the business and operating model that drives healthcare in the US. There is broad-based agreement across the healthcare industry that the current fee-for-service model does not work, and needs to be changed. The sweeping health reform law enacted in 2010 included a range of more holistic, value-based payment structures that are now being referred to as “population health.”
Population health is an integrated care model that incentivizes the healthcare system to keep patients healthy, thus lowering costs and increasing quality. In this value-based healthcare approach, patient care is better coordinated and shared between different providers. Key population health models include:
· Bundled/Episodic Payments – This is where provider groups are reimbursed based on an expected cost for a clinically defined episode of care.
· Accountable Care Organizations (ACOs) – This new model ties provider reimbursement to quality and reduction in the total cost of care for a population of patients.
Costs and revenue: This is the oxygen of any business, any organization. What are your revenue streams? How much does it cost you to produce them? Life is not just about breathing, but, if you don’t get that in-out equation right, there is nothing else life can be about.
Right now this enormous sector is turning itself inside out. It has turned the “transmogrification” setting to “warp.” Why? It’s all about the in-out. It’s all about increasingly desperate attempts to get that right — and the clear fact that we cannot know if we are getting it right.
Let’s do some school on the two sides of this equation. Let’s just go over the new weirdness, and the implications for you and your organization. Revenue first.
Hunting for True Revenue
In traditional health care (the way we did business until about five minutes ago) the revenue side was complicated in detail, but simple in concept: You do various procedures and tests and services, and you bill for them. You bill each item according to a code. You bill different payers; each has its own schedule of payments that you negotiate (or just get handed) every year. There are complications, such as people on Medicare with supplemental insurance, dual eligibles on Medicare and Medicaid, and self-pay patients who may or may not pay.
That’s the basic job: aggregating enough services that reimburse more than their real cost so that you can cover the costs of services that don’t reimburse well. This is cost-shifted, fee-for-service management. Cut back on those low-reimbursement services; pump up the high-reimbursement ones. Corral the docs you need to provide the services, provide the infrastructure and allocate costs across the system.
The incentives all point in the same direction. The revenue streams are all additive. The more you do of the moneymaking items on the list, the more money you make.
It was the worst of systems. It was the worst of systems.
For decades, policy analysts have debated how we to strike a proper balance among access, quality and cost in our healthcare system. This debate has missed a crucial point: we do not have one healthcare system, we have two. And both are broken. Fortunately, if we fix one the other may heal itself.
The first system is the one that we encounter when we seek treatment for an illness. This system defines how much we pay out of pocket, which depends which providers we seek and what treatments they deliver. This system also defines how much our providers are paid, including rewards for exceptional quality and penalties for substandard quality. Historically, patients have relied on their physicians to guide them through the complexities of this system. In recent years, supporters of consumer-driven healthcare have argued for a bigger role for patients. They make the important point that patients will never make a serious effort to balance access and quality against cost unless they are responsible for all three.
On May 10th, the US Senate Finance Committee, co-chaired by Senators Max Baucus (D-Mont) and Orrin Hatch (R-Utah), convened a remarkable panel of four former Administrators of the Health Care Finance Administration (HCFA) and the Centers for Medicare and Medicaid Services (CMS): Gail Wilensky, Bruce Vladeck, Thomas Scully and Mark McClellen. (See the video here.) Against a backdrop of intensifying budgetary pressures, the roundtable was to provide perspectives on Medicare physician payment, including several controversial issues: the Sustainable Growth Rate (SGR) formula, the Resource-Based Relative Value Scale (RBRVS), and the RVS Update Committee (RUC).
Ironically, the day before, a Maryland Federal District judge dismissed a suit brought against HHS and CMS by six Augusta, GA primary care doctors over CMS’ longstanding relationship with the RUC, based on a procedural technicality and without weighing the substance of the complaint.
We are entering the season of presidential politics, of bunting and cries of “What about the children?” and star-spangled appeals to full-throated patriotism.
So here’s mine: Do you count yourself a patriot? Do you care about the future of this country? (And while we are at it, the future of your hospital.) If so, bend your efforts to find ways to care for the least cared for, the most difficult, the chronically complex poor and uninsured.
“But we can’t afford compassion!” Wrong, brothers and sisters, we cannot afford to do without compassion. “But why should we pay to take care of people who can’t take care of themselves?” Because we are (you are) already paying for them — so let’s find the way we can pay the least.
The problem of the overwhelming cost of the “frequent fliers,” people with multiple poorly tracked chronic conditions, has always been that the cost was an SEP — “somebody else’s problem.” Now, increasingly, hospitals and health systems are finding that they are unable to avoid the crushing costs of pretending it’s not their problem, are not being paid for re-admits, and are finding themselves in one way or another at risk for the health of whole populations. They’re also facing more stringent IRS 990 demands that they demonstrate a clear, accountable public benefit.
At the same time, employers and payers are realizing that they end up paying the costs of the uninsured as well as those of the insured who are over-using the system because they are not being tracked. These costs become part of the costs of the system, and the costs are (and must be) shifted to those who do pay. There is no magic money well under the hospital.
There I was, going one-by-one through a list of doctor and hospital groups that had volunteered to be one of the “accountable care organizations” authorized by health care reform, when I inexplicably found myself breaking into song. I know: it’s a really strange way to react to ACOs, but bear with me.
You remember, “This Land is Your Land,” don’t you? Written by Woody Guthrie in 1940, it caught the folk music wave of the 1950s, and has been sung ever since by performers ranging from Pete Seeger to Johnny Cash. Odds are you at least know the first verse:
This land is your land, this land is my land
From California to the New York Island
From the Redwood Forest to the Gulf Stream waters
This land was made for you and me.
ACOs are not obviously song-worthy, although they are significant. One of the Affordable Care Act’s signature initiatives, they initially drew bipartisan support as far back as…well, 2010. In April, the government announced that thousands of doctors serving more than 1.1 million Medicare beneficiaries had voluntarily joined ACOs, giving up fee-for-service reimbursement for some patients in exchange for a paycheck that’s based on measurable standards related to high-quality, cost-effective care. They’ve made the switch because it’s the right thing to do and because they’re getting ready for a day when Medicare’s fee-for-service money dries up.