Archive for August, 2012

The Bridge from Volume- to Value-Based Payment

Friday, August 3rd, 2012

Health system leaders now have clarity about the work involved in moving to the new future. It requires clinical integration, deployment of sophisticated health care information technology (IT), clinical performance improvement, financial management to break even on Medicare rates, and intelligent business model migration from the first curve of paying for volume to the second curve of paying for value. (See “Let’s Get to Work!” in the June 2012 issue of H&HN magazine.)

Health system leaders are wrestling most with business model migration. They are uncertain about the pace of change of reimbursement reform, they are fearful of taking population health risk and many have nightmares about a big bad replay of the 1990s when hospitals bought doctors’ practices, health plans or both, and lost their shirts in the process.

This time must be different; we really cannot afford to fail.

Not the 1990s Anymore

There are five reasons why this time is different:

We have hit the wall on affordability. The average American household cannot afford the average premium, and even though the cost increases have been slowing, there are signs of the cost trend bouncing back.

We have much better quality tools. The tools of quality measurement and improvement are much better than in the 1990s. We have many more measures, more transparency, more quality leaders and, thanks to the American Hospital Association, the Institute for Healthcare Improvement, the National Committee for Quality Assurance and others, we have a whole host of opportunities to learn how to get better.

Care coordination systems have improved. We now have two full decades of innovation in care coordination and care management: from patient-centered medical homes, to readmission management, to large-scale-care coordination by teams of caregivers, to pioneer accountable care organizations (ACOs), to the use of sophisticated software and analytics in predictive modeling.

Physicians are changing. The recent Choosing Wisely campaign initiated by many of the specialty societies in partnership with Consumers Union signals an important step toward a renewed recognition that financial stewardship of clinical resources is an integral part of medical professionalism.

Large-scale sophisticated business systems are emerging. This time we have big players who bring scale, capital and sophistication to clinical integration and health care delivery redesign. Kaiser Permanente alone is a $50 billion enterprise. Many more mega-billion-dollar health systems are being formed in this round of consolidation among existing regional integrated delivery systems and from novel partnership formation — for example, Aetna’s Private Label ACO partnership arrangement with Aurora Health or CIGNA’ s ACO relationship with Tenet, or Optum’s multivariate relationships with delivery systems across the country.

All of this points to the fact that we are getting serious about moving to a new future. But what is the bridge?


Building the Bridge

Across the country, health system leaders and their advisors, partners and boards are starting to build the bridge. Harris Interactive surveys document rapid clinical integration across the country with 69 percent of hospitals owning a medical group (the sample was weighted by bed size to reflect the distribution of beds) and a full third of physicians are now in practices owned by hospitals (a number that could exceed 50 percent in the next three to five years if current trends continue).

Similarly, a recently released KPMG/Harris Interactive survey of leaders of the largest health systems, health plans, and pharmaceutical and medical technology companies underscores these trends and shows that larger systems are even further along in their path to clinical integration. (

The KPMG/Harris Interactive study demonstrates clearly some of the elements of the bridge. A sample of more than 100 C-suite leaders drawn from the top 200 health systems cited the following elements as extremely or very important in building a business model over the next three to five years:

Aligning with physicians to integrate them fully in clinical redesign efforts


Aligning with physicians to preserve and expand market share


Improving quality to take full advantage of pay for performance incentives such as CMS value purchasing


Innovative deployment of health information technology across the continuum of care


Preparing the organization to accept more financial risk in stages


Redesigning clinical care processes using lean, six sigma or other workflow redesign methods


Rationalizing supply chain through standardization of clinical equipment and supplies including orthopedics, cardiovascular and oncology


Focusing on managing readmissions


Partnering with alternate site providers across the continuum of care


Partnering with other organizations such as insurers to help manage risk


Differentiating on quality and service to appeal to affluent, well-insured consumers


Owning and operating alternate site providers such as home health care and skilled nursing facilities


Owning and operating a health plan function


Raising prices on commercial payers



It is clear from the survey that integration with physicians is the first priority. It works for two reasons. On the first curve (paying for volume), you cement clinical relationships and volume of existing business. On the second curve (paying for value), you have a platform for migration to more integrated systems of care by redesigning care processes for a world of value-based purchasing. The other wonderful feature in the short run is that provider-based reimbursement allows hospitals to benefit from a change in ownership of clinical practices through higher facilities-based fees. (My good friend and fellow columnist Nathan Kaufman identified this trend in the first column of his series “From the Trenches.”)

The second key observation is that there seems to be less appetite for full risk bearing among health system leaders, with many more leaders preferring to migrate the risk function in stages (89 percent) or partner with health plans (76 percent) rather than outright owning and operating a health plan function (26 percent). This is the core of the bridge dilemma. Many health system leaders anticipate that in the long run, risk and reward will be tied to the triple aim of population health, improved patient experience and lower per capita costs.

Yet, there is no big hurry to jump off the dock. Indeed, in Harris surveys of both hospitals and doctors there is very muted enthusiasm for new payment models such as bundled payment, episode-based payment, global payments or even pay for performance. Private and public purchasers need to send big clear signals to the delivery system that we are moving to a world of accountable care systems delivering coordinated care across the continuum on a triple aim basis; at the same time, the delivery system will need to wean itself from the simple comfort of pay for volume and learn how to build a culture of accountable care.

The final big observation from these data is that none of this can happen without sophisticated health care IT and analytics to support care management, care coordination and population health. Health systems leaders get that and are making rapid progress even though the industry in general is about 20 years behind most other industries in its comfort with and deployment of IT infrastructure.


Barriers to Bridge Building

Bridges are hard to build, but done right, they last a millennium or two. There are significant barriers to bridge building. Here are some I have encountered:

Complexity of health systems. Large integrated health systems, particularly those that have academic missions intertwined with massive clinical systems, are extremely complicated enterprises. None more complex, as Jim Collins or other management gurus would agree. But this does not absolve us of the need to build the bridge.

“Best year ever.” I go to a lot of hospital board retreats, and I always ask the CEO: “How’s it going?” The last couple of years, they nearly always whisper quietly: “We had our best year ever.” Enough said. It is hard to change when things are so good. But go ask Jim Collins or Clay Christensen or Kodak, and they will tell you that is precisely when you have to change.

“Nobody told the specialists.” The wisest comment on health reform and the move to accountable care that I have heard was “Nobody told the specialists.” While Choosing Wisely clearly signals an important change in thinking among specialty society leaders, many rank and file physicians (particularly those in lucrative procedure-oriented specialties) are afraid of many of these changes and see them as profoundly harmful. They need to be engaged fully in the redesign discussion, however hard that may be. And they too need to see an economic bridge to the future, one that doesn’t involve either a default to what I have dubbed hamster care: alienated doctors on a treadmill of discounted fee for service, or conversely, everyone trying to do concierge medicine.

Anatomy, not physiology. Another great learning came from a physician leader in a large sophisticated health system that is on the path to true clinical integration. He told me that “we have the anatomy of an accountable care system, but none of the physiology.” True for many successful regional systems that are contemplating the path to accountable care.

The politics of purchasers: two ideologies. As we gear up for a very big election with sharp distinctions between philosophies, we also will face a big ideological choice among our private and public purchasers — illustrated by the recent pair of editorials in The New England Journal of Medicine, where two alternate visions were presented. (See E. Emanuel et al., “A Systemic Approach to Containing Health Care Spending,” and J. Antos et al., “Bending the Cost Curve through Market-Based Incentives,”, Aug. 1, 2012.) On one hand, the Journal describes a Berwickian future of accountable care systems pursuing a triple aim of coordinated care. On the other hand, the Journal presents a much more atomistic view in which patient consumers armed only with high deductible health plans use narrow networks and market forces to transform the delivery system. The election will have a major influence on which view prevails, as will intense budget debates to come. Make no mistake: The federal deficit is a health care problem at its core. Greater emphasis on atomistic views may derail some of our best efforts at care coordination and integration.

What happens if the math doesn’t work? The biggest single barrier to bridge building may be that we run out of money for the bridge. The math may not work. The combination of massive Medicare cuts and the sting of skinny networks may close down a lot of bridge projects, and health systems may simply hunker down in the present.


Bridge Building Techniques


Health system leaders are looking for tools to help them both today and tomorrow, to build solid foundations for the bridge in the present and to build a strong footing for the future. Here are some ideas that may help both today and tomorrow:

Develop continuum of care partners. Some leaders are establishing relationships with retail clinics. They provide a source of referrals today; tomorrow they may be part of a new chronic care delivery system. Similarly, leaders are building closer partnerships with home care, skilled nursing and assisted living facilities that can provide a vehicle for managing readmissions and improving throughput of acute care facilities in a volume-based world. Developing partnerships with alternate sites of care and community-based social services provides an enhanced care coordination platform for a future accountable care system.

Eat your own cooking. Many health systems that are embarking on a journey to accountable care and population health are starting that journey with their own employees. Health systems typically have above average health care users (we know too much and we are not nearly as well-behaved as we should be). By starting population health management pilots on the self-insured health system population, any savings goes straight to the bottom line.

Find some new friends. Bridge building is not an amateur activity. The equivalent of highly specialized civil engineers are required to build business models, to develop shared risk partnerships, to monitor and manage revenue cycle management migration, to develop population health infrastructure. In particular, most systems need adult supervision of spreadsheet migration. By that I mean: What exactly do the sources and uses of funds look like for each of the next five years? How do the spreadsheets synch with the unfolding market reality? And how will those spreadsheets be turned into operational performance?

Leaders and boards are wrestling with design and construction of the bridge. It is empowering to know that bridges can be built, and they can be built to last.

Ian Morrison, Ph.D., is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Speakers Express.


 [ME1]Ian – I don’t get what you mean by the first and second curves of volume.