Healthcare Transformation: Coping With the Neutral Zone

Healthcare Transformation: Coping With the Neutral Zone

I’m being asked the same series of questions a lot lately:

Do you think the changes occurring in US healthcare are real?  Are we truly moving away from rewarding volume of care under fee-for-service (FFS) and toward value-based payment and delivery? Are the changes past the point of no return? Will the economic interests of the powers-that-be prevent real change from happening, just as they have done in the past?

The phrasing of these questions assumes a split, dichotomous view of the world — that change has/hasn’t yet happened. The questions also mask the underlying and difficult process of transition that people and organizations are going through.

There’s a different way to think about the transformation of U.S. healthcare — transition as a 3-stage process:

William Bridges 3 Stage Transition Model

 3Stage

Here’s a summary of where I’m going with today’s essay:

  • Think of Transition as a 3 Stage Process
  • U.S. Healthcare—Entering the Neutral Zone
  • How Long Will the Neutral Zone Last? Quite a While.
  • So What? What are Implications and Actions? 

ACOs: We’re NOT There Yet

by Brian Klepper

On The Health Care Blog, veteran analyst Vince Kuraitis reviews a report from the consulting firm Oliver Wyman (OW), arguing that the trend toward reconfiguring health systems to deliver more accountable care is more widespread than any of us suspect.

“The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise,” our analysis finds that 25 to 31 million Americans already receive their care through ACOs-and roughly 45 percent of the population live in regions served by at least one ACO.”

OW provides a well-reasoned analysis and conclusions, but I’m skeptical. In discussions with health system executives around the country, I hear some movement toward change, but relatively few organizations are materially turning their operations in a different direction. The specter of policy change is looming, but it is still abstract. As I’ve described before, market forces are intensifying, but they’re mostly still scattered and immature.

ACOs: Are We “There” Yet?

 

A  recent analysis of the ACO market by Oliver Wyman market suggests we’re well on our way toward being “there”.

My personal take on this report:

Provocative, fresh, thoughtful, well reasoned, expansive — albeit a bit of a stretch

However, I suspect many others will describe it as: 

Speculative, harebrained, unsupported, overly extrapolative, out-to-lunch, wishful to the point of being woo woo

So now that I hopefully have your attention, what’s this report all about? In a nutshell: 

The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise”, our analysis finds that 25 to 31 million Americans already receive their care through ACOs—and roughly 45 percent of the population live in regions served by at least one ACO.

Let’s dig in to the report. In this blog post, I’ll summarize their math, surface their critical assumptions and observations, and comment on their reasoning. I’ve indented direct quotations from the report and have italicized wording that spells out the major assumptions.

While I don’t agree with all of Oliver Wyman’s math and assumptions, I applaud them for the process they have gone through. Please take my commentary as “quibbling at the edges” and that overall I’m on board with their methodology and conclusions.

Are Hospital Business Models on a Burning Platform? Not Yet, But It’s Inevitable.

From reading recent headlines, one might easily get the impression that hospitals are resistant — or at least ambivalent — in their pursuit and adoption of accountable care initiatives.

Are Hospitals Dragging their Feet on Accountable Care?

Commonwealth Fund: “only 13 percent of hospital respondents reported participating in an ACO or planning to participate within a year”

KPMG Survey: “(only) 27 percent of [health system] respondents said current business models were either not very or not at all sustainable over the next five years”

Health Affairs: “Medicare’s New Hospital Value-Based Purchasing Program Is Likely To Have Only A Small Impact On Hospital Payments”

The Bigger Picture

Do hospitals today perceive their current business model on the metaphorical “burning platform” — when the status quo is no longer an alternative?

Hospitals or Health Plans: Who Do You Trust to “Connect” You with Your Health Records?

Over the past decade, I’ve seen a number of studies asking people whom they trust among various health care stakeholders. Nurses, pharmacists, and doctors always come out at the top.  Beyond that:

  • Trust of hospitals tends to be high (60–80%)
  • Trust of health plans is at the bottom of the heap (10–20%)

Is this written in stone for the future? I don’t think so…and the dynamics for change are in motion.  Please read on.

Here’s the emerging picture I’m seeing:

  • Hospitals are dragging their feet in connecting you with your electronic health information.
  • Health plans are highly motivated to connect you with your health information.

The ACO Antitrust Police — Nothing to Do

One of the biggest concerns about ACOs has been their potential to enable market consolidation— that by uniting health care providers the ACO gains market clout and ability to charge higher prices.

While this is a legitimate concern about ACOs, so far it’s not playing out.

Why?

 

Will Health Plans Want to Contract with ACOs? Maybe, Maybe Not.

On the Perficient Health IT blog, Christel Kellogg writes:

I am hearing that carriers are staying away from ACOs and are not planning on partnering.  What have you heard?

This is one of those blip-on-the-radar-screen comments that jarred my attention — and it raises very important questions about industry dynamics.

First, let me expand on the issue.  As I’ve written before, there are at least two broad categories of “accountable care initiatives”:

1) Formal Accountable Care Organizations (ACOs) by which care providers contract with Medicare

2) Informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans.

The list of accountable care animals in the forest is likely to keep growing. For example, just this week Oregon announced details for CCOs (Coordinated Care Organizations) for Medicaid.

So how are different stakeholders likely to react to the opportunity of a formal ACO contracting with commercial health plans? Let’s look at this from a couple of different angles.

A 6th Difference Between ACOs and “AC-Like” Arrangements

Last week I wrote about five key differences between formal ACOs (mainly care providers contracting with Medicare)  and informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans.

  1. Transaction costs
  2. Timing
  3. Incrementalism
  4. Flexibility
  5. Capital cost

There’s an important  6th  difference worth noting:

Visibility

Elephants

Formal ACOs will be visible from miles away — think elephants on the Serengeti.

An ACO that wants to contract with Medicare must establish itself as a corporation. The Medicare ACO models have substantial disclosure and reporting requirements. We won’t know everything about formal ACOs, but we will know a lot. ACOs cannot hide.

Chameleon

AC-Like arrangements between care providers and commercial payers could be much more difficult to spot and categorize — think chameleons in the jungle.  

What’s the Difference Between ACOs and “AC-Like” Arrangements?

A lot. AC-Like arrangements will be MUCH simpler to create and maintain.

The health care market is moving toward accountable care. There are at least two broad paths forward:

1) Formal Accountable Care Organizations (ACOs) by which care providers contract with Medicare

2) Informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans

What are the differences between these routes? I see at least 5 factors at play:

  • Transaction costs
  • Timing
  • Incrementalism
  • Flexibility
  • Capital cost

Op Ed: Emanuel NYT Editorial is Irresponsible and Naive

Zeke Emanuel’s editorial in the New York Times — The End of Health Insurance Companies — really got my blood boiling. It’s irresponsible and naive. Former Obama advisor Emanuel “predicts”:

By 2020, the American health insurance industry will be extinct. Insurance companies will be replaced by accountable care organizations — groups of doctors, hospitals and other health care providers who come together to provide the full range of medical care for patients.

Irresponsible

Provoking and demonizing health plans might have had populist appeal and political value in 2009, but in 2012 it’s an unnecessary attack on a constituency that has potential to be one of the administration’s best allies in advancing accountable care.

Prior to ACA reform legislation, health plans had the wrong economic incentives — the rules of the game were not consistent with good public policy:

  • Health plans had incentives to AVOID risk, not manage risk. They were economically incentivized to avoid high risk patients (with preexisting conditions) and to get rid of patients that became sick
  • Health plans had minimal incentives to CONTROL systemic costs — they could pass them on in the form of premium increases.

ACA changed incentives and disrupted the payer business model:

  •  Health plans will longer be allowed to avoid high risk patients; they must accept all comers
  •  Health plans must MANAGE, not avoid costs. Health plans are abandoning their old business models.

What are we seeing in the marketplace? Almost all health plans are embracing the vision of accountable care and need to shift the system from Volume to Value. Health plans could be administration’s biggest friend in revamping the health care delivery non-system.

Naive