by Vince Kuraitis JD, MBA and Jaan Sidorov MD, MHSA, FACP
Gazing at the horizon, we foresee the potential for a tectonic realignment among physicians, hospitals and payers. Here’s a quick visual representation:
This essay is the first of a seven part series. In this first post we will capsulize our vision of this potential 100 Year Shift, answer initial FAQs, and lay out the structure for the rest of the series.
The Lynchpin — Changing Economic Incentives
In the past, physicians and hospitals have benefited from mutually supportive economic interests.
Hospitals have served as the “physicians’ workshop.” Hospitals have also received considerable direct revenues thanks to physicians’ admissions of patients and use of the hospitals’ facilities.
Physicians, on the other hand, have received great indirect benefits from affiliating with financially sound hospitals. Physicians needed hospital services provided to their patients, relied on the capital equipment and technology purchases and benefited from the convenience of 24x7x365 hospital availability. Physicians also received credibility and prestige from having medical staff privileges.
It is important to note that under the model of “hospital as physicians’ workshop,” physicians have had no direct incentives to control hospital costs, i.e., using hospital resources effectively and efficiently. Under fee-for-service payments physicians order services, but a 3rd party payer and the patient pay the bills.
All this is changing.
Many events have already been reducing doctors’ and hospitals’ reliance on each other. They include hospitalists, growth of outpatient services, competition for ambulatory revenues and the increasing burdens of emergency room call.
But it doesn’t end there. We suggest that in the future physicians’ economic interests will be increasingly aligning with payer economic interests. Physicians decreasingly will be supportive of or indifferent to overutilization of high cost resources (admissions, ER visits, procedures) – in fact, just the opposite. Their professional and economic success will directly depend on providing value based care and optimizing (rather than maximizing) utilization of hospital resources.
Despite decades of antipathy toward payers, physicians should ask themselves: “Who is a better business partner under these changing economic circumstances?”
We observe the emergence of early examples of payment models that demand greater accountability from hospitals and physicians. We believe this will play out in many markets by payers aligning themselves directly with physicians and attempting to commoditize hospitals.
Here’s another way to picture this emerging dynamic among physicians, hospitals and payers. Imagine a negotiating table. Over the past 100 years commercial payers have been sitting on one side of the table and the doctors and hospitals have been sitting together on the other side of the table. It’s not that they doctors and hospitals necessarily loved one another, but they were united by a common nemesis.
We think doctors will begin to think of themselves as “independent voters.” While it’s been true that these independent voters have been siding with the hospitals for a long time, we foresee the potential shift of this feisty voter bloc.
As we describe below, we see doctors’ economic interests increasingly aligning WITH payers and AWAY FROM hospitals. Will this result in doctors and payers eventually sitting on the same side of the negotiating table? That remains to be seen…but the economics are clearly shifting. How this plays out will vary greatly in different regional markets.
Let’s be clear in separating observations from opinions/implications:
- Observation: economic incentives are changing
- Opinions/implications: this creates potential for tectonic realignment among physicians, hospitals and payers. We call this the 100 Year Shift.
Q1. Are you guys foolish, crazy or nuts? Despite all your rhetoric, most health care payments today – particularly Medicare – are still based on fee-for-service payments.
A1. Many observers – us included – argue that while the change in payment systems has not yet occurred for the most part, the forces are already set in motion and are inevitable.
One shorthand term that is increasingly being used to describe changing payment systems is going from “Volume to Value,” payment that moves away from rewarding volume of services to rewarding value of services.
We also categorically deny being crazy or nuts.
Q2. But hospitals have been buying physician practices right and left over the past few years. Your points don’t fit with the reality of what is happening in the market today.
A2. We promise to address this issue.
We’ll pose back a few questions for you to consider: How will history tell the story of hospitals purchasing of physician practices between the years 2009 and 2012? Will this be described as a marriage of true love or a shotgun wedding?
To shift metaphors, will hospital purchasing of physician practices be viewed as hospitals letting the fox into the henhouse – giving the run of the farm to the only stakeholder that truly has ability to slash hospital utilization and revenues?
In short, don’t mistake hospital employment of physicians for hospital alignment with physicians.
Q3. Yet, the market is very fragmented. Almost 90% of physician care is still delivered in small/medium size practices. How can physicians control anything under those circumstances?
A3. As we will discuss in a future post, we suggest the economic forces at play will impact all physician practices.
Q4. You guys are nuts. The technology to enable a 100 Year Shift doesn’t exist.
A4. It’s not here today but we believe it’s around the corner and in sight. …and in fact the coming technology can be a major differentiator accelerating the 100 Year Shift and in realigning independent voter physicians.
Q5. But physicians haven’t been trained to coordinate care.
A5. While physician education leaves much to be desired, we believe doctors have shown that they can adapt very well to economic incentives, especially if it helps their patients. The important thing to note that that they have no particular loyalty to hospitals.
Q6. Physicians and payers aligning together? What you’re describing is akin to the Hatfield’s and McCoy’s having a group hug and singing Kumbaya – it’s just not going to happen.
A6. We acknowledge that payers have a big hole to dig out of in their existing relationships with physicians, hospitals and patients.
We also recognize that some will view the deepness and breadth of this hole as unfillable and will dismiss outright the possibility of a 100 Year Shift.
Remember that what we are describing here is a shift in a 100 year trend – this will take time to play out.
Physicians should consider the types of capabilities they will need in a world that demands accountable care: technology to monitor patients outside the hospital, access to information about patients that is as close to real-time as possible, analytics to turn data into actionable information at the point of care, and a team working with the physician to help manage a widely-distributed population of patients.
Physicians should then ask who can better deliver these types of capabilities – hospitals or payers?
Structure of this Series
The next six posts in this series will examine key elements of health care delivery that got us to where we are today. We will consider:
- The view in the rearview mirror: identifying broad assumptions that got us to where we are today.
- The view out the windshield: reexamining assumptions and looking down the road.
- Payment Transformation: from Volume to Value
- Healthcare payment systems have rewarded fee-for-service, piecemeal work.
- Payment system rewards are changing from “Volume to Value”
- Physician-Hospital Relationships: from Hospital as “Revenue Center” to “Cost Center”
- Despite recent tensions, hospitals have functioned effectively as “physicians’ workshops”
- Hospital-physician interests are increasingly conflicted
- Practice of Medicine: from Marcus Welby to ???
- Physicians prefer and can function effectively in small/medium size practices.
- Small/medium physician practices are discovering that selling to a hospital is only one option among many
- Care Coordination: from “Not on the Radar” to Emergence of Collaborative Care Management Networks
- Barriers to sharing patient info and coordinating care have been high
- Barriers to sharing patient info and coordinating care are being torn down
- Workflow: from Silos to Teams
- Healthcare culture and mindset has been built on control, not collaboration
- Healthcare is becoming a team sport
- Payers: from “Bad Guys” to “Value Creators”
- Health plans are the bad guys
- Payers have new opportunities to create value and promote accountable care
We’ll spell out more detailed perspectives in the next six posts of our series on The 100 Year Shift. We look forward to your comments, suggestions, and (of course) disagreements.