INTRODUCTION

The $3.2 trillion healthcare industry, as conventional wisdom has it, is a big ship to turn around. But employers, consumers, and government can no longer afford healthcare costs that, while growing more slowly than in past years, have reached stratospheric levels.1 The fee-for-service payment system that rewards providers for the volume of services has been implicated in the high cost of health care.2 So, with a concerted push from payers, the industry is in the midst of a rapidly accelerating shift from fee-for-service to various forms of pay-for-value.

The Centers for Medicare and Medicaid Services (CMS) has already taken a number of steps in its transition to value-based payments. To start with, the Medicare Shared Savings Program (MSSP) is rewarding accountable care organizations (ACOs) that create savings and meet quality goals.3 Though most of the 434 ACOs participating in this program today are taking only upside risk in the form of shared savings, many of them will have to accept downside risk as well, starting in 2018, if they choose to renew their MSSP contracts.4 Moreover, CMS has launched a Next Generation ACO program with 21 ACOs that have agreed to take financial risk in return for higher rewards.5 CMS also has placed a small portion of hospitals' Medicare revenue at risk for achieving cost and quality goals, and it began applying a similar pay-for-performance program to physicians in 2015.6,7

By the end of 2018, half of Medicare payments are expected to go to alternative payment models (APMs) such as ACOs, patient-centered medical homes (PCMHs), and bundled payments.8 Further, the new law that replaces the sustainable growth rate (SGR) formula with a different Medicare payment approach gives physicians involved in APMs a 5 percent annual bonus from 2019 to 2024.9

Private payers are moving in tandem with CMS. In March 2014, Anthem BlueCross BlueShield, one of the nation's largest health insurers, said that it had tied a third of its commercial reimbursements to pay-for-value quality programs.10 UnitedHealth Group said it was expanding its incentive programs, with a goal of offering at least half of its network physicians the ability to earn bonuses for value, quality, and efficiency within a few years.11 Aetna is paying incentives to practices that have achieved PCMH recognition and is working with scores of provider groups and health systems to create ACOs.12

About half of the 700-plus ACOs have contracts with private payers. Most of these contracts are based on shared savings rather than on capitation, which is a set monthly fee for each member of a patient population. But 45 percent of private-payer agreements include downside risk, meaning that providers can lose money if their healthcare spending exceeds their budget.13

What all of this means is that healthcare providers can no longer avoid the reality that their current business models are obsolete. As they transition to new care-delivery methods, they must stop basing business decisions on how their clinicians and facilities can produce additional, and ever more costly, billable services. Those services and facilities have been profit centers until now; but in the new world of value-based reimbursement and financial risk, they are becoming cost centers.

The fulcrum of profitability in this new world is maintaining or improving patients' health and delivering good outcomes. The only proven way to achieve these goals is to manage population health effectively and efficiently. To do that, healthcare organizations need advanced health IT, including analytics and automation tools that enable them to transform their mindset, culture, and work processes.

Changing the Mindset

Except for group-model health maintenance organizations (HMOs) such as Kaiser Permanente and Group Health Cooperative, certain large groups and independent practice associations (IPAs) in California, and a few healthcare systems in other states, healthcare providers are not well positioned for population health management (PHM). While many healthcare organizations are creating new structures to prepare for value-based reimbursement, health care is still oriented to fee-for-service. Physician practices still organize care around office visits, and hospitals focus on acute care within their four walls.

One recent study found that physician practices of all sizes increased their use of evidence-based care management processes from 2006 to 2013. But, by the end of that period, even large groups used fewer than half of the recommended processes for chronic disease management, on average.14

The concept of caring for entire patient populations on a continuous basis, whether or not individual patients seek care, is only gradually seeping into the consciousness of healthcare managers and providers. And it is still difficult for many provider organizations to accept the idea that filling beds and appointment slots is less important than ensuring that all patients receive recommended preventive and chronic condition care.

To transform themselves, above all, organizations must have a leadership team that understands and embraces the implications of changing from a volume-based culture to a value-based one and the tenacity to stay the course. Health systems acknowledge the road to value is not smooth, but many report it is rewarding, even joyful for clinicians and staff at all levels.15

In terms of the work to be done, organizations must reduce two kinds of waste: first, the avoidable tests, procedures, and hospital admissions and readmissions that lead to high costs for employers and consumers; and second, the internal waste that inflates the cost of care delivery. The reorganization of care processes can address both kinds of waste simultaneously by improving the quality and efficiency of care.

Organizations that go down this path need to adopt consistent policies and procedures, starting with a common set of clinical protocols. They must form care teams that can coordinate care for every patient, tailoring their approach to the individual's health risks and conditions; restructure workflows so that each member of the care team is working up to the limit of his or her training and skill sets; and use their care managers as efficiently as possible in order to provide appropriate support to all patients who need help.

Electronic health records (EHRs) are essential to any PHM strategy. But EHRs are not designed to support PHM. Though they can supply much of the data required to track and monitor patients' health and identify care gaps, they must be combined with claims data to provide a broad view of population health and to track individual patients across care settings. Moreover, providers need electronic registries to identify care gaps and provide the near-real-time data required to intervene with subgroups of patients efficiently and in a timely manner. Although some EHRs include such registries, they're not as complete, flexible, or usable as those available from third-party developers.

The IT infrastructure for PHM must also include applications that automate the routine, repetitive work of care management. These automation tools offer several advantages: First, they can lower the cost of care management by taking over time-consuming chart research and outreach work. Second, they free up care managers to devote personal attention to high-risk patients who urgently need their help. Third, they allow providers to do essential pre-visit planning and post-visit follow up on a consistent basis. Fourth, they can bring noncompliant patients back in touch with their personal physicians. And fifth, these tools enable organizations to quickly scale up their care management efforts so that they can continuously care for all patients in their population.

Most important, the combination of these tools offers a mechanism for engaging patients in their own health care. Without patient engagement, population health management is impossible.

Current Trends

The rise of accountable care organizations in recent years reflects the concurrent emergence of value-based reimbursement and financial-risk contracts. Composed of physicians and hospitals that are committed to lowering costs and improving quality, ACOs must be able to deliver high-quality care within a budget. Strategies such as admitting patients to lower-cost hospitals and de-emphasizing expensive tests can help them do this in the short term; but in the long term, ACOs will have to manage population health well to be successful.

The patient-centered medical home - a holistic approach to primary care that includes a whole-person orientation and integrated care coordination - is considered an essential building block of ACOs. The National Committee for Quality Assurance (NCQA) has awarded medical home recognition to more than 10,000 practices, composed of over 48,000 providers, and the number of PCMHs is growing rapidly.16

The growth of patient-centered medical homes bodes well for the transformation of health care through ACOs and other APMs. But to coordinate care effectively across care settings, the primary care physicians who have built medical homes must gain the cooperation of specialists, hospitals, and other healthcare players in the medical neighborhood.

This might seem like a...