If there’s a single metaphor that is being referenced in conference after conference these days in U.S. healthcare, it is this one: “one foot in the boat and one foot on the shore” or “one foot in the boat and one foot on the dock”—two versions of the same concept. (There’s also the “one foot in one canoe and one in another canoe” variation). This broad metaphor is being used 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. 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 the reality, industry leaders say, is that this “one foot in the boat” dilemma is going to last for several years going forward; and it will be painfully real for many. Still, those industry observers agree, much learning is going to be taking place in the next few years, and that’s all to the good.
“The current period is a challenge, because they’ve got to adapt to working in two different environments,” says Peter Smith, CEO of the Naperville, Ill.-based Impact Advisors consulting firm, which advises patient care organization leaders on strategic planning and IT implementational issues. “Obviously,” Smith says, “working in fee-for-service is understood; at the same time, providers have to begin transitioning to the new world. There’s some benefit here, though, because you have time to make this transition—there’s no specific deadline. So there’s some comfort on the part of some senior executives that they can manage this transition. And I think the wise executives will smartly pivot and be able to manage this transition,” he says.
The key? Smith says that “We’re going to see an accelerating pace in terms of moving towards the new [payment and care delivery] models. And the folks who will be successful in the new world will run very clean, efficient, profitable organizations,” with demands for greater efficiency becoming the “guardrails” of operational excellence in the emerging world. And the critical success factors that will unite the winners in the new healthcare, he says, will be “reducing variation; moving towards more standard processes across their organizations, to drive quality and decrease cost, using technology efficiently,” while also providing an excellent patient and family experience, and excellent service overall.
“The problem, says Christopher Kearns bluntly, “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,” says Kearns, executive director for research at The Advisory Board Company, Washington, D.C. “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.”
Still, Kearns says, change is coming quickly, including from emerging sources. One element that is bound to force change forward, he says, is “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.” Specifically, he says, “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.”
Reaching that tipping point
“What we’re seeing out there is that the tipping point comes when about 50 to 60 percent of your patient population is attributed or handled under some type of value-based contract,” says Pam Arlotto, president and CEO of the Atlanta-based Maestro Strategies consulting firm. “And people are beginning to look at not just encounters or visits or stays and discharges; they’re beginning to use the health plan term ‘covered lives.’ And when a patient care organization really begins to think in terms of covered lives, and they hit 60 percent of their patients being under some kind of contract, it’s less about revenues—since revenue generation is very volume-focused,” she notes.
“In the new world, you’re managing costs, so it becomes less about revenue generation and more about management of the contracts,” Arlotto continues. “I think there’s been this understanding about that problem that magically, you’d step out of one boat and into another and float away magically. I think we’re going to have a foot in both places for some time, and will have to figure out how to manage that. There’s this book called Dual Transformation, and they talk about how you have to build new capabilities, and you use those capabilities both to streamline and transform the core, which in healthcare is the acute-care setting—while you invent the new.”
For the executives at some forward-looking organizations, the future is already here. “We actually have both feet in the same boat, which is providing our patients with the best quality care at the lowest cost,” says Tal Heppenstall, executive vice president and treasurer of the vast UPMC health system, based in Pittsburgh, and CEO of its development arm, UPMC Enterprises. “We don’t really see volume and value as contradictory,” Heppenstall continues, “because if all we cared about was volume, we’d be treating the same patients 20 times for the same condition, and of course, we never did that or would do that. From our standpoint, it’s always about giving patients the best care, which often isn’t the most care. Half of our revenue is volume-based, and half is value-based. And our clinicians don’t even want to know what kind of insurance a patient has.” Heppenstall confirms that owning a provider-sponsored health plan for several years has helped UPMC executives to naturally think ahead towards a value-based overall U.S. healthcare system.
Meanwhile, all those interviewed for this article agree that the tide is moving inexorably, and relatively quickly, in one direction and one direction only, and that hospital, medical group, and health system leaders need to waste no time in laying the foundations now for operating in the value-based healthcare delivery and payment system, even as many will continue to have a significant bulk of their revenues continue to be generated by discounted fee-for-service payment. All this will be sorted out in the next several years, says Impact Advisors’ Smith, adding that “I think this is an important topic, and people are trying to figure out what the direction is. There’s a lot of uncertainty,” he concludes, “but the migration towards value-based healthcare will be good both for patients and for patient care organizations as well, because it’ll drive a new healthcare delivery model that’s beneficial for everyone.”
