Is the healthcare industry at a tipping point, where the clinical and financial sides of the industry are beginning to come together to work toward the common goal of value-based care?
In a compelling keynote presentation at the Healthcare Financial Management Association’s 2014 ANI Conference in Las Vegas in June, Atul Gawande, M.D., a surgeon at Brigham and Women’s Hospital in Boston and professor of the Department of Health Policy and Management at the Harvard School of Public Health and the Department of Surgery at Harvard Medical School, said that the emerging lesson in healthcare today is that the system is broken. “We are not sure that we are seeing the value and quality you would expect from the money we are putting in,” he said.
Gawande, the noted author of several books, including The Checklist Manifesto: How to Get Things Right, told his audience that while it has long been known that 5 percent of the sickest patients account for 50 percent of the costs, many in the industry have miscalculated what it meant. The reason for that miscalculation, in his view, is that the financial professionals who know about the largest share of healthcare spending are different than the clinicians who care for the sickest patients who account for those costs—and the two groups historically have not talked to each other.
That is now changing: “We are just starting to discover what happens when you put the ‘you’ and ‘I’ together,” he told the audience of financial professionals. “When they do communicate, it’s a pretty stunning thing.”
He offered an example of changes in hospital practices that are resulting in dramatic improvements in patient care, along with major potential cost savings. His team at Ariadne Labs, a joint center for health systems innovation at Brigham and Women’s Hospital and Harvard School of Public Health, has worked with the World Health Organization (WHO) to develop a checklist that would be used for procedures in the OR to help prevent complications from surgery. “We know that major issues that affect quality and cost of care occur in the OR,” he said.
Where it was deployed in eight hospitals globally in 2009, every hospital saw a reduction in complications and deaths—an average 35 percent reduction in complications and 47 percent reduction in deaths. He also noted that the checklist was rolled out across 74 hospitals in the Veterans Administration hospital system, which has seen an 18 percent reduction in deaths. Commenting on that result, Gawande said, “every complication is an $80,000 increase in costs, and those costs were also eliminated.”
Data and Transparency at Texas Health Resources
Yet the task of implementing such cost-saving initiatives can be challenging. One major hospital system that has adopted the surgical checklist to its operating rooms is Arlington-based Texas Health Resources (THR). The results of its initiative were published in the Journal of the American Medical Association (JAMA) in April 2013.
Mark Lester, M.D., executive vice president and Southeast Zone clinical leader at THR, says the study grew out of a larger effort by the health system to improve quality and safety. “We had an opportunity to work with Dr. Gawande and a team of the School of Public Health at Harvard and members of the Boston Consulting Group, on work that would take a look at how we could take a surgical checklist, with it’s demonstrated ability to improve safety, combine it with collaborative team training, and how we could implement that in all of our active operating rooms,” he says.
Mark Lester, M.D.
Lester says the preparation for the project took an entire year of work that involved going into the ORs of the system’s wholly owned hospitals, and speaking with the doctors, nurses and anesthesiologists. “The idea was to customize the WHO checklist to their environment and to their workflows,” he says.
The team then stepped back, and gathered a baseline of 2010 data, the year that preceded the work of implementing the checklist. “The baseline was a look at the economics of its surgical patients and the complication rates,” Lester says. The complication rates were gathered from examining the health system’s coded data used for billing purposes. From that information it developed 10 categories of complications that followed surgery. “We saw in that year what our complication rates were, and that it was within the range of published complication rates,” he says, adding that the complication rates were correlated with economic data.
The study findings that were published in JAMA were eye-opening: hospital revenue was roughly 330 percent higher when patients who had private insurance coverage had at least one complication following surgery ($56,000) versus patients with no complications ($17,000). For patients with Medicare coverage, the difference was lower but still significant: a 190-percent up-charge for patients with at least one complication ($3,600) versus patients with no complications ($1,880).
Lester says that Texas Health has now implemented the checklist in the ORs of all of the system’s wholly owned hospitals. It plans to do a detailed analysis of the data it has obtained since the checklists and surgical teamwork training were put into effect.
He declined to comment on the data specifically at this point, before a rigorous analysis of the data is performed. Nonetheless, on its website, Texas Health highlights its “safe surgery” program that embodies the checklist and surgical teamwork training that “aims to reduce surgical complications and drive down healthcare costs.” Adds Lester: “We take it as a given, and it has been demonstrated in the literature and in experience, that when you improve quality, costs come down. Reducing the risks to the patients will certainly lower the costs of care.”
In a separate initiative, launched in April, Texas Health took the idea of transparency a step further by announcing its Quality and Safety Report, which it says is an unbiased report of quality and safety at all of the health system’s wholly owned hospitals. The reports are being made available externally as well internally throughout the organization.
Ferdinand Velasco, M.D., Texas Health’s chief health information officer, says the report is aimed at delivering more value in care as it relates to quality. Historically the health system has made a distinction between the quality and safety of care and the cost of care, he says. “We are trying to be more inclusive in combining the two notions of the collective idea of value.”
Transparency is at the root of the initiative, he says. “At the external level we have made a decision to publish quality and safety metrics, because we believe that transparency is what is needed to drive accountability in the organization, and ultimately to improve it,” he says.
Ferdinand Velasco, M.D.
The initial reports will include 15 indicators made up of about 300 metrics. The report displays clinical results, including complication rates and the number of procedures performed at each wholly owned hospital. Velasco notes that the metrics are from third-party organizations, and not proprietary to Texas Health; they are based on transparent, publically available methodology that can be replicated; and both positive and negative metrics are included. “What are on there are warts and all,” he says. “We show not only our performance, but where available, how we compare to state and national averages, so we can see how we compare to the industry.”
“Healthcare organizations that do a better job of providing excellent quality tend to be more cost effective, which leads to decreased costs associated with inefficiency and inappropriate care,” Velasco says. He adds that the transparency of the quality data in the reports puts Texas Health “in a favorable position to take advantage of pay-for-performance and value-based reimbursement programs.”
Velasco notes that although the majority of Texas Health’s reimbursement is still based on the fee-for-service model, “we know that is not going to remain the case, so we are being proactive before it is mandated.”
Value-Based Reimbursement on a Steady Climb
A report released in June by King of Prussia, Pa.-based McKesson Health Solutions is in line with Velasco’s assessment. The study, which was conducted by ORC International for McKesson, was based on a survey of 114 payer and 350 provider organizations across a range of sizes and regions.
Among the report’s main findings are:
- Ninety percent of payers and 81 percent of providers use some mix of value-based reimbursement with fee-for-service. Yet the organizations using mixed models anticipate significant growth of value-based care, which will make up two-thirds of the market by 2020, up from one-third today. Providers using mixed models expect fee-for-service to decrease from 56 percent today to 34 percent five years from now.
- “Collaborative” regions, where one or two payers and providers stand out, are more likely to be aligned with value-based reimbursement than “fragmented” regions, where there are no clear market leaders among payers or providers.
- Forty-five percent of providers surveyed are part of an accountable care organization (ACO), and are significantly more likely to feel that transition to value-based reimbursement will have a positive financial impact on their organizations compared to those that are not in an ACO.
- Although all of the existing value-based reimbursement models are expected to grow, payers and providers predict that the proportion of their total business that is aligned with pay-for-performance will experience the most growth, followed by the episode-of-care model. Nonetheless, 15 percent of payers and 22 percent of providers characterize pay-for-performance as difficult to implement.
- The primary obstacles payers and providers say are urgently needed to address to enable value-based reimbursement are technology-related; and existing healthcare IT systems are not aligned with value-based reimbursement.
- While technology to catalyze physician engagement is critical, lack of physician buy-in was the number one challenge cited by both payers and providers.
Dana Benini, vice president of ORC International, says the rapid pace at which in industry is moving towards value-based reimbursement is surprising. “The volume of reimbursement that would be associated with value-based reimbursement is quite significant, basically moving from one-third to two-thirds,” she says, adding that the fee-for-service model will continue to be around for a long time, but it will be eclipsed.
Larger organizations in a region that is defined by a grouping that is more collaborative with payers, and that also has some type of ACO model, are more likely to be aligned with value-based reimbursement, she says. Smaller institutions, as well as those that are not part of an ACO model, are less likely to be aligned. That’s partly a result of lack of resources, she surmises, but she adds that in fragmented regions, there is not enough alignment between providers and payers to allow value-based reimbursement to happen.
She notes that payers are not sharing clinical and financial with other payers to a large extent today; but “a significant proportion of them do expect that will be happening in the next several years.” She says there will be a demand for technology to allow that to happen.
Adds David Nace, M.D., vice president of clinical development at McKesson Health Solutions, “That’s the kind of alignment that’s needed to move a market forward—to have different payers in the market move in the same direction, and then to have the providers collaborate with the payers moving in the same direction. People recognize that the time is now, and the technology is available now and we can actually do this, so we are moving forward.”
Nace adds that physician buy-in is crucial to value-based reimbursement. “You have got to have the stakeholders understand this new model of care and understand how to use the technology in a value-based world.” He adds that education, buy-in and collaboration within the organization are critical.
Interestingly, about 60 percent of the payers surveyed by ORC think that the transition to value-based care will have a positive impact on their organizations, while only 50 percent of the providers think it will have a positive impact. According to Nace, although many providers may be skeptical of being evaluated on their performance, cost pressures are moving the industry toward value-based reimbursement. Payers have been concerned about their ability to survive in the model they have been using, while hospitals have been under extreme pressures as their margins are projected to decline, he says.
A Medical Group Implements Population Health
The Pioneer Medical Group, in Cerritos, Calif., has successfully implemented value-based care in its practice. (The group works with McKesson Health Solutions to help it collect and manage data.) Eighty-five percent of business is based on the coordinated-care model, according to the group’s president, Jerry Florio, M.D. The group consists of 52 physicians, including primary care doctors and sub-specialists, and five mid-level providers. It operates two after-hours clinics, offers radiology services at an outpatient center, and offers home-bound and nursing home services.
“Good quality is, at the end of the day, cost-effective care. I strongly believe that, and that is the fundamental axiom that we believe in our group,” Florio says. Yet aligning a group practice to value-based care has not been an easy undertaking, and requires an assumption of risk and a close eye on costs.
Pioneer operates three lines of business under the coordinated care model: Medicare Advantage, a commercial HMO and Medi-Cal HMO, which covers 33,000 patients, 3,000 of whom are in Medicare Advantage. “We get a fixed amount of money and we are responsible for all of the professional services; and we have to make sure we do the Triple Aim: highest quality at the lowest cost and making sure all of the patients are happy,” he says.
In the capitated model for California, the health plans take the administrative costs off the top and then give the medical group a fixed amount of money for professional services. It’s up to the medical group to set up relationships with its hospital partners; identify the primary hospital to work out of; and set up the tertiary centers it is going to use. It has to be versed in the federal regulations and state regulations for managed care, Florio says.
It also assumes delegated functions, including claims, adjudication, and payment. This requires a system that takes care of all of the professional claims, both within the group and outside the group; handles credentialing of all the physicians within the group and outside the group; has a quality management program that monitors quality, monitors patient complaints, monitors patient satisfaction, and deals with the issues and has appropriate action plans; and shows improvement.
Pioneer Medical uses a shared risk model, where it gets a cap for professional services. The health plan sets aside a certain amount of money for institutional costs, and if there is money left over, it will share that profit with the medical group. That incentivizes the medical group to be more efficient in the use of the hospital system, he says.
When it is contracting with the health plan, Florio says the medical group has to know the patient data and whether it has a sicker population that needs more resources allocated for care, when negotiating with the health plan. “That requires good data. You have to adjudicate your claims and pay the bills correctly, based on the contracts you have. That’s very important, so you need a good claims shop; and you need a hospital that understands all these things and is willing to work with you,” he says.
Within Pioneer Medical, its employee-based physicians understand value-based care, Florio says, but he adds that there is a potential problem when it’s necessary to reach outside the group to a specialist, who is being paid on the fee-for-service model. “Medicare is cutting their rates down in the Medi-Cal and indemnity plans are cutting their rates down,” he says. One result is that the outside specialist may hike its rates to make up his losses, which hurts the healthcare system, Florio says. He believes that the solution in the future will be to find a way for outside providers to share in the cost savings.
Florio says it’s necessary for physicians to know what their requirements are in terms of quality care. Even more important, he says, are what he calls oversight committees to make sure that the objectives are met. Pioneer Medical has three major committees, all of which are staffed by clinical representatives, that are charged with keeping an eye on costs and making sure appropriate care is given. These include a utilization management committee to determine if appropriate care is being given to the patient; a pharmacy and therapeutics committee to manage drug costs; and a quality group to monitor for potential abuses.
He notes that preventative services are absolutely essential to his medical group, which also offers case management services for patients who are not compliant with their medications or who do not understand their treatment well, as well as homebound services. Data, including ICD codes, patient demographic information, lab data, pharmacy data and access to hospital data are all important to these services, he says.
The most important thing, Florio says, is to convert the data into useable information. “We want the doctors to focus on taking care of patients,” he says, adding that the expertise of a technology partner is important to providers.
In the view of Atul Gawande, M.D., the transition to value-based care is an ongoing puzzle that is still being sorted out. “We are in the midst of a transition of a different way of practicing medicine, learning how to practice as teams, and that’s hard for us as clinicians,” he said in his keynote. The financial side and clinical side of healthcare are learning to talk to each other, he said. “The critical place where we can talk is using data, which tells us the value of what we are providing, the costs, and the results that we are getting.”