Balanced Healthcare Transformation

Improved healthcare outcomes at lower cost

Phillip Polakoff

Phillip Polakoff

Senior Managing Director and Chief Medical Executive Health Solutions Practice FTI Consulting, US.

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The US has some of the best healthcare in the world and, by a wide margin, the most expensive. Under relentless pressure to deliver better quality for less, leading providers and payers are balancing huge changes with the need to remain viable today. This article delineates strategies and tactics for organisations to migrate successfully from a fee-for-service to a value-based delivery system.

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The US is not the only country wrestling with the problem of rising and unsustainable healthcare costs, nor is its healthcare system the only one attempting to control those costs while improving the quality of care.

The challenges of healthcare transformation are universal, as is the goal of improving outcomes at lower cost.

In the US, total healthcare costs are projected to reach nearly US$4.8 trillion by 2021, up from less than US$3 trillion in 2013. In Asia and What's the problem?

Australasia, according to a 2012 Economist Intelligence Unit study, per capita healthcare spending more than doubled between 2001 and 2011.

The increase in Asian healthcare costs is being driven by many factors, including rising household incomes that correlate with the higher life expectancies that create a larger population of older, sicker patients consuming a greater portion of healthcare resources. Rising incomes also are associated with the increased incidence in Asia of the chronic, non-communicable diseases long-associated with developed economies: diabetes, hypertension, and cancer, among others. (India and China now have the largest diabetic populations in the world and experts expect diabetes rates to rise rapidly throughout Asia.) These conditions have a profound and long-term impact on healthcare costs, even as they point the way toward the new healthcare models required to address them.

In the US right now, payers and providers alike are attempting to develop new business models and programmes that will address these diseases, including accountable care models, preventative care programmes, and wellness initiatives. At the same time, both payers and providers must balance the demands of a present in which hospital and physician revenues are falling (and promising to fall further), requiring a focus on controlling internal costs, and a future in which new payment models and new technologies demand new investment, necessitating innovation in business models and service offerings.

The prescription for a balanced approach to this transformation is developing and implementing a clear, overarching strategy that will:

  • • Improve current operations
  • • Try new approaches
  • • Create the agile structures and processes that will allow the organisation to do both simultaneously.
  • • Despite the many differences between healthcare in the US and Asia, the goal of every healthcare system everywhere is the same: to improve care, benefit patients, and do so in a cost-effective, sustainable way.

Improving the current game

While Asia's poorer economies face shortages of doctors and drugs, and its wealthier nations struggle with resource allocation and finding an optimal division of responsibility between public and private sector payers and providers, the US is also trying to figure out answers to some of these same problems. In the very near future there will be less money in the US healthcare system available to hospitals and physicians. Indeed, value-based reimbursement programmes that pay for outcomes, not services, driven in large part by the 2010 Affordable Care Act (commonly called Obamacare) that is now taking effect will put six-to-ten per cent of US hospital and physician income at hazard. To survive, every US healthcare player will need to develop new strategies, capabilities and tactics to remain competitive by lowering costs while simultaneously improving their current operations by optimising their resources, clinical expertise and financial discipline.

These new strategies are already emerging. Blue Shield, in California, for example, has tried to improve outcomes for knee and hip replacement surgeries for California Public Employee Retirement System retirees. It identified 16 facilities with a history of strong results for knee and hip replacements, and announced that it no longer would fully cover CalPERS members' costs for these procedures if performed at any other facilities.

An analysis by research company HealthCore Inc. found that this strategy lowered CalPERS' health plan costs for these procedures by 19 per cent between 2010 and 2011.

Meanwhile, in the Pacific Northwest, Group Health Cooperative asked more than two dozen surgeons and over a dozen physician assistants to create Evidence-based Medicine (EBM) decision tools for making go or no-go decisions on knee and hip replacements. Implementing these guidelines over an 18-month period from 2009 to 2010, Group Health reported a 38 per cent reduction in knee replacements and a 26 per cent reduction in hip replacements, lowering costs by 12 per cent to 21 per cent.

In January 2014, the state of Maryland announced, in cooperation with the Centers for Medicare & Medicaid Services (CMS), a new plan in which its hospitals will shift from Medicare payments per admission to reimbursement based on quality improvements such as reducing readmission rates and hospital-acquired conditions. These and other fee-for-quality initiatives are expected to save Medicare US$330 million over the next five years, and are part of a growing nationwide emphasis on prevention and wellness.

As these examples illustrate, a great part of improving the current game lies in eliminating inefficiencies to preserve and enhance revenue. In some cases, this can mean looking outside the notoriously inefficient healthcare industry for innovative ideas.

A decade ago, for example, ThedaCare, a northeast Wisconsin health delivery system with more than 6,000 employees, looked to a nearby power company that had reaped the benefits of lean philosophies and techniques to improve its own processes and reduce waste.

Applying the lessons of lean and the Toyota Production System, ThedaCare created the ThedaCare Improvement System. Leaders engage staff in week-long process improvement projects that have reduced costs, eliminated waste and improved patient outcomes. From 2006 to 2009, TIS enabled ThedaCare to increase employee productivity by 12 per cent, saving the hospital more than US$27 million.

As a further benefit, these cost savings have allowed ThedaCare to increase its prices at a far lower rate than its competitors. By improving quality of care even as the organisation keeps its costs among the lowest in the state, ThedaCare strengthened its relationships with both insurers and patients.

Trying new approaches

Asia historically has been a fast adopter of new digital technologies. These tools can lower costs and expand the reach of healthcare providers through wireless access and mobile devices, helping to deliver care to previously underserved rural patient populations. Just as importantly, they can enhance the integration of clinical resources that has been demonstrated to improve care while driving down costs.

Geisinger Health System, for example, serves more than 2.6 million residents in central and northeastern Pennsylvania. Its 2011-2015 Vision statement expresses the organisation's ambition to serve as a model for integrated health services organisations. At Geisinger, this means a physician-led system that incorporates multidisciplinary group practices, clinical programmes, a research programme and an insurance provider (Geisinger Health Plan), all integrated on a sophisticated IT platform.

One of the most powerful elements of the Geisinger system is the standardisation of best practices i.e. the creation and deployment of a ProvenCare® model of treating certain conditions and performing specific procedures with the same protocols at all its facilities. Developed in partnership with its clinical and health plan divisions, the ProvenCare model requires Geisinger physicians to follow EBM best-practice guidelines. The ProvenCare model holds multiple members of the surgical team responsible for patient care through a system of checks and balances that are documented and cross-referenced in a patient's electronic health record.

In its 2011 system report, Geisinger analysed five years of data available since implementing the first ProvenCare model for coronary artery bypass graft patients and found that ProvenCare protocols had lowered in-hospital mortality by 67 per cent and reduced the likelihood that a patient would need blood products during surgery by nearly 50 per cent. Geisinger is so confident that ProvenCare will deliver favourable surgical outcomes that it promises to cover the entire cost of any follow-up care provided by a Geisinger clinician in a Geisinger facility for Geisinger Health Plan members who experience avoidable complications within 90 days of a ProvenCare procedure.

The key to benefiting from the implementation of new technologies is accurate, actionable data. Governments, healthcare institutions, and both public and private organisations should be mobilised to amass a broad and deep pool of patient information that can be stored in data warehouses and then queried by analytic tools to assess current gaps in capabilities and outcomes and provide a roadmap for improving treatment (as Geisinger did) while increasing patient engagement, the lynchpin of improved health management.

Healthcare integration is critical to the management of chronic diseases, and their costs, and must reach beyond the four walls of the hospital or clinic. This is especially important in Asia, where healthcare outside urban areas is most often fragmented and difficult for poorer patients to access. But while the goals of integrated, technology-assisted healthcare are universally understood and accepted, current payer models do not reward physicians and institutions for reaching into communities with preventative programmes, wellness initiatives and treatment follow-up networks to manage the health of patient populations outside the clinical environment. To do so requires the development of new business models that emphasise the importance of scale, and take a new approach to risk. And both demand organisational agility.

Creating agility

To move from a fee-for-service healthcare model to a value-based one, every type of organisation will need to analyse the costs and benefits of assuming or shifting risk.

For payers, this could mean shifting risk toward consumers by emphasising cost awareness and preventative care. It could mean negotiating contracts with providers that include pay-for-outcomes models with global or partial capitation. Some payers have even entered the provider space, creating integrated healthcare systems where they have direct control over the cost and quality of care, and a greater ability to reap economies of scale.

For providers, this could mean viewing the assumption of risk as a competitive advantage. For example, a provider could compete by offering a fix fee for covering an employee population instead of charging for each service provided. To take on this risk profitably, providers need more efficient ways to treat costly conditions by developing predictive models and redesigning organisational processes.

Managing risk in these new ways is best accomplished by building scale. Investing in the advanced technologies that can improve care through EBM, leveraging them by rolling out digitised patient health records, and distributing them broadly to engage large patient populations in the management of their own care requires enormous resources. Every type of healthcare organisation will need to invest in these technologies, but they will need scale to do so.

This means that larger players will have an advantage as the industry as a whole moves to payment for outcomes, and smaller players will need to look for opportunities to partner with organisations their own size or larger. In the US, regional Blue Cross and Blue Shield organizations are already pooling their resources across state lines. Hospitals will continue to acquire smaller competitors and, as has increasingly been the case, they will employee physicians directly to own the care continuum. In Asia, cooperation between community care centers and urban hospitals, between schools and family clinics will become increasingly important.

The other crucial part of creating agility is to possess a governance structure that allows and enables it. An organisation is agile when it can direct resources appropriately and ensure accountability. In healthcare, that means developing a strong partnership between physicians, administration, and staff, and making sure that the organisation's strategy is clear and broadly communicated to all stakeholders.

A commonality of concern

The downside of Asia's rising standard of living is the increased prevalence of the chronic, lifestyle-related diseases formerly associated with the more prosperous West. At the same time, Asia is still dealing with the age-old plague of infectious diseases. Combined with the urban-rural split in healthcare availability and sophistication, characteristic of all but a few Asian countries, Asia confronts a highly-complex, singular path to healthcare transformation. However, as the region's health profile evolves, and its cost-curve rises, the challenges that US healthcare is confronting mirrors many of Asia's, and the strategies evolving to address them in a balanced way may contain lessons as useful to Asia as they are to the US.

Author Bio:

Phillip Polakoff, is a Senior Managing Director and Chief Medical Executive in the Health Solutions practice of FTI Consulting. Dr. Polakoff is involved with clients (both providers and payers) in designing and implementing value based reimbursement initiatives, constructing clinical integration organisations, facilitating physician hospital alignment and structuring population health management programs. Dr. Polakoff's career in healthcare spans thirty-five years and includes product development, network development, care management, organisational and business development, policy formulation, communications and financing.

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