Healthcare Issues & Trends

Advice & Insights for healthcare's Leaders & HR Professionals

The Volume vs. Value Debate

Posted on June 4, 2015 by Bill Jessee

Historically, healthcare payments to providers have been based almost exclusively on volume—number of services, tests, days of care, procedures, and so on. In many areas of the country, however, there is a transition away from purely volume-driven payment to a system in which at least a portion of revenues is based on value of care (as measured by safety, quality, efficiency, and patient satisfaction.)

It is a reasonable expectation that this trend will continue and begin to affect even more healthcare organizations in the coming years. Managing this transition will require skilled leaders (more on that next week), but it will also require a comprehensive understanding of the circumstances that have led to this fundamental shift in thinking.

So what is so bad about the current system, where revenues are driven by volume?

  • It’s expensive and wasteful. Despite the high healthcare spending in the United States, we do not fare well on measures of population health, such as life expectancy. In other words? We get less than we pay for.
  • Certain groups are disproportionately—and negatively—impacted. There are significant racial disparities in both health and healthcare quality in the United States due, in large part, to volume-driven healthcare strategies.
  • Healthcare spending vs. GDP. A country’s per capita spending on health services is generally determined in large part by its Gross Domestic Product per capita. But the US is a major outlier from the curve, spending far more per capita for healthcare than one would expect given our GDP.
  • There are no incentives for quality or safety, which reduce risk. And conversely, volume-based systems encourage more interventions, which increase risk. Meanwhile, efficiency suffers.

All of these issues would be better addressed by value-driven payment systems, which keep people healthy and out of hospitals—all while discouraging waste and rewarding physicians for quality, safety, and efficiency.

In our next blog post, we will address the leadership qualities needed to manage this volume-to-value transition.

For more insights about this trend that you can present to your organization—or even just read on your own time—download the full presentation for free.        

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How to Manage the Risk of Population Health Management

Posted on March 3, 2015 by Gallagher Integrated

Are you ready for the new frontier of Population Health Management (PHM)? If not, it’s okay; many organizations are still waiting to see the results from those organizations who have already embarked on the PHM journey. And while it may seem untested to some, there is no question that PHM is an issue permeating all the healthcare headlines at the moment. Success will come soonest to those organizations who begin to embrace PHM soonest. In other words, organizations who choose not to embrace PHM risk being left behind in the dust by their more adaptable competitors.

Risk is, of course, one of the biggest concerns for the majority of the organizations who choose to wait. Adding to the concern is that Medicare ACOs are described as particularly risky—arguably too risky—and therefore, many organizations become concerned that their practice could be hurt financially by participating in a Medicare Shared Risk ACO.

This leaves them with two routes: limiting the size of their ACO Medicare Shared Risk business or focus on achieving the quality goals needed to be eligible for shared risk payments. As it turns out, limiting the size of the ACO Medicare Shared Risk business may be, in the long run, a bad idea. Small populations of patients may not be actuarially stable, which can result in greater risk to the organization, not less.

Without a doubt, the operation of ACO will result in lower professional fee cash flow because of a reduced fee structure, with a shift of that cash flow (assuming a payout) to a shared risk pool for managing medical costs. Further, it is entirely plausible—particularly with Medicare ACOs—that an organization might not achieve the requisite quality measures proscribed by CMS, which would result in no participation in shared risk savings whatsoever. So, sufficient funds set aside to weather a financial hit is prudent, particularly if the organization is at risk to pay physician compensation despite the ACO results.

For more insights like these, take our PHM quiz and download your free whitepaper: “Population Health Management: The New Frontier.” 

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Address the Compensation Concerns of PHM...the Smart Way

Posted on February 24, 2015 by Gallagher Integrated

Population Health Management (PHM) is a trending buzzword for many in the healthcare industry. As healthcare organizations face the new challenges of today’s dynamic marketplace, it will become increasingly important for them to adapt to this new method of thinking. It will no longer be enough for healthcare organizations to know about PHM but choose to ignore it. In fact, the organizations who begin looking today for meaningful solutions to embrace PHM will ultimately end up most successful in the new frontier approaching, while the less adaptable organizations face the possibility of being edged out of by their more adaptable competitors.

Compensation is one of the biggest issues that physicians express concerns about when it comes to PHM. Many of them worry about the risk of their compensation being impacted by entering the PHM market, and consequently, so do the organizations they work for. Many of these organizations could easily envision a situation in which physicians depart the organization for financial opportunities elsewhere. 

Thus, the question becomes: how should organizations attempting to shift to PHM address the issue of compensation when embarking on their PHM journey? The choice to expose them to the business risk is one option, but it’s perhaps the worst one an organization could make—even exposing them to a limited risk could have severely negative consequences.

A better choice is to continue to pay the physicians as they have been paid without exposing them to the gains/losses under a PHM business model—but with quality-related incentives. In other words, the best course of action is to consider upside gain opportunities that are largely consistent with existing compensation plans. Adding measures to incent behaviors that achieve the needed quality goals would be a strong step in the right direction. Further, steps to limit or de-emphasize patient care production would also help.

For more insights like these, take our PHM quiz and download your free whitepaper: “Population Health Management: The New Frontier.”  

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The Massive Potential Savings of Population Health Management

Posted on February 18, 2015 by Gallagher Integrated

Population Health Management (PHM) is a complicated topic, and knowing the best path forward is not always obvious. But one thing is certain: it’s an issue dominating headlines, and one that will continue to do so—in fact, it will likely be the single biggest change facing the healthcare industry over the course of the next decade. Medical groups and practices will have tough decisions to make over the next few years, as they determine whether or not to embrace PHM.  The groups and practices that choose not to will likely be left behind by their more adaptable competitors.

For medical organizations that decide to embark on their PHM journey, it will be important for them to understand that in an ACO shared risk model, controlling expenses is critical—and as such, they will need to decide where to concentrate their efforts on expense control. This decision will come down to one of two choices: Hospital Inpatient expenses or Practice Operations and Patient Flow expenses.

While it’s true that all areas of the healthcare delivery system are important to control medical expenses, the largest impact with expense control is Hospital Inpatient, Hospital Outpatient Procedures, and ER Utilization. Reducing inpatient lengths of stay (LOS) and admissions can result in significant savings quickly.

Consider that in 2010, the average bed stay cost for non-profit hospitals in the United States was $2,025 per day. In 2012, the hospital bed day utilization in the U.S. was 591 bed days per 1,000 population. For a patient population of 10,000, a reduction of only 1% in this bed day utilization would result in savings of almost $120,000 per year. Therefore, it is clear that controlling institutional healthcare cost is critical to success when it comes to PHM.

For more insights like these, download the free whitepaper: "Population Health Management: The New Frontier."

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Enter the Population Health Management Market the Right Way

Posted on February 9, 2015 by Gallagher Integrated

The shift from treating symptoms to managing health will be one of the biggest changes of the next decade for the healthcare industry. It is not enough to simply hope this issue will go away—in fact, going forward, it will be key that healthcare leaders know and understand the complicated topic of Population Health Management (PHM), or they will risk being left behind by their more adaptable competitors.

There is little debate that this is an important issue the healthcare industry is facing, but the more complicated question is how physicians should respond. It is not uncommon to see medical groups of practices comprised of physicians with divergent opinions on the matter; While some believe it is important to the future of their medial group of practice, there are others who disagree—and both typically have strong opinions regarding the business lines they are considering entering. 

So the question then becomes: should the entire group enter the PHM business, or should the business establish a single practice site for a subset of physicians interested in PHM? For practices with a bimodal mix of physician age groups, it is likely that highly experienced physicians will want to avoid PHM, while physicians with more recent training will be more likely to embrace this type of healthcare delivery model. A reasonable alternative to the controversy about entering the PHM business is to establish a startup practice site as a PHM laboratory. In this way, willing physicians work on a smaller scale to establish the PHM business, allowing the non-participating physicians to observe and learn about the opportunity.

For more insights like these, take our PHM quiz and download our free whitepaper: "Population Health Management: The New Frontier."

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