As we enter a new year, the healthcare industry is once again all atwitter about the megatrends of the year. Chief among them is the rise of consumerism. I’ve been in the health futures business for over 30 years; Dude, every year is the start of the rise in consumerism.  It’s been the future for a long time.

But there is some validity to the argument that we have reached a tipping point in the role of consumers in healthcare, not the least of which is the increasing responsibilities consumers have for selecting plans, providers and treatment options and more importantly in paying out of pocket for the privilege of choosing.

Consumer “empowerment” to make selection plan and provider decisions is a major shift that has occurred not just in ACA Marketplaces but in Medicare Advantage (which continues to grow rapidly and accounts for a third of all Medicare enrollees) in managed Medicaid where in many states enrollees must make choices, and in the employer-sponsored market where more of the decision-making and economic burden is placed on consumers through higher deductibles and copayments.

Some conservative observers say this latter trend toward rising out of pocket costs is overplayed and cite the fact that relative share of out-of-pocket expenditures as a total of national healthcare expenditures is actually going down over time not up).   Nevertheless, the prevailing sense in the marketplace is that consumers are paying more out-of-pocket in absolute terms and perceive themselves to be paying a bigger share of costs (certainly in the employer-sponsored market).  Consumers are increasingly responsible for choices and are often ill-equipped to make those choices in a way that best serves their health.  (For example, there is a massive body of evidence that now that supports the obvious that high deductible care is a blunt instrument that causes patients to forego both necessary and unnecessary care in almost equal measure).

All actors in the healthcare system are trying to deal with consumerism in their own way. With mega deals such as the CVS acquisition of Aetna being consummated and as healthcare stakeholders anxiously eye Amazon, Apple, Google and Facebook as they lurk on the edge of the healthcare system.  There is considerable anxiety in the healthcare ecosystem about consumerist led disruption of conventional healthcare.

What is Consumerism?

Consumerism means different things to different people. One angle is the increased use of transparency and consumer navigation tools to guide choices particularly when those choices have significant financial incentives attached such as in narrow networks, reference pricing, high deductible health plans, tiered benefit designs and so forth.

A second dimension of consumerism is the sheer importance of consumer experience to providers and plans both in terms of patient acquisition, retention and loyalty as well as patient satisfaction (which increasingly carries dollars with it in terms of patient experience measures in value-based payment under Medicare and in Medicare Advantage).

Third, consumerism in healthcare is seen as a strategic imperative of meeting consumers’ expectations (particularly tech-savvy millennials) who increasingly have ever higher expectations of service industries driven by their positive experience with high technology enabled consumer offerings such as Netflix, Amazon, Uber and Air BNB.

Fourth, is the notion that consumers need to be more proactive and engaged in their own health and wellness and take more personal responsibility for health and lifestyle choices.  As one doctor asked me recently “when are the patients going to be accountable?”

Finally, perhaps the most significant dimension of healthcare consumerism is the economic out-of-pocket costs burden being placed on consumers going forward and the battle that ensues for wallet share in the wellness, health and healthcare industries that are now colliding.

We will cover all five of these threads in this discussion but it is important to recognize that they are different and in some senses complementary.

Healthcare Stakeholders on the Consumerism Journey

Hospitals are behind the curve in their understanding of consumers.   (They are quite advanced in their understanding of patients but that isn’t always the same thing).   Most Americans don’t get admitted to hospital in a year (only about 14%) while 80% of Americans visit a doctor, 90% now have a health plan relationship and probably even higher percentage visit a retail facility with a pharmacy.  Hospitals should know the answer to the basic consumer questions: how many unique consumers do you touch, who are they, what do you do for them, and how is that working for them and you?  As hospitals integrate across the continuum of care, absorb more risk and pursue population health initiatives, these questions become increasingly important.

With close to 90% of Americans having some relationship with health insurers, health plans have made significant strides to be more consumer friendly by improving their navigation tools, their customer service and support functions and their outreach to consumers.   Let’s be clear, health insurers are coming from a difficult position at the bottom of the heap of consumer ratings.  Technology leaders like Apple and elite retail and fast food outlets enjoy Net Promoter Scores in the 70s which are considered world class (Net Promoter Score is a measure of consumer loyalty and willingness to recommend a product or service on a scale of plus 100 to minus 100, a high positive score is desirable, 70-80 is considered world class).  Most of healthcare ranks pretty low in net promoter scores but there are exceptions like Kaiser and the Mayo Clinic.  The health insurance industry generally has negative or low double digit net promoter scores (just ahead of Al Qaeda in their trustworthiness and popularity), but progress is being made and many large insurers now tie executive compensation partly to improvement in net promoter scores and other consumer measures (United, Aetna, And Anthem in particular).

The Case of Florida Blue

So insurers, like others in the health industry are trying hard to reach out to consumers in new ways to enhance the experience.  Perhaps one of the most interesting examples is from Florida Blue (the Blue Cross Blues Shield Plan of Florida) who have a strong consumer focus and indeed have built a significant retail presence over the last few years.

I reached out to Patrick Geraghty, Florida Blue CEO, who was kind enough to walk me through his perspectives on consumerism and disruption from a health insurance point of view.

By way of context, Florida Blue operates under the umbrella of GuideWell Mutual Holding company (that Geraghty also leads) whose combined businesses have a current run rate of $16 billion in revenue with Florida Blue comprising almost 90% of that revenue base.   They operate or joint venture in a number of related business entities in both the insurance space, (such as Florida True Health, a joint venture a Medicaid managed care organization) as well as a portfolio of direct healthcare delivery operations such as medical clinics and freestanding emergency services.

Over the last decade GuideWell built capabilities in consumer navigation and population health acquiring a number of businesses that they seek to expand nationally.  Indeed, despite their obvious focus on the Florida market with 5 million members (almost a third of all Floridians) many of their businesses operate nationwide or in multiple states.  For example, their traditional Medicare business is the fee-for-service Medicare administrator for Medicare jurisdictions which account for 11 states, the District of Columbia, the Indian Health Service at the VA thereby being the back-office processor for millions of Medicare recipients. GuideWell is interacting with millions of consumers in a lot of different ways.

Pat Geraghty who came to lead Florida Blue from Minnesota is an industry veteran with great experience and enthusiasm for the positive role consumerism can play in transforming healthcare. He was kind enough to share his insights about Florida Blues’ pioneering experience in opening retail outlets in support of the core health insurance function and how it relates to the consumerism agenda.

In the last few years Florida Blue has opened 20 retail centers around the state (providing access to 80% of the population of Florida within a 30-mile radius of the centers).   These retail centers are conceived much in the way as an Apple store supports Apple products not just as a sales channel but as a service center, brand presence and product support function.

Geraghty told me: “health care is a system, from coverage to care, and many consumers need support in navigating the system,” much in the way many of us Apple users struggle to get the most out of our seemingly simple devices.  In some sense the Florida Blue retail centers are the “Genius Bar of Health Insurance”.

In exploring the contribution that retail centers have made to Florida Blues strategy, Geraghty laid out the importance of complementing not cannibalizing existing distribution and service channels.   “These retail centers are just one of many channels that support our products and services” he said.

In particular, when the two pilot retail stores were opened some years ago, brokers reacted negatively to the potential of them cannibalizing or undercutting traditional distribution channels to individual and small group purchasers.  Since then, the retail centers were recast and repositioned to supplement and partner with brokers rather than to supplant them.

When I asked Geraghty how Florida Blue got into the retail business he pointed to their analysis of the Massachusetts market (the early pioneer of exchanges) as a harbinger of what might happen under the Affordable Care Act.  Florida Blue examined the experience with the Massachusetts Connector (the pioneering Romney Care Exchange) where consumers would go online to select insurance but many people needed support in making decisions and customizing their selections.   Selecting health insurance is a complex choice “it’s not like buying an appliance” Geraghty said, “there’s a lot of complexity to the product and it is highly personal.”

The Florida Blue retail centers were conceived as a place to help navigate health insurance and healthcare choices and answer customer questions, but increasingly the retail centers integrate and co-locate other health services such as physician groups and wellness.

The retail concept has met with considerable positive feedback from consumers.   In the last year, 300,000 unique customers have visited across the 20 retail sites with customer satisfaction scores of 92% overall and 97% where clinical services are co-located.

The stereotypical user is not a confused, less well-educated, older, non-tech savvy customer as you might imagine.  Florida Blue executives were pleasantly surprised to find that a wide cross section of consumers were using their retail facilities for sales, service and product support such as Florida Blue’s “know before you go” tools that they provide to consumers who are embarking on significant interactions with the medical care system.  Indeed, Geraghty told me that a significant segment of retail customers were younger couples just starting a family who were seriously engaging with health insurance for the first time.

Florida is a particularly interesting state in terms of providing retail choice to individual health insurance consumers because it is home to the largest individual market in the country as measured by exchange enrollment.   Approximately 1.7 million Floridians have signed up for exchanges in 2018 according to CMS, and although, final numbers aren’t yet verified for Florida Blue, a good estimate is that one million members will be enrolled with Florida Blue through the exchange. With this scale and good operational discipline Geraghty told me with regard to the individual market: “we operate in the black”.

In the last year, the entire health insurance industry has experienced the roller coaster of withdrawal of Cost-Sharing Reduction (CSR) support causing strategic chaos and impairing the finances of most insurers in the individual market and accelerating exit from state markets by national players such as United and Anthem for 2018.  Removing CSR funding late in 2017 resulted in 15-30% increase in rates for 2018 in many states.  This is ameliorated for those lower income exchange customers (some 87% of people buying on the exchanges) who are getting some form of subsidy that insulates them from these rate increases (but doesn’t insulate the government from paying even more in premium subsidies).  Perversely, the withdrawal of CSR support in many states has led to bronze plans being even cheaper than 2017 for the lowest income consumers.

For non-subsidy consumers (those over 400% of FPL) rates have increased on average by 30% in Florida as in many states as the elimination of CSRs are priced in for 2018, and similar effects will be likely in 2019 as the repeal of the individual mandate takes effect.

The gap between the subsidy population and non-subsidy consumers will continue to widen in terms of what consumers actually pay with younger, lower income consumers getting plans that are almost free to them while upper and middle income older consumers in the non-subsidized individual market paying more than $1,500 per month (as I was going to do this year in California before getting on full blown fee for service Medicare at about a third of the cost, Yay!   Another column for another time).

The rules of engagement in the individual market must be resolved one way or another politically and economically in the twenty four months preferably to the benefit of all consumers and taxpayers.  The lack of clarity is frustrating health insurance industry leaders and making the lives of actuaries increasingly difficult.  As one CEO of a major national insurer told me recently: “This industry can change dramatically with just one stroke of a pen in Washington”.  The ultimate disruption.

No matter what the political and policy rollercoaster, part of the success Florida Blue has experienced in enrollment is the ability for these retail outlets to provide consumers of all types with an opportunity to truly understand the product and engage with confidence in their choices.

Sparked by the ACA and the rise of individual market Florida Blue deems their retail initiative a success and a key part all of an overall strategy of assisting all consumers in making informed choices. Recently, these retail centers have been expanded to include other services such as health risk appraisals, on site clinical services co-located with partners, and even providing consumers access to “test drives” and advice on selection of “wellness wearables” such as Fit Bits and smart watches.  Florida Blue continues the path of integrating complementary clinical services as their consumer facing strategy develops.

While focused on individual market consumers, members in other lines of business particularly the small group market also make use of these retail centers even though they may have a relationship with agents and brokers but use the retail center to complement the advice.  (Most of their self-insured employer customers have their internal employee benefit tools and navigation aids that are complementary).

Geraghty also told me of a recent acquisition PopHealthCare, a Nashville based company with presence in multiple states.  Geraghty sees this new asset as an exciting opportunity to expand the retail platform to help identify chronically patients in need of clinical services who could potentially have them delivered and managed through a combination of retail clinical offerings and home-based services. This is not dissimilar to the vision that CVS and Aetna’s merger hopes to yield by combining a physical retail presence locally with a sophisticated set of relationships and data analytics tools to identify high-cost populations that may be better treated with chronic care services in the retail and home-based setting.

It is important to point out that retail strategy is by no means the only method of communication with consumers.  Florida Blue (like most insurers) have extremely sophisticated in-bound and outbound call center operations, web-based solutions and digital outreach using multiple technology platforms, all supported by data analytics to help engage with consumers in all of their lines of business from Medicare to the individual market.

Dealing with Disruption

When I asked Geraghty about what keeps him up at night in terms of disruption and where that disruption may come from whether it be Silicon Valley, retail giants like CVS or Amazon or some other weird new upstarts, he adroitly pointed out: “anyone who isn’t paranoid isn’t paying attention.”

“Our goal is to try and disrupt ourselves”, he said which I think is wise advice.  I wrote a book The Second Curve more than 20 years ago about change in business generally (the first curve being the incumbent the second curve being the disruptor).  Great companies that endure like IBM have been successful in disrupting themselves but it is not an easy thing to do.  Certainly other leaders in healthcare such as Providence-St Joseph and Kaiser are pursuing a strategy of self-disruption as a motivation for their teams to continuously innovate.   See a previous column http://www.hhnmag.com/articles/7165-lessons-from-a-health-care-system-that-disrupts-itself

As Geraghty told me, while healthcare seems ripe for disruption it is not necessarily true that everyone wants to be an insurance company. I’ve described before what I call the mutual disrespect problem within healthcare: everybody thinks everybody else’s job is easy and anyone can do what an insurance company does.  It turns out it’s not that easy to be an insurer as provider sponsored health plans and venture capital backed insurance upstarts alike are finding out.

The real growth and potential disruption is in adjacent services.  A good example is the rapid growth of the Optum division of United Health.   Optum now has annual revenues in excess of $80 billion much of it related to PBM activity.  Similarly, the CVS-Aetna deal is spun around at its core a massive PBM operation.   Incumbents such as Optum, Anthem, Aetna, Cambia and other insurers have significant service and technology businesses and population health offerings.  At the same time, there are a myriad of health 2.0. offerings being developed to compete in these adjacent services.  Geraghty argues that the more intense disruptive activity will occur among these related service offerings beyond traditional insurance.

It makes sense to anticipate that the core health insurance functions of claims processing, network development and customer service and support and so forth will see continue consolidation with more horizontal rather than vertical integration to the degree that regulators allow it.  At the same time, we will see increased competition and disruption and a great sorting out of all of the peripheral service businesses to health insurance.  But no matter what, as we have argued in these columns before, innovation by itself is not enough, Innovation at scale is required.

Lessons Learned

The case for Florida Blue provides insights on the rapidly changing field of consumerism in health.  It also spurred me to think about where we are headed with consumerism in health.  My takeaways:

Meet people in their lives. Florida Blue is meeting people in their lives, in retail environments and on-line with services and support, and navigation tools that enhance the overall healthcare consumer experience.

Make the Complex Simple.  Healthcare is complex it needs to be made more simple and even if we have simpler designs we need to build better support tools for consumers that may involve more retail handholding and decision support.  Health insurance is a complex product and even tech savvy millennials struggle with it, indeed in a recent Aon Consumer Survey found 41% of Millennials say:  “I have stopped trying to figure out what I should pay for medical services and just pay the bill when it comes.”

Scale and Local Market Penetration Matter.  Insurers with significant market share in local markets such as regional Blues plans can have significant influence on provider systems and population health in their geography.  Powerful local plans have an opportunity to set the standards and change the rules of engagement for the entire local health system.

Use Multiple Channels.  Consumers, even millennials are not all digital all the time, sometimes we need a little real help, face to face.

Technology and Policy will expand Digital Consumer Facing Services.  Recent policy and technology changes such as Fast Healthcare Interoperability Resource standards (FHIR), Open Application Programming Interfaces (APIs) and Blockchain tools are all likely to promote inter-operability and create a rich and rapidly evolving environment of consumer facing digital offerings.  This new frontier is not without challenges such as cyber security, data privacy, and fraud and abuse potential, but overall we will see an acceleration in the number, range and hopefully the quality of digitally enabled, consumer facing solutions.  Expect continued competition and disruption in this space.

Navigation tools need work.  In the early 2000s we asked a series of questions in Harris Interactive Surveys about consumers use of report cards on health plans, hospitals, and doctors.  We asked are you aware of them, do you ever use the report card, and did you actually make a change on the basis of the report card.   We did the surveys every year for 10 years and the square root of zero humans ever changed a decision-based on the report card (actually 1%).  I am sure it’s better now (we’ll check this year).   Consumers do want information to make comparisons on cost and quality of plans, providers and treatment options, but we need to get better in consumer decision support.

Free. Great consumer service brands such as Google and Facebook are popular partly because they are free.  (Actually not really free since we users are getting bombarded with commercial messages as you surf, post and like).  In health insurance, there are actually some free or close to free offerings such as Medicaid, zero premium Medicare Advantage and highly subsidized exchange offerings, but generally health insurance carries a consumer cost that is more visible and economically painful every year.  We may not all get to free, but the ultimate goal is to get health insurance and healthcare affordable for all concerned.  Let’s work on that.

In 1953, Marion Folsom left his role as treasurer of the Eastman Kodak Company to serve his country as deputy secretary and then secretary of Health Education and Welfare in the Eisenhower administration. When he returned to Rochester, N.Y., in 1958, he brought with him some new ideas about health care. He was resolved to harness the purchasing power of the private sector to get the best deal for the community.

Since then, the local business community in Rochester has fostered (even demanded) collaboration among health care providers to help manage the cost of care and improve quality for the benefit of their employees and the community.

Rochester still leads the country as a beacon of high performance on cost and quality. For Medicaid, it was hailed by Governor Andrew Cuomo as the most cost-effective in the country. In Dartmouth Atlas and commercial spending analyses, Rochester is a high-value performer. And for commercial self-insured employers like Paychex, the results are remarkable – low deductibles and co-payments not seen by most Americans since the 1990s. If value and affordability are important, we should continue to learn from Rochester.

To fully understand the Rochester story, I reached out to a number of experts: Jim Block, M.D., a former CEO of Johns Hopkins Health System and Case Western Reserve, was a young intern in Rochester in the 1960s. Linda Becker is a former senior executive of Xerox and Kodak who has served as a business community leader and board member for the last 15 years of the Rochester General Health System, one of the two principal integrated systems in Rochester. Her husband, Larry Becker, recently retired as head of Xerox’s health benefits program. (Larry Becker serves on numerous boards and has a long history of galvanizing the Rochester business community on health care.) And Jake Flaitz, who has a distinguished health care career as a hospital administrator, is a benefits consultant and for the last 12 years head of benefits at Paychex.

The early days

In 1969, Dr. Block returned to Rochester to focus on care for underserved communities. He developed pioneering IPAs with the local medical society, built Kaiser-like groups to serve the new Medicaid population, and started HMO-like organizations for underserved populations, including an HMO for the chronically mentally ill. Perhaps the most notable of these pioneering health services activities was his role as the first leader of the Rochester Area Hospital Corporation.

In the late 1960s and early 1970s, Governor Hugh Carey of New York promised voters to rein in public expenditures on Medicaid by slashing budgets. But Rochester business leaders strongly urged the governor to “stay the hell out of Rochester,” because things were going so well in both cost and quality.

In the 1970s, as health care costs continued to rise, four prospective payment pilots were initiated to reform Medicare: in Maryland, New Jersey, Washington State and the cutely titled “province of Rochester.” In the Rochester model, reimbursement rates were standardized for all the players, and there were revenue caps placed on the industry as well as a cost sharing arrangement (shared savings between providers and purchasers on a 50-50 split). After the pilot experiments finished, Rochester had the lowest cost and the highest quality.

Block told me a funny story of how he and his colleagues went to Washington with a multimillion-dollar check to return money to the federal government because of the savings they had achieved with the program. They anticipated a ceremonial greeting in Washington with handshakes and accolades. Instead, the assistant secretary of the health department under the Reagan administration chided them that the model was “too socialistic up there in Rochester.” Instead of selecting Rochester as the model for the nation, the New Jersey experiment was chosen because it was less socialistic and not as complicated to administer.

The early days of Rochester provided other useful insights. A full 3 percent to 5 percent of the Rochester Area Hospital Corporation’s revenues were set aside for an innovation fund. The fund allowed for what we would now call health services research and clinical analytics – developing measures of outcome and measuring both care and cost carefully.

When I asked Block what the relevance of the early Rochester experience was for today’s health challenges, without hesitating he said there are two forces at play: “We’re moving decision making from DC to the states and communities, and we are moving risk for the cost and quality of care back to those states and communities. Regardless of the political direction, these trends seem inevitable.”

Block agreed that these changes are further intensified by employers such as Disney, Boeing, Microsoft and others focusing more on accountable care organizations and shared savings arrangements to reduce costs and improve quality. Block added a fourth contemporary driver: big data. Clinically, and in cost and quality, big data can help steer the selection of provider partners and the management of the entire system. Finally, Block pointed to the role of professionalism (not just financial incentives) in building high-performing clinical teams. As he told me: “We were careful not to monetize health professionals with productivity goals, but rather to support the pursuit of effectiveness and accountability, which resulted in greater efficiency.”

The recent history

When I asked Linda Becker whether the Rochester experience still has relevance today, she was quick to point out that Rochester enjoys the fourth lowest commercial premiums in the country and the lowest on Medicare cost according to the Dartmouth Atlas (some 21 percent less than the national average). Becker attributes these successes to Rochester’s continued ability to cooperate. She also cited the early history of Marion Folsom and the Rochester Hospital Corporation and how they provided the platform of collaboration that exists to this day.

The Rochester history has not been without rocky patches. In the early 2000s some of the collaboration started to unravel as the two main systems, University of Rochester and Rochester General, started competing more aggressively. The business community, however, encouraged renewed cooperation and collaboration.

As Linda Becker told me, employers realized “they can’t expect hospitals to collaborate if they didn’t do it themselves.” Employers then embarked on several initiatives over the coming years that really galvanized the community to improve health and health care. Below are some examples.

Living well initiatives. An early pioneering project in the early 2000s was to encourage community members to “eat well and live well” by consuming more fruits and vegetables and monitoring exercise. For 16 years, employers in the community (now a total of some 500 companies) have their employees participate in this program, which was originally pioneered by the leaders of Wegmans Food Markets.

An engaged and enduring purchaser community. Every Thursday for the last 15 years, human resource and benefits leaders from local businesses and employers such as Rochester Institute of Technology, University of Rochester, Kodak, Xerox, Bausch and Lomb, Wegmans and Paychex have gathered to discuss how they can keep costs down and improve quality. Larry Becker and Jake Flaitz are long-standing members of the Thursday group and explained to me the keys to success. “We all had longstanding relationships in the community,” Larry Becker told me. “CEO support was key,” both men stressed, “but they also delegated and empowered the HR and health professionals to do the work and bring expertise from the companies such as six sigma capabilities,” Flaitz said. Both men agreed persistence was key: “We stayed on message for the long haul.”

Wellness and prevention initiatives. Rochester has communitywide measurement of high blood pressure. Faith-based organizations, barber shops and other local institutions are empowered to collect blood pressure of community members with a registry of 150,000 people. Anyone, regardless of insurance coverage, who is identified as having high blood pressure is referred for immediate treatment. Ongoing financial support for such initiatives is raised through a modest “discharge tax” on hospitals ($23 per hospital discharge). While yearly comparisons are tricky because of constantly evolving national clinical standards for blood pressure management, the best data available are impressive: in 2010 the blood pressure of 62 percent of Rochester residents was in control; it’s now an estimated 78 percent.

The 2020 commission. The business community still provides oversight and management of the number of beds in the community, which has led to a 91 percent occupancy and full use of hospital capacity during flu season. This has forced hospitals to be parsimonious in their length of stay.

Technology assessment. Over 20 years ago, Rochester established its Community Technology Assessment Advisory Board. The board has been assiduous in managing deployment of MRIs, PET scanners and robotic devices within the community. The PET scanner is on a large trailer; it spends half its week at one hospital facility and half at the competitor hospital to prevent the unnecessary duplication of equipment. Hospitals and other providers have to submit new technology applications to the board for approval, for both inpatient and outpatient technologies.

Chronic care innovation. Rochester successfully secured one of the largest Center for Medicare and Medicaid Innovation initiatives (a $26 million grant) to evaluate new care coordination programs, including what many are terming “upstreaming” activities in the management of chronic illnesses. These interventions include cooking classes and social determinants of health approaches.

Best little RHIO in America. Regional health information organizations (RHIOs) have struggled across the country to bring stakeholders together and find a sustainable business model. Yet Rochester has a successful RHIO with all health care facilities participating and a million patient records. It enables all providers to seamlessly share imaging and other lab results and prevent waste and duplication of tests.

Developing leadership competencies. Linda Becker is a pioneer in creating an ongoing fellowship program, now in its fifth year, for senior executives and physicians across the entire value chain, including providers, payers, employers, community agencies, long-term care and suppliers. Using Baldridge Award–like principles, fellows are exposed to finance, legal, process and managerial excellence activities. National thought leaders and experts have educated 217 graduates over its five-year existence. Part of the leadership program involves a shark-tank-type exercise, which has helped invest in innovative and collaborative projects at the community level.

Physician alliance. The Greater Rochester Independent Physicians Association, formed in the late ’70s, is still one of the key platforms for collaboration and contracting with doctors. In addition, each of the major systems has its own accountable care organization that works closely with local insurance partners Excellus and MVP.

Increasing transparency. Linda Becker points to ongoing initiatives to encourage greater transparency on price and quality to help consumers navigate through the system. We’ll stay tuned for news on this front.

Many health services research junkies will appreciate that Rochester was the story of the ’70s and ’80s when corporate giants such as Xerox and Kodak ruled the Rochester roost. In particular, Kodak has gone from 60,000 employees in the Rochester community to less than 3,000. But as Linda Becker told me: “Now we are a large community of small companies,” many of them entrepreneurial technology spin-offs from the corporate giants and their staff.

Lessons for the field

There are a lot of local experiments on payment reform that are worthy of consideration: the Massachusetts top-down approach of monitoring cost and quality (which seems to be working), along with Maryland’s all-payer rate setting, which many argue is a model for others. We will focus on these in subsequent columns.

The Rochester experience provides great insights on a number of factors and forces relevant today that we don’t often discuss:

• Managing bed and technology capacity is a fundamental tool for reducing cost.
• An engaged business community – activated to do more than simply play with benefit design, and engaged in the measurement and management of health care delivery – ensures high quality and low cost, and eliminates unnecessary resource use and capacity.
• As more burden is placed on state and local communities for risk and financial responsibility, local communities must figure out the best way to come together to serve the people.
• Going upstream to the determinants of health – diet, nutrition and exercise – is critical in primary prevention such as blood pressure measurement.

As Flaitz told me, the Rochester story reflects a local culture that has been built where all stakeholders recognize “We are all in this together.” We need more of that in America.

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

 

 

 

Poor education, food insecurity, underemployment and inadequate housing can all harm an individual’s – and community’s – health.

The health care community is showing a significant and growing interest in the social determinants of health (SDOH). The rise of population health, providers’ embracing risk, increased focus on community benefits, and growing scientific evidence have all driven an appreciation that social factors such as income, education and food security can determine health status, health needs and health outcomes.

I’ve previously [http://www.hhnmag.com/articles/7416-look-to-income-inequality-to-help-explain-population-health] reviewed population health and population health management approaches from 30,000 feet. But a real question remains: How do health systems translate understanding about SDOH into action?

The American Hospital Association has launched a valuable new set of tools focused on eight social determinants: food, housing, education, transportation, violence, social support, health behaviors and employment. (These are the subjects of guides being published nearly monthly through early next year.)

At the AHA Leadership Summit, keynoter Dr. Rishi Manchanda, an evangelist for “upstreaming” as he terms it, urges [http://www.hhnmag.com/articles/8228-looking-upstream-to-tackle-social-health-needs] health systems to get ready, get set and go upstream to deal with social determinants.

In my travels, I see many health systems addressing SDOH. But few organizations, in my view, have done more to operationalize their approach than ProMedica, a leading health system based in Toledo, Ohio. ProMedica provides a role model for building a strategy that fully embraces social determinants of health and makes it real for the community it serves. This is its story.

A thriving health system, a community in need

ProMedica is a highly successful, well-respected, integrated delivery system with 332 sites of care, 4.7 million patient encounters systemwide, 13 hospitals, 323,000 lives covered by their owned health plan, with 800+ employed physicians, $3.1 billion revenue and strong financial ratings.

Yet, when ProMedica leaders looked at their community recently, they found that:

• Toledo rated 99th out of 100 communities in the Gallup Well-Being Index;
• 70 percent of adults were overweight;
• 36 percent of low-income families were concerned about having enough food;
• Lucas County, of which Toledo is the county seat, ranked 88th of 88 counties in Ohio for infant mortality and low–birth weight babies; and
• 28 percent of youth reported they felt sad or hopeless two weeks in row.

The juxtaposition of a thriving health care system and a community with poor health status galvanized ProMedica leaders to think more broadly of how to engage the community to improve health and well-being.

Starting with obesity

A decade ago, ProMedica leaders undertook a community needs assessment, focusing on the obesity epidemic affecting the Toledo community. But as they dug deeper into the causal factors, there was a surprise. As ProMedica CEO Randy Oostra explained, “The more we kept peeling back the layers, the more we found that the problem was hunger and food insecurity.”

Research has shown that food insecurity leads to health problems along the life span. Pregnant women who live in food insecure households are more likely to deliver underweight babies, while children suffer from more ear infections, colds, stomach aches and iron deficiency. Without an adequate food supply, children also develop more cognitive and physical development problems. In adults, dietary shortfalls and irregular eating patterns can lead to obesity, chronic disease and behavioral health problems. And seniors who are food insecure experience more disability, less resistance to infection and longer hospital stays.

These facts led ProMedica to become a pioneer in the use of a food pharmacy (prescribing food as medicine) and investing in inner city grocery stores with healthy food. ProMedica employees started with a visit to Boston Medical Center’s Grow Clinic, a successful program that had been operating for a decade, to learn how to start their own program. They opened the first ProMedica Food Pharmacy [http://www.hhnmag.com/articles/7184-ohio-health-system-opens-healthy-grocery-in-food-desert] in April 2015 in Toledo.

As the ProMedica food security program description states, “The idea of the Food Pharmacy is simple: Food is medicine. As such, a health care professional writes a referral to the food pharmacy for patients that are identified as food insecure. These patients are then able to visit the pharmacy to pick up a supplemental supply of healthy food for their family.”

The results are impressive. According to ProMedica’s internal monitoring, 57,244 patients were screened for food security in 2016; of those patients, 2,243 screened positive. Their average age was 50, and 1,100 of them became new food pharmacy clients.

Among the 4,000 Medicaid patients completing a screen and food pharmacy referral in 2016, ProMedica found that emergency department usage dropped 3 percent, readmission rates dropped 53 percent, and primary care visit rates increased 4 percent.

These are impressive outcomes from an intervention in which food is medicine. If this were a pill, it would be a billion-dollar drug.

Beyond food

Building on the success with the food pharmacy, ProMedica focused on clinical excellence, economic and social determinants, and anchor institutions. (Anchor institutions are nonprofit institutions that, once established, tend not to move location. They include hospitals, universities, arts, churches, entertainment and sports venues – organizations that are place-based and are focused on the long-term welfare of their communities.)

As an anchor institution, ProMedica has used its resources to drive economic well-being; improve housing, education and training opportunities; and create and retain jobs and opportunity.

For example, Oostra and his leadership team have bought and sold a hotel property to keep jobs in the community, invested in real estate development initiatives, relocated ProMedica’s headquarters as part of a downtown revitalization, and used their resources to secure loans and funding investments that have driven an estimated $500 million of new economic development in the Toledo area.

Hospitals are ideally suited to be anchor institutions in creating a virtuous economic cycle: They’re not leaving; they bring resources as an investor; and in many cases, they are the largest employers in their communities.

Screening for SDOH

ProMedica is applying an SDOH screening tool to all patients, whether in the inpatient or in the outpatient environment. The tool covers many of the same factors identified by the AHA, including education, employment, food, housing, transportation and violence. The screeners also ask a series of motivation questions.

It is early in ProMedica’s journey of data collection and review to guide action, but results to date are encouraging. For the initial 340 patients in the pilot from January 31 until June 30, 2017:

• Two hundred forty-seven patients completed screenings out of 340 patient encounters (73 percent); a quarter of patients declined to be screened.
• Of patients encountered, 54 percent had positive needs identified and elected connection to services through ProMedica’s Community Care partners.
• A full 38 percent of those screened had needs in four or more domains.
• To date, a total of 320 patient needs have been validated.
• A remarkable 97 percent of needs are either in the process of being resolved (55 percent), or have been confirmed resolved (42 percent). (Only 3 percent remain unresolved, or patients are unable to be reached.)
• To date, 317 patient community resource referrals have been made as a result of SDOH screening (41 percent to a community food resource, 21 percent to a community financial resource, 11 percent to a community utilities resource, and 9 percent to a community training or employment resource).
• Perhaps most importantly, a remarkable 87 percent of respondents have high motivation scores to address their challenges.
• And the punchline is that outcomes and costs are improved. For example, unnecessary neonatal intensive care unit use is declining because of improved treatment for pregnant women as a result of screenings.

ProMedica is embedding this screening tool in clinical workflows and in the electronic health care record, working with a data company partner. It intends to develop an evidence base for continuous evaluation, learning and innovation for its social determinants of health initiatives.

SDOH strategies

ProMedica’s journey teaches us how to turn noble concepts into actions. In particular, the system is addressing governance, advocacy, outreach and leadership opportunities:

Governance. The ProMedica board is composed of sophisticated business and community leaders in Toledo. They are supportive of the strategy and in many instances use their own institutions’ economic and civic advantage to advance initiatives that address social determinants. For example, KeyBank, a leading financial institution in Toledo, has partnered with ProMedica through grants and loans to advance the economic development agenda.

Advocacy. ProMedica and the AARP Foundation have founded a coalition to focus on social determinants. It is a nonprofit organization of 35 members that engages health professionals – from all disciplines and provider models, public health organizations, government officials, the nutrition and food industry, and other organizations – to develop and implement sustainable solutions to improve health and well-being. Its name, the Root Cause Coalition, demonstrates the effect of societal factors such as hunger, need for safe and affordable housing, poor education, lack of transportation, and isolation on the health and well-being of individuals and communities.

Outreach. With ProMedica’s many touch points in the community, including physicians, the system is “meeting people in their lives” to improve their health. Part of the strategy is to destigmatize receiving assistance – even middle class people can have trouble with food security, behavioral issues or employment.

Leadership commitment. Oostra is a strong leader who is passionate about social determinants and sees it not as a sideline but as a key strategic imperative. As he told me: “This isn’t a dabble thing.”

Well said. We will watch your progress with interest and deep appreciation for leading the way.

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

While America’s health care policy is still uncertain, the strategic direction of most hospitals remains fundamentally unchanged. Nevertheless, there remain many uncertainties, not only about the future of Medicaid and coverage, but also about the commitment to payment reform like the Medicare Access and CHIP Reauthorization Act (MACRA) and bundled payment initiatives. This uncertainty has caused leaders to evaluate the overall commitment to risk-bearing strategies and the pace of change for payment and delivery reform.

Ten Common Themes

Health care systems have been criticized for suffering from groupthink, slavishly following the conventional wisdom. While this may be a valid criticism, the common themes of health systems’ strategic plans do seem to make sense. I see a lot of strategic plans in my travels, and I participate in many health system board retreats in states from California to Maine, Louisiana to Oregon. And I have had the opportunity to interact with leaders and board members from all over the health care ecosystem. In my experience, hospitals and health care system executives draw on some or all of the following 10 common themes in their strategic plans.

Strategic growth. Every health system I’ve ever worked with is trying to grow.

The primary vehicle is not growth through acquisition (although mergers do continue) but organic growth from 1) increasing market share in primary service territory for key service lines and 2) extending into geographically contiguous markets by planting footprints such as ambulatory care centers or primary care physician networks to capture referrals from competitors.

Obviously, there are winners and losers in such a strategy, and not everyone can succeed. Indeed, I have joked that if you add up the strategic plans of all the geographically contiguous health systems in the Midwest, you would need the entire population of China to move to the Midwest to fulfill all of their growth aspirations.

But growth takes many forms, including new partnerships along the continuum of care, and with other nontraditional health care actors, such as retail clinics, free-standing emergency rooms and urgent care clinics.

Regional powerhouses such as Carolinas Health and Texas Health Resources are good examples of systems focused on strategic growth using each of these growth elements.

Consumer engagement. Health care administrators are recognizing that they need to pay better attention to consumer decisions. Increasingly, consumers have high-deductible plans and more responsibility to select plans and providers and to decide on patterns of care (including forgoing care because of cost or seeking out lower-cost alternatives). Health system leaders are focusing on engaging consumers by establishing convenient locations, flexible hours of operation, and creative use of new consumer-facing technologies. Health systems such as Providence have been pioneers in this area.

Consumers also play an important decision-making role in government programs from Medicare Advantage (which accounts for approximately one-third of all Medicare enrollees) to exchange and managed Medicaid consumers who are often required to select plans and therefore choose provider systems. Managed care companies that have strengths in Medicaid (like Centene and Molina) have proven more adept at understanding lower-income consumers and in developing provider networks that are more affordable and effective than their traditional commercial insurance competitors.

Consumer decisions matter not only because they select plans and providers but because their care experience (as measured by patient satisfaction) is increasingly a factor in the financial success of plans and providers. For example, health plans in the Medicare Advantage space are obsessed with star ratings because of the financial and marketing advantage that five-star status brings. Similarly, the growing importance of Consumer Assessment of Healthcare Providers and Systems scores in Medicare, and commercial payment for hospitals, makes consumer satisfaction a primary financial driver of the hospital’s bottom line. Systems like the Cleveland Clinic have concentrated on improving the patient experience, and many have appointed chief experience officers.

Many health systems are actively engaged in enhancing the consumer or patient experience with new consumer-facing tools and technologies (more of which below), improved customer service, process improvement, and training staff to encourage care and compassion. In addition, investment in improving provider satisfaction is seen as a critical determinant of patient experience. For example, many health systems embrace “restoring provider joy in practice” as a fourth element to be added to Dr. Donald Berwick’s Triple Aim.

Several of the tools and technologies that are being deployed have to do with care coordination and support, shared decision making, consumer navigation, and wellness and health promotion. But in my experience, one of the key determinants of patient satisfaction has to do with out-of-pocket costs. Increasingly, as the financial burden is placed on consumers, the financial “gotchas” such as out-of-network charges or alarmingly high deductibles can have a significant negative impact on consumers’ satisfaction with plans and providers. Providers need to take responsibility for communicating with patients clearly, fairly and compassionately about their financial responsibility. And let’s be honest: Consumers on the hook for big cost sharing may still be cranky at the end of the day.

Physician relationships. In every strategic plan I have seen in the last five years, physician relationships are among the top three priorities. This takes many forms. Much of the focus is on both clinical and economic integration with physicians to improve care performance and enhance provider loyalty. While not every health system is on the path to formal vertical integration such as Kaiser’s, almost all health systems have embarked on some form of economic integration with doctors.

Most health systems have three buckets of physicians. The first bucket contains the employed multi-specialty medical group that many systems continue to grow rapidly. The second bucket is composed of a group of loyal and tightly engaged physicians who may be in a formal independent practice association or are the core exclusive medical staff for that whole system. The third bucket is filled with community-based physicians who may have varying degrees of loyalty or exclusivity with the health system.

In my experience, we are seeing more physicians in buckets one and two and fewer in bucket three. But Dr. Dan Varga, chief clinical officer of Texas Health Resources, is smart to point out that to be successful, health systems have to provide what he terms “economic docking opportunities” with all three buckets of these physicians, whether it be through employment at one extreme, joint ventures at the other extreme, or the use of clinical integration organizations to contractually bind the physicians to the system somewhere in between. The three-bucket model is everywhere.

Not only are hospitals engaging in clinical and economic integration with doctors, but they are placing more emphasis on improving physician experience, particularly in the face of a growing recognition that the majority of physicians are suffering from burnout.

There is a “cooling of ardor” toward acquiring and building physician practices, as well as growing anecdotal evidence in the marketplace of both buyers’ and sellers’ remorse. My old line from the ’90s about employing physicians – “Why would you want to capitalize the future income stream of a bunch of passive-aggressive people?” – remains a valid critique of physician employment.

However, there is a growing cadre of younger physicians fresh from medical school whose expectation is not to put up a shingle and spend 100 hours a week in practice. Rather, they are looking for an employment contract with secure earnings and work arrangements that fit with their lifestyle. Young graduates of both genders are gravitating to employed situations. This explains why salaried organizations such as Kaiser, Mayo, the Cleveland Clinic and other large health systems with employed medical groups have little difficulty recruiting physicians. The exception to this generalization is smaller and more rural environments, which have a constant struggle attracting medical staff of all types.

Quality and patient safety. It has been almost 20 years since the Institute of Medicine recognized patient safety concerns in its landmark “To Err is Human” report. Critics argue we have made very little real progress in two decades, despite significant attention to the problem.

But I take a more positive view: My experience is that every health system has put quality and patient safety high on its strategic agenda. Each picks an “operating system” or strategic framework for quality, whether it be Lean, Six Sigma or High Reliability. The systems develop focused initiatives within this broader framework, such as falls prevention or reducing hospital acquired infections. They select specific measures and develop an accountability path to monitor progress and take corrective action. And they develop governance frameworks (whether it be clinical councils as in the case of Memorial Hermann in Houston or “physician compacts” as in Seattle’s Virginia Mason) to engage physicians directly in governing the activities of clinical improvement.

Increasingly, leaders and board members recognize that to have good governance practices, they must give extremely high priority to quality and patient safety initiatives. I am encouraged that this will remain a top priority and that results will improve.

Innovation at scale. Over the last decade, partly as a consequence of investment under the Health Information Technology for Economic and Clinical Health Act, American health care has come into the digital age – electronic health records in hospitals and physicians’ offices have become ubiquitous. The EHR has become table stakes for care delivery. New opportunities are emerging with innovations: Some technologies support population health and data analytics; others such as consumer-facing apps will help engage consumers. Other promising technologies will assist physicians and other caregivers to manage the hassle factor of EHRs, including voice recognition technologies. For example, health care accounts for a full half of Nuance Communications’ business. (Nuance is the leading speech recognition technology vendor.)

One way health systems are improving care is by using scribes, reportedly among the fastest-growing category of health care employment. Scribes are support staff who track physicians either actually or virtually (as in the case of Augmedix, a Google Glass–based system) and enter data into the EHR. In a recent polling of CEOs at an industry conference attended by 150 of the largest health systems in the country, we found a full 56 percent of the audience reported having scribes in their facility – a testament to the need for EHR workarounds.

Two other major innovations concern big data and analytic initiatives using machine learning and artificial intelligence. While the doctor won’t be replaced by robots or software anytime soon, there are major opportunities to enhance clinical decision making and to guide consumers and providers alike through the insights that big data and predictive analytics can provide.

The final intense innovation focus is on virtual health and telehealth. Whether it be enhanced access to specialty consults for rural health care in systems such as Mayo and Avera, or remote monitoring of intensive care unit patients by specialized clinical ICU supervisors at St. Louis–based Mercy Health’s many ICUs, virtual health presents new opportunities for the field to improve quality and reduce cost.

No matter the innovation approach for the set of projects that are prioritized by the institution, the key challenge is innovation at scale. We must avoid what I call the Scout badge problem – one-off pilot projects shown off like merit badges at board meetings but with little meaningful use. Such pilots are useless if they don’t scale and can be a distraction for the clinical enterprise. Technology accelerators such as AVIA or Rockhealth or Health Box play a key role in deploying innovation. AVIA in particular is committed to curating innovative solutions that solve health systems’ key problems and coaching health systems to deploy these innovative solutions at scale.

Culture and people. Almost all health systems have a value-based culture that is manifestly important to the mission of the organization and guides the strategy and behavior of the organization. Many systems are faith-based and guided by the principles and values of their religious sponsors. Many systems have adopted the great Don Berwick’s Triple Aim as their north star.

Other systems such as Ohio Health or Atlantic Health strive to be a best place to work in their community and benchmark themselves against other leading national employers. Across the country, health system leaders are passionate about creating an engaged workforce, and are building respect, reliability, retention and resilience among their employees.

Value and affordability. As financial pressures intensify, with public payment rates likely to be constrained over the long haul and private purchasers concerned about their cost for health care, health systems are trying to work on their underlying cost structure and identify opportunities to improve value and affordability for the various customers. But each stakeholder sees value somewhat differently.

For consumers, value means low out-of-pocket costs, keeping their current doctors, convenience, proximity and, in some cases, reputation of providers. (There is much less institutional loyalty than there is loyalty to physicians, unless the price is right.)

For public purchasers, such as Medicare Advantage plans or Medicare through the proposed MACRA legislation, the criteria for value depend on multiple performance measures, including patient satisfaction, cost effectiveness, meaningful use of EHRs and adherence to quality improvement principles.

For private purchasers, particularly self-insured large employers, value takes many forms: Some are looking for choice, high quality and low unit costs on a fee-for-service, preferred provider organization basis, while others are seeking innovative relationships with providers (including centers of excellence, high-performance narrow networks and accountable care organizations). A subset of employers is experimenting with more direct relationships with health systems including global giants such as Boeing, Disney and Apple.

Clinical differentiation. Most health systems have identified three or four top critical priority areas; however, in my experience, it always ends up being the same three or four: orthopedics, cancer, cardiovascular and neurosurgery, which happens to be where the money is. Very few hospitals claim to be specializing in morbidly obese patients with behavioral health issues or the frail elderly or care for the homeless. Just sayin’.

For academic medical centers, this clinical differentiation is even more concentrated, and many leading such centers are focused on quaternary care in the four service lines, including transplantation, and are betting on a future of personalized (or precision) medicine, including such notables as Stanford and Penn.

Financial sustainability. All health systems have a strategic priority for financial stability or financial stewardship. As the cliché goes: No money, no mission. Every health system must obsess over the financial hydraulics of payer mix (managing the relative balance of unprofitable Medicare and Medicaid business against more profitable commercially insured patients). As public payment grows because of an aging society and widening income inequality, health systems are anticipating a tightening financial future, a future that would be even tighter if coverage is eroded.

As I have noted in previous columns, few health systems have been able to make money on Medicare, but in many institutions, there is a growing recognition that the cross subsidy from private payment may not be sustainable for the long term. Indeed, the pattern I’ve seen across the country is that 2015 was the “best year ever” financially for many institutions, fueled by the combination of a recovering economy and coverage expansion (especially through Medicaid) and increased cost discipline and operational improvement. The increased coverage reduced bad debt for inpatient care, and the improving performance of cost-cutting initiatives launched in the recession yielded positive financial performance for 2015.

Finances for some soured in 2016 and into 2017 partly because Medicare and Medicaid patient loads have grown. There is considerable anxiety in the field that potential health reforms such as the American Health Care Act or its derivatives will challenge finances even further.

Population health and risk-bearing strategy. The one approach with a significant variation in strategy is population health and overall risk-bearing strategy. I have written at length on both of these, most recently about population health, so I refer you to a previous column.

[http://www.hhnmag.com/articles/7416-look-to-income-inequality-to-help-explain-population-health]

Health system leaders diverge in their attitudes toward risk bearing. At one extreme are those who want no part at all of risk bearing in any form beyond modest pay-for-performance incentives. (This may be a third to a half of all hospitals in the country, according to Nielsen/Harris surveys.) In the middle of the spectrum is clinical integration, where administrators are beyond dabbling and are making very serious efforts to integrate with physicians to contract with health plans – and to embrace improvement in clinical performance on a systematic basis with an aligned medical staff.

Then there are those who are eager to embrace risk (perhaps accounting for as many as 20 percent of institutions). We have identified a group of about 8 percent of leaders who agree with the statement “We will derive the majority of our revenues fully at risk within five years.” (That number has hovered around 6 percent to 8 percent over the last three years of surveys.) A slightly less aggressive version of that risk-bearing strategy is that they are preparing for risk bearings such as accountable care or the opportunity to contract directly for Medicare Advantage (which is a further 10 to 12 percent of hospitals). So, approximately 20 percent of health systems are serious about risk, and this is reflected in the same percentage in surveys reporting that they anticipate having a state health insurance license within five years.

The American Hospital Association has identified 100 health systems that currently have their own health plan. A provider-sponsored health plan strategy remains controversial and is not for the faint hearted. Overall, in my view, there is no clearly preferred risk-bearing strategy; each of the options could work but depends on execution. But remember, bearing risk requires thinking like an insurer, which can be a major challenge for institution leaders still wedded to fee-for-service economics.

Looking Ahead

In a Trump administration with potential health reform to repeal and replace Obamacare still being debated, do you change your strategy? I’ve asked this question of many CEOs across the country, and I’ve participated in many board retreats since the election, all over the country, discussing the issue. I have also had the opportunity to poll CEOs at various meetings in the last few months. My overall conclusion is that most CEOs are committed to staying the course on the strategies, drawing on the 10 common themes outlined above. Obviously, not everyone has exactly the same strategic plan, but certainly there is remarkable agreement on the common themes. Most CEOs and board members are of the opinion that the pursuit of high-value care, through strategic growth and clinical integration, with increased attention to population health, remains the most sensible strategy.

However, there are key uncertainties that a Trump administration reform could impact:

Coverage expansion. This has been very important to the bottom line of all health organizations. But it has been a mixed blessing: On one hand, it has substantially reduced bad debt in every state (especially where Medicaid was expanded, and where previously uninsured patients were newly covered). At the same time, Medicaid expansion permanently impairs the payer mix. We await the final true policy direction, and let’s be clear: deep Medicaid cuts such as proposed in the AHCA would harm most hospitals and be devastating for the most vulnerable rural and safety net institutions. But no matter what the policy outcome, it will have consequences for the financial sustainability and stewardship dimensions of most health system strategic plans.

Payment reform. The second point of concern is the Trump administration’s commitment to continued payment reform. The conventional wisdom is that payment reform, such as MACRA, bundled payment and value-based reimbursement, will remain largely untouched. However, many CEOs expressed concern that the Trump administration’s commitment to bundled payment programs, MACRA and so forth may not be as intense or urgent as if it would have been under a Clinton administration. So, there are many CEOs revisiting not the direction of change but the pace of change, and they await policy clarity.

Consumer responsibility. Consumer responsibility for payment would be even more dramatic if AHCA-type legislation actually passes, intensifying many of the challenges laid out earlier in terms of out-of-pocket costs, consumers seeking lower cost alternatives, and dissatisfaction with care associated with out-of-pocket burdens.

Role of the states. No matter what, states will have more flexibility over the next few years, and CEOs need to pay more attention to their state capitals and policymakers who will play a bigger role in determining the strategic context.  Increased variation across states in terms of policy will challenge multi-state health systems strategic plans and require customization to adjust to what fellow futurist Jeff Goldsmith has called the local “terroir”.

I am deeply impressed by the commitment of all CEOs and their board members to doing the right thing. I have interacted with many over the last few months who tell me “no matter what” they are committed to serving their communities, to delivering high-quality care and embracing the need for affordability. They recognize the importance of belt tightening as they anticipate a more challenging financial environment. They stress the need to innovate their way to care redesign and higher performance. They are preparing to weather fiscal storms that may come. And they are paying renewed attention to operational excellence. Great leaders do all that.

So, stay the course, and continue the work toward higher performance.

 

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

 

As Republican moves to repeal and replace the Affordable Care Act race forward, states are likely to gain more flexibility in the form of block grants, enhanced waivers, and flexibility to redesign programs for the uninsured and for Medicaid. But what about big blue states like California and New York? California, in particular, is the sixth largest economy in the world, with a Democratic super majority legislature. What could a super blue state achieve in the new era of states’ rights?

I’m going to take the long-term view and explore possible scenarios for a California-first strategy to expand Covered California, transform Medicaid, combine public and private payment reform initiatives, as well as possibly create new regulatory and tax schemes. A new California governor will be elected in 2018, and he or she may play a pivotal role in defining the state’s, and perhaps even the nation’s, health policy for the decades ahead.

A Big State

With nearly 40 million people, Disneyland, Apple and Google, we Californians are kind of a big deal. We have a huge diverse economy that is doing well. We have a state that is running a budget surplus. And like other big blue states, we pay more in federal taxes than we get back in federal benefits (even after Obamacare).

We have a governor and a legislature with high approval ratings. And we have Democratic super majorities in our legislature.

We embraced Obamacare to the max, and it is going amazingly well (come on, man, if he can say it I can say it. I have some facts coming up, too).

We have reduced the uninsured by more than 5 million (a quarter of all the national improvement in coverage). We have a high-functioning exchange, Covered California, that is a model for the country.

And it is raining like crazy (at least where I live in Menlo Park), so the drought worries are pretty much gone.

Life is good here.

Except for the election.

Californians voted overwhelmingly Democratic; indeed, President Trump would have easily won the popular vote nationally had it not been for losing California by 4.2 million votes.

But remember: California is politically diverse within the state. “California is a big blue state with a thick red stripe down the side,” California Healthcare Foundation CEO Sandra Hernandez told me an interview, referring to the more conservative political orientation of the Central Valley, most of rural California and parts of Southern California.

Challenges under the new administration

We have a Trump administration and a Republican Congress. What happens now for a mostly Democratic California?

I interviewed more than a dozen friends and colleagues who are all key players in the Californian health economy and I had conversations on this issue with more than a dozen more. I talked to insurers, providers, employer groups, health plans, government officials and foundation CEOs. I did it off the record, though many agreed to be quoted on the record for this column.

I asked two basic questions:

• Will California be able to protect the $20 billion per annum of net new federal dollars that flowed to expand coverage ($15 billion for Medicaid expansion and $5 billion for exchange subsidies)? If not, what happens?
• Is there an opportunity for California stakeholders to step up and rethink our overall marketplace to protect the gains we have made and to build on our unique strengths?

My overwhelming sense from the interviews is that the Trump administration policies will create serious challenges ahead for Californian health care, particularly in protecting the gains we have made in coverage, payment reform and value-based redesign of health care, but especially in protecting the current flow of federal funds to support those gains. However, there was also a remarkable sense of optimism among all the respondents and a strong determination to roll up their sleeves and (as Californians always do) try to be creative and innovative in improving on those gains in a way that is consistent with California values.

I will do my best to represent the spirit of the discussions here. I take full responsibility for the prose. And this essay of course does not represent in any way the official views of the AHA, as we always make clear in these columns.

So, if you are reading this in hope of a lefty secession manifesto, you came to the wrong place. There are petitions for all that and they are growing rapidly, but as much as many Californians could live with a wall atop the Sierra Nevada (possibly redundant) to keep y’all out, we actually like being American, too.

Gains from Obamacare

“We were all in on Obamacare” – almost all California stakeholders voiced this view.

There is indeed evidence that Obamacare is working for all Californians. Consider this:

• According to the Centers for Disease Control (CDC) the uninsured rate in California dropped to 7.1 percent as of September 2016 from 17 percent in 2013.
• The uninsured rate dropped for all racial and ethnic group with the greatest gains among Latinos. Between 2013 and 2015, the number of California Latinos who were uninsured fell by 1.5 million, and the uninsured rate in this population fell from 23 percent to 12 percent.
• Covered California announced in February 2017 it has added 412,000 new consumers in the most recent (its fourth) open enrollment period for a total of 1.5 million Californians enrolled.
• An additional 750,000 Californians bought identical (same price, same benefit design) “non-subsidy” plans off the exchange.
• A full 90 percent of Covered California consumers receive a subsidy which is on average $440 per month, making coverage affordable for lower and middle income consumers.
• Covered Californian rate increases over a three-year period have averaged 7 percent per annum, more modest than the national picture.
• Medi-Cal has added 3.7 million Californians to coverage with nearly a third of all Californians now covered by California’s Medicaid program.
• For a whole host of access to care, coverage and utilization of service measures tracked by a variety of organizations and research groups from the Centers for Disease Control to the Commonwealth Fund, Californians have seen their access to health care services and their health improve because of Obamacare.

 

The Overall Health Care Industry

Recently, I had lunch with Joe Swedish, Anthem’s CEO, after a fireside chat we did for a group of health care system CEOs. I asked him what should happen nationally and in California.

“Nationally, we need to Repair, Restructure, and Rebuild the Affordable Care Act.  In California, it is imperative that the coverage gains made through Medi-Cal expansion and Covered California are maintained and that sensible insurance market reforms help us cover even more Californians”

California is a big deal for Anthem: “California is a very important state to us across all lines of business: individual, exchange, small and large group, Medicaid and Medicare,” Swedish said. “It accounts for close to a quarter of our members, and we have very important initiatives in the state including Vivity and our reference pricing pilots with CalPERS.”

Anthem Senior Vice President Pam Kehaly, who has responsibility for all of Anthem’s business in the West and for specialty services including all exchanges, confirmed in an interview that indeed a full 22 percent of all Anthem members are in California and stressed Anthem’s leading position in the Covered California marketplace and in the state’s Managed Medicaid initiatives.

Anthem has a big stake in California. But for Kaiser Permanente, California is even more important, accounting for almost three-quarters of its membership with recent California coverage expansion being a major part of Kaiser’s growth. For Blue Shield of California, virtually all of its $5 billion in revenue is earned in the state.

The same is true for some giants in health care delivery based exclusively in California. The University of California campuses are each multibillion-dollar health care enterprises, and California is home to other multibillion-dollar, nationally prominent academic systems including Stanford, Cedars-Sinai and the University of Southern California.

The state has major “California only” health systems such as Sutter in Northern California, Sharp and Scripps in San Diego, and Memorial Healthcare in Southern California.

There are also multistate, multibillion-dollar players with a big California presence such as Dignity Health, Providence/St. Joseph, Centene, Molina and Davita/Health Care Partners, all of which have large shares of their national business in California.

What happens to the Californian health care ecosystem will affect a lot of nationally prominent institutions as well as 40 million Californians.

 

Weathering the repeal-and-replace storm

Kaiser Family Foundation CEO Drew Altman told me, “If Medicaid expansion stays in place, and tax credits are sufficient to maintain coverage, and block grant details are decent, then California has a fighting chance, including the opportunity to maintain its insurance reforms, provided they are not upended by insurance being sold across state lines.”

That is a lot to ask. Will California do well in the coming food fight for federal dollars in a year of repeal and replace?

Altman was wise to point out that “we are not going to have a real debate about this until we have an actual repeal and replace plan on the table.”

What is At Risk for California

While it is still early in the policy making and legislative process, at this time, it is still useful to ask what is at risk for California.

The short answer is money. As stated earlier, California is getting an estimated $20 billion in new federal money. Clearly that would be at enormous risk in a repeal without an adequate replace scenario.

“But it is more than just the $20 billion,” as Robin Arnold Williams of Leavitt Partners told me. “California has pursued waivers and initiatives such as maxing out provider fees and other special funding arrangements that go far beyond the $20 billion of expansion dollars.”

A forthcoming report from the Public Policy Institute of California on funding the Medi-Cal program lays out in considerable detail the complex financial and policy options involved in funding Medi-Cal, especially because, as the report shows, 65 percent of California’s Medicaid program is federally funded, because of the expansion and other initiatives.

Would the Trump administration enjoy fiscal retaliation against California? One interviewee had a colorful metaphor: “There are some folk who would absolutely relish taking it away. The $20 billion would be like a pile of cocaine on the table at a Studio 54 party in the ’80s.”

Another experienced observer told me more soberly that “the politics don’t line up for California.”

However, repeatedly my interviewees pointed to three factors that would mollify the tendency for overt political retribution against California:

• Governors in expansion states. A full 32 states have expanded Medicaid, including the vice president’s home state. Sixteen of those states have Republican governors (17 if you count Alaska, a normally red state with an independent governor). They do not want Medicaid expansion to go away.
• Replace requires bipartisanship. Repeal is easy. Replace is hard and requires bipartisan support, a view that is backed up by law and logic. Budget reconciliation is handy for repeal, not so useful for replace. Moreover, former Utah governor Mike Leavitt and other wise voices are urging Congress to make this new reform effort bipartisan and not “overreach” with a partisan plan that lacks legitimacy, a valid critique often leveled at Obamacare.
• The role of career civil servants. Andrew Croshaw, president of Leavitt Partners, pointed to the continuity that the civil service plays in maintaining consistency in policymaking. Anyone who has seen the British TV series Yes Minster can attest to the many ways that gung-ho politicians are thwarted and talked down from political overreach by lifetime civil servants.

Nevertheless, as one senior longtime observer of California health care told me: “Overall, California is exposed politically, exposed financially and exposed in terms of current level of provider rates; this is not a good base to be negotiating from.”

Medicaid Block Grants

Block grants seem to be the rage. Talk is everywhere. My colleagues at Leavitt Partners believe that block grants in the rigid form we’ve seen in one isolated example (Puerto Rico) are not likely to happen. More likely is honoring the spirit of a block grant to provide federal fiscal discipline and flexibility to the states, which can be achieved through the considerable waiver authority granted to the secretary through 1115 Medicaid waivers and 1332 waiver authority applied to exchanges. If this is the policy choice, block grants would be more virtual than actual.

But any way you cut it block grant probably means less money.

If we do go down the block grant road toward per capita caps, three key questions will be important (according to industry sources):

• What is the base year and base amount that the block grant applies to? Is it current spending with expansion dollars included, pre-Obamacare levels, or some yet to be determined redesign of federal matching in Medicaid?
• What is the annual inflation factor?
• Will state general funds and other non-federal sources be maintained?

California will have an uphill slog to preserve the flow of federal funds.

 

A Range of Choices

An extremely wise and experienced public affairs professional counseled me: “Don’t get too smarty-pants, policy wonk on this thing you are writing. Just keep to the broad sketch map of choices.” So here goes:

Left-wing isolationism. Single-payer advocates see this “crisis” as an opportunity to revive aspirations for a single-payer system. Getting the Employee Retirement Income Securities Act and Medicare waivers needed, or the massive increases in taxes on the rich that would be required to sustain it in California, would be unlikely, but that will not stop them from being proposed. Replacing the Obamacare Medicare tax on high income earners (at the state level) may be an early target if the repeal-and-replace legislation removes it at the federal level.

Massive Medicaid à la New York. New York is a big blue state. Its exchange is puny, with fewer than 300,000 members. Instead, New York elected to opt for a basic health plan to expand its already generous Medicaid program. Most of the gain in coverage that has resulted is in Medicaid. A basic health plan idea will be advanced, with considerable pushback from providers. Dude, a third of Californians are already on Medi-Cal – can we realistically add more to the rolls in a Trump administration, particularly if we have to do it with mostly state money?

Public purchasing power à la Washington State. Some proposals may emerge to leverage public spending by Medi-Cal, CalPERS, Covered California, and other state and local government employees and entities, much in the way that states like Washington and Arkansas have done (a topic I explored in a previous column).

A competitive managed care marketplace. When I came to California more than 30 years ago, I met and learned from managed competition guru Alain Enthoven of Stanford. Over the years I came to believe that Alain got it right: Competing integrated delivery systems with cost conscious consumer choice was the right American compromise. The colleagues I talked to recently had great positive energy for a revitalized competitive marketplace based on value, where competition was not just on perceived quality, but on price. They described it as a market where consumers faced meaningful and simple standardized benefit plan designs that encouraged competition not based on actuarial trickery and marketing sleight of hand, but on the underlying performance of the delivery system partners. Covered California could be the vehicle for that marketplace, and stakeholders (including insurers and providers) are willing to come to the table to discuss how such a redesigned delivery system and marketplace might be fashioned, starting with coverage expansion populations. Other respondents cited Oregon’s approach of Medicaid contracting directly with provider groups who form coordinated care organizations as another variant to be considered by California policymakers.

California Darwinism. As the old saying goes: “There is a danger that as the pie shrinks the table manners suffer.” Without multi-stakeholder cooperation and leadership there is a high probability that each stakeholder (from community clinics to academic medical centers and all points in between) hunkers down to protect recent gains and hopes to cut a deal to preserve what it can. This may be likely but not desirable and could hurt a lot of Californians. In addition, as California Health Care Foundation’s founding CEO Mark Smith told me, driving decisions to the state level may aggravate the “political guild steeplechase” that takes place on issues of reform such as scope of practice and telehealth rules, and licensing regulations such as certificate of need.

 

Common Hopes and Dreams

In my conversations there were several themes for the future that emerged, and there was considerable consensus that California stakeholders need to rally around these themes.

Preserve the gains. Don Crane, CEO of the California Association of Physician Groups, voiced the concerns of many when he told me, “Most California stakeholders want to preserve the gains we have made under Obamacare.”

Create a glide path for the individual market. Nationally, the individual market will collapse without a glide path reassuring insurers that a market may be viable. This is not a uniquely Californian problem, but Covered California is the second largest exchange in the country behind Florida’s.

Behavioral health integration. Spontaneously, almost all interviewees independently identified the need to integrate behavioral health with medical care more effectively within the state. They see this as a huge opportunity to improve efficiency, quality and patient experience, particularly for vulnerable populations. For example, including greater focus on social determinants of health coupled with behavioral health integration and elimination of waste, “we can save billions”, Crane said.

Celebrate our advanced delivery models. Crane and others stressed the importance of preserving and enhancing California’s “unique winning model” of capitated-delegated provider groups underlying much of California’s managed care plans.

Don’t lose momentum on value purchasing and payment reform. Whether employers, insurers or providers, respondents were in agreement that the momentum gained in the Obama years toward value-based purchasing and payment reform should not be lost in the repeal-and-replace process, and that is even more true in California than the nation as a whole.

Remember the most vulnerable. As we have seen, California had one of the highest rates of uninsured before reform. Obamacare reduced that number, particularly for low-income Californians and people of color. Most repeal-and-replace proposals will hurt the most vulnerable, especially in those states with a history of social, economic and racial injustice that has been only ameliorated by a federal response.

Getting along with Trump’s CMS. There is a new sheriff in town and Trump’s Centers for Medicare and Medicaid Services will have different views on waivers and regulations. Californians may have to think about options a little more like Arkansas’ all payer reforms or Indiana’s cost-sharing provisions, no matter if they hurt left coast sensibilities. As Smith said, “Let’s not get too smug about it.”

Revisit the two-plan model for Medi-Cal. California’s Medi-Cal has evolved as a system “separate but unequal” from the rest of California health care, as Smith told me. And it is complicated, because California has also institutionalized a complex two–health plan infrastructure of local and commercial plans at the county level in most counties. Many observers urged that policymakers take this new reform opportunity to revisit the Medi-Cal models over the next decade.

 

California Values

A lot of interviewees told me we need to continue to reform health care but do it in a way that reflects California values.

People throw around the values word a lot. Let me tell you what I know about California values having lived here for more than 30 years.

We value diversity, decency, innovation and entrepreneurship. It’s why we love Uber and public schools, science and Burning Man, our phones and our surfboards, virtual reality and real reality.

Most of us are immigrants, most of us are non-white, many of us are poor, and some of us lucky ones are really rich and pretty much willing to help the less fortunate. That is who we are.

As the great Lady Gaga says, “We were born this way.”

We are informal, fun, laid back, but incredibly hard working.

We love food and we grow most of yours. We are always the future…and proud of it.

 

Coming Together

My metaphor for repeal and replace is that it is like breaking up the Beatles and just keeping George and Ringo and expecting it to sound good. Whatever happens in Washington DC, Californians will need to “Come Together” (to use another Beatles metaphor) to respond to a new environment. We can work it out.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. He is also a regular contributor to H&HN Daily.

Private health insurance offered by self-insured employers is the financial lifeblood of U.S. health care delivery. Commercial payers deliver all of the financial margin for health systems. With the rare exceptions of highly disciplined health systems that manage fairly well on a Medicare level of reimbursement (such as Benefis in Montana, Citrus Valley Health Partners in California, Munson in Michigan and in most good years, Aultman Hospital in Ohio), most hospitals are 15 percent or more from breaking even on Medicare payment levels.

Over the years the differential between public and private payment has widened to the point at which private payers are paying on average 150 percent of Medicare, in some cases (such as prestigious academic centers or small regional systems with dominant market positions) close to 300 percent or more of Medicare.

No mass exit

A pleasant upside surprise of the Affordable Care Act (ACA) was that large employers, as widely projected, did not abandon coverage. While many employers contemplated it, and examined alternatives such as private exchanges or moving more employees to public exchanges, there was remarkably little change in the number of Americans who received health insurance through employment. That is not to say that employers continued to expand coverage to employees – quite the reverse. Kaiser/HRET surveys reveal a steady erosion over the last 20 years in the percent of American workers in all sizes of firms who have health insurance through work.

This gradual decline is not the fault of the ACA. The cause is the progressive unaffordability of health care delivery to self-insured employers; the more stringent corporate rules for the coverage of spouses and dependents; and the increasing differentiation of benefits between full- and part-time workers and between contract staff, temporary workers and the permanent core of highly valued employees in a changing economy.

Health benefits in a post-industrial economy

Much of the change in the relationship between employment and health coverage is part of a broader story: the rise of the post-industrial economy. A lot of people may work at Google but not a lot of people work for Google.

In many of the rapidly growing high-tech employers such as the great global brands Google, Facebook, Apple and Netflix, workers who enjoy full-time permanent status also enjoy incredibly rich health benefits (plus they get gourmet chefs in the cafeteria and get cool bikes to ride around campus). But not everyone in an Apple store or in an Apple call center is in that category, as an in-depth article published in the San Francisco Chronicle documented on November 25.

Apple has 80,000 employees according to the article. Millions more work for contract manufacturers making iPhones in China. At Apple’s Austin, Texas, facility, there are 6,000 employees, up from 2,100 only seven years ago. Most are employed in customer support functions, but there are also upward of 500 engineers who work on new chip sets for Apple’s next generation of laptops. Before becoming full-time employees in the call center, many start as contractors making $14.50 an hour. With luck and great performance, they will graduate to full-time status with generous health benefits and earn $45,000 year.

The same story applies to many great companies such as Disney, Amazon, Wal-Mart or CVS, which have a cadre of highly compensated professional workers and a lot of people making just above minimum wage. Disney employs thousands of “cast members” cleaning rooms at Disneyworld, but it also has high-priced talent making movies and TV shows at Disney Studios, Lucas Film, ABC and ESPN.

Many Americans work in retail and hospitality industries and other low compensation environments with poor health benefits. While President-elect Trump has talked about bringing back well-paying manufacturing jobs with benefits once enjoyed in the Rust Belt, the reality is that the modern manufacturing economy is one of hyper productivity where knowledge workers add tremendous value and manufacturing work is outsourced to other countries. Over the last decade, those countries have built a massive web of sophisticated contract manufacturers and suppliers who make components and assemble your iPhone. I doubt we could manufacture an iPhone in America even if we tried, because we lack the web of capabilities.

On the back of my iPad is etched all you need to know: “Designed by Apple in California Assembled in China.” Trump may be trying to reverse this, but it seems unlikely.

Instead, if you look carefully at the changes in where the jobs are over the last 50 years, you can see a steady and inexorable shift toward the post-industrial economy. Daniel Bell, the great Harvard sociologist, predicted this much in his 1976 classic book The Coming of Post-Industrial Society, the bible for us futurists. In a quote from no higher authority than an Amazon book review, Bell predicted “a vastly different society developing – one that will rely on the ‘economics of information’ rather than the ‘economics of goods.’ … The new society would not displace the older one but rather overlie some of the previous layers just as the industrial society did not completely eradicate the agrarian sectors… The dimensions would include the spread of a knowledge class, the change from goods to services and the role of women. All of these would be dependent on the expansion of services in the economic sector and an increasing dependence on science… Bell prophetically stated ‘… new premises and new powers, new constraints and new questions—with the difference that these are now on a scale that had never been previously imagined in world history.’”

Bell predicted the migration of the U.S. economy from agrarian economy through an industrial economy to an economy dominated by the creation of knowledge, information, science and experiences, including the rise of a “third sector” of massive nonprofit organizations in service industries such as health and education. Sound familiar?

 

Bell was right. If you look where jobs have been created in the last two decades, it is in services and knowledge work – especially retail, hospitality, professional services such as IT consulting and health care. Manufacturing jobs have steadily declined for decades. This is partly a reflection of enormous improvements in productivity in the manufacturing sector and the transformation in production of many industrial mainstays, such as the steel, auto, chemical and textile industries. For example, in 2016 there were 53,000 coal miners in America and 370,000 steelworkers, while there were 1.4 million home health aides and 4 million nurses actively practicing (including 3.2 million registered nurses and 0.8 million licensed practical nurses).

Many of the workers in the post-industrial economy are in the gig economy. You work in a bar, you go to school, you drive for Uber and you are writing the great American novel, all at the same time. Plus you’re probably uninsured. This is the life of many millennials, even those with college degrees. The death spiral on the exchanges is partly a result of profound changes in the ways young Americans make a living. Starbucks has great health benefits, but many other college-educated baristas are uninsured.

It is against this broader context of change that private employers have to decide how to manage health benefits for a post-industrial workforce.

Employers’ recent history

We know that employers mostly hung in there and didn’t drop coverage because of the ACA, particularly the large, self-insured firms. Moreover, most big corporations assiduously followed the letter of the law in preparing for full implementation of the ACA features, including the Cadillac tax.

It has become fashionable to repeat the classic insight from the election: “Trump supporters took him seriously, but not literally, while the media took him literally, but not seriously.” Well, when it comes to big employers and the ACA, they took it seriously and literally, implementing (well in advance of the time line) the necessary adjustments in qualified health plans, in cost-sharing arrangements to meet actuarial value thresholds, and in benefit design to be compatible with deadlines on the Cadillac tax.

This makes perfect sense to me. Corporate America is run by what I call the compliance police, and they are fearful of getting sideways with major federal initiatives.

Jonathan Gruber of MIT, one of the ACA’s architects, was quoted as saying he could live with the employer mandate being removed in Congress because most large employers provide health benefits anyway. If you follow my line of argument about the compliance police, part of the reason the large employers are still providing benefits is that they anticipated it would be breaking the law to back away from that commitment. If the employer mandate is gone, they might feel a wee bit differently, especially smaller and mid-size employers.

The other major shift employers made in the face of the ACA was exemplified by the reaction to the “exit” opportunity. In Nielsen/Harris surveys from 2011 to 2015, we documented the likelihood of employers “getting out of providing health insurance to their employees.” The number of employers considering this peaked around 2015 and declined sharply in 2016. Employers who had seen private and public exchanges as an exit opportunity realized that these exchange vehicles did not necessarily provide a meaningful alternative to health benefits, given current law.

In every talk I have given to health systems in the past two years I have repeated: The good news is large employers are not leaving; the bad news is large employers are not leaving and are going to be increasingly in your face looking for value.

Indeed, they have done so with a variety of methods, including narrow networks; direct contracting using accountable care organization (ACO) arrangements, as in the case of Boeing, Disney, Intel and Cisco; the use of Center of Excellence models by companies like Wal-Mart, Lowes and the Pacific Business Group on Health (PBGH) consortium; the use of reference pricing schemes, as in the case of CalPERS joining with Anthem in California; and more aggressive case management for all high-cost patients – using Dr. Arnie Milstein’s pioneering Ambulatory Intensive Care Unit (AICU) model developed originally at Boeing.

David Lansky, President and CEO of PBGH told me in an interview that the largest employers who have the resources to develop an alternative approach are doing so aggressively: “once you study on it, you run away from the carriers as fast as you can, and the PBMs are next.  And then you start talking to the providers and seeing what kind of deal you can extract from them, including a very intense working relationship.  Of course this is hard to do, but it’s a symptom of how fed up ALL employers are”.

For example, one health benefits leader at a Fortune 50 company explained to me how in developing a direct ACO contract with local hospitals, one of the hospitals, who stood to lose volume in the new arrangement, voluntarily offered a deeper discount on price: “We don’t want the money, we want you to change the way you deliver care,” the company responded.

Many of these more aggressive purchasing activities have yielded some victories and constitute one of the reasons large employers have succeeded in keeping health benefits trend increases to 4 percent (and among some of the more elite employers as low as 2 percent) in 2016, according to National Business Group on Health surveys. The reason the trend is so low is partly greater rigor in their contracts with providers but also the “benefit buy down” (which is benefit speak for increasing the amount that employees pay for their health insurance through increased premium contributions, higher deductibles and other cost sharing) that employers put in place to ensure they did not exceed Cadillac tax requirements.

Employers have shifted cost to employees, but many may have reached their limits. Anecdotally, we hear of “buy down fatigue” among large employers, and our surveys show that a majority of employers agree they have reached the limits of cost sharing with their employees.

Although large self-insured employers stabilized rate increases at 4 percent per annum through these actions, many realize they must change the payment and delivery system toward value if they are going to sustain their commitment to providing health coverage.

Self-insured employers in the Trump era

It is early days. No one knows what will actually happen legislatively in 2017. But large employers are as anxious as all health care stakeholders about what the new brand of change may bring. There is high uncertainty given the volatility of the political and policy process that is unfolding and given the unpredictability of the Trump administration.

What are employers worried about? Here are a few issues to watch:

Tax-deductibility of employer-sponsored health insurance. This has to be the number one and immediate issue. Currently this is worth $260 billion per annum in tax benefits. If it were to be chipped away at, either in the form of the current law’s planned reinstatement of the Cadillac tax or some Republican proposals to scale back deductibility, this will have a significant negative effect on employers.

Pharmaceutical costs. Rising drug costs are a huge issue for employers and indeed for almost every health care stakeholder I work with. The shift to specialty pharmaceuticals and price gouging, even on generics, is taking its toll. At a recent PBGH board retreat, the top issue raised by all participants was specialty pharmacy, not only because of the salience of the cost (explaining perhaps a full quarter of the increase in trend) but because the private sector options to control pharmaceutical costs are minimal. Trump recognized the drug cost issue in his campaign, but after winning the election his website no longer speaks of controlling prices of drugs. Instead, there are visionary statements about innovation. Pharma may be getting a pass, as evidenced by the easy passage of the CURES Act. But for employers, this issue is not going away. In most commercial health insurance plans (including self-insured plans), per-member per-month drug costs now exceed inpatient hospital costs.

Lansky of PBGH told me in the interview: “employers aren’t just mad about price gouging, but have looked very hard at the pharmaceutical supply chain in order to restructure it – even to the point of talking directly to manufacturers.  They want to challenge the very nature of the business:  formulary placement, the split between medical benefit and the drug benefit; rebates to PBMs; coupons that insulate consumers from cost sharing; Intellectual Property and patent rules, etc.  They know that beating up on the PBMs (like beating up on the health plans) is not productive; the system needs re-engineering and no one is motivated to do it except the employers who are paying”.

The inevitable cost shift. It may be off in the distance, but if coverage is eroded for the 20 million or so who benefitted from the ACA and if the federal money for Medicaid expansion and exchange subsidies is geared back, providers will seek to replace that revenue from employers. Good luck with that, to all concerned.

Employers stepping up to manage their health costs directly. Many of the sophisticated employers will double down on their management efforts with narrow networks or using ACO arrangements and direct contracting. Others like Apple will expand their on-site clinic operations and corporate wellness initiatives (although the track record on wellness saving money is spotty at best).

Déjà vu. The new administration has already signaled greater emphasis on consumerism, transparency, health savings accounts, shopping tools, personal responsibility and “skin in the game.” Most sophisticated employers would say, “Been there, done that, bought the T-shirt.” They believe much of this stuff and they have done it already, so what do they do for an encore?

Partners in value. Sophisticated employers believe that health care does indeed need to migrate from volume to value (but they also expect to pay less if volumes subside). They recognize that opportunities for cost reduction exist within the delivery system, and they do not have the clout as individual employers in any geographic market to demand meaningful change in payment and delivery reform. That is why groups like PBGH have been active partners with Centers for Medicare & Medicaid Services in promoting value-based reimbursement and innovation. These sophisticated employers want to know if they still have a partner in value in the federal government. For example, PBGH has worked for six years in promulgating the AICU model including a $20 million Center for Medicare and Medicaid Innovation (CMMI) project to extend the model to Medicare, and now doing the same with Medi-Cal (using a “health homes” approach).  As Lansky noted: “it’s an example where a very small idea can be aligned with national, over-65, low income, and other public programs to drive actual care transformation”.

Looking for the exit. Finally, depending on what comes out of the sausage-making machine in Washington, employers (especially the compliance police) will take a hard look at the rules of the road and reconsider their ongoing commitment to health benefits. Nothing makes corporate chief financial officers more misty-eyed than the thought that they could really write a check for $10,000 a year and kiss this issue good-bye forever in a defined contribution. As PBGH’s Lansky noted: “either the system gets serious about re-engineering or the exit is the only sensible path.”

Wise policymakers in Washington need to be mindful of the second order effects that the new round of health reform may have on large, self-insured employers. As we contemplate further change, health systems would be well served by engaging with corporate leaders to explain what is at stake for the health care delivery system and in turn, really listening to what these important purchasers want from healthcare. Happy New Year!

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. He is also a regular contributor to H&HN Daily.