While leaders recognize the value of a new healthcare model, they are still early in forming strategies and making investments.
This article appears in the October 2015 issue of HealthLeaders magazine.
Population health management is now clearly in the crosshairs for the healthcare industry; organizations are actively exploring strategic initiatives, executing mergers and acquisitions, investigating risk-based financial models, and investing in IT infrastructure. With the majority of respondents (69%) in our survey reporting that they are either fully committed or have a pilot program underway for managing the overall health of a defined population, it looks like population health's time has come. Or has it?
While on the surface it appears that providers are fully engaged in population health, one of the key indicators is the degree to which they have exposure to upside and downside risk. Taking on risk and exploring new financial risk structures is an essential aspect of developing population health competency and effectiveness. Therefore, an open question relates to the all-important bottom line: What does net patient revenue from risk-based population health look like? Our survey research indicates that 42% of respondents who are fully committed or have pilot programs underway to manage the overall health of a population have risk-based revenue of less than 10% (some have no risk-based revenue at all), which suggests that population health management has yet to reach critical mass.
Managing a defined population
A quick glance at the data indicates that large numbers of healthcare organizations are actively participating in population health management. The majority of respondents (69%) say that they are either fully committed or have pilot programs underway for managing the health of a defined population, although interestingly the percentage is down somewhat from last year's survey (80%). Looking more closely at the results, both fully committed (41% versus 49%) and experimental or pilot programs (28% versus 31%) are lower this year.
Michael Kotzen |
"This is generally the kind of the trend that I hear when talking to industry leaders. Everybody's trying something, but the excitement or the initial fervor seems to be dwindling a little bit. The thought process is 'Before we jump into this thing with two feet, we've got to better understand what we're dealing with,' " says Michael Kotzen, executive vice president for population health management at Virtua, a nonprofit healthcare system that serves the southern New Jersey and Philadelphia area.
"I also think [respondents are] thinking full capitation, and I don't think many organizations are getting into that now. I think they are looking at specific opportunities around engagement, analytics, and care management that ultimately will prepare them for when that day comes," Kotzen says.
While leaders may be taking their time as they sort out population health's potential impact on their organization, an increasing share are at least thinking about starting programs. Twenty-five percent of respondents report that they will either pursue it but have not begun yet or are examining how or whether to pursue it, up from 18% in last year's survey.
Perhaps because of the complexity of the undertaking and the magnitude of the investment, it is generally larger organizations and health systems that are currently fully committed to population health. For example, based on net patient revenue, a greater share of large (53%) and medium organizations (46%) than small organizations (34%) say they are fully committed. However, while 50% of health systems are fully committed, we also see greater shares of physician organizations (46%) than hospitals (33%) are fully committed. So, while size and resources are beneficial, an organization's ability to adapt and change direction also is important.
Risk-based revenue and compensation
Population health management programs can be implemented in a variety of ways, with varying levels of financial risk for the provider. It is the extent of this risk exposure that separates basic forms of population health management from more robust iterations.
For example, 27% of respondents say that more than 25% of their organization's net patient revenue is attributed to risk-based population health activities that have exposure to profit and loss. However, at the other end of the spectrum is more than one-third (35%) of respondents who say this activity represents between 1% and 9% of net patient revenue, and 7% report no revenue of this type. Clearly, providers are being cautious in developing and managing the scope of their risk-based care activities.
As with the results for managing the health of a defined population, a greater percentage of high-revenue organizations produce higher levels of risk-based net patient revenue than medium and small organizations. For example, 35% of large organizations say that 25% or more of their net patient revenue is risk-based, while only 25% of medium and 21% of small organizations say this. Large organizations tend to have more resources and may be better able to weather fluctuations in revenue, and they typically have expertise on staff to manage risk-based enterprises such as population health.
Another population health indicator is the extent to which employed physician compensation is at risk for quality outcomes. While 73% of respondents say employed physicians at their organizations have at least some compensation exposed to risk for quality-based outcomes, it is a little surprising that 27% have no compensation at risk at all. The transition to value-based care and the adoption of risk-based reimbursement models appears to be having a moderate impact on risk-based compensation.
William Richardson, FACHE, president and CEO of Tift Regional Health System, a nonprofit healthcare system serving South Central Georgia, and chairman of the board of Stratus Healthcare, an alliance of providers serving 66 counties in Georgia, expected the survey numbers to be higher.
"Compensation methodologies for physicians have been evolving," says Richardson, "and many of ours are RVU-based or production-based, but we began to hear a couple of years ago that we need to be moving a portion of their compensation over to quality metrics, and I would have thought that the industry would have been a little more aggressive in that direction. We are moving in that direction and putting more emphasis on measuring patient experience and certain quality metrics. I'm a little surprised that it's not higher than is reflected in the survey."
Strategic initiatives
Healthcare organizations are tackling population health using a range of strategic initiatives, seeking to match their specific competencies and care networks to the most appropriate strategic undertaking. Clinically integrated networks (64%) represent the topstrategic initiative for improving the health of a defined population, followed by patient-centered medical home–related efforts (57%), and alliance of providers (49%).
Health system–led ACOs are embraced by 42% of respondents. Asked if he was surprised that ACOs didn't come in higher, Kotzen says, "Not necessarily, particularly if clinically integrated networks rank higher. Some of it becomes semantics and how we're leveraging the different types of relationships. To me, the results imply hospitals are looking for other partners, whether that be through merger and acquisition or clinically integrated networks.
"These are the kinds of bets we are making. And if you have these structures, you don't have to have an ACO to support it. With a robust network of providers and infrastructure, we can deliver value. Many organizations are thinking about whether they're renewing their ACOs. CMS extended the one-side-only ACOs," Kotzen says, referring to the Centers for Medicare & Medicaid one-sided ACO model, with shared savings only, as opposed to the two-sided model, with shared savings and losses.
Thomas Lundquist, MD |
Patient-centered medical home–related initiatives also have a strong showing in the survey. According to Thomas Lundquist, MD, MMM, FAAP, FACPE, senior vice president and chief medical officer for Optima Health, Sentara Healthcare's health insurance subsidiary, and lead advisor for this report, "I continue to hear a lot of practices making this a key item—the accreditation for medical homes—and the focus on it continues to be front and center.
"I think it's lost some of the popularity in the press, but the work being done even behind clinically integrated networks for the primary care docs—it's still the patient-centered medical home concepts that matter. So to me, that should track with clinically integrated networks, and it does," Lundquist says.
Although organizations of all types are exploring population health initiatives, our research indicates that, perhaps because of the breadth of their care networks and ability to fund the investment costs, health systems and larger organizations in general are leading the move to population health. For example, health systems have higher levels of response for every initiative listed compared with hospitals and physician organizations. And based on net patient revenue, large organizations have higher levels of response for all but one of the initiatives (mergers and acquisitions) compared with medium and small organizations.
Financial risk structures
Healthcare leaders understand the need to prepare their organizations for the assumption of greater risk, and are proceeding cautiously until they have a better understanding of the financial ramifications. This is reflected in the survey results for financial risk structures used in caring for an identified population, where shared savings programs with payers (42%), which does not offer downside risk, is the top structure in use.
On the other hand, one-third of respondents (34%) say they are using bundled payments, and 22% mention having their own insurance company, both structures where organizations have some exposure to risk. This indicates that organizations are currently willing to assume a moderate level of risk, but it is telling that only 17% of respondents say they use shared profit and loss arrangements with payers.
Lundquist says that much of the shared savings and bundled payment usage is being driven by CMS. "Bundled payments certainly jumps out at you, but I think Medicare and CMS are driving a lot of the shared savings and bundled payments activity. I wouldn't be surprised if a lot of what we're really talking about with shared savings programs with a payer and the bundled payments is largely CMS, and then some of the private insurers."
Richardson agrees, citing what CMS is doing with its joint-replacement initiative. "CMS is pushing bundled payments for total joint replacements, and they are mandating it in 75 geographical areas in the country. So that's been getting a lot of traction lately and I'm not surprised that systems are moving in that direction, because we've kind of known that was coming and, lo and behold, it's here—albeit in a limited area, but it will be standard policy. We'll all be having to submit bundled payment plans to CMS probably in the not too distant future."
Looking three years down the road, respondents indicate they will have significantly higher levels of risk exposure in their organizations. In fact, all but one of the risk structures listed in the survey question increased. While shared savings programs with payers (61%) remains at the top of the list (up 19 points), followed again by bundled payments (55%, up 21 points), we see that shared profit and loss programs with payers (45%) moves into the third position, bolstered by an increase of 28 percentage points. The response for using its own insurance company (21%) is the only structure that didn't increase, falling one percentage point.
Kotzen says that the response for shared savings may be overstated, and that other risk structures will gain more prominence. "I think more organizations are talking about owning their own insurance company or direct contracting with employers, and I think particularly the big systems will move in that direction. I think those things are more likely in the future than the shared savings program, as they will likely run their course."
Lundquist agrees that the other risk structures may have greater potential compared with shared savings programs. "Part of it is that the amount of sharing is still very small from most of the health plans in terms of what they're sharing. So they're called shared savings programs, but I think there's a long way for them to go in terms of really sharing the savings with the providers doing the work."
IT infrastructure investment
Healthcare organizations are actively investing in IT infrastructure due to the critical role it plays in population health initiatives. Looking at current investments, patient registries (63%), data warehouses (57%), and analytics using population data (55%) are the top investment areas. However, looking at leaders' expectations within three years, analytics dominates the responses for investment. The top three areas are analytics using population data (71%, up 16 points), analytics to identify gaps in care (68%, up 22 points), and analytics using payer claims data (68%, up 18 points). Clearly, analytics is an important growth area when it comes to investment in IT infrastructure for population health.
Kotzen observes that, "probably 15 years ago, the push from an information perspective was toward electronic medical records. Now, the challenge is all about getting EMRs to talk to each other and getting meaningful data out of them at a patient level, and I think that's really where everyone is focused. Rather than spitting out the data for the hospitalization of patient X, it's more holistically looking at the care and the cost of care per patient across the continuum, and there is a ton of activity in this space."
The challenge for organizations building population health capabilities is reconciling these up-front investments with the uncertainty around risk-based reimbursement models. Faced with the prospect of making a leap of faith that the numbers will work out, leaders instead are focusing on analytics to better assess and mitigate risk.
Respondents indicate that concerns about financial matters are among the biggest barriers to successfully deploying population health programs. Up-front funding for items such as care management and IT (24%), and payment shifting to risk-based models (23%) are the top two responses. Of course, other factors receive similar levels of response. Engaging providers to embrace the required care models (22%) and getting meaningful data into providers' hands (17%) round out the top four responses.
Lundquist says that funding investment in population health will create some interesting provider relationships. "The question is, how are organizations going to make that investment? If they are capital-constrained, it's going to force additional mergers, acquisitions, partnerships—and in all kinds of interesting places. You're going to follow the capital, so you're going to get providers with venture capital dollars, you're going to get providers with insurance partners, you're going to get providers with health systems, and you're going to get health systems with all the above."
Reprint HLR1015-3