The metaphor of “one foot in the boat and one foot on the shore,” or alternatively, “one foot in the boat and one foot on the dock,” is being used almost constantly these days in the U.S. healthcare industry to refer to the fact that the vast majority of patient care organizations, whether hospitals, medical groups, or health systems, in the U.S., are already in or are moving into, a situation in which the share of their revenues coming from value-based and/or risk-based contracts, is beginning to reach a significant level now, even as they continue to receive the bulk of their revenues from discounted fee-for-service contracts with the public and private purchasers and payers of healthcare.
That subject was discussed at length in the Top Ten Tech Trends article published in our July/August issue. One of those interviewed for that article was Christopher Kerns, executive director for research at The Advisory Board Company, Washington, D.C.
Below are excerpts from the fuller-length interview that Kerns gave to Healthcare Innovation Editor-in-Chief Mark Hagland, in preparation for the Trend article.
Looking at this landscape from the proverbial 40,000 feet up, what do you see?
I see two things. The first is that if you look at the payment landscape, of traditional Medicare, Medicare Advantage, Medicaid, and commercial reimbursement, what percentage of payments are in each category? It’s still shockingly low in terms of risk-based payment, overall. Original Medicare does have a ton of pay-for-performance elements in it; but in terms of overall payment, it’s still very low. Meanwhile, only 1.7 percent of commercial payment is population-based, meaning capitated or the equivalent thereof. And it’s only 10.3 percent even in Medicare Advantage, 4.5 in traditional Medicare, and 4.2 in Medicaid. Shared savings are a bit higher, but in terms of the total amount of payment paid in shared savings and bundled payments, it’s only 39.2 percent in Medicare Advantage. So there is still a decidedly small and uneven transition to full risk-based payment at the moment.
We’re told all the time that we’ve got a foot in two boats. But the reality is that there is not going to be a clear tipping point in this anytime soon. In general, it’s executives of patient care organizations that will sell the value proposition tied to the future, rather than waiting for it to materialize, to payers, their own staffs, and their communities. And it’s not so much this idea that we need to live in both worlds, but that a lot of organizations are still just waiting for value-based payment to come to them, when they’re still happy just being in fee-for-service. And this issue will overshadow practically all the others, as patient care organizations make the shift from volume to value in our healthcare system.
And how does that affect hospital and health system senior leaders?
The problem is that hospital executives are having problems weaning themselves off inpatient, or even expensive outpatient or post-acute rehab care. When health systems look at medical groups solely as a means of referring patients into their systems, that works counter to the direction towards value-based payments. And it’s not so much this idea that we need to live in both worlds, but that a lot of organizations are still just waiting for value-based payment to come to them, when they’re still happy just being in fee-for-service.
What will change things?
The segmentation strategy for primary care. There are an increasing number of disruptors—private equity, health plan-owned, or large medical groups, representing physician interests, that will help physicians maintain their income and autonomy, by taking on their own risk.
There are commercial operations that are owning and running medical groups; and they have a specific type of patients they want—highly complex, expensive-for-Medicare, patients. They reduce a lot of downstream utilization. So the acceleration will come from physicians themselves who want to take on this risk as a part of their desire to maintain autonomy,” and as part of their risk-bearing contracts, “they’re going to be reducing expensive utilization at other sites of care—hospitals, surgery centers, etc. And we see an acceleration in the number of medical groups that want to take on risk-based payment. So the revolution is going to come from physicians working to control their own destinies. And it’s not that health systems can’t do it; but the way they’re going to have to do that is to accept a lot of the care decisions coming from physicians.
What’s the solution there, strategically? Does there need to be a new social contract between physicians and hospitals/health systems?
That’s a great point. There is a certain backlash emerging against productivity-based models of care or top-down protocolization of practice, or insufficient support to physicians, under employment. And so hospital systems are going to give knowledge and practice support and autonomy, to the physicians. So there needs to be a new health system compact—it’s our job as hospitals to give you practice support, help with patient acquisition, and help for you to practice optimally. So we won’t tell you what to do. We’ll provide you with the supports necessary to support your practice. But that information will be in support of cost-effective care over the long term. Some organizations do this well. Intermountain is an example. And Advocate has been making a lot of strides there, and of course, Kaiser’s bee doing it for a long time.
How will all of this play out in the next five years?
I think you’re going to see the continued aggregation of large physician groups, both in primary and specialty care. Their sustainability will be based on their taking more risk-based payment, and that will force downstream providers—ambulatory care, surgical care, hospital care—to take significant amounts of cost out of their systems; and those that can’t do so will find themselves acquired by those that can.
What will be the role of analytics in all of this?
I think that that information layer is key in terms of practice supports. Can we at the health system layer provide information supports? For example, these are the downstream providers that provide the greatest level of value relative to their cost. That’s where I think providers will make use of AI to help them make those decisions faster. I think that’s where a lot of the analytical firepower will be deployed. And it’s emerging much faster than we had expected. Colleagues told me that for the first time this year at HIMSS, they saw AI technologies being used to diagnose clinical conditions at a level on par with or superior to clinicians. And that’s already happening in radiology. And more and more diagnostics will be turned over to artificial intelligence. We’re starting to see this already in radiology, we’re starting to see it in dermatology, and eventually in oncology. And then it’s not a big leap to go from diagnosis to recommended action. It won’t reduce the need for human beings, but it will make decision-making faster. Certain types of AI are getting faster than we expected. And the race to aggregate physician groups is moving faster than we had expected even a year ago.
And a lot of changes are happening in the marketplace, largely as the result of disruptive medical group aggregators, as well as private equity, and other organizations, and the deployment of new technology, which will help physicians make better care decisions for their patients. Often, they just don’t have the right information to do so. But when they have the autonomy and the knowledge, they’ll be able to do that much more effectively.
Even as all of these developments are evolving forward inside the traditional healthcare delivery system, new entrants are coming in to disrupt historical care delivery patterns. Look at what CVS-Aetna and Walgreens are doing with plans to bring care delivery right into retail pharmacies. That’s something that health system leaders need to be thinking about, correct?
Yes, I completely agree. There are the less scalable models focused on moving costs down. But then there are the scale models. On one end is specialization, on the other end is scale, where we find easier, lower-cost ways of managing healthier patients. Earlier models with CVS and Walgreens were focused on floor traffic, and some initially offered suboptimal experience; but with the new CVS Health Hub, they’re expanding the amount of footage, they’re about 20 percent of the floor space of the store, and are getting much more engaged in chronic disease management, wellness visits, etc.; and much of this is enabled by partnership with a plan. So the partnership with Aetna is key, because it’s about getting more patients into the health insurance network, and can we ratchet down the overall costs, in a scalable way? They’re in the early stages of getting these rolled out. But the next generation of these retail pharmacy clinics will look at multiple sources of growth, in the form of primary care visits; pharmacy; managing the risk profile of patients, by treating them in a lower-cost setting; it would enable the ability to capture more patient lives into their insurance network. It’s about improving efficiency, capturing downstream revenue, and lowering cost.