In their new book, Accountable Care Organizations: Your Guide to Strategy, Design, and Implementation, Marc Bard, MD, chief innovation officer in Navigant’s Healthcare Practice, and Mike Nugent, managing director in Navigant’s Healthcare Practice, offer practical advice for hospitals to assess their ACO-readiness and make cultural changes to bolster ACO success.
Q: You mention that hospital leaders will have to change certain rules to shift to an ACO-friendly culture. What types of shifts are we about to see with the implementation of ACOs?
Dr. Marc Bard: The rules we refer to in Chapter Five are simple rules — the unstated assumptions organizations live with, not the explicit ones. The most fundamental rule from my point of view is that physicians and hospitals see each other as partners rather than as vendors or customers to one another. The second is this: previously, everyone thought healthcare was a zero-sum game. It had this rule of competition. Now we're shifting to a new way of thinking where providers collaborate, improve efficiency and manage quality. Those are fundamentally different ways of looking at the world — it's no longer as competitive.
Mr. Mike Nugent: If hospitals and physicians don't pay attention to such advice, just as Marc offered, then the deals that don't put patients first and think about the physician side of it — those will suffer. ACO pilots without physician strategy are struggling. Physician engagement and relationships change healthcare delivery.
Q: Culture is often said to trump strategy, just as you mention in chapter five. Many providers have been speculating about what ACOs might look like, but there seems to be less focus on how they may differ. Can you expand on how ACO cultures may be unique from one another?
MB: First of all, it's important to understand the term ACO is not representing an organization. It's a collective strategy. The culture of each ACO will be a reflection of several things: (1) the needs of the community, (2) competitive nature of the environment and (3) whether the hospital is solo or part of a larger system. At the end of the day, the culture will be established by the willingness of the physician leadership and the hospital system and how they craft a partnership. I think this will depend on what services are available or not in the community and specialties.
MN: I also think the culture will be determined by the physician leadership. I think this is clear when you're privileged to work with a great primary-care practice. I think that's one culture, and physicians will set the tone. This comes out clearly in the ACO regulations, too. If you do a word count in that document, you'll have 10 times as many mentions of physician leadership than you do hospital or payors. There also needs to be a cultural shift within hospital finance departments. Many are reactionary right now, saying, "This isn't going to happen, this isn't going to happen." No, no — it is. Look at the regulations. There's this lack of strong culture within finance departments to admit to and manage this significant shift. Right now many finance departments are still in a 12-month budget cycle mentality. They need to recognize what's coming and set the tone for a different operating model.
Q: Culture is also a factor in the ACO readiness assessment featured in this book. You mention a five-level system, with ones not being ready for ACO-implementation and fives already organized as an ACO in all but the name. Can you expand on what distinguished a level 2/3/4 organization's culture from that of a level 5?
MB: Well, there aren’t any fives out there. The ones that come closest are the ones you'd already describe as an ACO, such as Geisinger or Kaiser Permanente. The ones and fives are easy to distinguish. The big difference between a two and a four is whether the two is willing to confront deficiencies or pretend they don't exist. At the end of the day, twos might realize they put together something that hasn't lead to significant savings, and that would be tragic.
MN: I think Medicare is probably thinking about 2/3/4/5 scoring as well. The regulations go out of their way to discuss the investments required. They point to PGP demonstration projects and say a typical ACO may spend a million dollars in investments.
MB: But, if the only successful ACOs are the Geisingers and the Kaiser Permanentes, this may be a failed strategy. If we're going to simply say the highest performing organizations are going to benefit from the shared savings model — and they're already operating on this level — then we haven't really moved the cost curve at all. We've taken the ones already performing and are now rewarding them. You want to move that middle of the bell curve.
Q: ACOs are redefining the relationship once shared between competitive healthcare providers in many markets. How can hospitals become more collaborative while retaining a competitive edge in a marketplace?
MB: I think there are three types of competitors: (1) the organizations that look like yours and deliver what you do, (2) distinctly different delivery system that competes to deliver some of the same services, like inpatient/outpatient or long-term acute-care hospitals/acute-care hospitals with nursing homes, and (3) those where there is a gap that nobody is providing. I think there has to be more harmonization. Providers are going to play different roles in this, and we'll have to start seeing former competitors and potential collaborators. Many systems are beginning to look and say, "Where is the duplication of services where ultimately rationalizing the care in one higher volume location makes a little more sense?"
MN: In some markets, health systems are very anxious about doing something with a payor before a competitor does something with them. Some hospitals are nervous about doing things with physicians before another hospital does. Hospitals that work hard with their physicians are in a better place to go to payors. If you can offer a model that is more physician-led, that's a competitive edge. In metro areas, hospitals and systems have to look at their competitive positioning — not just bed counts, but physicians. This not only refers to how many employed, but a hospital's relationship with an IPA. IPAs are becoming more strategic and hospitals have to consider them more seriously — not as a contracting vehicle but as a way to compete in the market.
Q: When it comes to changing the culture of a hospital, can you identify three or so best practices?
MB: The first is to not only tolerate, but absolutely welcome and encourage a strong physician organization. Don't be threatened by them — only strong partners make good ones. Second, have full transparency with the ACO strategy and intentions. Tradeoffs and compromises should be dealt with upfront and not as backroom deals. Deals will backfire. Don't go to one physician group and say, "If you're willing to join our ACO, we'll make a deal with you for special OR time availability." Take the moral highground. Third, develop a performance dashboard that is rational and develop it together as physicians, hospitals and systems. Make it global enough so you're measuring broadly enough and not measuring blades of grass. You might end up increasing certain costs in certain areas, but reducing overall expenditure greatly.
MN: One mistake I've seen hospitals make is having this immature view of the revenue line. They think revenue growth will be there — there's immaturity around volume, reimbursements and where they will come from. Some financial departments think that will be there forever — it's so engrained in our industry, thinking that money will always be there. Hospitals need to manage this trend.
MB: There are systems deeply committed to the virtues and values of accountable care. But others are approaching it as a viable strategy or part of a sweeter strategy. For many of systems, component parts are asking, "How can I minimize my sacrifice?" Really, the intention in participating is to give as little as they need to still be listed as a contributor. I can tell you, we're not going to get where we need to go if we're only looking at how we can minimize our involvement in this but maximize on the benefits.
Learn more about Accountable Care Organizations: Your Guide to Strategy, Design, and Implementation.
Read more about ACOs:
- 50 Things to Know About the Proposed ACO Regulations
- 10 ACOs Recently Formed by Hospitals and Health Systems
Q: You mention that hospital leaders will have to change certain rules to shift to an ACO-friendly culture. What types of shifts are we about to see with the implementation of ACOs?
Dr. Marc Bard: The rules we refer to in Chapter Five are simple rules — the unstated assumptions organizations live with, not the explicit ones. The most fundamental rule from my point of view is that physicians and hospitals see each other as partners rather than as vendors or customers to one another. The second is this: previously, everyone thought healthcare was a zero-sum game. It had this rule of competition. Now we're shifting to a new way of thinking where providers collaborate, improve efficiency and manage quality. Those are fundamentally different ways of looking at the world — it's no longer as competitive.
Mr. Mike Nugent: If hospitals and physicians don't pay attention to such advice, just as Marc offered, then the deals that don't put patients first and think about the physician side of it — those will suffer. ACO pilots without physician strategy are struggling. Physician engagement and relationships change healthcare delivery.
Q: Culture is often said to trump strategy, just as you mention in chapter five. Many providers have been speculating about what ACOs might look like, but there seems to be less focus on how they may differ. Can you expand on how ACO cultures may be unique from one another?
MB: First of all, it's important to understand the term ACO is not representing an organization. It's a collective strategy. The culture of each ACO will be a reflection of several things: (1) the needs of the community, (2) competitive nature of the environment and (3) whether the hospital is solo or part of a larger system. At the end of the day, the culture will be established by the willingness of the physician leadership and the hospital system and how they craft a partnership. I think this will depend on what services are available or not in the community and specialties.
MN: I also think the culture will be determined by the physician leadership. I think this is clear when you're privileged to work with a great primary-care practice. I think that's one culture, and physicians will set the tone. This comes out clearly in the ACO regulations, too. If you do a word count in that document, you'll have 10 times as many mentions of physician leadership than you do hospital or payors. There also needs to be a cultural shift within hospital finance departments. Many are reactionary right now, saying, "This isn't going to happen, this isn't going to happen." No, no — it is. Look at the regulations. There's this lack of strong culture within finance departments to admit to and manage this significant shift. Right now many finance departments are still in a 12-month budget cycle mentality. They need to recognize what's coming and set the tone for a different operating model.
Q: Culture is also a factor in the ACO readiness assessment featured in this book. You mention a five-level system, with ones not being ready for ACO-implementation and fives already organized as an ACO in all but the name. Can you expand on what distinguished a level 2/3/4 organization's culture from that of a level 5?
MB: Well, there aren’t any fives out there. The ones that come closest are the ones you'd already describe as an ACO, such as Geisinger or Kaiser Permanente. The ones and fives are easy to distinguish. The big difference between a two and a four is whether the two is willing to confront deficiencies or pretend they don't exist. At the end of the day, twos might realize they put together something that hasn't lead to significant savings, and that would be tragic.
MN: I think Medicare is probably thinking about 2/3/4/5 scoring as well. The regulations go out of their way to discuss the investments required. They point to PGP demonstration projects and say a typical ACO may spend a million dollars in investments.
MB: But, if the only successful ACOs are the Geisingers and the Kaiser Permanentes, this may be a failed strategy. If we're going to simply say the highest performing organizations are going to benefit from the shared savings model — and they're already operating on this level — then we haven't really moved the cost curve at all. We've taken the ones already performing and are now rewarding them. You want to move that middle of the bell curve.
Q: ACOs are redefining the relationship once shared between competitive healthcare providers in many markets. How can hospitals become more collaborative while retaining a competitive edge in a marketplace?
MB: I think there are three types of competitors: (1) the organizations that look like yours and deliver what you do, (2) distinctly different delivery system that competes to deliver some of the same services, like inpatient/outpatient or long-term acute-care hospitals/acute-care hospitals with nursing homes, and (3) those where there is a gap that nobody is providing. I think there has to be more harmonization. Providers are going to play different roles in this, and we'll have to start seeing former competitors and potential collaborators. Many systems are beginning to look and say, "Where is the duplication of services where ultimately rationalizing the care in one higher volume location makes a little more sense?"
MN: In some markets, health systems are very anxious about doing something with a payor before a competitor does something with them. Some hospitals are nervous about doing things with physicians before another hospital does. Hospitals that work hard with their physicians are in a better place to go to payors. If you can offer a model that is more physician-led, that's a competitive edge. In metro areas, hospitals and systems have to look at their competitive positioning — not just bed counts, but physicians. This not only refers to how many employed, but a hospital's relationship with an IPA. IPAs are becoming more strategic and hospitals have to consider them more seriously — not as a contracting vehicle but as a way to compete in the market.
Q: When it comes to changing the culture of a hospital, can you identify three or so best practices?
MB: The first is to not only tolerate, but absolutely welcome and encourage a strong physician organization. Don't be threatened by them — only strong partners make good ones. Second, have full transparency with the ACO strategy and intentions. Tradeoffs and compromises should be dealt with upfront and not as backroom deals. Deals will backfire. Don't go to one physician group and say, "If you're willing to join our ACO, we'll make a deal with you for special OR time availability." Take the moral highground. Third, develop a performance dashboard that is rational and develop it together as physicians, hospitals and systems. Make it global enough so you're measuring broadly enough and not measuring blades of grass. You might end up increasing certain costs in certain areas, but reducing overall expenditure greatly.
MN: One mistake I've seen hospitals make is having this immature view of the revenue line. They think revenue growth will be there — there's immaturity around volume, reimbursements and where they will come from. Some financial departments think that will be there forever — it's so engrained in our industry, thinking that money will always be there. Hospitals need to manage this trend.
MB: There are systems deeply committed to the virtues and values of accountable care. But others are approaching it as a viable strategy or part of a sweeter strategy. For many of systems, component parts are asking, "How can I minimize my sacrifice?" Really, the intention in participating is to give as little as they need to still be listed as a contributor. I can tell you, we're not going to get where we need to go if we're only looking at how we can minimize our involvement in this but maximize on the benefits.
Learn more about Accountable Care Organizations: Your Guide to Strategy, Design, and Implementation.
Read more about ACOs:
- 50 Things to Know About the Proposed ACO Regulations
- 10 ACOs Recently Formed by Hospitals and Health Systems