Hospitals and health systems consider paths to increasing value

It was an ambitious decision even for an organization as big and robust as Intermountain Healthcare: to lower its target for patient care revenue by $700 million. But, leaders decided, if Intermountain was going to get ahead of the shift from fee-for-service to value-based care, that’s what needed to happen for it to control its own destiny.

Rationing or withholding care beneficial to patients was a nonstarter. Instead, Intermountain leveraged its pioneering work in clinical process improvement and advanced IT to transform itself. Using a global budgeting approach that could serve as a model for health systems across the country, Intermountain revamped operations throughout its Salt Lake City-based system, which includes 22 hospitals, a health insurance subsidiary and about 1,400 employed physicians at more than 185 clinics serving most of Utah and southern Idaho.

The result: Intermountain is on track to meet that $700 million target in 2016 — 12 percent below its past income trend.

The timing may be right. The Centers for Medicare & Medicaid Services has set a goal to steer 90 percent of Medicare payments through value-based programs by 2018, and commercial payers are interested in similar approaches. “The payers are seeing there is a new value proposition,” says Joe Mott, Intermountain’s vice president for population health and health care transformation. “They can partner with us in new ways that can bring value to the community and their customers.”

Intermountain’s global budget approach is well ahead of the curve, says Bruce Henderson, managing director and health care strategy practice leader with consulting firm Navigant Healthcare. “There aren’t many organizations that have the experience, the level of integration across the continuum and the analytics to support what Intermountain is doing. Many people aspire to it but are not ready to go that far that fast.”

Intermountain used a number of techniques to redefine value. “Hot-spotting” — identifying high-risk patients through medical data and helping them to stay out of the hospital — helped, Mott says. So did medical home primary care, multispecialty clinics for complex patients and integrating behavioral health into primary care. Helping patients to manage diabetes and high blood pressure better by integrating pharmacy, nutrition and lifestyle coaching into primary care visits generated some of the biggest savings.

“One of the challenges of this work is it comes from a hundred places,” Mott says. “You have to change processes on so many fronts.”

Mott credits Intermountain’s leadership for committing to a global value-enhancement strategy — despite the huge short-term revenue hit. “The board and the senior management team are very serious about our obligation as a not-for-profit. We feel that kind of commitment to the community is driven by our mission.” The mission: “helping people live the healthiest lives possible.”

Eyes wide open

Intermountain’s decision was not taken lightly, Mott says. Rather, it was a strategic choice informed by careful research and planning.

“We modeled the goal of reducing patient revenues by $700 million all the way through our financial statement, our operating statements, how we would have to manage volume and expenses and how it would flow through to our balance sheet. We were able to show that if we manage in a disciplined way using current budgeting and financial tools, we can manage to this mission and maintain our financial health,” Mott says.

Intermountain’s cost accounting system, one of the field’s most advanced, played a critical role. “If you manage away $1 million in emergency department revenue, you’d better be managing your staffing and supplies in the ED,” Mott says.

Why now?

Intermountain also pays its operating units in each locality it serves through a global budget, leaving it to hospitals, physicians and other providers to make the best use of the money to meet patient needs. System leaders believe global payments are better aligned with the goal of reducing overall costs and even avoid bundled payments, except in the markets where CMS mandates them as part of the Comprehensive Care for Joint Replacement pilot program.

Still, managing the entire system to maximize efficiency isn’t a financial imperative right now when the majority of revenues are still straight fee for service. But Intermountain sees going all in on maximizing value as a strategic investment.

The organization’s chief operating officer, Laura Kaiser, outlined some of the advantages of immediate action in an article published in the Harvard Business Review in October. Written with Thomas Lee, M.D., chief medical officer at patient-experience company Press Ganey, the article highlights some advantages to being ahead of the curve: increasing sustainability by attracting new customers as value-based purchasing takes hold; gaining experience in managing risk; building relationships with partner providers, government and social services to coordinate complex services; and avoiding the alternative to action — lower-quality, higher-priced care.

Of course, with fee for service still the norm in most places, not every organization has the wherewithal to make such a dramatic move toward value. More typically, health systems are taking a slower path, developing clinically integrated networks to coordinate care for discrete conditions, such as joint replacement, heart failure, depression and diabetes.

These generate incremental — but real — value gains and help build the infrastructure to go further. “By defining care processes and committing to assessment and improvement, as organizations they are able to create predictable results,” Navigant’s Henderson says. “These integrated organizations enable entering into risk-bearing bundled arrangements that are value-based rather than fee for service-based.”

Global budgeting and full capitation are not even possible for many hospitals, says Joanna Kim, the American Hospital Association’s vice president for payment policy. “Quality versus cost depends to an extent on volume. Some may not be able to move payment to quality-based capitation because they don’t have the volume to average costs. … There will likely be different models depending on community needs.”

Knowing costs

In an April 2015 New England Journal of Medicine perspective article with Harvard Business School’s Michael E. Porter, Press Ganey’s Lee argues that before reliable quality and cost data were available, health care quality was assumed. Systems didn’t have to do extensive market research or create products that differentiated them in the market. As long as systems were big, patients would come, which made operational effectiveness the key to financial success.

Now, however, greater transparency on price and quality is creating pressure to improve everywhere, says Michael Rowan, who oversees operations at 102 hospitals in 19 states as chief operating officer of Englewood, Colo.-based Catholic Health Initiatives. And scale aids improvement through variation analysis.

“We are narrowing variation around best practices identified throughout our system to improve quality and minimize cost,” Rowan says. Scale also enables the system to take capitation and develop insurance products that lower costs and improve quality.

Increased price and quality transparency differentiates provider performance, Lee says, and creates market pressure to lower prices and reward quality. As a result, systems may have a tough time staying in business lines where they do not have a clear cost and/or quality edge and face tough decisions about what services to provide where and to whom — and where to close services. “It means we have to find out what patients need and what we can do well and focus on those things that can be done well,” he says.

For complex and highly specialized services such as oncology, cardiac surgery, transplantation and neurosurgery, competition will increasingly move to the regional and even national level, says Zack Cooper, assistant professor of health policy and of economics at Yale University. “Some employers are beginning to realize they can get their employees higher-quality care at a lower price if they are willing to pay for them to travel. Two thousand or three thousand dollars for travel are dwarfed by the extension of life and the savings to be had.”

Responding to competition starts with adopting a data-driven strategy to deliver value, Lee says. To clarify strategic direction, Porter and Lee have formulated six questions every health care leader should explore [See Trustee Takeaways]. “It is hugely important in any business to have a clear idea of what you are trying to do,” Lee says.

Starting points

Value-based strategy also will reshape the way systems are organized and operated, moving them away from so-called vertical departments toward horizontal networks that are organized around patient groups with similar needs, Lee believes. “You can rarely create value at the typical levels of organization, the hospital level, the physician group, where patients are heterogeneous. You can’t tell who is in there, so there’s nothing to compare the data with,” Lee says. “But if you get down to patients with Parkinson’s, then you have something you can evaluate in terms of outcomes, and organize teams to deliver services more efficiently.”

Empowering teams dedicated to specific patient groups to systematically innovate will improve outcomes and lower costs, Lee adds. It also will combat clinician burnout. In vertical organizations, people pass through so quickly that clinicians have little chance to build relationships. “But if you have a team focused on a group of patients, you get to know them, and that sustains you.”

But while transparency and competition can be a great general prescription for delivering health care value, obstacles lie in the way. For one, assessing value requires reliable outcome measures, but these are difficult to formulate, says the AHA’s Kim. CMS has only a few outcome measures, and some are not well-developed. For example, holding hospitals responsible for all Medicare costs that a patient incurs for 90 days after discharge may be too inclusive because many of those charges may not be related to the hospital stay.

Quality and outcome measures capture about 75 percent of what primary care physicians do but much less for specialists, says Patrick Herson, M.D., president of Fairview Medical Group, which employs 480 full-time-equivalent clinicians serving Fairview Health Services at six hospitals and dozens of clinics in Minneapolis and the surrounding areas. “Specialties are eight to 10 years behind primary care,” Herson says. “We are working to close that gap, and we are waiting for specialty societies to come up with agreeable measures.”

It’s a process that can, and should, take time, Kim says. “The gold standard of quality measurement is outcomes measures, so you want appropriate, well-done measures. It’s important not to rush them, so they can become robust.”

In the meantime, existing measures should be used to improve patient care, Herson says. “We recognize that not all the quality measures are perfect, but they are good enough to benefit patients.” 

Howard Larkin is a contributing writer to Trustee.

Defining an Elusive Concept: Health Care Value

Regardless of the specific approach a health system or hospital takes to improve value, a fundamental question remains: What exactly is value in health care?

From a strictly financial perspective, the elements of valuing health care services and assets are well-established, says Robert Cimasi, president of Health Capital Consultants, a St. Louis-based firm specializing in health care asset valuation. Worth is based on expected future income with consideration for changing regulation, technology and governance.

However, the true source of value lies elsewhere, Cimasi says. “It goes back to John Dewey. Value is in the eye of the beholder.”

For the American philosopher and pragmatist Dewey, value is not intrinsic to objects, but derives from their utility in fulfilling human desires and needs. So the value of health care ultimately comes from “positive externalities that have little to do with the strict financial or economic value of services or assets to an enterprise; that is, the value to society of the public benefit deriving from health care services,” Cimasi says. These include good health and freedom from disability and everything flowing from them, including prosperity and human happiness.

Recognition of this by the public and payers is disrupting health system strategies and operations — and asset values, Cimasi says. “All of a sudden, everything we used for years to value physician practices, hospitals, outpatient facilities and nursing homes — work [relative value units], compensation, ancillary revenues — now must be considered in relation to these positive externalities. We see some kind of desirable outcome and divide it by the dollars spent, and that gives you value.”

The fact that value is even an issue is a byproduct of medical progress, says Thomas H. Lee, M.D., chief medical officer at patient-experience research and consulting firm Press Ganey. “Health care has operated on the assumption that whatever we do is good. Under that assumption, revenue reflects the good we are doing, and maximizing revenue means maximizing good works.”

But today, medical technology allows physicians to do much more — sometimes more than is effective or desirable, says Lee, who also practices primary care part-time at Brigham and Women’s Hospital in Boston, is a professor at Harvard’s schools of medicine and public health and is chairman of the board at Geisinger Health System, based in Danville, Pa. Change is clearly needed, he asserts. But what kind of change?

“I think the only answer that works for all stakeholders is meeting the needs of patients and doing it as efficiently as possible,” Lee says. Health systems that embrace this goal and fully commit to achieving it will not only improve care, but they will also emerge as winners in an increasingly value-driven health care market. — Howard Larkin

Trustee Takeaways

Six essential questions for developing a value-based strategy

(Abridged from Thomas Lee, M.D., and Michael Porter, Ph.D., “Why Strategy Matters Now,” New England Journal of Medicine, April 30, 2015)

1. What is our fundamental goal? Clarity on what you are trying to do and for whom is essential. Creating value must be the overarching goal.
2. What business are we in? Patient value is created in the treatment of a specific clinical condition across the full continuum of care and care sites.
3. What scope of business should we compete in? Success requires making specific choices about what you do for whom. No organization can serve every need.
4. How will we be different in each business? Each condition treated requires a unique value proposition. Without it, price is the only differentiator, and a race to the bottom ensues.
5. What synergies can we create across business units and sites? Value can be created at the system level if organizations truly integrate care by consolidating care by condition at a location, performing services at the lowest-cost location and coordinating care across sites.
6. What should be our geographic density and scope? Organizations must serve an area large enough to generate an adequate volume of patients for each condition to enable value creation. Density and location of service sites must be sufficient to enable value creation. Growth is not a strategy; expansion should be undertaken with a clear path for creating value.