Treacy & Company Academic Medical Centers (AMCs) Need Population Health Management Systems But They Won t Be Asking for Them

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1 Treacy & Company Academic Medical Centers (AMCs) Need Population Health Management Systems But They Won t Be Asking for Them

2 Academic Medical Centers (AMCs) Need Population Health Management Systems But They Won t Be Asking for Them April 2016 By Alan Martinovich and Joshua Coleman INSIGHTS Future profitability of health systems will depend largely on their ability to maintain top quartile outcome and cost effectiveness relative to peers. This competition-based leveling is inherent to the way that government determines payment levels, resulting in fewer provider winners as excess cost is squeezed out of the system. While the top few systems may be able to sustain a clinical operating surplus by attracting sufficient patients with commercial insurance or private payment capacity, most systems will need to retool their delivery model and focus areas to survive. Medicare will be the tip of the spear, and effective population health management (PHM) will be foundational to success. Health Information Technology (HIT) companies will have a major role to play in building the infrastructure and standardization that makes PHM successful. However, expensive capital outlays for EHR systems and the pain of implementation have raised the bar for organizational buy-in. The result is increasing difficulty in aligning on system-wide technology solutions even as the new payment paradigm requires the increased coordination that effective HIT provides. In particular, despite the increasingly critical mandate to manage costs out of the system, top academic medical center (AMC) hospitals and physicians are both the least prepared to address this challenge and the least open to working with new PHM solutions. Based on our work with a leading AMC, we identified several key challenges that AMCs and their systems will face: inability to protocolize procedures for physicians, lack of coordination among departments, and lack of coordination among points of care. While these challenges exist in all systems, the unique politics, incentives and highly siloed nature of AMCs make effective PHM particularly challenging within that environment. As a result, HIT companies must take a measured approach to handling AMCs and the powerful physicians that practice within them. Gaining a foothold through the AMC is mission impossible; instead, HIT companies should build compelling pilots at more receptive points of care, and provide value-added services around pay-for-performance requirements that create organizational buy-in to a technology solution. Context: Risk to the AMC Model Posed by Healthcare Reform Historically, a clinical operating surplus and relative abundance of National Institute of Health (NIH) funding and other grants have allowed AMCs to subsidize scientific research, procedural development, and commercialization of new drugs and devices. As a result, AMC s have achieved their tripartite mission of teaching, research and care despite a relatively chaotic funding environment South Street, Needham, Massachusetts

1). Medicare will be the proving ground for developing effective PHM strategies, with ~35% of patients with 4+ conditions accounting for 75% of Medicare spend and 90% of readmissions (see Figure 2).

3 However, the increased focus on pay-for-performance requires the transformation of the historic funding model. Like many AMCs, the current business model of our client is highly dependent on government reimbursement policy, with half of revenue at risk as Medicare and Medicaid shift payment models (see Figure 1). Medicare will be the proving ground for developing effective PHM strategies, with ~35% of patients with 4+ conditions accounting for 75% of Medicare spend and 90% of readmissions (see Figure 2). 68% percent of Medicare beneficiaries have at least two chronic conditions. Furthermore, private payers are increasing pressure on AMCs to take on more risk and accountability for clinical outcomes. The system we studied has experimented with Accountable Care Organizations (ACOs), but they have not placed the requisite focus nor made the necessary changes to manage a poly-chronic population effectively. The system s ACO activity to date has not been focused on this population especially within the AMC mothership. The AMC must adapt to the pay-for-performance reimbursement model to protect the vitality of its clinical revenues and maintain any ability to subsidize research, academic and charitable work. Population Health Management as an Opportunity and Its Challenges To win in the pay-for-performance reimbursement model, AMCs must develop the ability to manage polychronic populations more efficiently and effectively than their peers. An integral tool to doing so is effective PHM. When done well, PHM can lead to targeted improvements in the metrics that CMS and payers use to determine reimbursement levels (generally some combination of improved outcomes and cost reductions). While some organizational camps (e.g., nursing, ACO management, Quality leadership) within the system have recognized that a disciplined PHM capability is essential to thriving in a pay-forperformance world, the structural basis of the AMC makes it particularly ill-prepared to manage the necessary changes and processes to be successful. PHM includes several key components: segmenting patients by needs and usage patterns, devising care plans for those segments, optimizing the care delivery model around each population s priorities, 2

4 coordinating across departments and points of care to ensure the model and care plans followed, and tracking the model s financial and clinical outcomes. The result is a standardized set of procedures that reach across functional and departmental siloes, developed by relying on evidence-based medicine. The unique politics, incentives and the heavily siloed nature of the AMC exacerbate the three key challenges in managing poly-chronic patients and instituting effective PHM: standardizing procedures, coordination across departments, and coordination across care settings. Standardizing Procedures Standardized protocols are foundational to PHM, and those protocols can generally cover the majority of cases faced by physicians. For those exceptions and needs for extraordinary care, the central AMC in a system generally plays a significant role. At our system s AMC, many lead physicians see themselves as focusing on only those extraordinary cases in which evidence-based protocols are likely not developed or applicable. However, the volumes required to support the clinical activity of the AMC go beyond the extraordinary cases only. Furthermore, even in cases that are addressable by evidence-based protocols, physicians in a research setting have incentives to develop independent procedures and approaches, in order to advance the practice. In fact, a key avenue to wealth creation and prestige for physicians is the development of new procedures or refinement of existing ones. Thus, physicians at AMCs are more resistant to PHM than in other care settings. Coordination across Departments By definition, poly-chronic patients interact with AMCs across a variety of specialties, practices areas and care settings. Cross department protocols, therefore, are critical to lowering the healthcare costs of polychronic patients. However, the multiple touch points and coordination requirements for a typical polychronic patient push the limits of any care system, and are all the more challenging for an AMC. The AMC is functionally organized as silos of specialties focused on managing specific procedures and episodes of care. Departmental priorities are often set around research goals and individual physician goals, and tend not to be well coordinated with hospital and system goals. At an organizational level, financial incentives for influential physicians are often based on productivity of the physician s own department and the quality of research conducted within the department. To illustrate the challenge, take a typical heart failure patient. Two-thirds of patients with heart failure have two or more non-cardiac comorbidities, and more than 25% have six or more concomitant diseases, which may include: diabetes mellitus, chronic lung diseases, renal dysfunction, anaemia, depression, arthritis, and sensory and nutritional disorders. Major providers for heart failure alone will include a general practitioner / PCP, cardiologist, internist, geriatrician, pharmacist, heart failure nurse, dietician, and caregiver. For the most common comorbidities, additional specialist providers will include an endocrinologist, podiatrist, ophthalmologist, nephrologist, pulmonologist, psychiatrist, rheumatologist, and neurologist. While 75% of systems have implemented some form of team-based care model to address failure points among departments, recent studies have shown that although team-based care has a positive impact on patient outcomes, it can have a negative impact on physician burnout. In an AMC setting, physicians and clinicians particularly value the autonomy and independence they have to pursue their clinical and academic research interests, and top physicians will tend to have standing job offers at several other AMCs 3

5 at any given point. As one would expect, the AMC is highly resistant to initiatives that may hurt retention of top physicians. Furthermore, innovations in value-based care, population health management, and cost management are generally considered more administrative, so the top academic physicians do not focus on these efforts. In a tertiary care setting where high-cost episodes are treated, the physicians associated with those highcost treatments are some of the least likely to engage in team-based care required for effective PHM. Coordination across Care Settings In addition to departmental silo challenges, coordination across points of care such as primary, specialist, AMC, etc. is a major barrier. Across all systems, we know that interfaces have a high failure rate and need to be improved, particularly between hospital physicians and PCPs (see Figure 3). However, in the AMC system context, the lack of coordination is exacerbated because hospital executives (e.g., AMC, community hospitals) are incented to improve the operating profitability of their own institution rather than the system as a whole. For example, an AMC would generally not find it advantageous from an operating revenue perspective to direct patients to less expensive community hospitals or outpatient facilities, when they can accrue departmental revenue in the AMC. In addition, the system in this case has a hodge-podge of EHR and IT systems that have been patched together over the past decades, which can make links from AMC physicians to the community hospital and primary care network difficult. How to Make It Work Despite these challenges, our client saw two noteworthy successes in cutting across departmental politics, both times driven by a single physician who had the political capital and ability to operate outside the system, even though these actions were likely to have a negative impact on some of their colleagues. Bootstrapped Mobile Facility to Manage ED Frequent Flyers Physicians report that 40 ED frequent flyers accounted for ~$20M per year in costs. One young physician spearheaded a cost reduction program by building his own mobile care facility that is, an ambulance equipped with primary care supplies and visiting these patients in their homes or daily settings. The stated challenge in replicating this model is finding physicians who are willing to take this approach, and managing the backlash from some departments. Quality Improvement Driven by System Veteran Significant quality improvements were driven by the efforts of one well-respected physician and Board member who owned the quality improvement program, which brought cost improvements 4

6 in coordination with and entirely under the banner of clinical outcome improvements. By earning quality bonuses and avoiding penalties, quality efforts boosted the bottom line by more than $10 million over four years, while also improving care. Implications for HIT Companies Given their structural resistance to effective PHM, HIT providers must take a careful, measured approach to developing inroads with AMCs. With effective proof points, an appeal to the needs of key AMC stakeholders, and defensible ROI calculation, HIT companies can convince AMCs of the importance of PHM systems 1. Take a lead role in prioritizing populations and points of care to create effective proof-point pilots HIT companies need to take a leadership role in defining which populations and conditions to focus on and with which interventions and protocols. It would be impossible for any provider to define protocols for everything, and the coordination required (even for initial prioritization) can be a non-starter at diverse, large systems. HIT players have a natural advantage in terms of scale and replicability of successful approaches to specific populations, and in terms of the ability to commercialize successful protocols and innovations. PHM can be successfully scaled only when it links to clear improvements in the economics that drive administrator and department head behaviors. Heart Disease, Diabetes, Alzheimer s and Cancer top the list for driving outsized costs relative to their prevalence rates, and are the logical place to start (see Figure 4). Figure 4 5

7 2. Start with a focus on primary care and ambulatory services for PHM system investments AMC physicians are the clinical group least likely to advocate for improved PHM systems. Key AMC decision-makers and influencers (e.g., AMC faculty or department heads) may prefer the fee-for-service model for its economics: specialty departments are regularly fed patients from system referrals, are not required to take a substantial role in cost reduction, and generate incremental revenue with any services provided. An initial focus on the most receptive points of care can minimize AMC resistance. Therefore, HIT companies should differentiate their approach and input requirements across primary care, outpatient networks, community hospitals, and AMCs. Primary care centers typically see more direct benefit from increased visibility and specialist communication, and are willing to put more time into the technology interface, whether by physician or staff. AMC physicians on the other hand have extremely limited incentives and willingness to engage. As a result, primary care, outpatient networks and community hospitals are the place to start. We know that many leading physicians are less receptive to evidence-based medicine and protocolization initiatives, so proof points through preventative care, in-home visits, in-home technology, etc. can be an effective initial inroad. That said, many AMC-based and leading physicians see themselves as the clinical leaders in their system; so in some cases, bringing them in to the process as consultants to define the protocols for their community hospitals and non-amc points of care can create buy-in. 3. Partner with experienced providers to build proof points do not try to build everything at the AMC By making choices on what, when and where to focus, HIT companies can solve for a second major challenge: busy hospitals need a technology and partnership solution that actively reduces the costs for a patient population, not just tools and reports that show insights and alerts without specific actions associated. HIT companies can collaborate with a host of ambulatory providers and innovative technology and solution companies, which may include treatment and Rx compliance tracking companies, in-home health visit providers, patient call centers, etc. Focusing on a proof point pilot program for one condition with low-hanging fruit in terms of cost savings, can help create organizational buy-in and lead to further implementation across more conditions and points of care. For example, a congestive heart failure program focused on increased Rx adherence; telematics utilization through scale, pacemaker, vitals etc. (and in-home diuretic provision); in-home nursing visits; PCP relationship building and PCP-cardiologist communication can lead to significant cost savings without requiring significant AMC physician pain upfront. 4. Demonstrate how interventions will improve national rankings Even with the above approach, HIT companies need to manage the risk of AMC leaders halting investments and address the ultimate goal of system-wide technology investments and process alignment. AMC departmental heads and system administrators have a goal of maintaining prestige and retaining star physicians. Many hospital CEOs even have U.S. News & World Report or University HealthSystem Consortium (UHC) ranking incentives built into their compensation package. If part of the value proposition is helping the AMC mothership to increase their own rankings (and departmental heads to do the same), HIT companies will find more traction with powerful AMC leaders. 6

8 5. Help providers prove ROI of PHM strategies for value-based payment and negotiate with payers Providers need to prove the value of the population health management investments and interventions so that the benefits can be built in to their reimbursement contracting strategies. To do so, providers must convince internal and external stakeholders of the longitudinal value of effective population health management and coordination, in terms of both clinical outcomes and cost reduction e.g. is it really profitable for hospitals who have just invested in multi-million dollar imaging capital equipment to limit its use to reduce costs? Does having a more targeted specialist referral approach improve system economics overall that is, does increased in-network usage balances out fewer Specialist and ED visits resulting from more effective preventative interventions? Relatedly, one critical gap for providers of all sizes is negotiating risk and value-based payment deals with payers. Providers are at a natural disadvantage when they sit down with payers, who have an army of actuaries and a multitude of historical longitudinal data at their disposal. The 2014 FTI Consulting Payer-Provider Survey found that 41 percent of primary care physicians not currently in a value-based relationship say their biggest obstacle before entering one is their distrust of payers. HIT companies can play two important roles here: (1) support provider negotiations and become the actuary for the provider, and (2) increasingly take on risk for the cost of technology installations based on expected outcome improvements, as negotiated with payers and / or providers. * * * Treacy & Company is a management advisory and capability building firm that works with senior executive teams in some of the world's best known firms across a number of industries on their most pressing performance issues related to growth and innovation. 7

9 Alan Martinovich Josh Coleman John Shannon Partner Principal Vice President Boston Chicago New York

Re: Rewarding Provider Performance: Aligning Incentives in Medicare

September 25, 2006 Institute of Medicine 500 Fifth Street NW Washington DC 20001 Re: Rewarding Provider Performance: Aligning Incentives in Medicare The American College of Physicians (ACP), representing