Historically, a cardinal rule guiding decision making in hospitals was that administrators made decisions on administrative matters, but decisions impacting physicians and their practice of medicine could only be made by other physicians. However, as organizations respond to current cost and quality pressures by making pricing more transparent through bundling of services, these cultural norms must be reexamined. Here are four key challenges that will need to be overcome.
1. Involving administrators in clinical decision-making
For most organizations, the biggest cultural challenge in the development of a bundled price is opening clinical decision making up to examination by non-clinicians. Administrators have historically focused on managing non-physician related activities, and physicians were responsible for physician activities. Unfortunately, it is this compartmentalized way of thinking that has led, in part, to the situation that we have today. Clinicians have generally not been held accountable for costs, despite the fact that their decisions largely control them.
To develop a bundled price, administrators must understand the clinical activities associated with the bundled offering to make better business decisions in terms of developing and pricing the bundle and related quality metrics. Thus, one of the profound aspects of bundled pricing is that it requires that decision making by clinicians be subject to discussion and review by administrators.
2. Managing conflict
Conflict avoidance is another cultural challenge that must be managed to develop a bundled offering. Developing a bundled price necessitates the creation of clinical care paths, which may require a change in practice for some physicians. To develop the care path, physicians involved in the activity to be bundled must agree on what's included and excluded. Physicians will have to come to consensus on the treatment protocol, and agree that they will follow the care path developed.
Unfortunately, one of the biggest pitfalls associated care paths is that they are not used. This happens when care paths are not developed at the right level of specificity, or when conflicts are not fully examined. Conflict avoidance enables physicians to participate without fully "buying in," so implementation is impaired. To ensure that costs don't exceed your bundled price, it is critical that physicians do "buy in." Managing conflict plays a key role in this process.
3. Having difficult conversations
Of perhaps even more importance is ensuring that your management team can have difficult conversations with your physicians. Cost control and improving quality are a huge concern across healthcare, but cost control is even more important in the development of a bundled price. Despite all the work that many organizations have done to control costs, most have not touched physician controlled costs. The management of physician costs is the 800-pound gorilla in the room, and must be discussed when developing bundled prices.
In most organizations, analysis of historical financial data will reveal variances in the costs associated with a particular service or activity. The variance can be often attributed to the choice of medications, additional testing and other services associated with selected physicians. Administrators and physician leadership must be willing to sit down with individual physicians to discuss how their own costs compare with averages. These leaders must be able to point to why these costs are out of line so that the physician can make changes to his or her practice.
Although many hospital administrators are capable of having difficult conversations, some are philosophically opposed to doing so. They view clinical decisions as the purview of the physician. But managing costs under bundled pricing means that these historically siloed groups will have to look at costs and clinical decisions together. Having these types of conversations is certainly not easy, but they are necessary for bundled pricing success.
4. Managing the cultural challenges
Cultural challenges that impede bundled pricing are not insurmountable. The most effective way to address them is to redefine the roles and expectations of physicians, physician leadership and administrators. Hospitals cannot expect to remain successful using the same structure as before because the context has changed. Physician costs must be examined and unnecessary variation must be addressed. To do that, physician leaders must work with finance to "drill down," to determine why costs vary, and work with individual physicians to change their behavior unless there is a clinical reason not to do so. Then, they must be required to speak candidly with physicians about costs.
It's not just the role of physician leaders that requires modification, but the role of the physician as well. Many physicians operate as independent corporations. Many believe that the administrator should have no influence over clinical decisions. These physicians must understand that going forward they must work with hospital leadership. Organizations cannot change their cost structure if they don't change the way decisions are made.
Benefits of cultural shifts
In this era of economic retrenchment, the challenge for organizations is to redefine the roles and expectations of people within the organization to ensure that costs associated with physician decisions are treated with appropriate scrutiny. That is not to say that a physician's clinical judgment will be examined and micromanaged, but that healthcare delivery organizations should analyze when physician costs are higher than anticipated. Physician leadership must be accountable for the costs associated with clinical care in order to have meaningful conversations with physicians. These conversations are as critically important as the analytics behind them.
Michael N. Abrams., MA, is managing partner at Numerof & Associates, Inc. NAI is a strategy consulting firm that develops customized, market-based solutions for strategic and operational challenges of organizations in industries undergoing significant transition. For more information, visit www.nai-consulting.com.
What We Do and Don't Know About CMS' Bundled Payments Program
8 Steps for Hospitals Developing Bundled Payment Programs
1. Involving administrators in clinical decision-making
For most organizations, the biggest cultural challenge in the development of a bundled price is opening clinical decision making up to examination by non-clinicians. Administrators have historically focused on managing non-physician related activities, and physicians were responsible for physician activities. Unfortunately, it is this compartmentalized way of thinking that has led, in part, to the situation that we have today. Clinicians have generally not been held accountable for costs, despite the fact that their decisions largely control them.
To develop a bundled price, administrators must understand the clinical activities associated with the bundled offering to make better business decisions in terms of developing and pricing the bundle and related quality metrics. Thus, one of the profound aspects of bundled pricing is that it requires that decision making by clinicians be subject to discussion and review by administrators.
2. Managing conflict
Conflict avoidance is another cultural challenge that must be managed to develop a bundled offering. Developing a bundled price necessitates the creation of clinical care paths, which may require a change in practice for some physicians. To develop the care path, physicians involved in the activity to be bundled must agree on what's included and excluded. Physicians will have to come to consensus on the treatment protocol, and agree that they will follow the care path developed.
Unfortunately, one of the biggest pitfalls associated care paths is that they are not used. This happens when care paths are not developed at the right level of specificity, or when conflicts are not fully examined. Conflict avoidance enables physicians to participate without fully "buying in," so implementation is impaired. To ensure that costs don't exceed your bundled price, it is critical that physicians do "buy in." Managing conflict plays a key role in this process.
3. Having difficult conversations
Of perhaps even more importance is ensuring that your management team can have difficult conversations with your physicians. Cost control and improving quality are a huge concern across healthcare, but cost control is even more important in the development of a bundled price. Despite all the work that many organizations have done to control costs, most have not touched physician controlled costs. The management of physician costs is the 800-pound gorilla in the room, and must be discussed when developing bundled prices.
In most organizations, analysis of historical financial data will reveal variances in the costs associated with a particular service or activity. The variance can be often attributed to the choice of medications, additional testing and other services associated with selected physicians. Administrators and physician leadership must be willing to sit down with individual physicians to discuss how their own costs compare with averages. These leaders must be able to point to why these costs are out of line so that the physician can make changes to his or her practice.
Although many hospital administrators are capable of having difficult conversations, some are philosophically opposed to doing so. They view clinical decisions as the purview of the physician. But managing costs under bundled pricing means that these historically siloed groups will have to look at costs and clinical decisions together. Having these types of conversations is certainly not easy, but they are necessary for bundled pricing success.
4. Managing the cultural challenges
Cultural challenges that impede bundled pricing are not insurmountable. The most effective way to address them is to redefine the roles and expectations of physicians, physician leadership and administrators. Hospitals cannot expect to remain successful using the same structure as before because the context has changed. Physician costs must be examined and unnecessary variation must be addressed. To do that, physician leaders must work with finance to "drill down," to determine why costs vary, and work with individual physicians to change their behavior unless there is a clinical reason not to do so. Then, they must be required to speak candidly with physicians about costs.
It's not just the role of physician leaders that requires modification, but the role of the physician as well. Many physicians operate as independent corporations. Many believe that the administrator should have no influence over clinical decisions. These physicians must understand that going forward they must work with hospital leadership. Organizations cannot change their cost structure if they don't change the way decisions are made.
Benefits of cultural shifts
In this era of economic retrenchment, the challenge for organizations is to redefine the roles and expectations of people within the organization to ensure that costs associated with physician decisions are treated with appropriate scrutiny. That is not to say that a physician's clinical judgment will be examined and micromanaged, but that healthcare delivery organizations should analyze when physician costs are higher than anticipated. Physician leadership must be accountable for the costs associated with clinical care in order to have meaningful conversations with physicians. These conversations are as critically important as the analytics behind them.
Michael N. Abrams., MA, is managing partner at Numerof & Associates, Inc. NAI is a strategy consulting firm that develops customized, market-based solutions for strategic and operational challenges of organizations in industries undergoing significant transition. For more information, visit www.nai-consulting.com.
More Articles on Bundled Pricing:
Study: Bundled Payment Structures Show PromiseWhat We Do and Don't Know About CMS' Bundled Payments Program
8 Steps for Hospitals Developing Bundled Payment Programs