The concept of population health management is necessary, important and good, but the healthcare industry's current assumptions about, and approach to, population health management and the benefits of assuming global risk is déjà vu all over again.
As the healthcare industry sprints to take global risk for the management of the health of a population (i.e., a fixed payment per member,) I harken back to 1993 when the recommended strategy de jour was, for health systems (called hospitals back then), to employ their physicians in order to flourish under the most certain expansion of capitated risk. That year, a popular think tank published a 380-page analysis of vertical integration strategies for physicians and health systems. Its recommendations were based on "200 interviews with experts, a review of 1,500 pages of articles and research reports and detailed information on integration strategies being pursued by North America's most successful health care providers." In the tome, the group gave one of its highest grades, an 'A', to the "staff model" strategy. The report noted that employing physicians would enable the health system to profit under very competitive capitated rates, due in part to its "power to enforce cost-efficiency standards among physicians."
These recommendations were embraced by many, if not most, in the healthcare industry. Twenty years later the projected growth in capitation did not materialize. And in the end, many of the health systems that adopted these strategies hemorrhaged tens of millions of dollars, and some were permanently crippled by the losses they incurred.
The concept of population health management is necessary, important and good, but the healthcare industry's current assumptions about, and approach to, population health management and the benefits of assuming global risk is déjà vu all over again.
10 reasons capitation won't take hold
While managing the health of a population is a noble cause and logically should fall under the purview of a health system (at least according to the federal government), there is little, if any, evidence that the current obsession with taking global risk for the management of the health of a population will end any better than it did in the 90s. Here are 10 reasons why capitated risk is still not likely to take hold anytime soon:
1. There is no evidence that capitation will become a dominant payment model. Many healthcare experts are espousing the most certain emergence of capitation as the payment model for the future. On July 14, one thought leader noted: "Future value-based payments will be similar to capitation models of the past." Here we go again!
It is worth noting that many population health management competencies will improve patient care and are important regardless of whether capitation becomes a dominant form of payment. These include population stratification, case management, care coordination, etc. But preparing for and taking global risk requires investment in expensive infrastructure (e.g., a comprehensive claims adjudication system and setting aside millions in reserves and the potential for significant losses) all of which could unnecessarily divert scarce resources from more critical needs of the health system and its patients.
2. Today, most health systems lack the competency to deliver optimal value-based care to the relatively small captive population of patients that flow through their own institutions and medical offices. They lack the scale, infrastructure, physician leadership and governance to address the pervasive culture of physician autonomy resulting in highly variable clinical practices, costs and outcomes.
3. Risk is prevalent in the current Medicare fee-for-service reimbursement system. That is, a health system bares financial risk for performance under the case rates of DRG and APC reimbursement. If the cost of care is below the DRG/APC case rate, the system profits; if the cost of care is above the DRG/APC reimbursement, the system loses money. On average, hospitals operate at negative -5.6 percent margin under this Medicare FFS risk. While some may argue that this loss is due to low payment rates, the data suggests that the magnitude of loss has a lot to do with a health system's competency to manage cost: 'Nonprofit' hospitals, have a Medicare margin of -7.2 percent, while 'For-profit' hospitals have a Medicare margin of -1 percent due to their lower cost structure, according to a MedPac report.
4. Few health systems have demonstrated the ability to optimize the health of their own employees, another well-defined captive population who can be influenced through plan design and coaching. In fact, it has reported that healthcare industry workers have one of the highest obesity rates of any labor group.
5. While consultants sell — and health system executives buy — the need to transition to a population health model, a significant percentage of their medical and surgical specialists and hospital-based physicians have no interest or desire to change any aspect of how they deliver care. Physician behavior changes when there is evidence that the change will result in: a) data demonstrating significantly better outcomes for patients, b) better compensation and c) reduced workload. It appears that many physician specialists have not seen nor do they foresee any positive change in these factors; thus, they will resist meaningful participation in many of the population health risk-based initiatives.
6. Having a clinically integrated network doesn't equate to ability to manage risk. Many health systems have spent millions of consulting dollars and resources on creating a "clinically integrated network." The end result is the anatomy (structure) of a network that lacks the physiology (function) to be successful (see illustration at the end of this paper). The fact that most of these networks have failed to attract global risk contracts is a blessing for they lack the competencies necessary to manage the risk.
7. Much of "value-based" reimbursement payments being touted as evidence of both the trend towards, and success of, risk-based population health management programs are, in reality, relatively small withholds from traditional fee-for-service payments. There is little empirical evidence that outcomes and/or costs have materially improved over the long term. The Rand Corp. notes that, “the published evidence regarding improvements in performance from P4P experiments of the past decade is mixed; where observed, improvements were typically modest."
8. It stands to reason that one cannot successfully optimize the health of a population unless there are both an associated public health policy and incentives for personal responsibility, neither of which exist at this time.
9. Any objective analysis of the Medicare Shared Savings accountable care organization program highlights the aforementioned lack of competencies and probable failure should most existing population health management programs take risk. The shared savings payments received by the select few ACOs may be a function of historically high use rates regressing to average utilization and not a unique competency to successfully manage and optimize the health of a population.
10. While many health systems possess the hubris to believe that they can succeed by taking global risk, a tiny fraction actually possess the deep knowledge, data systems, infrastructure, cultural commitment and, most importantly, physician leadership necessary to do so.
Carl McDonald, Citigroup's highly regarded managed care analyst (who has no axe to grind nor a bench of consulting mouths to feed), has stated that the "vast majority of hospitals don't have anything close to the systems and infrastructure necessary to take risk successfully and most who have tried in the past have not succeeded." He cautions that managed care is an extremely complex business, and "plans have been taking risk for 20-30 years and still make big mistakes on a fairly regular basis."
12 milestones for population health competency
Successful health systems will develop the essential competences necessary to manage population health over time, at a realistic, logical pace, progressing through clearly defined milestones for competency development, while staying focused on deeply managing their fundamentals. These milestones include:
1. Providing great care/service and breaking even at Medicare rates.
2. Not being deluded into thinking that Medicare's Core Measures actually measure quality and thus supplementing the Core Measures with more relevant measures which they routinely monitor and report to the public.
3. Operating highly disciplined, evidence-based hospitalist and intensivist programs.
4. Maturing their employed physician group to function as a group practice, focusing on care coordination, efficiency and patient satisfaction rather than a group of practices, each one obsessed with individual wRVU production. Through effective physician leadership and deep management the financial performance of the employed group can be optimized. This mitigates the need for the health system to grossly inflate the rates they charge for office visits and routine ancillary services to subsidize losses in their employed physician group.
5. Running an ED that achieves best-in-class performance.
6. Demonstrating that "patient-centered" means easy-to-understand, accurate, reasonable charges and billing statements.
7. The ability to predetermine and report the actual cost and price for an episode of care and share this information with patients, physicians and payers.
8. Affiliating with a digitally connected network of physicians, complying with hundreds of office-based and inpatient protocols, along with a physician hierarchy holding their colleagues accountable.
9. Redesigning care to make it more affordable, accessible, coordinated and evidence-based, especially for the frail elderly and chronically ill.
10. Implementing and operating an EHR that adds measurable value to care delivery and does not materially disrupt: a) clinical productivity, b) quality and/or c) jeopardize financial performance of the health system. Note: An EMR is necessary but, by no means, sufficient to achieve the level clinical integration necessary to successfully manage risk.
11. Collaborating with payers to offer affordable, high-quality care through a "preferred" narrow network.
12. Developing a public health policy to addresses poor lifestyle choices which are primary contributors to chronic disease.
As Mark Twain said: "History does not repeat itself but it sure does rhyme." Many healthcare industry 'thought leaders' are describing the current strategic environment as having "one foot on the dock and one foot in a boat." I would advise most health systems to first shore up their dock so that it will be able to survive the turbulent waters ahead and to postpone the treacherous journey on the USS Global Risk for which most are ill-prepared. By definition, population health management will reduce the use of expensive hospital services. Even poorly executed population health management efforts will have some impact on reducing hospital utilization. Health systems that implement a population health program, without first developing the competency to consolidate services and markedly reduce the cost of the care they provide, will find themselves in a declining financial spiral.
In her New Yorker critique, "The Disruption Machine, What the Gospel of Innovation Gets Wrong," Jill Lepore notes that one has to be cautious when considering the advice of pundits and their popular management theories. On March 10, 2000, Clayton Christensen, the author of the "Innovators Dilemma" and developer of the theory of disruptive innovation, launched a $3.8-million Disruptive Growth Fund. Less than a year later, the fund was quietly liquidated. In 2007, Mr. Christensen, told Business Week that "the prediction of the theory would be that Apple won't succeed with the iPhone," Over the next five years, the iPhone generated a hundred and fifty billion dollars of revenue. Ms. Lepore concludes that many of the business failures that are often attributed to a failure to embrace disruptive innovation look more like just bad management (e.g., a lack of insight into industry trends and consumer demands in the mainframe computer industry, and the inability of "big steel" to deal with their unions to lower their cost structure).
As we saw in healthcare, circa 1993, the predictions of thought leaders may not always be accurate, and blindly embracing these predictions can do significant harm to an organization.
The concept of population health management is directionally correct. But some of the premises being espoused by industry pundits may be misguided. Taking global risk for the health of a population is a noble goal, but it can also be a distraction, or worse, a financial catastrophe. Bolting a population health-global risk platform on top of a dysfunctional delivery system will not work.
The key to achieving the goal of successful population health risk is to first excel at the fundamentals listed above and then to sequentially develop essential new competencies over time — that's good management.