Easy does it. As we prepare for the implementation of the Affordable Care Act, this has been our mantra.
For years I've been urging healthcare organizations like ours not to put their heads in the sand when it comes to the ACA, to make vital changes immediately. But perhaps missing in that message was the finesse required to make a smooth and stable move to an accountable care organization. 
Transitioning from pay-for-performance to an ACO focused on pay-for-quality takes time and practice. The transition is not an overnight process. As reimbursement is migrating to pay-for-quality, gradually decreasing pay-for-production and increasing pay-for-quality in stages provides tremendously flexibility. In our case, we changed the percentages as the associated reimbursement changed, easing into the new structure with few bumps in the road.
Implementing a flexible model based on decades of physician integration experience helped us smooth the transition and emerge ready to take on the challenges ahead. We followed seven structured steps to help mitigate unknowns and up-in-the-air timing. We certainly didn't want to make the same mistakes organizations did in the 1990s, when many tried similar pay-for-quality models without success. Turns out, the model works, but you have to play your cards just right. Here's our road map to success.
1. Identify preferred delivery methods for everything from preventive care and disease to transitions and home care.
ACOs and other full-risk contracts will put greater emphasis on integration. Integration provides the best foundation for the coordination of care and the ability to control quality and costs. Hospitals need a high level of integration between hospital, physician and managed care to make an ACO work. At Mercy, we coordinate our hospitals, clinics and employed physicians, and own our own managed care company.
2. Engage physicians. Administrators and physicians must work as one, and often work quickly, with aligned goals and compensation directly tied to strategic objectives.
To be successful, healthcare organizations must be able to rapidly respond to change. Developing long-term partnerships with physicians and empowering an executive team poised to make quick decisions will separate the leaders from the followers. Eliminate the multiple layers of approvals that are sometimes inherent in large healthcare systems wherever possible. This may mean knowing how to integrate physician practices without paying any intangible value, building or upgrading outpatient and clinical facilities, and investing in new technologies. Quickly respond to opportunities like consolidations, mergers, acquisitions and joint ventures. Opportunities like this will continue to arise as healthcare organizations work together to achieve seamless integration and manage covered lives.
3. Build the right physician partnership model by maintaining entrepreneurial incentive and self-direction.
Over 20 years ago, I developed and implemented a physician partnership model at Mercy. The model allows physicians to emulate the private or group practice of medicine, all the while facilitating true vertical integration with the 501©(3) hospital or health system. To the IRS, the model constitutes employment, but the writing of the legal "professional services agreement" allows physicians to continue to direct their practices.
Also important is a compensation plan based on 94 percent on productivity, including care provided under capitation. Physicians are compensated with a portion of their professional fees only, with no payment to them for the facility component of the ancillary charge from the physician office, which covers expenses such as equipment and staff. But they will get the professional service component. Compensation then is monitored to ensure it is in line with published reasonable compensation to production ratios for physicians of the same specialty.
The other 6 percent of compensation is based upon the physician achieving quality and patient satisfaction standards. As value based-purchasing reimbursement increases, the model allows for an easy adjustment in the compensation ratio of 94 percent/6 percent to whatever spread the organization wants to emphasize.
The most important component for success is a change in culture at the hospital or health system. Simply put, the partnership model allows physicians to manage themselves. Physicians do not need management regarding office hours, surgical days and time off because their income is directly related to their billing, quality of care and patient satisfaction.
I have spoken dozens of times in the past few years on the success of the model at Mercy, and other institutions in both large metropolitan and small rural markets have begun implementing it.
4. Make quality of care the driver behind all initiatives. Healthy patients translate into lower medical costs and a robust bottom line.
At Mercy, taking an integrated approach to improving quality of care includes three key areas: disease management, standardization of care and right-place treatment.
When it comes to disease management, a shift in approach from "how can I cure you?" to "how can I keep you well?" is required. Support this shift by providing your physicians with data that helps them understand what drives patient behavior in practice. Mine your claims data. Provide incentives. Get creative.
Creativity and focus applies to standardization of care and right-place treatment. Identify and offer preferred delivery methods. Tie goals and compensation to these methods. Make it easy. For example, we moved our urgent care to a separate location away from our ER, adding a 30-minute-or-less urgent care wait guarantee and running an educational campaign, to help patients help us by self-selecting the appropriate level of care.
5. Develop systems to analyze data to use it to create disease management programs and integrated care decisions based on facts.
Building an integrated model requires a transition from managing hospital beds and OR time to managing the risk of healthcare costs. This depends on data — clean data. But that data doesn't always come cheap. EMR implementation and maintenance is expensive, with meaningful use incentives only contributing a small percentage of the overall costs over the life of the system. However, EMR data, and the expansion of the number ICD10 diagnosis codes, paves the way for greater levels of reporting than ever before possible, which will allow for even higher levels of medical management, a critical driver of success.
CMS' current pay-for-performance programs, such as value-based purchasing, never events, readmission, present on admission and physician quality reporting incentives, are just the beginning of more aggressive cost-reduction programs to come. Value-based purchasing is an example of a cost-reduction plan with very little sharing, as it rewards only top 10 percent performing hospitals. It will be critical to own and reduce costs where possible to make the numbers work.
One way to reduce inpatient utilization is with incentives to shorten inpatient stays and address the episodic nature of healthcare costs. Insurance coverage through exchanges will allow for integrated systems to effectively manage patient care and reduce the high cost of chronic and emergent medical services for uninsured or underinsured patients. Management of chronic diseases will also be key and contribute significantly to ultimate success or failure.
At Mercy, we've stayed ahead of the trend by integrating a full EMR rollout at all hospital and clinics. This system allows us to track current quality indicators and prepare for ICD-10 codes.
6. Define how your organization will treat and manage disease states, working with those requirements into contractual relationships with independent providers.
Understanding the "tipping point" between volume- and value-based reimbursements is essential. Providing medical care to patients needs to be consistent regardless of how their care is reimbursed. There is no financial benefit for reducing utilization and healthcare costs when reimbursement is based on volume. Likewise, it would be financially detrimental have medical management strategies to promote high volumes and/or high utilization when reimbursement is based on how well the organization manages medical costs and reduces utilization.
Physician compensation plans will need to shift from volume-based to value-based incentives as the healthcare environment changes. Provide incentives that promote productivity, patient satisfaction and low medical costs in alignment with changing reimbursement and organizational objectives.
At Mercy, we offer strategies for physicians to refer internally within their medical group, hospitals and our system. We also build in clear goals, including productivity and quality incentives, to our physician contracts to effectively motivate actions that benefit the physician and the organization simultaneously.
7. Manage risk by bringing together top leadership, physicians, clinical staff, and actuarial staff to refine the way you gather, report, and interpret data.
Lack of clarity in long-range healthcare reform makes for uncertainty. Planning for possible scenarios and building in flexibility provides an edge. To mitigate risks wherever possible, we have been planning for:
• Lower levels of reimbursement
• Higher levels of cost to employ physicians and maintain high levels of service
• Being able to provide higher quality and patient satisfaction while reducing medical costs year over year
• Maintain operating margin, under the assumption that without margin there is no mission
• Cost reductions that are challenged by the latest diagnostic and treatment technology improvements
• Challenges to nonprofit status
• A weak economy that puts pressure on federal and state funding of Medicare and Medicaid programs
• Employers need for financial relief from escalating health insurance costs
To address these varied and complex risks, the talents of everyone in your organization and easy access to valid data is required. For us, this means leveraging our information systems to provide the data we need to make strong decisions, promoting an entrepreneurial culture that includes self-motivated physicians and staff, and relying on a nimble, lean management team poised to make quick decisions and flex with changes.
Beyond implementation…
A seventh step might include taking a more active role in the politics of healthcare. In our case, we've worked closely with Janesville's Rep. Paul Ryan (R-Wis.), the House Budget Committee Chairman, to both understand and prepare for the changes happening in Washington, D.C. As a result, we are already leveraging our integration experience and human capital in our transition into a large ACO. We are poised for the future. As the wise Randy Pausch said in "The Last Lecture," in life and in work "it’s not about the cards you're dealt, but how you play the hand."
Javon R. Bea is president and CEO of Mercy Health System in Janesville, Wis.