Advisory Board Experts Parse What’s Been Learned about 'System-ness' During the Pandemic

May 4, 2021
In an April 29 webinar, Advisory Board experts Christopher Kerns and Rob Lazerow examined the current policy and operational moment, including what’s been learned about “system-ness” during the pandemic

During a wide-ranging webinar sponsored by The Advisory Board, Washington, D.C., on Thursday, April 29, experts Christopher Kerns and Rob Lazerow shared their perspectives on what’s been learned about the concept of “system-ness” in hospital-based health systems, during the current COVID-19 pandemic; they also looked at the speech to Congress given by President Joe Biden on Wednesday, April 28. Kerns is vice president, executive insights, at The Advisory Board; Lazerow is managing director, executive insights, for the company.

Kerns asked Lazerow, “What were some of the things that surprised you, if anything, in the address that President Biden delivered to Congress?”

“It was an emotional experience in watching the speech; it was the first big speech in the COVID era; it was the first big event in Congress since January 6; and it was the first time that a president had ever said, ‘Madam Speaker, and Madam Vice President’; this was the first time a president had said that,” Lazerow responded. “So I was surprised at how emotional of a 65 minutes that it was. Second, I was surprised at some of the mismatch between the rhetoric in the speech and what’s currently being discussed in some of the packages. So for example, he talked about drug spending, and about expanding Medicare benefits. And those aren’t things that we’re seeing right now being discussed in the jobs and infrastructure bills.”

“I think there’s something that’s also interesting about the call for increased funding for certain things, such as making permanent some of the funding extensions that were part of in the various stimulus laws, when it comes to ACA [Affordable Care Act] funding, for example, or more funding for Medicaid and home care,” Kerns said. “That’s especially interesting, given how we’ve been talking a lot about this shift to home-based care; and if we were actually to see some success coming from Congress and being able to deliver on that, that could actually accelerate a lot of these site-of-care shifts that we’ve been expecting for some time.”

“There was a section of the speech around the challenges of caring for elderly parents,” Lazerow added.

“We’ll be talking a lot about that in our webinar next week, but I thought we should briefly mention the speech, since it happened just last night,” he said.

Kerns showed a slide of highlights noting the seven most important things that he and Lazerow detected in the release least week of the fiscal year 2022 IPPS proposed rule for inpatient payment. Those were:

> Strong inpatient payment increases, based on 2019 utilization data, not 2020 data

> Making permanent the new COVID-19 treatment add-on payment

> Eliminating a component of price transparency

> A proposal for applying an equity lens to quality programs, GME slots, and more

> A proposal for a risk “freeze” extension for MSSP ACOs

> A proposal for quality payment measure “suppression”

> A proposal for bolstering access to electronic health data

“Rob, what are your thoughts about this list of things that we’ve noted from the President’s speech, per the inpatient rule?” Kerns asked.

“The first three items are of course about payment,” Lazerow said. “And one of the big policies finalized last year was to require hospitals, starting in January, to report to CMS on their cost reports the median payment rate they were getting from Medicare Advantage plans. And that data collection was going to be informing a new methodology for how the annual rate increases would be calculated, using a market-based update; that was going to go into effect in FY 2024. Sort of out of the blue, they issued a proposal this week to both repeal the data reporting, so presumably, that would go into effect next year; but more consequentially, to end that new market-based payment update, and stay with the current cost-based model that they’re using now. That was surprising, because CMS had decided to pick this fight last year and push forward with finalizing that regulation, despite some pushback to that market-based regulation; with that push last year; but also, because it was one element in price transparency. Now, to be clear, the broader price transparency mandate that you still have to post your prices on your website, including your Medicare Advantage rates, is still going forward. So we’re just seeing that one element about sharing your Medicare Advantage rates with the government, is going to end.”

Lazerow continued, “The other thing that’s noteworthy is that this was the one place where we were starting to see the interplay between MA and traditional Medicare. Some articles being written right now are talking about how close those payment rates are. I think that the hospitals that will end up being best off will be those with a higher differential between their Medicare Advantage and traditional Medicare rates. If they have strong MA contracts, there’s less likely going to be a consequence to their traditional Medicare business.”

“We’ll have a lot more to say about all of this over the course of the year, including about the health equity concept,” Kerns said. “And that will be a part of reimbursement going forward, so stay tuned for more sessions on that going forward. It takes a long time to read the rule and do the analysis. Our colleague Heather Bell is actually writing some analysis now; she just pushed out a blog today. We’ll feature her in an upcoming episode of ‘Stay Up To Date.’”—the name of this webinar series.

“Looking at this list of seven items, I think that number four, around health equity is important, in that CMS is looking for comments from providers, so you have an opportunity to influence it from the ground up,” he said.

“System-ness”: an important focus

Kerns and Lazerow spent some time discussing the concept of “system-ness,” in the context of the COVID-19 pandemic and its impact on hospital and health system operations. Kerns showed a slide which depicted the following elements:

> On the one hand, there was an 84-percent increase in merger-and-acquisition volume from 2009-2019, and a 69-percent increase in average acquired hospital revenue in the period 2014-2017, compared to the period 2006-2009, indicating larger deals.

> Also, 8,000 medical practices were acquired by hospitals from 2016 through 2018.

On the other hand, the slide noted that:

> There has been a statistically insignificant change in hospital 30-day readmission rates three years after an acquisition.

> In the period of 2011-2016, only 9 percent of health systems experienced average annual revenue growth exceeding average annual expense growth by more than one percent.

> There has also been an increase of 12 percent in prices at monopoly hospitals compared to those in competitive markets, a fact that is leading to scrutiny.

Kerns said, “This is an issue that we’ve been talking about for years. Was this not this the first topic you worked on here at the Advisory Board, Rob?”

“The second,” Lazerow responded. “The first was about cardiac imaging centers of excellence. But this was the second one. It was 2007, and the premise was, hospitals are coming together into larger health systems, and there was this academic question at the time, about, should we be more like holding companies or operating companies? And the premise of that research was that there was a lot of value in developing system-ness. And 14 years later, we’re still talking about developing system-ness.”

Kerns: “I think it’s important that we continue to talk about it, because it does continue to be an issue. One of the reasons why a lot of health systems are able to come together without a great deal of regulatory scrutiny, or at least a lot of pushback is because of the promises they make when they come together. Will they be able to improve quality? Will they be able to reduce cost? And the reality is, a lot of those benefits are fairly elusive overall. When we look at historical performance among health systems, there’s been a relatively limited effect on clinical quality, except in those areas where they’ve been able to consolidate certain service lines in particular locations; and not necessarily must impact on overall price structure; pricing has usually been pretty strong, and that pricing has attracted a great deal of regulatory scrutiny. So over the past few years, we’ve been revisiting a lot of our system-ness work, because a lot of the historical reasons for coming together are getting increasing skepticism from a lot of regulators, lawmakers and policy-makers in general. But the reality is, when we look at the pandemic, and you see systems acting more like systems than ever before, it’s important to point out the examples that we’ve seen here. And one of the things we did last fall was to look into the impact that the pandemic has had on system-ness.

“And the irony is that we began this research before the pandemic; so we were always going to look at this issue of system-ness,” Lazerow said. “And originally, it was being driven by the act that there were so many more mega-mergers. And the consolidation landscape looks very different from when I started thinking about system-ness in 2007, because we have more mega-mergers. And it’s a very different conversation when you think about very large organizations coming together; and second, more  vertical integration, so, bringing together hospitals, physicians, ambulatory sites, more parts of the care continuum, into organizations that should be able to deliver greater value, by having so much of the care continuum together; that’s part of the value proposition,” he said.

“And then the pandemic hit, and our focus became, how do you harness system-ness to confront the day-to-day challenges of the pandemic? And it was really refreshing as we talked to leaders about their experiences, to hear concrete examples of system-ness. We found that they took a much more centralized view of how to distribute their limited their supplies; they would move ventilators or testing equipment, or whatever supplies were necessary, from site to site, to make sure they were operating as effectively and efficiently as possible. Or they would dedicate particular facilities or wings within them, to be the COVID or areas to be COVID areas. One of the hospitals we profiled, NorthShore, dedicated one hospital to be the COVID hospital for the whole organization. The corollary to that was that that hospital would not then be the hospital where they were providing orthopedics or cardiovascular services; and that tradeoff has often been the barrier to achieving system-ness. I think the other area I’d add in here was how quickly we stood up telehealth programs, trained clinicians on COVID, on telehealth; these were all examples of system-ness in work.”

Further, Kerns said, “One of the comments that came through in the chat, was sharing EMR costs and standardization; the effect of standardized care; supply chain deliverability; historically speaking, these have had some benefits.  I would say that standardized care was not something widely adopted in the majority of care systems across the country. EMR costs certainly were able to be distributed more effectively, as well as certain back-end revenue cycle costs in particular that were able to be distributed. However, in terms of being able to take out significant costs relative to what organizations were like as standalone organizations, it didn’t have nearly as much of an effect as one might expect, given the size of these systems, pre-pandemic. A lot of the infrastructure that’s been built, though, across the last 12 months or so, has gone a long way to not just address the near-term challenges of deploying resources more effectively; it’s also built a lot of the foundation for system-ness going forward. And this by and large worked, as a means of being able to maintain financial sustainability. By being able to move patients across different sites of care, systems that embraced their system-ness were actually able to capture some of the pent-up demand, as soon as it was able to come back. So when we look at the financial performance, it was generally those larger health systems that embraced a lot of the tactics that you’re seeing on this slide, that are actually financially better off now. And that likely will lead to more of a have-and-have-not situation, as we look into 2021, and a potential new wave of consolidation. So the system-ness wasn’t just important for the clinical benefits that it provided; it was important for the strategic benefits that it’s going to be providing for the health systems that embraced system-ness in the past year. And the key to this was the incident command center.”

“When you talk to nearly any health system executive around what were the structures that supported system-ness, I don’t think it’s surprising that system-ness doesn’t create itself, that you need structures and behaviors that support system-ness,” Lazerow noted. “And in the past year, nine times out of ten, probably ten times out of ten, you’ll hear about the incident command center, the central hub for managing the entire organization. What stands out to me about incident command centers is frankly not what they do, but what they represent. They represent rising above politics; they represent taking a much more holistic and centralized view of the organization, of the needs, the resources, the trade-offs; the incident command center creates a clear sense of accountability and authority; much clearer and more consistent communication; and the ability to oversee and disseminate innovation, as new ideas came out. I think the big question isn’t, how did we accomplish system-ness this past year? It’s, what do we do after the incident command center? I don’t think the right answer is to continue on a war footing indefinitely; we’re going to have to replace that incident command center with new structures and behaviors that can ideally make ideally make system-ness self-sustaining, even if that is probably quite a ways away for a lot of organizations.”

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