For the last four years, Numerof & Associates, a St. Louis-based healthcare strategy consultancy, and David Nash, M.D., dean of the Jefferson College of Population Health in Philadelphia, have partnered to study the evolution of population health management in the U.S. This year’s report, based on an online survey of more than 500 C-suite healthcare executives, combined with open-ended interviews with selected executives to provide additional insights, revealed a number of key findings.
For instance, 94 percent of respondents said they agree that population health is the future, and 99 percent predict that in the next two years, they will have revenue in two-sided risk models. However, of the respondents in risked-based agreements, the majority reported that 10 percent or less of revenue came through risk-based contracts. And, among those who claimed experience with an alternative payment contract, 31 percent didn’t risk actual loss. Their risk was upside only—not receiving a “bonus” if targets were not achieved.
This measure not only remained flat relative to prior surveys, but also fell significantly short of the projections that respondents made previously regarding how much revenue would be at risk in 2018, according to researchers. For instance, in the 2016 survey, nearly one in three respondents projected that by 2018 their organizations would have at least 40 percent of their revenue in risk-based agreements, but only 14 percent of respondents in the most recent survey met that threshold.
This “disconnect” in how healthcare executives see the future compared with how they are currently operating their businesses is an incredibly important revelation from the survey, notes Rita Numerof, Ph.D., the consultancy firm’s president. When her firm started conducting this research four years ago, “people were optimistic about where they thought they would be relative to their ability to take on risk, and managing variation, cost and quality. What we have seen over the years, though, is they continue to moderate their expectations downward. That is the biggest ‘aha’ for me from this data,” says Numerof in a recent interview with Healthcare Innovation. “The vast majority of folks view population health as either very or critically important, yet the ability to do what’s needed to be done organizationally is not where it needs to be.”
Policy Considerations
The report noted, “Since the 1970s, Congress and successive administrations have tried to slow the growth of healthcare costs. Attempts have included the introduction of Medicare hospital payment formulas based on fixed payments for hospital services (payments for diagnostic related group services or DRGs), health maintenance organizations (HMOs), and preferred provider organizations (PPOs).”
Nonetheless, costs have continued to rise despite these efforts. Numerof believes a key reason why the industry has not made more progress in this area is because there was never a direct enough connection between costs and outcomes. She says, “There was also no transparency in cost and quality, and there was no real focus on the patient. There was [historically] no discussion about patients being consumers, and there wasn’t a focus on the continuum of care, which is what population health is all about.”
Now, of course, things are shifting. Back in 2015, CMS (the Centers for Medicare & Medicaid Services) announced its goal of connecting 50 percent of Medicare payments to value-based models by 2018. In the years since, CMS introduced various programs, including bundled payment models. Commercial payers followed suit, as well. There’s also the 2015 MACRA (Medicare Access and CHIP Reauthorization Act) law, which is designed to encourage physicians to shift from fee-for-service to alternative payment models linked to cost and quality.
What’s more, a recent final rule on the MSSP (Medicare Shared Savings Program), a federal ACO (accountable care organization) initiative, made sweeping changes to the Medicare ACO program, with the goal to push these organizations more quickly into two-sided risk models.
But Numerof still contends that the speed of change “is entirely too slow.” What’s needed, she adds, is a “market-based model that allows for real competition. CMS has been a catalyst for a lot of change, but we need a lot more, and the good news is that the private sector has taken up the mantle. There is lots of innovation happening there and the genie is out of the bottle.”
Indeed, the report revealed that the industry appears to be in the “dip their toes in the water” stage of taking on financial risk. Evidence of this is a survey finding that more than three-quarters of respondents reported some experience with an alternative payment contract, but for most of them (66 percent), less than 20 percent of revenue was involved.
When asked how long it will be before the majority of healthcare organizations’ revenue is tied to value, Numerof predicts it will still be a number of years. “No one learns how to swim by dipping their toes in the water,” she asserts, adding that the pilots intended to get organizations comfortable with the idea of a new business model don’t scale. “And there is a naive assumption on the part of a lot of organizations that if they are involved in these bundled payment programs or they have an MSSP arrangement, and they have high risk [in them], they are engaging in some new model. The reality is that they are engaging in pilots and pilots do not scale,” Numerof says.
She also brings up the point that most of the organization respondents in the survey tend to be the more “sophisticated” with their willingness to take on risk relative to the general characteristics of healthcare delivery organizations across the board. For this report, 90 percent of large hospitals and health systems said they had at least one at-risk contract, versus 76 percent of mid-sized institutions and 71 percent of smaller institutions.
“When you look at your [sample] population in the survey, it’s represented by a higher percentage of organizations that are willing to take on risk than what’s true in the general industry. So if these organizations are challenged and are holding onto the status quo for as long as they can, that’s a statement that we won’t move as rapidly in this new direction as perhaps would be optimal for this country,” Numerof opines.
Changing the Culture
The survey also revealed that potential financial loss remains the top reason healthcare delivery organizations hesitate to transition to value-based arrangements that tie costs to outcomes. However, difficulty in changing the organization’s culture is now the second biggest factor that respondents consider a hurdle.
“This is an enormously powerful finding, and it’s a beginning recognition that we are talking about a fundamental shift in healthcare’s business model,” states Numerof. She notes that when an industry is in transition, which healthcare is, companies—even the leading-edge ones—are forced to challenge fundamental aspects of their business models, such as how to market the nature of their products and services. “And when this happens, most organizations will make changes to their business margins, but they will not make the kinds of investments needed to get to a different model. But I see in this data [set] a recognition that this isn’t business as usual,” she says.
Yet, Numerof importantly notes that culture isn’t just about how people in an organization speak to each other, or what it feels like to be in the organization; that’s just one manifestation of culture, she says. “Culture is a complex construct made up of core infrastructure elements, such as the data, the processes by which we do work, the way in which people are held accountable, the clarity, the goals, the level of integration, and the partnerships we have. All of these are elements that are part of the cultural underpinnings,” she notes.
To this end, the survey revealed that many organizations have established collaborations between healthcare providers, payers, and community resources to identify health needs, develop solutions, and maintain accountability for outcomes. For example, nearly three in four respondents indicated they put patients in touch with community organizations (74 percent) and follow up with patients to discuss adherence to discharge recommendations (72 percent).
Numerof states that the willingness to challenge the status quo is part of a cultural orientation. “For organizations that have perfected their business models to do well in the fee-for-service orientation, what we are talking about now is a real sharp turn in direction.”
She also believes that new healthcare initiatives such as the Amazon/JPMorgan/Berkshire Hathaway venture could set the pace for other providers who will need to change their business models. “I would urge industry players not to wait to follow their [lead], because if they do, there will be questions about their immediate relevancy,” says Numerof. “There is a way to allow organizations to make the transition to value in a population health orientation and ensure profitably at the same time. It doesn’t have to be an either/or.”
