Boston, MA: Resident neurologist Dr. Peter Tatum, center and Dr. David Thaler, Neurologist-in-Chief … [+]
Many of our country’s largest health systems suffered staggering financial losses last year, and the outlook for not-for-profit hospitals in particular, which benefit handsomely from their generous tax-exempt status, is equally troubling. Hundreds of rural hospitals have shut their doors in recent years, and close to 30% of the remaining ones are at risk of closing. All of this to say, the healthcare delivery industry is clearly in a state of economic distress and panic. As it continues to wrestle with downward reimbursement pressures and other fiscal and operational challenges in a post-Covid world, leaders of these organizations need to realize that clutching to an outdated and broken fee-for-service (FFS) operating model will not get them out of this quagmire.
I’ve written extensively, both in this column and in our books, about the fundamental problem with FFS. At its core, it is provider – rather than patient – centric, and has little accountability for patient outcomes across the continuum. Our Numerof & Associates 2022 State of Population Health Survey Report further illustrated two very painful lessons that were learned when Covid tested its vulnerabilities and exposed the system for the failure that it is.
The first lesson was that ignoring social determinants of health (SDOH) left millions of Americans with serious underlying conditions highly susceptible to the ravages of the virus, and we have all paid a high price for that decision. Second, hospitals learned that when the cancellation of elective procedures cut-off their revenue lifeline, FFS all of a sudden became a very risky proposition. But even before Covid’s arrival, other marketplace dynamics were taking hold, which should have been an early warning that FFS was unsustainable.
Our latest book, Bringing Value to Healthcare, explains in greater detail the means by which delivery organizations are now being forced to account for cost and quality of outcomes in ways previously unimagined. Hospitals face a payer mix in which the government’s share is increasing, while its reimbursement rate continues to shrink. And, as hospitals have shifted to private payers to make up for lost revenue, they are facing fierce resistance as these payers, no longer free to ride the cost curve up, will be following the Centers for Medicare and Medicaid Services’ (CMS) lead now more than ever. Additionally, in an effort to contain their own costs, more and more employers are moving to high-deductible group plans, which means consumers are paying a larger share of plan premiums.
Taken together, these forces reflect how the days of managing financially under a FFS model are numbered. In order to pivot to a new, market-based model, providers must fundamentally rethink their value proposition in the eyes of consumers, payers and other stakeholders in a way that accounts for cost and quality of outcomes across the continuum.
This means making an economic clinical value argument for the way in which they operate. What does this procedure actually cost? What outcomes should I expect? And, if your total cost of care for a procedure(s) is more expensive than competitors, why should I come to you for care? These are just some of the questions that are now being asked, but sadly, still going unanswered. The silence only reaffirms that while healthcare is a big business, it does not run like most other consumer-facing industries where innovation drives demand, which in turn determines pricing, and choice reigns supreme.
To illustrate the point, I recently had a conversation with an executive at one of the largest and best-known nonprofit academic medical centers in the country – a person who clearly understands that getting to a new outcomes-based model is an urgent necessity for his organization. In my discussion, it came to light that he has so far been unable to get his leadership to engage in this critical effort.
The hospital where he works has struggled unsuccessfully for years, and mostly on its own, to make an economic and clinical value argument across most of its lines of business. With the exception of several high-end, complicated procedures – bone marrow transplants for example, – they don’t have evidence-based clinical outcome data for more routine procedures. Because of this, these procedures are sometimes more expensive than other hospitals, and often, patient outcomes are suboptimal. Astoundingly, many health systems are still struggling to get a handle on processes that have and continue to lead to poor outcomes, and it’s happening at even some of the best, internationally recognized and heavily capitalized academic medical centers. And, these health systems have been resisting in every way possible. This began when CMS started to implement reforms some 40 years ago to control rising healthcare costs while improving quality and patient safety. More recently CMS has added accountability and price transparency to the mix.
Taking this one step further, a physician CEO at another organization that we interviewed for Bringing Value to Healthcare said “the majority of Americans…don’t understand that one-third of what we do to them is unsupported and often harmful!” But he cautioned that if we “flipped the switch” and every physician started practicing evidence-based medicine tomorrow, we’d have a revolution. A revolution is certainly what we need right now. However, as our latest Population Health Report reveals, old fears continue to make the journey to population health management an incredibly bumpy one.
Organizations serious about managing quality and cost variability must develop mechanisms for administrative leaders to engage at the physician level to influence clinical practice patterns, since physician decision-making is the most significant driver of healthcare spending and highly relevant to optimal outcomes. While our data shows that the number of healthcare executives who say their organizations are slowly improving in their ability to manage variation in clinical quality at the physician level has increased 15% since 2016, this upward momentum doesn’t carry across the board. For instance, managing clinical cost variation at the physician level is quite another story: 62% rated their organization’s ability to do this as “average” or “worse than average.” This illustrates how organizations are still failing to keep pace with the demands of population health.
In addition, when it comes to adopting other mechanisms to support physician accountability for cost and quality, our data also shows that adoption has been less than stellar. This includes creating care paths for high-cost procedures, using formal processes to identify variation in cost and/or quality at the physician level for one or more procedures, and paying physicians based on their ability to manage variation in cost and/or quality, among others. Until these gaps are closed, fear of financial loss and a struggle to contain clinical costs will continue to haunt upper management.
Our survey consistently shows that an overwhelming majority (81%) of healthcare executives believe population health would be “critically” or “very” important for future success. If that’s true, then they need to abandon the group thinking that simply “breaking even” or “we didn’t lose as much money last year” is sufficient going forward. Industry stakeholders also say they want “better health outcomes at lower cost.” If that rallying cry is also true, then it’s time to show the data – and more importantly, the corresponding outcomes. Until that happens, retail industry disruptors will continue to chip away at a segment that continues to cede more ground by the day.
Population health – broadly defined as providing the right intervention for each patient at the least costly point in the care continuum – is a necessary component to fix our failing FFS system. But like a sand crab trying to inch its way across the beach in order to get to the ocean, they are moving more sideways than toward the ocean. And as the aimless crawl continues, our chronic disease epidemic will only worsen, more and more frustrated primary care physicians and other doctors will walk out the door, and the patient-consumer will be left sitting in the emergency room helpless, confused and holding the medical bills.
Breaking old habits and embracing a new way of thinking and doing business is difficult, and there is no one-size-fits-all solution. But given the critical condition that U.S. healthcare delivery is in today, it’s clearly time for an intervention.