Healthcare leaders face the alignment challenge of more closely integrating physicians across the continuum.
This article first appeared in the September 2016 issue of HealthLeaders magazine.
Healthcare providers are being challenged to balance the requirements of today's fee-for-service model with a plethora of current and developing risk-based payment models, managing their organizations as best they can as they navigate a changing industry landscape. One of the keys for succeeding in this environment is developing a physician alignment strategy that is rigorous enough to meet today's needs, and flexible enough to adjust to industry developments as they arise. Respondents to our 2016 HealthLeaders Media Physician-Hospital Alignment Survey indicate they are using a variety of alignment mechanisms, including clinical integration, employment contracts with incentives, ACOs and risk-sharing agreements, and others. No one alignment technique dominates.
A common thread in many of the alignment strategies is a recognition of the growing need for collaboration across the continuum—organizations that are fully integrated and aligned will likely reap the rewards under value-based models, and those who falter will face an uncertain fate.
Physician alignment business objectives
Perhaps not surprisingly, respondents say that maximizing financial performance (67%) is the top business objective behind their organizations' physician alignment strategy. Note that the response for maximizing financial performance is inversely correlated with organizational size: based on net patient revenue, a greater share of small organizations (72%) than medium (64%) and large organizations (56%) mention this. Establishing primary care as a continuum foundation (53%) and standardizing care for predictable costs (52%) round out the top three business objectives as physician alignment strategies.
While maximizing financial performance is the top physician alignment business objective, the degree to which respondents report achieving major success in attaining it places third on the list. Ranked for major success, the top three are offering full range of care in the continuum (23%), establishing primary care as a continuum foundation (13%), and maximizing financial performance (8%). Combining responses for major success and moderate success yields an identical list: offering full range of care in the continuum (71%), establishing primary care as a continuum foundation (69%), and maximizing financial performance (61%). So, while leaders are finding success, very few are reporting major success in any of these business objectives.
Creating common goals for employed and independent doctors is a hurdle that will likely come up as organizations expand their networks across the continuum. According to respondents, the current percentage of employed physicians (46%) and independent physicians (42%) is roughly equal. While respondents indicate that employed physicians will increase to 56% and independent physicians will decline to 32% in three years' time, independent physicians will remain an important part of alignment strategy for the foreseeable future.
Bill Breen, MBA, FACHE, is senior vice president of physician alignment at Methodist Le Bonheur Healthcare, an integrated healthcare network located in Memphis, Tennessee, and the lead advisor for this Intelligence Report. He says that, although Methodist has a large primary care group of physicians, it is important to maintain relationships with independent physicians. However, fostering alignment with them can be a bit more challenging.
"We value our independent physician partners," Breen says. "It may not be as integrated a relationship as with our employed physicians, but that doesn't mean they can't provide just as much value. There are plenty of independent doctors that are highly engaged in an effort to produce value. However, I think if the incentives are not aligned between the independent physician and the hospital—and most of the time they're not in the industry—it can be very difficult to overcome.
"On the quality side, I'd say if you're building a clinically integrated network, it helps to have a modest or a large cadre of employed physicians because they might have more reasons to engage in the overall strategy of the health system than an independent doctor would. But it's not an always statement; it's more times than not."
Physician alignment care objectives
The top three patient care objectives driving respondents' physician alignment strategy are engaging physicians in quality initiatives (62%), engaging physicians in value-based care transformation (57%), and standardizing care for quality improvement (50%). While establishing primary care is a major business objective, maximizing the patient population served is a top choice of just 28% as a patient care objective, with emphasis on quality and value over expanded access.
Note that the top three patient care objectives in which respondents say they are having major success in aligning physicians are forming a network to deliver value-based care (12%), engaging physicians in quality initiatives (11%), and establishing care coordination (8%).
Physician alignment and engagement
According to respondents, the most difficult aspects of aligning physicians are physician engagement (24%), finding physicians to lead care transformation (15%), and physician compensation expectations (14%).
Providers use a variety of strategies to encourage physician engagement. Respondents say the two actions that are most effective when engaging physicians in strategic planning are seeking physician input for key decisions (51%) and early physician involvement (38%). The least effective action is offering leadership and fiscal training to physicians (9%), a sign that many physicians may not be interested in a leadership role. In addition, sharing financial results with physicians (16%) also receives a low response; and while financial transparency is considered increasingly important, these results suggest that it is not necessarily improving engagement.
Breen points out that alignment can be especially challenging for providers these days due to the high levels of merger and acquisition activity in the industry. Along with using physician leaders in executive leadership, he says much of the success in physician engagement is due to culture.
"I think culture is very important," says Breen. "Some groups are nothing more than a collection of practices purchased, and don't see themselves as part of anything greater. I've heard a lot of people say that about alignment efforts around the country. So finding that sweet spot of developing a culture within a group where they see themselves as one entity and not 17 different locations is not easy. But I think that's the holy grail; that's what you're looking for."
Compensation at risk
According to respondents, 34% of employed physician staff and 19% of independent physician staff currently have some portion of their compensation at risk.
Within three years, respondents expect a significantly larger share of physician staff will have compensation at risk—employed physicians increases to 50% and independent physicians increases to 29%.
It is not surprising that the percent of physicians with compensation at risk is higher for employed physicians—their employment mission is currently more closely aligned with that of the provider organization than independent physicians, and those organizations are expected to take on increased risk in the coming years. However, the alignment challenge for providers in the future will be to more closely integrate with physicians across the continuum, a large number of whom will be independent.
Healthcare leaders focus on building organizational cultures based on patient experience excellence and strive to provide it across the care continuum.
This article first appeared in the July/August 2016 issue of HealthLeaders magazine.
Healthcare providers remain focused on building organizational cultures centered on patient experience excellence, using technology and an assortment of training programs to engage nurses, clinicians, care managers, and an expanding range of nonclinical and back-office staff in this mission.
However, having moved beyond simply training to meet the demands of HCAHPS, the patient experience movement is preparing for the next big challenge: providing patient experience excellence across the continuum.
To begin with, it is no easy task transforming organizational culture within healthcare organizations—they are generally large institutions with a diverse range of professional and nonprofessional staff, representing a long list of departments and functions.
Further complicating matters, patient care is increasingly taking place outside the four walls of hospitals, having migrated to myriad ambulatory and outpatient locations, convenient care clinics, skilled nursing facilities, and home health providers.
As the industry assumes greater responsibility for patient care across the continuum because of the move to population health, who will be responsible for maintaining patient experience quality and consistency?
For many healthcare organizations, the answer is hiring a dedicated C-suite executive to drive their patient experience effort.
In the 2016 HealthLeaders Media Patient Experience Survey, 46% of respondents say their organization has a chief experience officer or an individual with similar responsibilities, up from 40% in last year's survey and 30% the previous year.
Having a C-suite executive responsible for the organization's patient experience effort is a necessary step to successfully managing patient experience across the continuum.
Pam Guler, MHA, FACHE, CPXP, LSSMBB, is vice president and chief patient experience officer at Adventist Health System, a faith-based health system headquartered in Altamonte Springs, Florida, with locations across 10 states, and the lead advisor for this Intelligence Report.
She says that the patient experience mission has expanded to encompass the full continuum of care as healthcare organizations focus both within and outside of the hospital setting, and increasingly migrate to a population health model.
"Our patients and families deserve an exceptional experience and care, and this is a key part of our mission. We focus across the continuum of care, and both patient and consumer experience is extremely important to our organization. We're very dedicated to whole-person care, addressing mind, body, and spirit at each point on the healthcare journey for our patients and families."
Patient experience improvement
This year's survey splits patient experience improvement areas into two broad categories—patient-focused and organization-focused—in order to better examine the areas in which providers are seeking improvement in an effort to meet their patient experience program goals.
The goals for patients and organizations, while generally in alignment for patient experience, are at times different.
For example, the top three patient-focused areas in which respondents say their organization seeks improvement in an effort to meet its patient experience program goals are patient satisfaction (79%), patient safety (65%), and clinical outcomes (54%).
Note that the response for delivering what the patient values (29%) falls in the middle of the range; while measuring factors such as satisfaction, safety, and quality may be core objectives, at some point, understanding the patient's perspective of value should also be considered.
For organizations, respondents indicate by a wide margin that HCAHPS or other CMS survey scores (79%) is the top organization-focused area in which their organization seeks improvement in an effort to meet its patient experience program goals. Responses for clinical outcomes (58%) and clinical staff engagement (46%) round out the top three responses.
Note that responses for business-oriented areas such as reimbursement (29%), market share (25%), and patient experience program return on investment (15%) are clearly in the second tier, indicating that business concerns are generally not among the key drivers behind patient experience programs.
That said, a greater share of organizations with a chief experience officer (20%) than those without one (11%) mention patient experience program return on investment, perhaps indicating that serving in the C-suite brings some financial accountability to the position.
Tracking and measuring patient experience success
One of the keys to improving an organization's patient experience program is timely and accurate tracking of performance. Discovering that a patient has had a subpar experience a month after the event occurred doesn't do anyone any good—the ultimate goal for most organizations is to receive feedback while the patient is still on-site.
Even so, HCAHPS or other CMS survey (82%) is the leading tracking method by a wide margin—this is likely because such benchmarks are a mandate for most organizations, and certainly not because of its timeliness.
Forming a second tier of responses are postdischarge phone calls (63%) and third-party survey service (non-CMS) (53%). Interest in acquiring timely patient satisfaction data is behind the growing use of postdischarge phone calls and social media (39%)—this year's responses are up eight points and nine points, respectively, over last year's survey.
Postdischarge calls are also an activity that can help ensure that care coordination is taking place appropriately across the continuum.
"Social media impacts us, whether a given person making a social media comment is a consumer that hasn't interacted with us yet, or maybe they're a patient who is a part of our care continuum," says Guler.
"Social media is an incredible platform for listening to the voice of your patients and consumers, and hearing that feedback and then being able to respond."
Patient experience improvements
It comes as no surprise, therefore, that the top patient experience improvement areas over the next three years are identifying concerns while patients are still on-site (58%), followed by increased rounding (51%) and staff-patient communications training (48%).
Interestingly, monitoring social media (7%) receives the lowest response of all—it's tied with patient financial engagement (7%)—yet respondents show fairly strong interest in its use, with 39% saying that they currently monitor social media to track and measure the success or failure of their patient experience activity.
Perhaps when it comes to patient experience, face-to-face feedback through rounding and other staff interactions is more preferable than communicating online, which is less personal and not always done in real time.
The leading responses for patient experience infrastructure improvements over the next three years are analytics for monitoring patient experience performance (70%) and patient portals for medical records, appointments, etc. (69%) by a wide margin. Marketing, PR, or communication services (46%) and facility upgrades (45%) comprise the second tier of responses.
According to respondents, two of the top three infrastructure areas expected to provide the biggest improvements are analytics for monitoring patient experience performance (29%), patient portals for medical records, appointments, etc. (24%), and facility upgrades (17%). These are the same three areas that led responses in last year's survey.
Patient experience communication
Respondents in our survey say that nurses are the top group to receive patient experience communication training (91%), followed by other clinical staff (83%), physicians (76%), and nonclinical staff (75%). These results are nearly identical to last year's survey.
While it is encouraging that more than three-quarters (76%) of respondents conduct such training with physicians, given the importance of doctor-patient communication in patient experience and the critical role that physicians play as care team leaders, there is room for improvement.
Note that the response for training executive staff (63%) also reflects a missed opportunity, although the result is five points higher than in last year's survey. Executive staff set an example for all employees, and meaningful patient experience training at this level of the organization has the potential for wide-ranging influence.
Interestingly, among organizations with a chief experience officer or an individual with similar responsibilities, 68% have training for executive staff, compared to 59% among those without such a position.
At the bottom of the response list is off-site care partners (24%), a group that plays an important role in providing care across the continuum. While its response is up five points from last year's survey, more work needs to be done in this area as well. Off-site care partners will represent an ongoing challenge as the focus shifts to coordinating care across the continuum—providers understand that they need to manage patient experience across the continuum, but their capabilities aren't there yet.
According to respondents, the most successful patient experience training program groups based on highly effective ratings are executive staff (50%), nurses (42%), and care managers (42%).
At the other end of the spectrum, physicians (19%) and off-site care partners (18%) receive the lowest responses for highly effective, and they receive the highest responses for slightly ineffective at 17% and 11%, respectively. Physicians (4%) also receive the highest response for highly ineffective, all of which points to the need for a greater focus on physician training.
Most difficult HCAHPS component
Respondents say that doctors communicating well (21%) is the most difficult HCAHPS survey measure, followed by receiving a rating of 9 or 10 on a scale of 0 to 10 (14%), and help is delivered as soon as patients want it (12%). The results for physicians communicate well reinforce the need for a greater emphasis on physician communication training.
The second-tier survey results are very tightly clustered, with nine of the 10 responses falling in the 2%–14% range, indicating that, while some respondents have difficulty across a broad range of HCAHPS survey measures, other than physician communication, no one measure dominates.
Most important patient experience areas
According to respondents, the top three areas where a positive patient experience is important are the emergency department (65%), discharge and follow-up (52%), and inpatient rooms (46%).
The reasons behind these results are quite practical in nature: A positive first impression in the ED encourages patients to use other hospital services in the future, and performing well at discharge and follow-up can help reduce hospital readmissions and reinforce a positive experience.
And because patients spend the majority of their time in inpatient rooms, this is an important opportunity to evaluate an organization's room cleanliness and noise levels.
Biggest stumbling block
Respondents say that difficulty changing organizational culture (31%) and abundance of other priorities (27%) are the biggest stumbling blocks for their patient experience programs. The remaining five stumbling blocks form a second tier that is clustered in a tight group, with responses ranging from 6% to 8%.
Interestingly, achieving organizational culture change is typically driven by senior leadership, yet only 8% of respondents say that lack of leadership commitment is the biggest problem. Perhaps the answer may be found in the second-highest stumbling block: abundance of other priorities (27%). Note that the problem is not abundance of higher priorities (7%), an indication that healthcare organization CEOs must set the agenda to ensure culture change.
In addition to being a CEO responsibility, it would also make sense that changing organizational culture falls under a chief experience officer's purview. However, it's worth noting that the presence of a chief experience officer does not necessarily solve the issue of culture change.
In fact, 37% of organizations with a chief experience officer or an individual with similar responsibilities and 25% of those without one cite that as the biggest obstacle to creating an effective patient experience program. Perhaps having a chief experience officer on board enables greater recognition of the problem; but ultimately, it is up to the CEO to solve.
At Adventist Health System, Guler says that a strong organizational culture has been extremely important to the progress in patient experience. "Culture is critically important to experience. We haven't had as much of a challenge with that in our system, and we do recognize that employee engagement is critical to experience. We use Gallup for employee engagement and we're a top performer, but we're all on a journey and we all want to ensure the most engaged culture because that directly translates to the best patient experience.
"I have the privilege of overseeing patient experience for a very large system, with campuses of all sizes in a wide range of communities across the country, all committed to one mission. Each campus may be at a slightly different point in their journey with patient experience, and one of our primary goals is to meet those campuses where they are on their journey and continue to elevate and sustain all to a consistent experience across our system."
Healthcare leaders are working diligently toward value-based readiness despite the challenge of building competency for a new model before it is financially viable.
This article first appeared in the July/August 2016 issue of HealthLeaders magazine.
After years of experimentation and study, the transition from fee-for-service to value-based care is finally gaining momentum, with large numbers of providers working diligently toward achieving its implementation. In fact, survey results from the 2016 HealthLeaders Media Value-Based Readiness Survey indicate that 94% of respondents are on a path to value-based care of one form or another, pointing to nearly universal acceptance of the mission.
On the other hand, while nearly every provider is engaged in this activity to a degree, not all providers are evolving at the same pace, and there is variability between organizations in terms of the level of commitment to value-based care activities. For example, approximately one-third (35%) of respondents say they are engaged in early efforts/pilot programs, another third (35%) say they are on a value-based direction, and 24% say they are somewhere in between. Only 6% say they are not currently pursuing value-based care.
Previous HealthLeaders Media research (2016 HealthLeaders Media Industry Survey) indicates that healthcare organizations' move to value-based care is progressing at a slow pace mainly because of inadequate payer incentives and uncertainty about the revenue stream—at 23% and 15%, respectively—but the picture is becoming clearer in this regard, and increasingly providers are making the leap and investing in their organizations in preparation for its arrival. However, while no one wants to be behind the competency curve when it arrives, it can be expensive to build competency for a new model before it is financially viable, which is why providers remain cautious.
Preparing for value-based care. Respondents fall into two relatively equal camps when it comes to their organizations' level of strength in preparing for value-based care, although they are stronger in some areas than others. For example, their outlook is slightly stronger for overall preparation for value-based care delivery changes, with 55% saying that their level of strength is very strong or somewhat strong, and 46% saying it is very weak or somewhat weak. Likewise, respondents indicate that their overall preparation for value-based financial changes is also divided, with 51% saying that their level of strength is very strong or somewhat strong, and 49% saying it is very weak or some what weak.
Only the response for overall preparation of a value-based infrastructure has less than 50% reporting a positive level of strength, with 44% saying that their level of strength is very strong or somewhat strong, and 57% saying it is very weak or somewhat weak. Note that it's not surprising that preparing for a value-based infrastructure is the area respondents feel their organization is lagging—investment costs can be substantial.
Barbara A. Walters, DO, is executive vice president and chief population health officer at Trinity Health, a Livonia, Michigan–based not-for-profit with facilities in 21 states, and the lead advisor for this Intelligence Report. She says that value-based infrastructure change is more difficult for some systems because it requires capital expenditures possibly without the full support of value-based revenues, and that progress on clinical and financial competencies are further along because they are less capital-intensive.
"At Trinity Health, we're a little bit stronger clinically because of this. The most difficult part is the capital investment for infrastructure. Things are coming together on the clinical side of the industry faster, and people are having the conversations that they need to have."
Financial and care delivery competencies. Healthcare organizations are working to develop value-based competencies across a number of areas, with finance and care delivery being among the most important. This makes sense given that the essence of the new model is providing high-quality care at more affordable costs than the fee-for-service model.
Respondents say that the top financial area of value-based care that their organization has committed to developing or has developed a competency is value-based performance metrics (73%), followed by collaborative relationships with payers (65%), and aligning employed physicians/providers (65%). Aligning independent physicians/providers (39%) receives the second-lowest response as, at least initially, providers are more focused on developing fundamental metrics and risk-based relationships with payers and employed physicians.
"Alignment is easier to do if you have a wholly employed group, and generally these are the groups that are going down this road first," says Walters. "If you employ everyone in your network and you're a multi-specialty employed group or an integrated delivery system, you don't really need to bother with the independents."
Another area that is critical to making the transition from fee-for-service to value-based care is developing competencies around care delivery. Respondents indicate that the top care delivery areas of value-based care their organization has committed to developing or has developed a competency is care coordination/guiding patients to appropriate care (80%), encouraging patients to be engaged in their own care (70%), and clinical integration (68%).
Interestingly, longitudinal patient care (31%) falls at the bottom of the list of responses, which likely reflects the early stage at which most providers currently reside in the transition to value-based care. However, longitudinal patient care is expected to play an increasingly important role as providers enhance their value-based competencies and start managing patient care over longer periods of time and multiple care episodes.
Care processes and systems. According to respondents, existing care processes and systems are still in the early stages of value-based development, which is consistent with other findings in the survey. For example, slightly more than half of respondents (52%) say that they are in the beginning stages of evolving their processes and systems to support their care teams and practices in coordination, communication, and patient outreach efforts. And while only 3% say that their care processes and systems are fully mature, a fairly large percentage (33%) say that these are evolving to a mature state. Only 11% say that they are still evaluating required changes.
Communication is an important element of engaging patients in their care, one of the key tenets of the value-based model. Perhaps not surprisingly, respondents say in-office visits are the most effective communication method for supporting patients in achieving self-management to improve value-based outcomes, with 87% saying this is strongly effective or moderately effective. Responses for patient portal (61%) and email/secure messaging (60%) complete the list for the top three strongly effective or moderately effective methods.
Interestingly, the list of communication methods that respondents say are not effective is led by wearables (35%), televisits (30%), and social media (25%). While most respondents do characterize these methods as either strongly, moderately, or slightly effective, the high negatives are likely because wearables are mostly used by healthy people to stay fit (although healthcare-specific applications are beginning to emerge), and televisits and social media use as healthcare communication platforms are still evolving and interest in their usage may be generational.
Walters says that social media in particular has vast potential as a patient communication platform, and that its use is becoming more widespread among all generations. "One of the most effective population health tools today is social media, and it has been for the last 15 years. And it is absolutely composed of baby boomers, and one of the best examples of that is a group called PatientsLikeMe. I think that it is incredibly powerful and effective."
PatientsLikeMe is a for-profit health information sharing website. The platform allows patients to partner in real time with doctors, researchers, and companies to improve the understanding of their disease and accelerate the development of new treatments.
IT competency. IT is expected to play a critical role in the effective delivery of value-based care, and developing competency in this area is a strategic priority for most providers.
Within IT, respondents indicate that EHR elements lead the list of areas their organization is committed to developing or has developed a competency for value-based care. The top three responses are enhancing provider efficiency through EHR usability (73%) and EHR interoperability (73%) in a tie, and EHR standardization among care partners (65%). Interestingly, prescriptive analytics (42%) receives the lowest response, but this will likely change over time as providers continue to develop analytics skills and invest in IT staff to leverage this important tool.
The good news for respondents is that the IT areas where they indicate they are developing value-based competencies are also areas of organizational strength. For example, 55% of respondents say that their EHR standardization among care partners is very strong or somewhat strong, and 55% say this for EHR interoperability. Completing the top three for very strong and somewhat strong responses is more rigorous data accuracy standards than required by fee-for-service (51%).
IT areas that respondents say are very weak or somewhat weak are prescriptive analytics (67%), staff actuarial skills for financial risk assessment (64%), and integrating data sets from various sources, including payers (61%). Clearly, more work needs to be done in these challenging areas.
Walters says integrating data sets from different sources is part of an IT challenge that exists for both payers and providers, some of which is exacerbated by the coexistence of both fee-for-service and value-based care models.
Payment models. Given that the transition from fee-for-service to value-based care is in the early stages, most providers as a necessity operate in an environment where both models are present. While this can be inefficient and cause some difficulties for providers, it does offer an opportunity from a research standpoint to compare the models side-by-side in actual healthcare situations.
Respondents in our survey say that the fee-for-service with no value-based component payment model is the least effective model in terms of cost and quality improvements; nearly half (46%) of respondents say that it offers neither improved outcomes nor lower costs. This result is more than double the response of any other payment model on the list, and it also has the highest participation rate by respondents—only 4% say they have no involvement with this program. At the other end of the spectrum, Medicare Shared Savings Program with upside rewards and downside risks (9%) receives the lowest response for yielding neither improved outcomes nor lower costs; still, only 20% report improved outcomes either with or without lower costs, and only 10% indicate lower costs, indicating that the model has yet to demonstrate exceptional value.
Medicare Shared Savings Program with upside rewards only (17%) has the highest response for improved outcomes and lower costs, although its response is only marginally higher than the other payment models, both fee-for-service and value-based. Interestingly, the top three responses for improved outcomes, no cost reduction are all fee-for-service based: fee-for-service with upside rewards, such as performance awards (26%), fee-for-service with no value-based component (20%), and fee-for-service with downside risk, such as reimbursement penalties (17%).
When asked to rank the possibility of the various models evolving to become their organizations' principal value-based payment model, respondents say that fee-for-service with upside rewards, such as performance awards (23%) is the top-ranked payment model, followed closely by shared risk, such as ACO (20%), and bundled payment program(s) (19%). The payment models receiving the lowest responses are partial capitation (4%) and full capitation (5%), indicating respondents' low expectations for these value-based models.
Value-based model growth. While the transition to value-based care is in the early stages of its adoption, the outlook for growth in the share of patients in value-based programs is robust. For example, just 17% of respondents say that at least 50% of their patients are currently in value-based programs, but in three years' time, that more than triples to 64%.
Respondent expectations for growth in the percentage of patients in value-based programs is significant: the under 25% share segment is expected to decline by 51 points, and is the only segment predicted to fall; the 25%–49% segment increases 5 points; the 50%–74% segment increases 25 points; and the 75%–100% segment increases 22 points. These are dramatic changes in share, particularly when you consider they are for a three-year time period.
Similarly, respondent expectations for net patient revenue growth from value-based programs is also bullish. Respondents say that their net patient revenue percentage is currently 20% value-based and 80% fee-for-service, and they say these will go to 50% each in three years. The results indicate that value-based models will soon reach parity with fee-for-service.
At Trinity Health, Walters says that its targets are even more aggressive. The current expectation is that 75% of net patient revenue will be value-based in 2020. She says there are numerous factors for all providers to consider as they make the value-based journey.
"You need a willing provider group and you need a willing payer partner. And then you have to agree on what value-based care is in a financial sense. Does it mean the same thing to both parties?" According to Walters, some questions to ask include: Will providers get paid for meeting certain quality measures for certain subsets of patients? Does it mean meeting targets that include a medical expense target as well as some quality measures? And if you meet the target, do you get a bonus? Do you share in that bonus? How much do you share in the bonus? Which patients are covered?
Perhaps one of the greatest challenges of preparing for value-based care is simply the sheer number of permutations that the model offers. Every organization will have to sort through the various combinations of upside and downside risk, bundled payments, and capitation, and ultimately decide what works best for them and their patients.
Healthcare leaders are embracing transparency and process redesign while striving to better grasp their true cost of care.
This article first appeared in the June 2016 issue of HealthLeaders magazine.
The strategic imperative of achieving sustainable cost control is one of the healthcare industry's important challenges—without a clear and effective strategy, many healthcare organizations will find their financial viability at risk. Traditional cost containment and revenue cycle approaches based on purchasing and supply-chain efficiencies and enhanced revenue collection activities can only achieve so much, particularly in the face of declining reimbursements and requirements for higher levels of clinical performance.
This is not to say these activities lack value—far from it. Driving down costs through frugal spending and more efficient operation on one hand, and maximizing revenue collection through the use of disciplined practices and IT-based capabilities on the other, are a necessity. But there are other more sustainable avenues to pursue, such as process redesign and care standardization, to name just two.
The transition from fee-for-service to value-based care encourages healthcare organizations to embrace a new financial and clinical mission: providing high-quality care at more affordable costs. One of the fundamental competencies of this new model is being able to determine the true cost of providing care. Unfortunately, more than half of respondents to the 2016 HealthLeaders Media Strategic Cost Control Survey say the biggest barrier to sustainable cost containment is lack of data on the true cost of care, so there is work to be done. Having a complete knowledge of costs allows organizations to operate in more strategic and sustainable ways, and this will be critical as healthcare organizations adopt risk-based reimbursement models.
The good news for both providers and patients is that healthcare reform appears to be having the desired effect on cost containment: 50% of survey respondents say that the transition from fee-for-service to value-based care has either improved or somewhat improved their cost-containment efforts, and only 16% say that this has hindered or somewhat hindered their efforts. Positive change is coming, although more slowly than many would prefer.
Biggest barriers
Healthcare leaders are clear that the lack of data on the true cost of providing care is the No. 1 barrier to sustainable cost reductions; it is the only response cited by a majority (57%) and is nearly 20 points ahead of the next-highest choice.
The second level of responses regarding barriers are tightly clustered, and include insufficient integration with care partners at 39% and, at 32% each, lack of patient engagement in their care, lack of technology in place to achieve goals, and unsupportive organizational culture. Responses are fairly evenly spread across the remaining barriers, which indicates that achieving sustainable cost reduction is a complex undertaking that touches on all aspects of the organization.
While most of the challenges are organizational matters, providers also need to do better engaging patients.
Greg Poulsen is senior vice president and chief strategy officer at Intermountain Healthcare, an integrated healthcare network located in Salt Lake City, and the lead advisor for this Intelligence Report. He says that patient engagement is critical to meeting clinical and cost-containment objectives, and it's one of his organization's top challenges.
True cost of care
Most providers understand that they must determine the true cost of providing care; however, actually being able to obtain the data is another matter. Only 6% of respondents say that they are able to determine the true cost of providing all care, 29% say they can do this for most care provided, and 51% say they do this for some care provided. The response for those who have no true cost data for any care provided comes in at 15%. These responses are very similar to the ones in last year's survey, with slight improvement, but variation of no more than three percentage points.
Although more than one-third (35%) of healthcare organizations have determined the cost of care for either all care provided or most care provided, it is somewhat disconcerting that 15% are operating in the dark in terms of costs. On a positive note, 51% are at least able to determine the cost of providing some care, meaning that—with some work—these organizations should be able to increase their knowledge of costs over time.
Poulsen says that Intermountain has been collecting cost data since 1983, and has a standard cost database that allows the organization to analyze clinical costs in a granular way across the continuum of care. Part of Intermountain's need to track costs this closely relates to its payer role of insuring more than 750,000 covered lives.
"We know what procedures cost us at the most fundamental level. And we know what it would cost us to do two different modalities of care. So, for instance, it may be that there are certain patients for whom you could legitimately and medically say it would be equivalent to do a stent versus a bypass surgery. We know what the actual costs are for each, and not just the cost of the in-hospital component, but the follow-on component: the home health, if there are readmissions, and what the cost of those readmissions are. In our data warehouse, we have a longitudinal perspective on basically all the people that we've cared for over the years, so we can bundle them into different categories at a very finite level," he says.
"Ultimately, we think about costs from the perspective of taking care of a whole group of people, and trying to keep them healthy. We may have four different alternative mechanisms for treating people, and knowing each of those costs is very important, and it helps us to rationalize early interventions," Poulsen says. "So if we can do something that costs a few hundred dollars today in order to prevent something that not only costs a lot of money in three or four years, but may also prevent them from having to miss work, to be away from their family, to become less active, and, therefore, potentially the subject of further health problems, we think all of those are great investments."
Value-based care
One of the goals of healthcare reform is to drive improvements in both quality outcomes and more affordable costs. Therefore, it is encouraging that 50% of respondents say that the transition from fee-for-service to value-based care has either improved or somewhat improved their cost-containment efforts, and that only 16% say that this has hindered or somewhat hindered their efforts. Twenty-four percent say that the transition has had no impact.
According to respondents, it appears that greater percentages of large organizations are deriving cost-containment benefits from value-based care than medium and small ones. For example, based on net patient revenue, a greater share of large organizations (71%) than small (44%) and medium organizations (45%) say this has either improved or somewhat improved their cost-containment efforts. Likewise, a greater share of small (20%) and medium (17%) organizations than large organizations (4%) say that this has hindered or somewhat hindered their efforts. Further, a higher percentage of small (25%) and medium (32%) organizations than large organizations (16%) say that this has had no impact.
Poulsen says that value-based care has a positive effect on cost containment. "We have been thinking about it from a value-based approach for a very long time because we've been paid for a big portion of our patients on a prepaid basis. It increases hugely the opportunity for wellness. It increases hugely the opportunity for informed decision-making about utilization decisions. Those were tools that were not available to hospitals in the past, by and large. The only thing they could do is to reduce the cost of an x-ray or reduce the cost of a hip replacement. We think the vastly more important question is, is the x-ray necessary? Is a hip replacement, in fact, beneficial?"
Price transparency
There has been a lot of industry discussion about the relative merits and drawbacks of price transparency and its ultimate impact on cost containment. Can price transparency have value without quality transparency as well? Does price transparency matter when most of the cost is typically paid by insurance, or is the trend toward high-deductible plans changing the equation?
Nonetheless, survey results show that most respondents have embraced price transparency. Forty-three percent of respondents say that they provide price transparency to patients for all or most care provided, 42% say they can do this for some care provided, and 15% are unable to do this for any of the care they provide.
Results are mixed when analyzing the data by setting. Although a greater share of physician organizations (23%) and hospitals (20%) than health systems (10%) say that they provide price transparency to patients for all care provided, a greater share of physician organizations (20%) and health systems (19%) than hospitals (9%) also say they are unable to do this for any of the care they provide.
Results for being able to provide transparency to patients regarding payers' share of the cost of care reveal that this task is slightly more challenging, likely because the source of the information comes from outside respondents' organizations and also the difficulty of knowing whether a given patient has met out-of-pocket deductibles. Forty-six percent of respondents say that they provide transparency to patients regarding payers' share for all or most payers, 25% say they can do this for some payers, and 28% are unable to do this for any of the payers.
Operations activities
Operations or administrative activities that drive the highest-dollar value in cost-containment contributions have typically been led by purchasing and supply chain efficiencies, and it tops the list again in this year's survey at 64%. The next highest response is for process redesign (58%). These results are identical to last year's report, which shows the value of both tried-and-true efficiencies as well as new processes.
While some in the industry believe that purchasing and supply chain activities are starting to reach the point of diminishing returns and that process redesign will eventually take its spot at the top of the list, for now, both traditional and innovative efforts represent relatively equal parts of most cost-containment strategies.
Poulsen says that, while process redesign has been Intermountain's top cost-containment contributor for many years, purchasing and supply chain efficiencies still play an important role. "I think there's still value there, and it would be unwise to discount how important that kind of work is. We break costs into three categories, and that would fall into the first one, which is efficiency. We've got to be effective and efficient at what we do, and to me the whole supply chain—because there's so much money in supplies—there's more mining to be done and there's more value to be extracted there."
Digging into the data, we see that responses for purchasing and supply chain efficiencies are highest among respondents who say they can determine the true cost of care for some care provided (72%), followed by all or most care provided (63%), and only 45% among those who have no data on the true cost for any care provided. In a similar vein, responses for process redesign are highest among respondents who say they can determine the true cost of care for some care provided (62%), followed by all or most care provided (58%), and only 48% among those who have no data on the true cost for any care provided.
Organizations that are able to determine the true cost of care are in a better position to reduce costs. Note that it's not simply having an understanding of the cost data that confers a cost-containment benefit—the cost data increases the effectiveness of an organization's cost-containment initiatives. The data alone confers limited benefit; it's what you do with it that provides the value.
Cost-reduction programs
Survey respondents say that they are continuing to have success in reducing costs in their organizations. Forty-nine percent of respondents indicate that cost-reduction efforts yielded year-over-year savings of 5% or more for the most recent fiscal year. At the upper end of the range, 9% of respondents had reductions of 11% or more.
As mentioned earlier, organizations that are able to determine their true cost of care tend to have more effective cost-reduction initiatives. For example, there is a correlation between the level of savings respondents say they receive from cost-reduction programs and their organizations' abilities to determine the true cost of care. Fifty-one percent of those who are able to determine the true cost of care for most or all of their care report year-over-year savings of 5% or more, while just 38% of those who are unable to determine the true cost for any of their care are achieving such deep savings.
There is also a relationship between the level of savings respondents say they receive from cost-reduction programs and their views on the cost-saving benefits of the transition from fee-for-service to value-based care. A greater share of respondents who say the transition from fee-for-service to value-based care has either improved or somewhat improved their cost-containment efforts (54%) than respondents who say this has had no impact on their efforts (40%), or who say this hindered or somewhat hindered their efforts (40%), report that cost-reduction efforts yielded savings of 5% or more.
After years of cost-cutting, the outlook for further reductions remains consistent with current savings levels. Forty-nine percent of respondents expect average annual cost reductions of 5% or more over the next three years, and at the upper end of the range, 12% of respondents are expecting reductions of 11% or more.
Ultimately, organizations that have a deep understanding of their cost of providing care are better prepared to drive down costs in a variety of areas, while those lacking cost data have more difficulty executing on this mission. Clearly, the first step for most organizations is to determine their true costs, if not for reasons of transparency, then for reasons of financial viability.
The individual reasons are varied, as are the models, but healthcare leaders continue to look beyond their own organizations to survive and thrive.
This article first appeared in the April 2016 issue of HealthLeaders magazine.
While healthcare reform and the transition to delivering value-based care are pushing merger, acquisition, and partnership (MAP) activity to ever-higher levels, these are not the only factors responsible for driving this growing phenomenon. In fact, increasing momentum for MAP activity is noteworthy both for the range of influences playing a role in its acceleration, as well as the absence of mitigating factors slowing its proliferation.
According to the 2016 HealthLeaders Media Mergers, Acquisitions, and Partnerships Survey, for example, the top financial objective for MAP activity is to increase market share within our geography (70%). However, there is ample support for a range of objectives and the remainder of the top five—improve financial stability (60%), improve operational cost efficiencies (58%), improve position for payer negotiations (57%), and expand geographic coverage (57%)—all have response levels above 50%, indicating that no single objective is responsible for driving MAP activity.
Likewise, the top five care delivery objectives follow a similar pattern: to improve position for population health management (70%) receives the highest response, followed by improve position for care delivery efficiencies (63%), improve clinical integration (61%), gain care delivery cost efficiencies through scale (54%), and expand into new care delivery areas (51%). Note, however, that a reform-related care delivery objective occupies the top spot, so its influence cannot be understated.
"I would say that in every conversation that I have about this, somebody asks me how much did the Affordable Care Act have to do with driving the decisions that this particular group of people made, that this is all in response to healthcare reform and the implications that that poses for people. My observation is that it's possible to make an argument or connect a lot of things back to that, but in our case and in others that I'm hearing, it's not necessarily any one of the elements, but it's all of them together," says Greg Devine, former senior vice president of provider strategies at ThedaCare, an Appleton, Wisconsin–based nonprofit health system, and current president and CEO at AboutHealth, a Wisconsin-based clinically integrated network.
MAP activity levels
Without question, survey respondents are bullish on the prospects for higher levels of MAP activity. Seventy-five percent of respondents say they will either be exploring potential deals or completing deals that are underway in the next 12–18 months, and only one in four respondents (25%) say they have no MAP plans. Further, nearly two-thirds of respondents (63%) say that their organization's MAP activity will increase within the next three years, and only 3% say it will decrease. Thirty-three percent say it will stay the same.
Another barometer of MAP activity is the total dollar value of the mergers and acquisitions that respondents say their organizations will be exploring over the next three years. While this year's survey results are comparable to last year's, there is a small shift to a higher total dollar spend on mergers and acquisitions. The $50 million–$99.9 million range is up three points to 17%, and $100 million–$499.9 million is up five points to 21% compared with last year (for a combined eight-point increase), while the lower $10 million–$49.9 million range is down nine points to 23%.
Interestingly, respondents indicate that it is not only total MAP spend that is increasing, but also the size of the deals being pursued. Nearly half of respondents (49%) say that they expect the dollar value of the mergers and acquisitions their organization will be pursuing within the next three years will increase, and only 5% say the value will go down. Sixteen percent say it will remain even.
Factors driving MAP activity
As mentioned earlier, the reasons behind the high rate of MAP activity range from traditional considerations such as the need for increased market share, improved scale, and increased financial stability, which are more tactical in nature, to more strategic and far-reaching factors such as anticipating the impact of the Affordable Care Act and the transition to value-based care.
For example, survey respondents who have considered or are considering a merger, acquisition, or partnership with another organization were asked about the main reasons for doing so. Two-thirds (66%) say that supporting sustainability of their long-term mission is the main reason for considering a MAP with another organization, an indication that providers are mostly thinking strategically when engaged in this activity. Note that expanding market share (55%) and improving scale (49%) rounded out the top three responses, suggesting that tactical considerations also play an important role in provider strategy.
Respondents were also asked about the considerations they thought were most important to their organization when considering a merger, acquisition, or partnership. Mission/cultural compatibility of organization (73%) is the top consideration, while strength of new organization's network (56%) was the No. 2 response, which reflects the importance of expanding clinical reach to improve volume, scale, or expansion of care continuum capabilities.
One thing to remember is that not all providers are alike—each organization has its own unique set of circumstances that may ultimately lead them down the path to seeking a merger, acquisition, or partnership. Advisors to this Intelligence Report suggest that attributing increased MAP levels to the Affordable Care Act and value-based care alone provides an incomplete picture of the forces at work.
"The Affordable Care Act is certainly driving some of it," says Paul Tait, chief strategic planning officer for University Hospitals, a Cleveland-based nonprofit health system. "But there's usually a financial reason, which is the catalyst, and there's a couple different elements to that. One is that there's a lot more capital availability for acquisitions these days—and with lower interest rates—so if you're a larger, well-established health system, then you probably can borrow money at a reasonable rate.
"On the other side of it, I think with a lot of the hospitals that are linking up, it's because they need access to capital or they need new investment. And in some cases, they're just running out of money. There's an awful lot of financial margin pressure on hospitals, and I think that's just going to get worse because of the payment changes that have already started and will accelerate. So as you see more of a move to value-based payment, some organizations aren't going to be able to deal with that very well and they're going to end up with even more pressure on their margins."
Tait points out that increasing scale is a key driver of increased MAP activity because of the range of its many benefits. "You obviously get greater purchasing scale with vendors; you end up getting larger volume discounts and better rebates and all those things. You can leverage all of your business functions across a broader system and more revenue, so they become more efficient. You can leverage corporate functions, and it also improves your leverage with health plans when you're negotiating managed care contracts.
"If you have more scale, you can also afford to recruit more doctors. And you become more attractive for physicians that are looking to be employed because, if you're a larger health system, you're probably going to offer them more opportunities to grow their practice and you're more stable as an employer. And then, if you think about population health, you're spreading risk over more lives."
Devine agrees that many organizations are pursuing mergers and acquisitions to achieve increased scale, and that scale is an important element of population health strategy.
"There's a belief that there's a certain scale that's necessary to be competitive and to be able to afford investments in either process design or technology, or the ability to buy goods and services. And that target of what's the necessary scale is sort of a phantom number. It appears that people are making it bigger all the time. But I think it's the notion of scaling population health to the extent that that becomes linked to managing risk in a population, and this becomes relevant because you have to have a certain scale to that population. I think most people would argue to be able to manage that risk effectively, price it, and manage it, you need scale."
Dave Krajewski, chief financial officer of LifeBridge Health, a Baltimore-based nonprofit health system, explains the drivers behind MAP activity this way. "There are two reasons that come to mind. One is the need to expand and do more than just what we typically did as a hospital system. As we're being held accountable for the total cost of care for patients, and we are entering into risk-based arrangements, we need to have a degree of influence over what happens in the physician office, what happens at the nursing home, and what happens at an urgent care center or an ambulatory surgery center because that care increasingly ends up being, in aggregate, a larger chunk of the healthcare pie than what happens at hospitals.
"On the nonhospital side, what you're seeing is hospitals and other provider organizations acquiring parts of the rest of the continuum of care so they can more readily control and influence the total cost of care. That's why you're seeing a pickup in hospitals acquiring physician practices, or hospitals doing joint ventures with urgent care centers or nursing homes," he says.
"On the hospital side, you're looking at an era where utilization, at least in the state of Maryland, is going to be going down per capita and not up for hospitalizations. And I think what you're seeing is hospitals trying to beef up a little bit, knowing that their scale is going to diminish over the next 10 years or so," Krajewski says.
Organizational types
According to survey respondents, the top three entities involved in their most recent merger, acquisition, and/or partnership are health systems (29%), hospitals (25%), and physician practices (20%).
Interestingly, responses for retail clinic/urgent care clinic (3%) place well down the list. This is somewhat surprising given the current focus by many providers on growing their ambulatory/outpatient networks, but growth in that area is expected.
Looking to the future, respondents were also asked to identify the organizations that they had a high interest in pursuing through a merger, acquisition, or partnership within the next year. The top five responses are: physician practices (61%), health systems (41%), hospitals (39%), physician organizations (34%), and retail clinics/urgent care clinics (26%).
Results for this question are illuminating. While physician practices are the entities mentioned third most frequently as the most recent MAP target, the level of response for physician practices jumps 41 points for the coming year, making it the top response for MAP activity within the next year. The response for physician practices is also up 11 points over last year's survey result for activity expected in the coming year. The strong interest in physician practices is likely because primary care physicians are a key component of the continuum of care, and play an increasingly important role in population health management and clinical integration.
Also noteworthy is the level of response for retail clinics/urgent care clinics in the coming year. The response is up 23 points to 26% compared with most recent activity, and demonstrates the high level of interest providers have in expanding their outpatient/ambulatory care networks.
According to Devine, the high level of MAP activity involving physician practices indicates the key role that primary care physicians play in the continuum of care, making them attractive acquisition targets. As a result, providers in some areas of the country are facing tight supplies of physicians.
"I would say particularly in Wisconsin—I don't even know if there's 1% of the primary care physicians in Wisconsin anymore that are not part of some large, integrated system. So particularly at that primary care level—I think the models change with the specialty practices—I think it's not for the sake of ownership or control that's driving this. It really is being driven by the need to align the various elements of the continuum of care around delivering better outcomes and waste elimination," he says.
"And it's really important that whoever you define as your team generally shares those commitments to those outcomes and those standards. If you can't do that in a contractual relationship, oftentimes you're compelled to look at alternatives. The issue appears to be growing—at least in the markets that I'm aware of—and the challenges are greater especially in rural communities. If you step back and look at the country, there's an awful lot of rural communities that are probably pressed to fill those needs," Devine says.
Tait agrees, and explains the financial ramifications of the problem. "We're seeing some providers that are just having a terrible problem with their physician networks. We've seen a number of community hospitals that have been unsuccessful replenishing their medical staff as people leave or as people retire. In some cases, they may have lost physicians to competitors in their local market, and if they try to employ some doctors, they don't have the scale to do it well. It's very common for us to see a single community hospital that might be trying to employ anywhere from 15 to 30 doctors, and they're losing over $200,000 per doctor."
Krajewski explains that for LifeBridge Health, physician practice acquisitions started out as a strategy for growing scale for contract negotiation purposes. Eventually, however, its focus evolved into building a network to support population health initiatives.
"Originally, we started looking at physician practices probably five or more years ago. It was more about leverage in the marketplace, making sure that down the road, we wouldn't be cut out of contracts. Our belief was that we weren't the largest hospital system in the state, but if we had a very large base of primary care doctors and specialists, that we would become indispensable from a contracting standpoint. So originally it started with that thought process in mind, but then as the Affordable Care Act hit, it became a population health play as well."
Merge, acquire, or partner?
Respondents were asked to describe the nature of their most recent MAP activity. The top response is acquisition of one organization by another (38%), followed closely by a contractual relationship, but not M&A (33%). A merger of two organizations into one (9%) received the lowest response. In a follow-up question to those who had selected a non-M&A contractual relationship, respondents were asked to describe that model, and affiliation, collaboration, or alliance (46%) and professional service agreement (31%) received the top two responses. This is likely because these contractual relationships are simpler, more flexible, and require less commitment than joint operating agreements (14%) and joint ventures with change of ownership (6%).
Tait says that, while he expects MAP activity in general to remain steady over the next few years, he thinks the rate of non-M&A partnership activity will probably increase because it is typically less expensive than a merger or acquisition, and it doesn't require an exchange of assets or a change of local governance.
"You're seeing a lot more innovation in terms of the way people structure relationships and affiliations and partnerships. It isn't always just straight merger or acquisition," he says.
"First, I think the reason some of these non-ownership models come together is less capital is required or no capital is required, depending on what you're doing and the scope of the agreement. Second, there's still the sense of maintaining local control. So you can get into an affiliation or a partnering agreement, and you may still retain your local governance and your local control," Tait says. "And probably a third broad reason is, people structure these partnerships for a more narrow purpose, meaning they're not trying to integrate everything. They may be trying to collaborate or integrate in a particular area or a particular service line."
When good deals go bad
When providers enter into MAP discussions, there are no guarantees that a formal agreement will eventually come to pass. There are a variety of hurdles that have the potential to derail the initiative.
Concern about the assumption of liabilities (29%) is the top financial reason for a deal not proceeding before or during the due diligence phase, and it was the top reason in last year's survey (28%). The extent of a target organization's financial liabilities may not be apparent until the due diligence phase is completed, which may explain why this can be a deal-breaker. Concern about risk/revenue sharing (23%), concern about price (22%), and regulatory issues (20%) round out the top four responses. Regulatory issues had the greatest increase in response compared with last year's survey—up 8 points. Advisors mention the complexity of deals that cross state lines as a potential source of regulatory trouble.
Incompatible cultures (35%) and concern about governance (33%) are the top operational reasons for a deal not proceeding, and these were the top two responses in last year's survey. The response for mistrust between parties (24%) places it in the top three.
Krajewski says that organizational culture is one of the core elements that it considers when looking to partner or acquire. "For us, it really becomes assessing whether the organization you're looking at, the hospital you're looking at, has a similar culture, a similar direction, and a similar set of goals. Whether everything's lining up together, and then convincing the other organization that, 'Hey, you know, we're on the same path; we might as well join forces, add some scale, and help out with the economics. And maybe complement each other's strengths and weaknesses related to clinical care and the continuum.'
"We use the term aligned autonomy a lot around here," Krajewski says. "As an example, we'll go into an acquisition with a physician practice with the idea that they're going to still continue having a large degree of autonomy, but before we do the acquisition, we make sure that that autonomy is aligned with the direction we have at LifeBridge."
