The healthcare industry is undergoing some of the most sweeping changes ever and certainly since the inception of the Medicare program in the 1960’s. The change we are experiencing today is historic in scope and depth. And nothing less than transformation is needed to achieve and exceed the quality and value delivered by other developed countries. The US healthcare industry foundation, business model and infrastructure is shifting dramatically. Ushered in by Meaningful Use, technology use has finally expanded to the point where digital healthcare on a broad and comprehensive scale is now feasible. As Gartner notes, the digital business movement is transforming many industries and now healthcare is next up. The Affordable Care Act and the CMS programs are catalyzing other changes. There are huge opportunities and huge risks. Although not comprehensive, I would cite the following as the most important trends to pay attention to in 2016. It is important to also understand that these trends, in many cases, are mutually reinforcing and interdependent. A successful healthcare organization would need a comprehensive strategy to address all of these moving parts from their point-of-view and market position.
Changing Payment Structures
Most healthcare organizations are beginning to experience mixed payment methods. The Fee-For-Service (FFS) form of payment is dying a slow and painful death. This payment method, combined with a third-party payer system, seemed to drive a disconnect between cost and value. It created a business model where volume was king, and therefore unnecessary care and even medical mistakes were profitable. But on a more subtle level, it also drove what services would be provided. If a valuable service was not reimbursed, it likely would not be provided. Now the focus is on connecting cost to quality and thereby reimbursing with consideration of the quality or value of services. The primary driver of the trend toward value-based reimbursement models has been CMS. CMS has committed to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by 2018. Perhaps even more important, they have a target to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018. These “alternative payment models” include ACOs and bundled payments which are precursors to more progressive risk-sharing arrangements with providers. Commercial payers are tagging on to the CMS models with their own alternative payment models. At some point, prepared providers would be able to consider full-risk sharing or capitation.
Population Health Management
There are many definitions of Population Health Management (PHM) and many organizations are trying to get their arms around strategies to manage populations. The new payment structures are shifting varying degrees of risk to providers. As more providers are taking on risk for populations that they are newly accountable for, a new model of proactive, upstream, quality and prevention focused care is necessary. PHM is a proven mechanism to get there, but it requires new infrastructure, a different business model, realigned incentives and, most importantly for providers, a different, 180 degree shift in mindset.
The Medical Neighborhood
There is a continuing major shift of volume and revenue to the outpatient setting and an increasing importance to manage the costs and quality of these venues. The Patient-Centered Medical Home (PCMH) has proven to be a critical component of transforming care delivery, with promising results. It is important that the medical office culture changes to support team-based and proactive care (currently poorly reimbursed). Integration of behavioral health has also proven to be another opportunity to improve quality and value. However, the PCMH, even at it’s best, is a necessary but insufficient mechanism to drive optimal performance at a system level. We need to consider the “medical neighborhood” and how the PCMH integrates and, very importantly, INFLUENCES expensive specialty care. Access to care is a critical aspect of building the effective medical neighborhood and how urgent care centers and/or retail clinics are integrated can have a tremendous impact on this metric. Also post-acute care management and integration into the neighborhood is important for managing overall costs as well as maximizing value-based reimbursement (e.g. Medicare Spending Per Beneficiary).
Reducing waste and the cost of care delivery
Improving the value equation particularly depends on reducing the cost component especially when you consider that it is estimated that 30% of healthcare costs are due to “waste”. Driving out excess cost and waste are strategies that work for FFS (increases margin) and value-based care (shared savings or retained premium if at full risk). Lean improvement and Time-Driven Activity Based Costing (TDABC) are strategies to identify and drive out waste. Another area to pay close attention to are overall drug prices and the burgeoning cost of specialty drugs.
Repositioning of the “Health Plan”
The relationship between providers and health plans has been acrimonious for years because the provider’s income is the health plan’s costs. The patient was often caught in the middle of the battle over medical necessity and cost. Like it or not, as payers share more risk with providers, we increasingly are on the same side. Recognizing this new alignment of incentives, many providers are partnering with health plans or creating their own health plans.
The Integration Conundrum
To implement high-quality, efficient models of care having more control or ownership of more components or greater scale of the delivery system is seen as beneficial. We have continued to see more M&A activity as systems worked to build more integrated and coordinated care delivery models. It remains to be seen how the Federal Trade Commission will generally react to this activity but it is clear that they are scrutinizing this activity more closely (e.g. Advocate/Northshore merger). We also are seeing consolidation of payers with Anthem planning to acquire Cigna and Aetna planning to acquire Humana. Owning all components of the delivery system may not be realistic or make sense from a business perspective and therefore we are increasingly seeing providers creating partnership agreements with other facilities to advance their goals. As an example, Aurora Health Care has started a partnership with seven other health systems in Wisconsin called ‘About Health.’ They compete with these organizations in some markets, but also partner with them to create scale and geographic reach.
Transparency and Consumerism
The high costs of insurance has resulted in employers shifting more cost to the consumer thereby reducing the moral hazard concern but most importantly creating a more cost sensitive consumer. This is shifting the healthcare business model to more of a “retail” market and changing the role of the third-party payer. Cost concerns are prompting consumers to compare pricing and outcomes of various providers. Insurers and vendors are increasingly offering tools that allow consumers to do so and there are also several third-party apps and websites offering similar services. Increased consumerism in healthcare is also being driven by consumers’ experience of higher levels of service, personalization and access (e.g. online) in their other business interactions. This is setting higher expectations for the healthcare interaction. Retail clinic and online access to healthcare services are often preferred and competing with the traditional visit to the family doctor. Consumerism will be enabled by increased transparency of prices for healthcare services. In a particular market, prices are known to vary wildly for the same service. Transparency and consumerism go hand in hand. The underlying implication as well is that providers will need to better understand their costs to set appropriate pricing.
Ultimately achieving high levels of quality and efficiency requires the consent and engagement of the patient. In the final analysis, lifestyle choices and compliance with medical treatment causes or exacerbates the majority of quality and cost issues in healthcare. There is evidence that providing truly patient-centered care improves the patient experience, satisfaction and clinical outcomes. With increased risk sharing, this is an opportunity for providers and payers to align around putting the patient at the center of care.
It is difficult or impossible to achieve patient engagement if you do not have physician engagement. The importance of physician engagement cannot be overstated as the industry transforms. This is a tough issue because physicians are seen as the cause and solution to many of the challenges in the industry. Physicians are at the nexus of the many changes in the care delivery model (e.g. use of Electronic Health Records, changes in compensation, quality report cards, team-based care, etc.) and the demands and uncertainty are driving high levels of burnout. Better engagement and physician leadership will be critical for them to assume the solution aspect of their role.
Transformative Medical Informatics
Now that we are coming to the end of the Meaningful Use incentives and the tremendous increase in the usage of Electronic Health Records (EHRs) across the US, we are now solidly at the starting line. Like the PCMH for the care delivery and business model, the EHR is necessary but not sufficient to power the degree of transformation necessary to achieve the highest level of value-based care delivery. In fact, without the additional effort, the EHR slows down operations, frustrates providers, may increase risk and adds additional cost to the organization. Optimizing the EHR technology requires what I call “Transformative Medical Informatics”. This is an effort that goes beyond typical EHR optimization with tweaking of functions, reducing mouse clicks, and improving automation. Transformative Medical Informatics is the implementation of new structures, systems, technology and workflows to dramatically improve clinical and operational performance. This approach addresses and considers the enabling and disruptive power of technology from a holistic and systemic perspective. Gartner calls this the digital “Business Moment” which can be exploited for improvement as well as innovation. This approach leverages all of the technical tools and knowledge of medical informatics including data warehousing, data integration, predictive analytics, clinical decision support, telemedicine, etc. This approach then integrates organizational/culture development (the people aspect), change management, business process improvement (esp. Lean) and quality improvement to engineer processes that transform care delivery. This creates the opportunity to pull together all of the organizational assets and orchestrate the creation of value for patients that is not possible any other way. We are seeing this occur in other industries and technology is enabling new business models and new value creation. Leading organizations in healthcare such as Kaiser Permanente and Mayo Clinic are using Transformative Medical Informatics to reimagine care delivery. This is how we gain the multiple ROI value from the tremendous investment we have made in technology.