In Vivo: strategic insights for life sciences decision-maker...
By David Wallace 04 Dec 2019
As the US generics market continues to experience turbulence, the industry’s largest players are adopting a wide range of strategies...
Payers in the US are increasingly basing health payments on the quality of care provided and not just on the number and types of procedures. But because most business models depend on fee-for-service (FFS) revenue, reducing volumes can cut into profit. So how do business leaders turn value-based health care (VBHC) into a real business model?
Answering that question was the task Thomas Lee, MD, MSc, set for himself in a recent Medtronic PLC-sponsored webinar on value-based health care, seen from the provider point of view. Lee is CMO at Press Ganey Associates, a consultancy to help health networks improve quality and strengthen patient-centered approaches, and a former professor in the Harvard Medical School Department of Health Policy and Management. He co-authored some five years ago a paper on the mood and need for a shift to VBHC, "The Strategy That Will Fix Healthcare" and is now developing a follow-up analysis.
Value, he said, is an idea whose time has come, and the shift from volume- to value-based health care is well underway, even if the concept is slower to take hold than many had surmised. But then again, the term "value" was not being applied in the health care delivery context as recently as two decades ago. In 2018, it is the talk of the industry, providers and payers – and of those patients who recognize the quality enhancement that it can bring.
Providers, for their part, are seeing that with FFS – the "push" side of health care – payment rates are no longer going up. This is not sustainable for clinicians, who are often working flat out. Medtronic President and CEO Omar Ishrak takes it a stage further, telling the Wall Street Journal in a recent interview that the FFS model is not a sustainable one for health care.
In fact, many forward-thinking providers have been quick to rethink their approach and organize around value ahead of the market and ahead of their time. Lee presented several examples of early adopters, including the Virginia Mason Research Center and its network of hospital and outpatient facilities in the Seattle, WA, area serving the Pacific Northwest. Its use of lean management, adoption of waste reduction principles, and drive to improve the patient experience across episodes is notable in Lee's view, and all the more so given that 90% of its business remains fee-for-service.
Utah-based Intermountain Health Care Inc. is a group that offers its own insurance via its SelectHealth health plans division. The provider has taken the novel approach of stationing psychiatric social workers in primary care practices, which has made a difference in both keeping patients out of the ER and in improving outcomes. It also saves money, yet most of the savings accrue not to IHP, but to other insurance companies. Nevertheless, it grasped the nettle because, as Lee said, it saw it as the right thing to do. IHP is a system of 22 hospitals, and 1,600 physicians and advanced practice clinicians at some 180 clinics.
The Geisinger Health System, a major rural health services organization in Pennsylvania, is another example of a provider reaching creatively into the post-FFS environment, offering integrated health services and innovative care models, such as ProvenHealth Navigator and ProvenCare. It is among the Walmart centers of excellence. Geisinger is notable for the way it tracks appropriateness of care, turning down some 30% of referrals for back/joint/cardiac surgery. Many of the 600,000 US spinal surgeries each year are not only inappropriate, but ultimately cause patient harm, the group believes. Lee has had a number of roles with Geisinger and currently is on the Board of Directors.
Elsewhere in the VBHC stakeholder spectrum, Medtronic is among the medtech industry majors at the forefront of shaping the new environment, developing new relationships and taking forward partnerships as health care transforms. This is all part of the group's adjustment to the new norms, as it explained it a recent white paper.
"Transforming Medtronic" identifies that a substantial share of the $7,800 billion annual global health care spend is bound up in delivery systems that have misaligned incentives and are overseen by often cumbersome government policy and regulations. Health delivery is disjointed, despite the expert care administered by physicians and practitioners of the highest quality. This fragmentation of health care systems yields waste that Medtronic estimates at 20% to 40% of the annual spend on global health – a sobering $1.5 trillion at the lower end of the range.
Connected networks that promote seamless care and lead to both cost-savings and better outcomes for patients are the Holy Grail, although many players, as Lee observes, are already on the journey. These are the organizations that have turned away from a "structural focus" and begun to embrace a "functional focus," to use the descriptions employed by Rifat Atun MBBS, a professor of global health systems at Harvard University, as he addressed the 2018 MedTech Forum (Brussels, Belgium) in January. (Also see "Digital's Big Moment Has Arrived Say CEOs At Medtech Europe Panel " - In Vivo, 26 Mar, 2018.)
"VBHC is based on four pillars – shared risk/reward, optimized cost and outcomes, transparency, and accountability." – Harvard University professor of global health systems Rifat Atun, at the 2018 MedTech Forum.
He has observed a transition away from disease-related groups and fee-for-service, and towards outcomes and value, where the new focus is on bundled care for individual outcomes and population-based outcomes. Atun, who is also director of Global Health Systems Cluster, Harvard T.H. Chan School of Public Health, has worked with and for the World Bank, the World Health Organization (WHO), national governments, and leading medtech and pharma groups (including Medtronic, Novartis AG ,Merck & Co. Inc.,Pfizer Inc. and Roche). He says VBHC is based on four pillars: shared risk/reward, optimized cost and outcomes, transparency, and accountability.
Partnering is an essential element in the transformation to VBHC, and Medtronic has led the way in many respects in an endeavor that it admits, to echo Lee, will take time. But as a statement of intent its record is second to none, and includes:
These programs all allow for outcomes to be measured well. But the Aetna agreement, to take just one initiative, was proof that transforming health care can’t be done alone, Medtronic said at the time. “Technology alone isn’t enough to improve outcomes,” Diabetes Group President Hooman Hakami said at the time. Medtronic is of both a size and mindset that enable it to think beyond the products it has typically focused on, and develop "product-agnostic offerings" that prioritize the patient journey, value and continuum of care.
But not all companies are in a position to participate fully in the changes blowing through health care because, for one reason, VBHC is a hard concept to engage in for many medtechs. The incentives in the health care industry, as currently set, don't encourage it, and medtechs are accustomed to being paid for a service, which is easier than being paid for an outcome.
Given the entry hurdles, five years on from Lee's first paper on VBHC, is there a real groundswell that is pushing value-based concepts further into the mainstream? Lee is confident that it is becoming reality, and has observed progress even though the early champions are not necessarily seeing direct financial pay-offs – at least not in the short term. On the contrary, he said VBHC is happening simply because "it's the right thing to do, and it leads to pride." And there is a tangible business reward in engaging and retaining employees. Replacing a clinician tends to cost 1.5 times the leaver's salary, which is a direct hit to the bottom line.
"Meeting patient needs is the kind of thing that helps you win and hold to market share." - Harvard Medical School professor Thomas Lee, MDThere is now a need to build a high-reliability culture in health care, and create a climate where clinicians are in the frame of mind of avoiding waste, not doing harm and being dependable. And there are also shorter-term business strategies. "Meeting patient needs, by coordinating group working and coordinating primary care, is the kind of thing that helps you win and hold to market share," according to Lee.
A number of providers are already anticipating changes in their payment model. They are right to do so, declared Lee, even if capitation is never going to sweep over everything. But one thing is certain, there are going to be more non-FFS payments in the future.
These are more than theoretical ideas, and some organizations are beginning to feel the threat of competition from new entrants. Lee quoted Oak Street Health, which opened its first clinics in 2013 and now has 24 in the poorest parts of Detroit, Indianapolis and Chicago. It aims to deliver the world's best care to the sick and the elderly, moving patients to prospective payment models and segmenting their needs. Omada Health is another example. It uses digital technology to encourage patients to change behaviors, lose weight and reduce chronic disease rates. It takes bundled payments and doesn't get paid if its patients don't lose weight.
In this fast-evolving environment, business-as-usual providers are increasingly worried, and with reason. The government share of the US payer market is increasing – by 1.5% per year of late. Meanwhile, commercial contracts, being applied to fewer patients, are, at best, only matching inflation. At the same time, costs for providers are going up. The big issue for providers must be to work out how to break even with Medicare and Medicaid.
There was uncertainty about how the US Trump administration would deal with bundled payments (these typically cover the range of services needed in a designated episode of care, including physician services, inpatient acute care, outpatient hospital services, readmissions, and post-acute care). It has stepped back from mandatory bundled payments, but not prevented providers from entering the field voluntarily, perhaps signaling that it is tacitly in favor of the concept.
So why has the transition to the new model been so slow? Health care reform in the US has multiple components: insurance reform, payment refor,; and delivery system reform. (Also see "US Medtech Under Trump: Below The Radar Or In The Line Of Fire?" - In Vivo, 12 Dec, 2016.) Who gets covered and who pays creates the context for payment reform (bundled payments, capitation amounts). Payment reform is not a fast journey. However, it does create the backdrop for delivery reform – and not simply because patient treatment volumes increase, as seen under the Affordable Care Act. But care is changing and for the better, even if it is now more complicated.
Nevertheless, it has come as a surprise to many that it has been more than a three- or four-year transition. Under the Massachusetts health reform initiative of 2006 – based on the principle of shared responsibility among individuals, government, and business – the changes have taken a decade, said Lee. The state expanded its Medicaid program, created a new subsidized program through a health insurance exchange, instituted insurance market reforms to make insurance more available and affordable, and required employers not offering insurance to contribute a modest amount of money to help finance government subsidies.
If VBHC is happening more slowly than the country needs, how do we turn up the heat? Lee asks. Matters are changing, and pressure is building all the time on traditional players that function in traditional ways. More and more new players are entering the market, and there is more vertical integration.
The new players seem almost daring in their scope and readiness to disrupt. Take, for example, CVS Health Corp.-Aetna, a $69 billion merger combining a pharmacy giant with a major health insurer, a deal that does a good job of blurring the lines of demarcation between traditionally separate parts of the industry. (Also see "CVS/Aetna To Merge In Defensive Play To Reshape Healthcare Delivery" - Scrip, 4 Dec, 2017.) One of its aims is to capitalize on changes that mean in-person health care delivered in the inpatient setting and doctor's office is being augmented or even replaced by phone- or app-delivered care in the home setting, or in alternative settings like retail clinics.
And also take the joint health care venture between Amazon.com Inc., Berkshire Hathaway and JPMorgan Chase & Co., which says it wants to meet patients' needs differently. (Also see "Mysterious Amazon/Berkshire/JPMorgan Partnership Could Disrupt Health Care, Pharma" - Scrip, 30 Jan, 2018.) Announced in January, its full remit may still not be 100% clear, but as a disruptor of traditional health care routines, it takes some beating. But in time, it surely will be beaten in the disruption stakes.
It has to be assumed that the new players will be outward-facing and will understand – better than the traditional industry maybe – who their customers are: no longer physicians, but the patient. Furthermore, they are not focused on the price war approach, but rather on patient-centered value creation and competitive differentiation.
In fact, competition is not as feared in 2018 as in the 20th century models, say, with transparency of outcomes becoming the norm in many marketplaces now. Providers in the new era will need more than just visionaries: to achieve the transition to VBHC they will need good nursing unit leaders, divisional chiefs, and team leaders, all of whom having bought into the value message are able to deliver on the motivate-measure-improve mantra at operational level.
Other high-profile organizations that have signed up to a value-based agenda include Mayo Clinic, which Lee described as having the clearest example of goal hierarchy. At the top of its missions and values is a stated primary value: the needs of the patient come first. Another is the Cleveland Clinic, which was an early adopter of bundled payments, and has created teams focused on specific conditions, majored on transparency of the outcomes and sought to exploit the value of patient-reported outcomes.
They are among the visionary organizations, providers and manufacturers alike, that decided to make the leap and not to wait for the payment models to change. For Lee, the sector cannot wait for FFS to be gone before embarking on VBHC. And as Medtronic chief Ishrak told the WSJ, "It's a step we have to take to make sure that the value we create with our technologies is truly realized. And when it is realized, we get paid fairly for it."
In any case, there is likely to be a mix of FFS and FFV "forever," Lee said in rounding up of his webinar. What is vital is that the new strategies are smart ideas. For him, VBHC is more than the nice thing to do, it's "strategically the right thing to do," and if further reason was needed "market share is moving toward those organizations that are remodeling."
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