

It's The Incentives, Stupid!

Why Rotten Incentives Continue To Screw Up Health Care

By François de Brantes

It's the Incentives, Stupid:  
Why Rotten Incentives Continue to Screw Up Health Care

Published by François de Brantes at Smashwords  
Copyright 2012 François de Brantes

License Notes: This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you're reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

ISBN: 978-0-9884381-0-1

Cover Design: John Milano  
A Designer's Touch, Londonderry, NH

Table of Contents

Foreword

Glossary

Chapter 1 The Big Picture

The Value of Human Life

Stopping at 18%

The Lost Decade

Change is Having an Effect

Incentives Are What Matters

Cost Trends Can Shift Down

Lessons From The Maginot Line

Unleashing The Consumer Force

Uncovering a Hidden Tax

Slimming Down The Fattened Calves

It Won't Be Easy, But We Have To Try

Chapter 2 The Agents of The Status Quo

Healthcare Is Different, But Not In The Way Most Think

Know How To Recognize Them

Protecting Patients, Not Just Diners

Willful Incompetence

The Talkers Aren't Doers

Reward The Innovators, Punish The Rest

Spot The Pillaging Pirates

Don't Let The Slackers Off The Hook

They Can, But They Won't

Tell The Pros From The Cons

The Deceit Behind The Cloak Of Reputation

The Hand Wringers' Lament

Unfettered Greed

Chapter 3 Theory's Corner

Form, Function, Incentives

Disruptive Innovation

Information Transparency

Warranties

Minimizing Bad Incentives

Rebalancing Costs And Benefits

Encouraging Bad Behaviors

Activating Consumer-Patients

Reducing Gaming

The Power Of Episodes

Effective Management

Positive Deviants

Chapter 4 Practical Advice

Procedures With Warranties

Recognized Physicians

Powering Medical Homes

Feedback Loops

Reengineered Care

Team Sport

Higher Quality And Lower Costs

The Right Design (Part 1)

The Right Design (Part 2)

Conclusion...For Now

Foreword

Every week, for well over a year, I've opined on the state of healthcare, drawing lessons from papers being published, theories being advanced, and, most importantly, our field work.

The Health Care Incentives Improvement Institute is a not-for-profit organization that is dedicated to improving the quality and affordability of healthcare in the US. To accomplish that mission we've created and implemented a number of programs designed to reduce the negative incentives that currently warp the behaviors of many in the industry.

This ebook is an organized compilation of many of the weekly opinions and I've kept the original publication date on each entry to provide some context for some of the missives. For example, the entry for the week of July 4th 2012 refers to Joey Chestnut, the winner of the hot dog eating contest. While many will recognize the name, without the date, you might wonder why I would suddenly decide to use Joey to make a point.

While I'm an optimist by nature – I wouldn't be trying to change the healthcare system if I weren't – you'll no doubt note the sometimes cynical and angry tone in these pages. And that's because we should all be angry at some level with the current status quo. Every year tens of thousands of Americans are harmed by the healthcare system and no one seems to care. Folks "in the know" can get the best care in the world, whereas the average working person is left fending for themselves, in the dark, with barely any information on the price and quality of the services they're getting. Any other industry operating like this one would have collapsed by now, but healthcare keeps chugging along because it's being insulated from the normal market forces that have reshaped every other industry. And here's the real rub: it doesn't have to be this way. In fact, we know that with a few modifications in the current incentives – the way in which physicians and hospitals are paid, and the way in which health plan members "buy" services – the entire industry could shift in a radically better direction.

So I'll keep sending out my weekly messages, some optimistic, some ranting, and hopefully all topical and timely. If you wish, sign-up.

Sincerely,

François de Brantes  
Executive Director  
Health Care Incentives Improvement Institute

Glossary

**ABIM** – American Board of Internal Medicine – is the organization that awards the designation of Board-certified to physicians who have trained in internal medicine.

**ACO** – Accountable Care Organizations – these are mainly health systems that have agreed to take financial responsibility for the management of patient care

**CBO** – Congressional Budget Office – a non-partisan office within Congress that measures the impact of certain proposed legislation, or of government programs and reports back to Congress

**CMS** – Center for Medicare and Medicaid Services – the organization within the Department of Health and Human Services that manages the Medicare program

**CMMI** – Center for Medicare and Medicaid Innovation – a new organization created by the Affordable Care Act (ACA), that has the authority to create and implement innovative programs designed to improve the quality and affordability of health care for Medicare and Medicaid beneficiaries

**Commonwealth Fund, Robert Wood Johnson Foundation (RWJF), Colorado Health Foundation (COHF), New York State Health Foundation (NYSHF), Kaiser Family Foundation (KFF)** – these charitable foundations are dedicated to improving the quality and affordability of healthcare and fund programs to accomplish that goal. Collectively they have been responsible for funding much of the innovation in care processes and payment in the US.

**FFS** – Fee-for-service – is the primary mode of paying for healthcare services, and the principal reason for medical cost inflation

**GAO** – Government Accounting Office – a division within the federal government that performs various analyses on government programs and initiatives

**Health Affairs** – a leading health care policy journal published monthly

**NEJM** – The New England Journal of Medicine – one of the most respected medical journals in the US, published weekly

**Leapfrog Group** – a non-profit organization founded by employers in 2000 to encourage hospitals to voluntarily report on their patient safety record

**PCMH** – Patient Centered Medical Homes – these are Primary Care Physician practices that have been recognized by the National Committee for Quality Assurance (NCQA) for having systems and processes in place to better manage patients

**Providers** – that's the common terminology for those who provide health care services, such as physicians, nurses, hospital staff, home health agencies, etc...

Chapter 1 The Big Picture

Healthcare costs are rising, although they've moderated in recent years, and have sucked up most of the income gains that average Americans would otherwise have enjoyed this past decade.

It's important to understand why these costs are rising. What's causing rampant inflation in such a huge sector of the economy while costs are barely rising and even falling in other sectors? I propose some answers in this Chapter.

And beyond these answers, the Chapter also covers some other "big picture" issues that we face every day. Some are principles to which we should hold true, and others are aspirations that we should have for this country.

The Value of Human Life

May 25, 2012

On May 11th 1944, a few weeks before the allies land in Normandy, my grandfather (and namesake) dies in a concentration camp in Austria, of aggravated pneumonia, in an environment in which there was little to no value given to a human life. One of the enduring and endearing features of the US healthcare system is that it has, so far, refused to put a value on a human life. And we should always remember the stark contrast between the value given to a human life by the oppressors of freedom with that given by its defenders. Yet if we are to keep that value intact - and we must - we have to individually and collectively find the courage to radically change what we do and don't do. In a NEJM Perspective, Gregg Bloche argues that we must move to forms of rationing if we are to avoid fiscal ruin. We would argue that, instead, we must inject into US healthcare the same forces that have transformed every other industry - transparency in price and quality, activation of consumers as smart shoppers, and value-based purchasing. Recent research points clearly to the  quantity of wasted resources, as well as the effects of  pricing opacity and lack of consumer engagement. It also shows the hope and promise held in the  better management of patients. These data tell us unambiguously that eliminating waste, improving quality and changing market dynamics can help us win this battle.

_What this means to you_ **-** The US spends twice as much per capita in health care costs than the next country, yet does not achieve measurably better outcomes. So there should be no doubt in anyone's mind that we could freeze spending at current levels for way over a decade simply by reducing waste and improving quality. We could also reduce the overall weight of spending by transforming market dynamics. And we can and should achieve these goals without ever imputing a value on a life. To achieve these courageous and noble goals, we must, every day, look at ourselves honestly in the mirror and ask a simple question: "Am I doing all that I can to make the system better, or am I simply going along to get along?" How far are we willing to sacrifice the comforts of a job for the principles we should hold true? Seventy years ago, a generation went to war to defend freedom, to sacrifice the comforts of daily living for the principles they held true. My grandfather and countless others lost their lives fighting for these sacred principles against those that simply chose to go along in order to get along. As we look at ourselves in the mirror, it's not just our reflection looking back. It's theirs as well. We should strive to make them proud, to make their sacrifice count, and embrace the truth that every life counts, and is truly priceless.

Stopping at 18%

August 3, 2012

18% – that's the portion of the GDP that's collected in taxes, and it's also the portion of the GDP that's consumed by national health expenditures. No wonder we have a problem. Now, of course, the government pays only about half of healthcare expenses, but that's still a chunk of change and has been growing. The result: budget deficits. If half the government's spending is on entitlement programs, that doesn't leave  much for everything else. And that's why increases in government health spending that exceeds the rate of growth of GDP will simply increase deficits and the national debt unless taxes go up or all other programs are slashed. As a result, the only reasonable answer is to limit healthcare spending to the increase in GDP, or better yet, to something less. If health spending were flat for the next decade, the percentage of GDP consumed by health care would decrease, as would the rate of increase of premiums for businesses. That's what we really need and economists and serious policy makers on all sides of the political spectrum agree. In two NEJM Sounding Board papers (1) (2), several of them propose a series of concrete actions that can be taken today by CMS and states to curb the increase in health care costs. And importantly, there is broad consensus on the actions to take, which mainly focus on moving rapidly away from fee-for-service. While the CMMI has certainly done its part to-date to focus the delivery system on value-based payments, more can be done and faster. And it should. It has to.

_What this means to you_ \- Do we really need a bunch of new pilots and demonstrations to show that better coordinated care will result in fewer emergency visits and hospitalizations? No. Do we need more pilots to tell us that providers taking on financial risk for episodes will reduce costs of care? No. Do we need more pilots to learn that  competitively bidding durable medical equipment and implantable devices will lead to lower prices? No. Do we need more tests and demonstrations to show that disclosing the cost and quality of physicians and hospitals will lead to performance improvement? No. Do we need more carefully controlled studies to show that consumers, armed with pricing information and the right incentives will make value-based purchasing decisions? No. And yet here we are, futzing around with pilots and demonstrations up the wazoo while we actually do know what works. We need to simply get to full implementations, evaluate, recalibrate if needed, and keep going. Many have, in fact, made that decision, but too many are arguing for caution, for continued incrementalism. Why? Because, generally, they benefit from that incrementalism at our collective expense. And as a result costs continue to rise faster than GDP, the debt continues to accumulate, and the US is all the poorer for it. Raise taxes or flatline health spending. We've chosen the latter. Which do you want?

The Lost Decade

September 9, 2011

On the tenth anniversary of the September 11th 2001 events, we paused to consider the path traveled since and the path we must travel from now on **-** On September 11th 2001, I was in Kentucky, with one of my sons, waiting to present to hospitals in Anthem's network that participated in its quality improvement and incentives program. The talk was focused on the Leapfrog Group's efforts and the imperative for hospitals across the country to report on these few important measures in a very public way. In 2001, CMS Compare didn't exist. Nor did any of the other value-based purchasing programs that are now integrated into the fiber of Medicare payment. Add to those the stipulations of the ACA for innovative payment pilots and delivery system reform, and the recent announcements by the CMMI on payment reform, and we have traveled quite a path. However, we are reminded in two papers published in this month's Health Affairs, that the path traveled so far has failed to stem the rising price of health care. Auerbach and Kellerman show vividly how premium increases in the past decade have wiped away any income gains made by average US families. In fact, they conclude that the rising cost of premiums and out-of-pocket expenses have impoverished America. And Laugesen and Glied place the responsibility squarely on the rise in prices. While they focus on physician fees,  our own work for a large self-insured employer shows that hospital prices, in particular, are responsible for a significant percentage of total premium cost increase. It's pretty clear that we must now embark aggressively on a new path.

_What this means to you_ **-** The groundwork for this new path has been laid by the work done since 2001. It is paved with payment and delivery system reform, and some have already stepped onto this new path with, for the first time in more than a decade, CMS in the lead. Private sector payers must follow. Their seeming inability to control the rising prices of providers has made millions of US residents poorer than they were in 2001. And yet a decade ago, the IOM had clearly signaled that payers, public and private, had to look themselves squarely in the mirror and acknowledge their responsibility for the failure of the US health care system caused by the destructive effects of fee-for-service. CMS has finally looked into that mirror and acted. Quite a few in the private sector have as well. The rest need to follow.

For many hospitals and physicians, the path ahead is not going to be pleasant. However, we all must make sacrifices if the country is to finally rebound from the sequelae of 9/11. Certainly, the majority of US families have made tremendous sacrifices this past decade. To some extent, the past decade has been a lost decade, ensnared in unending conflicts, the near destruction of the international financial system, and the advent of the Great Recession. This next decade can be the start of our rebirth. The path is there. We're on it. Jump on as well.

Change is Having an Effect

January 20, 2012

Something's going on, and passing it off to the Great Recession is no longer holding water **-** The CMS's report on the growth of health care spend in 2010, and the  Altarum Institute's estimates of 2011 both continue to provide good news for all: price growth has significantly slowed. For the first time in decades, healthcare price inflation is not much greater than general price inflation, and the share of healthcare has come down to 17.8% of GDP from over 18%. Utilization did creep up in 2011 from the low in 2010, and is back down as we get into 2012. So what's going on? There's no question that the Great Recession has had an effect on demand for health care services, but there are other factors at play. First, the number of patients enrolled in high deductible health plans continues to grow, reaching 17% in 2011 and likely over 20% in 2012. When 1 in 5 Americans with health insurance have to take a chunk of money out of their pockets to pay for a portion of services consumed, the era of consumer involvement in healthcare has finally arrived. Second, payment reform experiments have vastly multiplied and are yielding results. A CBO report restates a prior CMS report on the impact of bundled payments: it works. Plain and simple. Further,  ACOs are starting to achieve some of their aims. There's still a distance to travel, however, so-called high-performing medical groups like Monarch are, in the words of a new report's authors: "strengthening care management capabilities; building relationships with physicians, payers, and other partners; and developing a new kind of payment model". Of course, some pundits thought that's what these medical groups had been doing all along. The yeoman's work accomplished by the Brookings-Dartmouth team is getting providers to finally collaborate clinically to increase quality and lower cost of care. Form follows function, and function follows incentives.

_What this means to you_ **-** there are dozens of provider organizations across the country that are actively working to transform themselves into higher-performing systems. There are dozens more creating value around bundled services - episodes of care. And there are hundreds in the wings who will jump in once they've been approved by the CMMI to participate in its payment reform pilots. We must encourage them by leveraging the newly activated throngs of health care consumers. Creating reference pricing for simple procedures like colonoscopies; deploying tools like CastLight; offering competing bundled services like total knee replacements to plan members; are all powerful mechanisms to push this market forward. There are two tools created by our friends at Catalyze for Payment Reform that all employers should be using to get these tactics implements. It's all here folks. Let's get it done.

Incentives Are What Matters

September 21, 2012

Blockbuster, Circuit City, and Kodak share a root cause to their decline and failure: they forgot that incentives drive function, and that function drives form \- Why do we need a roll of film when we have digital cameras or smartphones that can automatically upload pictures to social media? Why do we need to go to a "big box" store when we can move through Amazon's web pages? Why do we need to spend time and fuel getting and returning DVDs when the mail carrier can bring it to our doors? The form didn't fit the evolved function, and the function evolved to respond to our needs - and our needs drive how we spend our dollars, and hence the incentives for those who fill those needs. Unsurprisingly, we're seeing this very same shift occurring in the delivery system when the incentives change. For example, we're currently witnessing some of Regi Herzlinger's "focused factories" spring up in the US around joint replacements. Surgeons have realized that their current wallet share of a joint replacement episode is about 10%, so why not go for more, and in doing so offer the patient a comprehensive, wing-to-wing, efficient and effective solution? And they're doing so by accepting performance risk in the form of bundled payments. Well-designed incentives are driving an improved function, which is leading to a reshaped delivery system. That's the way it works in all sectors of the economy.

_What this means to you_ \- Recently, Farzad Mostashari, the country's National Coordinator for HIT made the same point: without reformed incentives, the adoption and use of HIT will never reach its potential. Similarly, the leaders of the value-based insurance design movement are showing that patient-focused incentives, tailored to specific areas of care, are needed for patients to actively engage in more proactive care management. When we look around at today's big players in healthcare, it's difficult not to see a bunch of Kodaks, Blockbusters and Circuit Cities - organizations that are doomed for failure but refuse to acknowledge it. So the next time you're drawn into a conversation about the latest and greatest ACO or PCMH or Care Coordinator or Navigator or any of the other "forms" that are magically supposed to improve outcomes, ask about the incentives and the specific functions they're supposed to drive, and the evidence about the linkage between both (in other words does the person selling the form actually have any evidence that the incentives are going to lead to the desired functions and outcomes). And until you get a satisfactory answer, stay on the incentives, because like it or not it drives the rest.

Cost Trends Can Shift Down

July 29, 2011

Trajectories can be changed, and will be changed if everyone truly steps up to take a swing \- two studies released in July 2011 provide a bleak picture of our current and future well-being if the status quo remains. First, an  issue brief from the Commonwealth Fund on a OECD report shows that the US continues to outpace every other nation in spending on health care. The price per unit is driving much of that difference, and use does the rest. A  second paper released by the CMS Office of the Actuary predicts that healthcare spending will continue to grow at 5.8% for the foreseeable future, consuming close to 20% of GDP by the end of this decade. Fortunately for all of us, actuaries have pretty simple models. They take past performance and throw it into the future, adjusting for basic demographic factors. As such, what this second paper is reporting is what will happen if we don't change the current trajectory. Current payment does not put providers at risk for their performance in delivering high value health care. We are, quite literally, getting exactly what we pay for and exactly what we deserve. And as a result, employers can't grow their staff, companies are continuing to ship jobs overseas, and federal, state, county and municipal governments are laying off employees because they've run out of money and cannot absorb increases in payroll costs (in particular health care benefit costs). So we must move to provider payments that will place them at financial risk for delivering value.

_What this means to you_ \- Some policymakers and some providers (albeit few) are still deluded that increasing health care spending to 20% of GDP is a good thing: it will create jobs! Yes, but each of those jobs is paid for by an implicit tax on ever single individual in this country that contributes ever more to health insurance premiums and/or contributes to the general tax receipts. Contrarily to companies that grow because they offer a high value service, as the first report above specifies, there's nothing high value about the current healthcare spend in this country. And if you're not convinced, consider this: GE is moving its Wisconsin-based health care business HQ to....China. So our insurance premiums and tax dollars go to pay providers partially for diagnostic imaging done on GE machines manufactured in China, and will help create jobs there, not the US. Employers and payers, including public sector employers and payers, can change this trajectory by changing the way providers are paid. It is as simple as that. While moving away from FFS will be tough, and wrenching for many, it will finally provide employers with the breathing room they need to plow money back into their businesses and employees, and grow the real GDP. So fair warning to those who are thinking of sitting on the sidelines doing nothing, or who are currently using the old "rope-a-dope" to maintain the status quo while pretending to do something: we're not going to let you get away with it.

Lessons From The Maginot Line

February 17, 2012

Following the First World War, the French built the Maginot line to protect themselves from another invasion. The Germans simply went around it \- Faced with a potentially disruptive force, incumbents react in one of two ways: they innovate or they protect. We see both happening today at a breathtaking pace. Let's start with the basics, the campaign by the American Board of Internal Medicine Foundation to encourage Medical Specialty Societies to voluntarily identify five procedures that are commonly overused. Choosing Wisely is a good attempt at professional self-regulation in an environment in which, up to now, more was better, even if physicians have know for a while that it isn't. The American College of Physicians has responded by identifying diagnostic imaging for low-back pain as an easy first target. While we encourage such moves, perhaps, like the Maginot line, it's simply out of date. Bolder steps are being taken by the real innovators, spurred by new incentives and programs. For example, the CMMI has a program to call attention to a concerning trend in pregnancy and maternity care - the inducement of births prior to term - and attract new thinking on tackling this problem. Such innovation is already taking hold in Minnesota and elsewhere with birth centers, freestanding facilities that specialize in taking care of moms and babies, reduce the volume of inductions and C-sections, and have far lower episode costs. In a similar vein, some surgeons in New Jersey, responding to the bundled payment initiative by  Horizon Healthcare Innovations, have moved the site of surgery from the traditional fortress to more innovative....and less expensive settings. They win, the patients win, the fortress dwellers lose.

_What this means to you_ \- For how long have we known that excessive imaging for low back pain is unnecessary? For how long have we known that early inductions and elective C-sections are harmful to mom and child? For how long have we known that more efficient and effective ways of delivering healthcare are possible? For far too long. Giving up 5 overused procedures for a medical specialty society is almost an insult to the American people. It's a pretense, not innovation. It's a way to maintain that line, protect the incumbents from real disruption. Some aren't even bothering with pretense. They're overtly building up the fortress walls. The brass-knuckled tactics of some include gag clauses and other non-competitive practices to scare away any who would dare disrupt the comfortable lives built up behind those walls. However, there's always a way around the fortress, and we're seeing it happen. The Altarum Institute reports that 2011 had the  lowest growth in healthcare spending in 50 years. Our work in the field suggests that can go on for a while. When new birthing centers can deliver babies more safely and efficiently than incumbents, when surgeons can perform operations more effectively and at a lower cost by switching settings, the new dawn is on the horizon. The Maginot line fell, and there's a lesson there for those who would hide behind their fortresses: true disruptive innovation cannot be stopped.

Unleashing The Consumer Force

April 13, 2012

Health care utilization continues to be flat, yet total healthcare expenditures continue to rise by close to 4%, keeping healthcare at 18% of GDP. Time to unleash the price slayers **-** A recent report from the Altarum Institute shows that while  use is flat, healthcare  price inflation is either equal to or greater than in the rest of the economy, growing by 10% in the past 5 years compared to 6.5% for other prices. While many will be quick to blame the third-party payer system for the overall cost increase, we must note that use is essentially flat. So the push to consume services engendered by the basic fee-for-service system has been dampened, even though, for the most part, patients are still using "someone else's money" to pay for the bills. What's happening here? For one, the movement to value-based payment continues to accelerate. CMS announced the participants in its  ACO Shared-savings model, and also identified the communities/states in which it will launch its  Comprehensive Primary Care Initiative. And while the implementation of the Bundled Payment pilot has been pushed back, that's simply a reflection of the volume of interest and the need to coordinate the rollouts. All this activity is having an effect. Physicians and facilities are starting to look at their internal processes for care management, and they're taking action today on issues they spot. Others are looking at their internal costs of producing services or procedures, and they're making adjustments. But at the same time, they're negotiating with private sector payers and extracting as much of a price increase as they can, partially to compensate for the flat rate of utilization.

_What this means to you_ **-** Delivery system reform is going to be tough, and  Fisher and Shortell remind us of that difficulty in a blog post. But results from US experiments and  overseas ones have shown the savings they promise. These savings, however, will be wiped out without controlling the price inflation that continues to plague us, and employers must fight back using value-based benefit designs. Consumer-patients can and will shift the current imbalance in price negotiating power if they are armed with value-choices tied to their wallets. Many employers have already started these types of designs. Companies such as Safeway are using reference prices for common procedures; others such as Delhaize are tying co-payments or co-insurance to certain facilities based on a calculated episode price. And there's much more that could be done. For example, smart apps that are now mostly focused on making doctor appointments easier, or keeping healthy habits more fun, should start displaying the differences in costs of routine services from one provider to another. We won't succeed until we can slay the price dragon, and only the millions of consumers that have helped slay that dragon in every other industry can help do it in healthcare. It's way past time to unleash the price-slayers.

Uncovering a Hidden Tax

March 23, 2012

Close to $200 million. That's the added "tax" imposed on Pittsburgh residents by the city's too numerous hospitals (a.k.a. UPMC) **-** Pittsburgh, Cleveland, Cincinnati and St. Louis have about the same number of people living in and around each city, but the combination of lots of hospitals with lots of hospital beds and long lengths of stays puts Pittsburgh in a category of its own compared to the three others. In our  Issue Brief, we estimate that supply sensitive care, caused by an oversupply of hospital beds, is creating an annual added health care cost burden in that city of $187 million compared to Cincinnati. That's a lot of money fattening the coffers of hospitals at the expense of employers. And a Commonwealth Fund resource can help communities better understand where they stand on a number of domains of care, including cost. While employers can't necessarily move all employees from a high cost health care area to a lower cost one, they can certainly decide where they will build their next plant or office. Companies looking at our report or the Commonwealth Fund's resource would likely steer clear of Pittsburgh in favor of Cincinnati. Of course, state and local public employers, such as school systems and municipalities don't have a choice, so they need to be aware of the burden placed on them by health care systems that are imposing such a heavy tax, often resulting in layoffs of teachers or police officers. As Elliott Fisher notes in  our Brief, there are solutions. This rising tide of costs can be beat if public and private sector employers take some important steps.

_What this means to you_ **-** Competition for goods and services has worked wonders to control costs in other sectors of the economy. And competition can have the same effect in health care. The ingredients are simple: transparency in meaningful price and quality information, and consumer sensitivity to the value of providers. These are the ingredients that can power bundled payments or per-capita payments, and a paper published in the NEJM by Cutler et al highlights how much Medicare could save through these types of payment reform activities. The same holds true for private sector employers. Of course, providers who have been imposing these excess taxes on a community will not let it go easily, and employers who want to put a stop to that tax will need to put up a fight. The rising tide of costs is not an inexorable certainty. It's often quite simply a result of market abuse. Those being abused have to stand up and fight, and we'll be fighting with them.

Slimming Down The Fattened Calves

October 14, 2011

There's nothing more infuriating than hearing hospitals complain that lower costs for those who pay for health care means lower revenues to them and potentially fewer jobs **-** it's infuriating because while their bank accounts have gotten fatter, and their buildings have gotten shinier and bigger, the average income of an American family has decreased by 7% in the last decade. And as reported, much of that decrease was caused by higher healthcare premiums. The hospital industry's worry about lost jobs means new job creation for everyone else. So while it might be bad news for them, it's fantastic news for the renewal of America. Boardroom discussions in some hospitals have centered on "socking it to the insurers one last time", at least acknowledging that the party is over, and that revenue compression is coming. But let's get real folks. It's not the insurers that are getting socked, it's every business, every municipality and school system, and every household. What has happened in the American health care system is a transfer of wealth from every household to a few organizations. No real value has been created, because the average quality of care hasn't improved much in the past decade. It just costs more out of our pockets every single year. And what hospitals and other providers have to get through their heads is that revenue compression doesn't have to equate to margin compression. In fact, a presentation by the folks from Ardent who participate in the CMS ACE demo shows how much additional margin can be created when hospitals focus on internal cost controls rather than simply jacking up prices. Fortunately, this is all in process of changing, led by the provider and payer organizations in this country that are truly chasing value rather than volume.

_What this means to you_ **-** we all have to double down on efforts to accelerate the momentum for this transformation. And it is building. The Governor of Arkansas recently announced that payment for health care in that state  will migrate to bundled payments. There are other statewide pilots in California (led by the IHA), Colorado (led by us and the Colorado Business Group on Health), New Jersey and North Carolina (led by the Blues), and Wisconsin (led by the Aligning Forces effort). In addition to these statewide efforts, there are local pilots in other parts of the country led by a variety of plans and providers. In addition, hundreds of providers are applying to participate in the CMMI Bundled Payment Pilot. We have to pull out all the stops and take risks, because more of the same only means more misery....at least for most of us.

It Won't Be Easy, But We Have To Try

July 15, 2011

A number of papers in the July 14 2011 NEJM remind us of our challenges and opportunities \- and do so in an adult and constructive dialogue that is quite refreshing given the imbecility currently reigning over the debt reduction discussions. Mike Chernew and Katherine Baicker remind us that even in the best of circumstances, the growth in Medicare spending will have to require some increase in allocation of general revenues (and therefore trigger some tax increases), or benefits will have to be cut significantly. Robert Blendon and John Benson illustrate how tremendously difficult reducing benefits in Medicare can be because of the sway that older voters have in general elections. And that sway will increase as the Baby Boomers continue to swell the rolls of the over 65. Ultimately, it's about trade-offs - shifting the financial risk to future Medicare beneficiaries, providers, or, more likely, both in reasonable amounts. Anyone with half a brain gets this, except, seemingly, anyone currently serving in Congress. Balancing risk and reward is the topic of a paper written by Meredith Rosenthal, David Cutler and Judy Feder. In it they show how the two-sided risk model in the proposed ACO regs can be improved by making the upside more appealing. It's an important insight in understanding risk corridors and how they can affect decision-making.

_What this means to you_ \- First, if you had any doubt about the importance of the  IPAB, Congress' current display of ineptitude should dispel it. If we can't count on these folks to reach some reasonable compromise to avoid debt default, can we truly count on them to make the balanced decisions on cost-sharing? Second, while Chernew and Baicker are skeptical that the shifts in incentives contained in the ACA can help stall the inexorable growth of Medicare spending, we owe it to our children and grandchildren to lay aside all of our self-interests for the common good, and push as hard and fast as we can to move away from fee-for-service. Because if we don't do it, no one will.

Chapter 2 The Agents of The Status Quo

The vested interests that are deeply embedded in the industry have almost everything to lose from its transformation into a high-performing transparent system. As such, they protect the status quo, sometimes overtly and shamelessly – think about the insurance brokers lobbying to have their commissions considered medical expenses under the new Affordable Care Act (ACA) instead of administrative expenses – and most of the times behind the scenes, surreptitiously, by stalling, by lying, by denying. I often refer to this as the "rope-a-dope" tactic, which Mohamed Ali used so effectively.

You'll see that I have no love lost for these folks, and neither should you. Without them, we'd all be better off, and because of them, we're nowhere near where we should be. Getting rid of the agents of the status quo should be our collective top priority, and I hope that some of these reflections will spur you to take action and join this battle.

Healthcare Is Different, But Not In The Way Most Think

September 14, 2012

Healthcare, we are often told, is different, and shouldn't be compared to other industries. The Institute of Medicine begs to differ \- In an  important and timely report, the IOM went to great lengths to compare healthcare to other industries and, indeed, healthcare is different. A third of what we spend doesn't improve anything, clinicians don't work in teams centered around the patient, patient safety failures abound, pricing information for episodes of care is unknown, complexity is poorly managed. What makes healthcare "different" is that contrarily to other industries, it is patently inefficient. We've argued before that one of the central reasons for these inefficiencies is that mediocre players are allowed to survive. In fact, many thrive. And they thrive because we collectively allow them to thrive. A medical specialty society claims the right to exceptionalism because what they do is so "different" and specialized, that they should continue to benefit from archaic rules that they benefit from...and they get support from a few gullible (or venal) lawmakers to have legislation introduced in their favor. A payer joyfully continues to contract for and process fee-for-service claims, all the while woefully lamenting increases in PMPM, and justifies increasing admin fees to employers by deploying ineffective disease management programs to compensate for failures in the delivery system. It simply doesn't have to be this way.

_What this means to you_ \- accompanying the IOM report is a very simple but compelling  infographic. Print it and post it on your wall. If you're an employer, post it in hallways, in cafeterias, on bulletin boards and next to the water coolers. If you're a provider organization, do the same. And then do something about it. Consider pricing transparency for consumers, especially those in high deductible/high co-insurance plans. Consumer-patients should have the absolute unalienable right to get up-front pricing for an episode of medical care, by provider in their network. This exists in every other industry in which the consumer is a purchaser and there is neither a technical or regulatory reason why it can't be so in healthcare. Consider patient safety failures. Public health officials in cities like New York have a simple rating system for the adherence to standards for every single restaurant in the city, and each one of those restaurants gets a grade, which it has to publish in its window in plain view of passers-by. Why can't they protect patients the same way they protect diners? We cannot ever forget that form follows function, and function follows incentives/payment. As such, if hospitals had to post a grade on their front doors for their patient safety, they would rapidly deploy internal teams to perform root cause analyses of failures, and then structure themselves to make sure failures almost never occur. Teams and complex system management don't materialize out of thin air. They materialize because they're responding to a specific function. And that function exists because the market will reward it, or punish its absence. It's up to us to implement the market mechanisms that will ban forever this pitiful three-word excuse: healthcare is different.

Know How To Recognize Them

February 3, 2012

If, as reported by the CBO, high touch care management and payment reform work, why aren't they being widely deployed? This is our collective $500 billion question, because that's roughly what would be saved if you add up the impact from these interventions. With that much at stake, public and private sector payers should be rushing in. Some are, but many aren't. Our work suggests that incentives matter and impact behaviors, so let's examine who would significantly benefit (or not) from these interventions.

• _Those who would benefit_ \- First and foremost, patients. They would receive high-touch and effective care, and it would cost less. Second, those who pay for care. They might finally get the much-hyped bend in the cost curve. Of course, patients, employees and even employers are simply not well organized as a collective voice, and therein lies the rub. Because we now turn our attention to those who might lose out from these interventions.

• _Those who wouldn't benefit_ \- For the most part it's vendors of many stripes. For example, what would all the care/disease management vendors do if care management was finally back in the capable hands of physicians? What would happen to all those who sell expensive durable medical equipment, lab and other diagnostic tests if physicians and hospitals were no longer rewarded for the volume of services delivered? And, finally, what would happen to the ecosystem of brokers, consultants and others who feed off the status quo, constantly selling solutions that are basically ineffective? They would all have to recycle themselves to delivering value as opposed to piling on to the inefficiencies of the current system. Of course, they're very well organized and routinely walk the halls of Congress making sure the trough stays wide and plentiful.

_What this means to you_ **-** Every time you contract for services or enter into a negotiation with a vendor, ask yourself this basic question: Are they benefiting from the status quo? If their fees (like those charged for disease management or patient "coaching") would decrease or disappear if physicians took over that function, then they're not on your side. If their commissions rise with the increase in health care costs and insurance premiums, then they're not on your side. If their bottom line fattens while yours gets thinner, then they're not on your side. And if they're not with us, they're against us, despite claims to the contrary. So it's time to get organized, to coalesce the forces of change against the forces of the status quo, and to push for the massive and immediate implementation of proven winning interventions. Start by joining the many implementations that are off the ground, and ask your health plans to join as well if they aren't already. Become a member of Catalyst for Payment Reform and your local business coalition on health. Or you can keep having your pockets picked and your bottom line thinned out. It's up to you.

Protecting Patients, Not Just Diners

July 27, 2012

Why aren't patients protected as well as diners or workers? Across the US, municipalities send out their public health inspectors to ensure that diners are protected from serious harm or injury that can be caused by poor hygiene and other practices. These inspections result in restaurants receiving a grade, alerting the diners of potential health safety hazards. All businesses with more than a handful of employees are equally subject to inspections on workplace safety. And if a worker gets seriously injured or dies, an investigation ensues to discover the root cause and institute process changes to reduce the likelihood it will happen again. Many companies, especially the ones with manufacturing plants, post signs at the entrance of the plant highlighting the total number of work days since the last reported injury, or even publish the  statistics on their websites. Every year there are about 3,000 deaths from food poisonings and 4,500 from workplace injuries. And these numbers have been trending down. There are at least  TEN TIMES MORE deaths from medical errors. At least, because no one knows for sure....the law of "omerta" doesn't just apply to the mafia. The recent OIG report clearly indicates that hospital-based patient safety failures are massively underreported, even in states where there's "mandatory" reporting.

_What this means to you_ \- a patient walks down the hall of a hospital and slips and falls on a wet floor, which results in a very serious concussion and loss of function. The result: a higher hospital bill for the health plan to pay, disability payments for the employer to bear, and lasting harm for the patient and family to live with. An hour later, a hospitalist making her rounds has the same accident with the same outcome. The result: a workplace injury inspection, root cause analysis, and process changes to protect other workers from the same potential harm. It makes no sense that patients in a hospital or any other healthcare facility receive less protection against injury, dismemberment or death than the workers in that same facility; or that patients have less information about the safety rating of a hospital than of their local restaurant. If public health officials can inspect and rate restaurants, why can't they inspect and rate hospitals? If the Department of Labor can send OSHA inspectors to investigate a workplace injury or death in a hospital, why can't HHS send an equivalent task force to investigate a patient's accidental death in a hospital? Why do we tolerate this double standard? If you care about your loved ones you won't. History shows us that the code of silence is broken when enough good people stand up for what's right and just. How many more injuries, deaths and dismemberments do we need before we all stand up?

Willful Incompetence

May 18, 2012

Organizations that currently dominate an industry have, as the theory goes, survived a process of brutal evolution. How is it, therefore, that they can sometimes be so incompetent? Let's examine the evidence. A benefits consulting and health care analytics company sends corrupted files, twice, and acknowledges they knew the files were corrupted. A large health insurance company spends months trying to load a claims file on a FTP server, to no avail. Another laments it doesn't have the resources to manage two bundled payment initiatives in a single state. A third can't seem to find the time or resources in their legal department to send out a standard BAA, hence stopping the shipment of a claims file for analysis. Provider organizations are not immune either to incompetence: ED visits for Medicare patients with CHF or COPD are rising dramatically in some communities; C-sections for low-risk pregnancies are rising throughout the country; close to half of PCIs are reportedly done on patients that don't need them. How does one explain this seeming level of incompetence? The theory of evolution would suggest that incompetent organizations would get eaten up by competent ones. That certainly appears to be the rule in the rest of the economy. So are they really incompetent or is this willful incompetence?

_What this means to you_ **-** there should be no doubt to any of you that these actions are the result of willful incompetence. C-sections are rising because providers get a higher reimbursement and patients are asking for the convenience. ED visits are rising for Medicare patients because some readmissions are no longer being paid for, but 48 hours of ED observation are. Files aren't uploaded to FTP servers and BAAs can't be found because plans don't want to submit claims. Resources can't be found by a multi-billion dollar plan to initiate a payment reform effort because they don't want to participate. Much like Jerry Seinfeld and his puffy shirt, these organizations delude themselves into thinking that they continue to look good even when they look silly. And that delusion will continue until each one of us calls them out for their willfully incompetent behavior. They choose not to be competent because it's in their best interest. Punish them for incompetence, reward them for competence, and their interests will shift to where we'd like them to be.

The Talkers Aren't Doers

August 24, 2012

It's usually dangerous when we confuse the talkers for the doers \- A paper published in the British Medical Journal had an innocuous enough title: "When Financial Incentives Do More Good Than Harm: A Checklist", and yet it set off a firestorm of reports across the US that concluded (because of an accompanying editorial by physicians advocating a single-payer system) that incentive programs such as P4P are ineffective, at best, and mostly dangerous. Really? Come on man! About ten years ago, when we launched Bridges To Excellence, there were a handful of physicians across the country that were publicly recognized for delivering good care to patients with certain chronic conditions. Today there are close to 20,000 and the results have been well studied and published for years \- quality of care has improved and costs for those conditions have gone down (psst...even Health Affairs has discovered that better management of patients with diabetes leads to savings, so it must be true!!). And let's get real. If incentives didn't matter, then medical cost inflation wouldn't have grown at a far faster clip than the growth in GDP. Fee-for-service fuels the production of services because that's the incentive it creates, and it's worked very well...too well, which is why we're in the mess we're in. And as  Jeff Goldsmith reports, it has vaulted the health care industry into an alternate economic universe, one in which the laws that govern the rest of the economy don't apply. So what's dangerous isn't P4P, it's the lack of it.

_What this means to you_ \- The talkers and hand wringers are an interesting bunch and are useful in reminding us that we should be rigorous in developing new payment experiments. But you should never confuse them with the doers. It's easy to sit back in front of a screen and, with the benefit of perfect hindsight, determine what the best course of action should've been. The BMJ authors propose a nine-point checklist to use before embarking on any new incentives improvement intervention, and if you use that checklist, I'll pretty much guarantee that you'll never implement anything again. So here's a far simpler one: (1) Are you satisfied with the current state of patient care? (2) Will it improve without an intervention?If you answer yes to either of these questions, then you're in Jeff's alternate universe. For all the rest of us who would answer no to both, we're going to do something about it today, tomorrow, and in all the days to come, until we can all answer yes.

Reward The Innovators, Punish The Rest

February 24, 2012

Dutch auctions, inventory funding, public domain source code, conversational blogs ....healthcare \- these aren't words that are usually associated together, and yet they are. A  GAO report illustrated how even in the controlled pricing domain of Medicare, implantable medical device (IMD) prices were all over the place. Hospitals engaged in bundled payments, like Baptist in San Antonio, have instituted a form of Dutch auction to get IMD vendors to compete on price for business, and cut the prior prices paid by 50%. Some health plans have been working on programs to fund the inventory of IMD for network providers, which would hugely rationalize sourcing, remove the massive conflicts of interest that exist today, and lead to lower overall procedural episode prices. It would also help delivery system entrepreneurs to manage the risk of building a new offering, because they'd have less cash tied up in inventory. For consumers to act on bundled payment prices and generally become better consumers of health care, they need "easy apps".  Aetna has agreed to put the source code for an HIE platform in the public domain, thus encouraging the creation of mobile apps. This is a huge shift from the "I own all the data and you can't have it" mentality to "let's be infomediaries". This new openness is magnificently displayed by BCBS of North Carolina with the launch of their site to honestly engage in a community conversation on the cost of health care. There's a special section on their "flat fee" program \- bundled payments - in which they use humor and serious facts to simply explain how you can have win-win-win scenarios. Not all plan members are happy and some of the posted comments display skepticism. That's ok, because it's only through openness, public domain freed software, and full price and quality transparency that we can achieve the goal of universally affordable health care coverage.

_What this means to you_ \- we've said it before and we'll say it again: those that claim they can't take on game-changing programs are lying. It's not that they can't, it's that they won't. Plain and simple. Employers, plans and providers who are faced with these agents of the status quo must call them on it, give them an ultimatum, and have the guts to walk away. Because there are many others who are displaying the vision, the courage, and the honesty to embrace this changing industry, knowing full well that their current business models are going to be significantly affected. Yet they're willing to take that risk because they all seem to have embraced a single recurring resounding theme - putting the patient-customer first. And that's the key difference. The agents of the status quo are only looking after themselves, not anyone else, and certainly not the patient. The innovators want to do what's right for the patients, and we all must make sure that from now on, doing right for the patient will also mean doing well financially, and that doing wrong for the patient will be severely punished.

Spot The Pillaging Pirates

April 20, 2012

Sometimes, what's more important is who's not on a list than who's on it **-** The list of the  27 initial organizations that have made the cut for the  ACO Shared Savings program follows a list of  32 organizations that made the cut for the  ACO Pioneer program launched by the CMS Innovation Center. As such, in total, close to 60 provider organizations have decided to step up and become an integral part of the solution to the health care cost problem. And with the recent 32, the geographic diversity of these organizations is impressive and encouraging. From rural Georgia to rural Wisconsin, Northern New Hampshire to Southern Arizona, much of the country seems engaged. Much but far from all. And what's fascinating is that large and well-developed metropolitan areas that include respected hospitals and medical centers are AWOL. The noted exceptions are Partners Health Care in Boston and Montefiore in the Bronx, and kudos to them for stepping up to the plate. But apart from them, where are the others? NY Presby, absent. TJU, absent. Rush, absent. Advocate, absent. Vanderbilt, absent. UPMC, absent. Baylor, absent. In fact, none of the large hospitals or academic centers in NY, PA, IL and many other states are participating. In addition many of the blowhards - those that publicly claim to be ACOs while carefully refusing to take on any risks - are all sitting this out. This, to an extent, proves a point we've been making for a while: the status quo is very comfortable for many and only a loaded gun pointed to their heads will make them move.

_What this means to you_ **-** The first lesson that CMS should learn from the ACO program is that there are certain cities and communities in the country where, apparently, Medicare fees, including GME credits and all the other adjustments to base fees, are far too generous and need to be made much less so. The next lesson is for private sector payers who have been listening to the song and dance from the blowhards and now need to seriously call them out. Some of them might still come onto the scene in the next batch of ACOs that get included in the CMS program, or in the CMMI Bundled Payment pilot, and in which case we will applaud their participation. But until then, we have to assume they have declared their colors. They have hoisted the skull and bones flag and stand defiant, preferring to pick the pockets of all who venture under their scopes and scalpels rather than actively participate in transforming US healthcare into a patient-centered, efficient and effective system. They've been raping and pillaging employers and their employees for years with absurdly high fees coupled with gag clauses, while pretending to deliver value. They're now revealed for what they truly are....pirates.

Don't Let The Slackers Off The Hook

October 28, 2011

Why do smart professionals who individually get an A, collectively get a D \- the grade given the US in the Commonwealth Fund's  scorecard. It's mostly because they've turned into piece workers, focusing on their individual tasks and not on the patient's total care. They (and their patients) have become the victims of Taylorism, decades after the rest of the sectors of the economy abandoned that concept, understanding its negative effects on professional behavior, and the significant waste of resources that it leads to. And if you still doubt that, consider the  paper we published that shows the amount of variation in costs of potentially avoidable complications (PACs). Typical costs, by and large, have little variation, but PACs pack a wallop. PACs are the waste, the bad variation that Deming and so many others sought to reduce and, in doing so, re-revolutionized the way in which products and services are made and delivered. Large and small companies focus on reducing defect rates, because a defect is bad for the customer. Of course, that means you actually have to care about outcomes, not just what happens in your little silo. And how much do some providers really care when, as reported by our friends at RWJF in Transformation Has Begun, "marquee" hospitals like Cleveland Clinic and others  have stopped reporting infection data on all patients to the Leapfrog Group? Not much. And guess what the consequences will be for them in making that decision....nothing. There are no market consequences for failing to report, no market consequences for failing patients, no market consequences for bad variation. And that's how we go from a bunch of As to a collective D.

_What this means to you_ \- You get what you pay for, and for the most part, we're still paying for healthcare widgets. The CMMI's Bundled Payment pilot, the ACO Pilots, the Comprehensive Primary Care pilot, all point to a permanent shift in what we pay for, which means we ought to get something different. We know from our own work that it will be better. But the private sector must follow the public sector's leadership. If Cleveland Clinic can get away with not publicly reporting all infection data (not just for Medicare patients), it's because the private sector will not act. And I specify WILL NOT. This isn't a question of ability, it's a question of intestinal fortitude. A little over a year ago, Lowe's announced a deal with the Cleveland Clinic to encourage as many of its employees who need cardiac surgery to go there. They should stop that program unless Cleveland Clinic relents on its decision to not publicly report all infection rates. There are lots of good hospitals in North Carolina that can treat Lowe's employees, and those hospitals are reporting infection data. Lowe's demands excellence from the suppliers that stock its shelves and it should demand excellence from the providers that treat its employees. It's only by paying for good outcomes, demanding full transparency, and punishing mediocrity that we'll collectively get an A.

They Can, But They Won't

June 10, 2011

When does "no we can't" become "no we won't" \- when the technical and operational barriers to implementing an innovative or disruptive program have been removed. At that point, what's left is the unwillingness to innovate or disrupt, not the ability. Many employers over the years have been met with "no we can't" from their plan administrators, and then spent the following years creating the prototypes, figuring out the operational bugs, and then presenting the solutions back to the same or different TPAs. At that point, the "can't" either becomes a "won't", or the no gets converted to a yes. It continues to fascinate me how many times the "can't" gets converted into "won't". A couple of examples include a plan refusing to create a price transparency tool for a large national employer, and another refusing to help a large employer identify and then steer employees to higher value facilities for certain procedures. During the past three years, supported by grants from the RWJF, the NYSHF and the COHF, we've solved the technical and operational barriers for employers and their TPAs to implement episode of care payment. There are now fully scalable solutions that can plug into existing claims adjudication systems, and contract addenda templates to existing plan-provider contracts. We've even developed a couple of short videos to help employers and  providers understand the mechanics of episode of care contracting. We've basically made it impossible for TPAs to say "no we can't" when asked by an employer to implement episode of care payment. They now have to say: "no we won't". They might have very good reasons for doing so, and those reasons should be explained clearly to the employers ultimately footing the health care bill.

_What this means to you_ \- employers have to stop wasting their money on those who say they won't and focus on those who will. Until the market punishes those who seem content with the status quo in favor of those who are willing to innovate, not much will cause the "won'ts" to become "wills". And that's true on the payer and provider sides. There are many of both who are taking risks, disrupting their business models and the status quo, and you should seek them out avidly and give them your business. If we fail to move to those who will, then we will forever be stuck with those who won't. The solutions are actually quite simple. They simply have to be applied.

Tell The Pros From The Cons

November 25, 2011

For every pro, there always seems to be a con (and vice versa), which can lead to inaction \- The final regulations for Accountable Care Organizations have, more than others, elicited strong comments from both pros and cons. In a  BNA-sponsored paper, Lara Cartwright-Smith, Jane Hyatt Thorpe, and Sara Rosenbaum articulate many arguments as to why the ACO regulations strike a good balance, and provide an opportunity for providers to organize to deliver value. On the other side, a  recent posting on the Health Care Blog relates a talk given by the FTC Commissioner who clearly articulates his concerns about the risks inherent in allowing providers to consolidate. And herein lies the rub. If we all always acted like knights, then there wouldn't be much to worry about as provider organizations consolidate into large (and powerful) institutions. However, several hundred years of economic theory and observations of human behavior lead us to conclude that many will behave like knaves and simply (ab)use this new market power to optimize institutional self-interest rather than societal interest. A study commissioned by Catalyst For Payment Reform and conducted by Paul Ginsburg gives us a legitimate reason to share the FTC Commissioner's concerns. Counterbalancing these concerns are the incentives in the ACO regs, which are quite appealing, and so, perhaps, the knavish behavior will, in fact, turn out to be quite knightly, and the cons will turn into pros.

_What this means to you_ \- The ultimate test of knavish and knightly behaviors is in the public light. Knights don't fear the light of day, quite the contrary; they relish it. Knaves prefer the shadows and fear transparency. They insist on having clauses in their plan contracts that prevent plans from sharing data on their performance, or from attempting in any way to shift market share. They will abuse power. In fact, they already do. So how do we tell the knights from the knaves, the pros from the cons? One of the better resources is WhyNotTheBest.org, a public site, courtesy of the Commonwealth Fund, that assembles a wealth of information on hospitals and, increasingly, physicians. In addition, employers large and small have an obligation to ask their plans about the gag clauses in their provider contracts, to inform each and every one of their employees about the presence of these gag clauses, and to remind them not to be conned by the knaves.

The Deceit Behind The Cloak Of Reputation

November 11, 2011

It's really pathetic when a reputable research organization sacrifices the integrity of their work for the sake of a few cheap headlines **-** And yet that's what RAND did. They issued a press release with this title: Bundling Payments To Curb Health Care Costs Proves Difficult To Realize. Now, I don't know about you, but to the casual and not so casual reader, that headline implies that bundling payment to contain health care costs doesn't work. And, in fact, that's the erroneous conclusion drawn by many in the trades based on two papers in Health Affairs. In the first, Miller and colleagues examine the variation in episode costs for selected surgeries in the Medicare population and conclude that despite the DRG payment system, there is considerable variation in costs of care when one includes professional services and post-acute care. This finding is certainly consistent with our own published work. While the DRG payment system has been effective, its time has come and gone. It's simply ineffective at controlling the total costs of an episode, and the heterogeneity of conditions and procedures lumped into DRGs makes it nigh impossible to convert it to something more useful. In the second, RAND's Hussey, and his colleagues present a 6 to 12 month old snapshot of the original PROMETHEUS pilot sites (and only those). In it they describe the technical and human barriers that had to be brought down, painstakingly, in each site, to get to lift off. Of course that snapshot is only a rear-view mirror, a look into the past, not the present or the future, and limited to three of several sites. Both these papers show us the opportunity in front of us, despite the challenges. In response to some of these challenges, and in looking ahead, we released a report, aptly titled: That was then, this is now.

_What this means to you_ **-** RAND's deceitful and dishonest headline is shameful, and we all need to call them out for taking the low road. There's nothing in their paper that even closely infers that Bundled Payments don't work. They pulled a media stunt and, like many stunts, this one has collateral damage for all those who have worked tirelessly to make these pilots work. The truth is that the evidence supporting bundled payments is overwhelming and it's one of the reasons why the CMMI launched its Bundled Payment pilot. And while the technical barriers, including automated accounting systems sitting on claims adjudication systems, have slowed past efforts, they, like other barriers, have been broken down. Contrarily to the limited year-old snapshot reported by RAND, today's snapshot shows a very different and more telling picture. Plans like Priority Health are hooked up to these automated systems and are receiving reports on episodes triggered, and actual dollars spent. New technologies are coming on line to expand the offering and empower providers and payers to embark on value-based payment. More technologies will be spurred by the demand. And there is demand, make no mistake about it. Why? Because the evidence of cost savings is so overwhelming. That has been the distance traveled. Today, statewide implementations of Bundled Payments like the ones in Arkansas, NC, NJ, WI and CA are operational, complete with provider contracts and bundled payments made. Don't get fooled by the lying headlines. What matters is what's going on today in the field, and will continue tomorrow.

The Hand Wringers' Lament

June 1, 2012

As the proverb goes, the person who says something cannot be done should not interrupt the person doing it. Nine months ago we were almost interrupted by an out-of-date and misleading report that said that bundled payment had not been and could not be implemented. That was wrong then and even more so now. In a report, co-authors Michael Bailit and Megan Burns detail the results of a comprehensive review of private sector bundled payment implementations in the US. In it, they reveal that half the sites have moved to full implementation, including contracts and paid bundles, with the other half at various stages of pre-implementation and planning. Think about it. Nine of nineteen sites are up and running. That's a fact, and tells a very different story than the headline-grabbing fiction published in the fall. There's no doubt the current implementation sites have still a distance to travel to fully automate all their operational processes, but they have contracts in place, they have engaged providers, and behaviors are changing for the better.

_What this means to you_ **-** The hand wringers and the talkers have wasted enough of our time, and shame on us for allowing them to do that. They spend their time trying to convince us that we haven't thought through all the unintended consequences, or that the implementations are too bold and should be scaled back. But in the meantime, bold and broad action (taken with a measure of reserve to mitigate adverse effects) is in play, and having an impact. Employers casting a light on price and quality of providers in an area are helping to shape a new, more competitive market for healthcare services. Plans tying compensation to the value of care delivered are helping to reshape the delivery system. Providers taking an active role as supply chain managers and stewards of patient care are reducing costs by 30% while increasing quality. Have we thought through all the unintended consequences? Have we planned for every eventuality? Will we be able to perfectly measure the effects of each intervention? No, no, and no. And so what? As long as we observe, continue to make adjustments, and minimize the misalignments of incentives and behaviors, we'll stay one step ahead, and keep doing it while they keep saying it can't be done. Count them....nine out of nineteen sites implementing bundled payments. How many implementations have the hand wringers and talkers launched? Zero. Which camp do you want to be in?

Unfettered Greed

July 20, 2012

What will it take to have the rug pulled out from under the RUC? With CMMI moving evermore aggressively to institute value-based purchasing contracts with willing health systems, practices and hospitals, the arcane, opaque, and self-serving process in which fee schedules are proposed and adopted by CMS via the RUC needs to go. For those who aren't familiar with the process, the RUC committee, staffed by members of specialty societies, sits around in closed meetings and decides which fees for what services should increase and by how much. These recommendations find their way to CMS (which usually adopts 90% of them) and are then published in the Federal Register with a note on how CMS intends to apply them. At that point, the public can comment and make alternative recommendations. Of course, few, if any alternatives, are ever counter-recommended. This process, which according to the then-CMS Administrators, was well-intentioned when started a couple of decades ago, has now led to massive distortions, and most of these past CMS Administrators have  recently called for this nonsense to stop. Two years ago, Bob Berenson wrote a  good summary of these distortions, but, unfortunately, nothing has changed, despite an increasing level of scrutiny on the entire RUC/CMS process.

_What this means to you_ **-** private and public sector payers (and all of us as health plan members and taxpayers) are paying a price for this soviet-style method of establishing physician fee schedules. And that's what it is. Price-fixing by insiders to serve its interests without any market mechanisms to counter it. It's nutty and simply shouldn't be tolerated. Why in the world wouldn't CMS convene an objective third party to take on this task? Yes, it would require some funding (the RUC is "free" labor), but how much have the actions of the RUC cost us as a nation? Most policy experts agree that the RUC's favoritism of specialty and procedural fees have come at the expense of fees for cognitive services and significantly harmed PCPs. In addition, some of the estimates of time for specific tasks have been proven vastly overestimated, leading to significantly higher costs for procedures than should reasonably be established. Research suggests that the RUC estimate of 30 minutes to read an echo takes, in fact, less than 5. As such, clinicians or organizations billing for this task are sending 12 claims an hour instead of 2....that's a tad of a difference. The inappropriate adoption of the RUC's recommendations by CMS has already cost us far too much. It's up to the government to put a stop to this, and it's up to all of us to demand that it stops. Moving away from FFS payments is one way, but calling Congressional Representatives is another. We should all do both now.

Chapter 3 Theory's Corner

While we pride ourselves on being a "do-tank" and not a "think-tank", our work is based on very solid theory, and every day we're either proving some theories wrong or right. In this Chapter you'll find the theories that we've proven to be right. And it's not just us because many of these theories have been around for a while.

For all the fancy academics that float around in healthcare, it's astonishing how many ignore the basic theories of economics, of behavioral science, of business. And yet these theories, in practice in all other industries, have demonstrated their effectiveness in bringing value to the customer.

The prior Chapter might have helped shed some light on why lessons from outside healthcare are ignored. Folks on the inside claim that healthcare is different, it can't be compared to other industries. Hopefully, by this point in this book, you know that's simply not the case. So time for a brief refresher on the theoretical framework for how we can improve the care that all Americans so greatly need and deserve.

Form, Function, Incentives

December 9, 2011

There's an important principle of organizational change that, to date, has been mostly ignored: Form follows function, and function follows incentives \- so the key is really to focus on the function (e.g. delivering highly coordinated care to reduce avoidable complications) and then determine what set of incentives will cause that function to occur. The form of the organization best suited to deliver that function (or set of functions) will then follow organically. The "social engineers" have preferred to focus on the form (i.e. Medical Homes, ACOs), and to use the definition of the form as the driver for everything else. Put plainly, it's ass-backwards and, historically, has never worked. Similarly, if you start by debating incentives and their relative effectiveness, you risk losing sight of the purpose of the incentives - the function - and whether the incentive is appropriately designed to drive the function. In  a blog post, Daniel Wolfson of the ABIM Foundation relates his takeaways from a meeting at which attendees debated whether physician-level assessments and recognitions are working. The entire discussion misses the central question of what the assessments and recognitions are expected to produce. When we started Bridges To Excellence we were asking physicians a simple question: How well are you clinically managing patients with certain chronic conditions? For the most part they simply didn't know (and still don't if they're not one of the few that has a clinical dashboard or going through MOC). The purpose of the program was to provide physicians with a feedback loop in the form of a clinical scorecard created with clinical data from their patients. The results generated are crystal clear and well reported. These feedback mechanisms are highly effective at getting physicians to improve clinical quality. But now we're asking a new and different question: How well are you clinically AND financially managing patients undergoing certain procedures or with certain chronic conditions?

_What this means to you_ \- in the fee-for-service payment world, there is no financial management of patients by providers. So the answer to the question would be: I don't know and don't really care. And it's that answer that we're trying to change. We need physicians and hospitals around the country to have clinical and financial dashboards that tell them specifically how close or far they are with respect to the estimated severity-adjusted budget established for the care of the patient, and the clinical measures that are relevant to that patient. In order for them to care about the financial results of the management of the patients, we need different payment mechanisms than FFS. We need payment mechanisms that impute financial risk - downside - if providers fail at appropriately managing resources. This has nothing to do with the esoteric debate about intrinsic and extrinsic incentives. The lack of financial risk creates a very different cost/benefit tradeoff on use of resources than having financial risk. That's not a hypothesis, it's a fact. Just look at the literature on  moral hazard,  free rides and the ensuing tragedy of the commons. So if we want providers to be accountable for the dollars paid to care for a patient, they need to assume the financial risk of managing that patient. And the work that needs to be done by all is to clearly define what we are asking providers to be clinically and financially responsible for, and create clear and unambiguous boundaries around that financial risk and clinical outcomes. It's time to get the ass back in the caboose and focus first on getting the functions right driven by the right financial incentives.

Disruptive Innovation

May 11, 2012

Clay Christensen's seminal work on innovation offers important lessons for healthcare **-** The most important is that disruptive innovations will force the centralization of skills to  become decentralized. In other words, many aspects of care and care decision-making will be pushed down from the current center of skills - hospitals - to the outer edges of skills, the consumer. That seems hard to believe for the many professionals who have spent years learning their medical skills, and it was also hard to believe for the engineers who ran the supercomputers of the 70s, or the scientists who developed synthetic compounds in the same era. And yet the diffusion of disruptive innovations pushed knowledge to the outer edges of skilled workers: the average consumer. Don Berwick, in his talks,  mentions a young Swede who performs his own dialysis. He also mentions new, low cost tech tools that allow Alaskans to receive care close to home instead of having to travel miles to the "big hospital". These are only the beginning signs of the disruption to come. And that disruption will be vastly accelerated by payment reform. If physicians and hospitals can actually improve their operating margins by finding more efficient ways of managing patients and avoiding useless tests and excessive medication, they'll do it. Much of this starts by listening to the customer. And until now, the main customer in health care has been the provider, much like in the 70s, the main customer of the computer industry was the engineer.

_What this means to you_ **-** The customer has to be the patient. And consumer-patients are increasingly demanding to become the customer because their wallets are being affected by their decisions. Benefit buy-downs and high co-insurance or deductible health plans are turning an increasing number of Americans into active consumers. Plans are responding. For example, United HealthCare has made significant modifications to their member web site to provide plan members with real time information on the member's costs of care for a specific event/procedure, with a comparison of that cost by provider using actual negotiated fee schedules. Providers are also responding. Practices in the  Wellspan system in South-Central PA, an Aligning Forces site, are pairing up with patient "buddies" to listen to the "voice of the customer" in affecting practice process redesign. This is only the beginning. For some, it's the beginning of the end for they will die off like the mainframes of old. For others, it's the beginning of a bright future for they will flourish like smartphones. Which will you be?

Information Transparency

February 10, 2012

Over ten years ago, the Nobel Prize in Economics was awarded for work done on information asymmetries, a topic that was first brought to the attention of health care industry leaders in the 1960s by Kenneth Arrow \- and fifty years later we continue to suffer from information asymmetries in healthcare, mostly due to the continued opacity in price and quality.  In a blog post, Uwe Reinhardt highlights one tool that enables consumers some insights on price. Unfortunately, we're still seemingly years away from truly freeing up the stores of data that are locked in physician offices, hospitals and health plans, and turning them into useable and valuable information.  Regi Herzlinger has long argued for a FASB/SEC-like body in healthcare that would enforce the reporting of financial and quality data in a timely and meaningful way. After all, if tens of thousands of companies can do this every quarter, why can't the few thousand in healthcare get it done? A GAO report  highlights the massive variation in implantable defibrillators and other medical device costs from hospital to hospital, all due to lack of price transparency. Similarly, a  NEJM paper points to the variation in Part D spending due to overuse of brand name drugs in certain regions. And it's just as bad when it comes to clinical quality. The Netherlands report progress on bundled payment for chronic care, but admit the immense difficulty of getting systematic reports on quality from the newly formed care groups. We've experienced the same in many of our pilot implementations - getting data out of clinical record systems and plan databases is far far tougher than it should be. Why? Because there simply is no compelling reason for those who hold the information to free it up.

_What this means to you_ \- Markets can only work efficiently when those who purchase services and products - either directly or indirectly - have access to as much information as those who are selling the services and products. The Dutch don't yet know if the new care groups that have formed to manage patients with chronic conditions will yield better results. They could, if they had mandated reporting from clinical systems. Employees and employers simply don't know about the variation in implantable devices because the plans don't transparently show the components of the hospital bill. They could if they demanded it. Providers that are trying to improve their effectiveness and efficiency in delivering care don't know what happens outside their walls, including how much care is consumed post-discharge, or how much a brand medication costs relative to a generic, because plans simply don't provide those data in a timely and meaningful way. The hoarding of information and the opacity of markets create massive inefficiencies that many are benefiting from. It doesn't have to be this way as illustrated in our report on the importance of certain "engines" that can better organize and feed information back to providers and the market. They exist and can be deployed, but likely won't be by the agents of the status quo. Like cockroaches, they do better when the lights are off. However, cockroaches scurry when the lights get turned on. Time for all of us to turn on those lights.

Warranties

March 9, 2012

"Assuming technical risk and offering a warranty is an effective way for providers to reduce information asymmetries" **-** this powerful insight by Michael Hicks of Pinnacle Partners summarizes the way in which health care can be transformed in a manner similar to other industries. We all know that defects are bad. They're bad because they cause harm and they're expensive. By extension, bad quality increases costs. It's a simple concept and one that consumers have come to understand in all aspects of their life. And yet in this most important one - matters of health - there is no way to determine ex ante the potential for defects nor their cost. It's a massive information asymmetry that leaves the consumer in much the same state as they were decades ago before the "Lemon Laws" took effect. A  study by Judy Hibbard, Shoshanna Sofaer and colleagues illustrates how this simple concept of defects can help guide consumers to making the right value choices in selecting physicians. Barring any other indicator, price becomes a substitute for quality - the higher the price, the better the quality. When somewhat traditional quality measures are introduced, consumers accept that signal, but the price signal is still strong. However, when presented with information on defects and their associated costs, then high quality is equated to lower price because better quality contains less defects. While that axiom is true when comparing physicians managing chronic illness, it's not always true when comparing physicians and hospitals performing certain procedures.

_What this means to you_ **-** In an  Issue Brief, we examined the variation in total knee replacement episode prices and found that the higher cost cases were most often more expensive because of the cost of potentially avoidable complications - defects. However, there was still a lot of variation in typical costs, much of it driven by implants. In fact, stay costs were significantly higher for private sector payers than for Medicare, for the exact same procedure. So yes, accepting technical risk and providing a warranty is, in fact, a very powerful way of solving the information asymmetries in healthcare, and the Hibbard/Sofaer study confirms that. Our Issue Brief also suggests that bundled payment would create the mechanism for such a warranty to be triggered, and help contain implant costs. As providers across the country start to participate in the CMMI Bundled Payment pilot, they will have an opportunity to accept technical risk, implicitly offer a warranty, and declare to consumer-patients that the 1975 Magnuson-Moss Warranty Act might finally be applicable in healthcare.

Minimizing Bad Incentives

June 8, 2012

In the mid 1960s, Frederick Herzberg laid out an important theory: the factors that lead to job satisfaction are different than the factors leading to job dissatisfaction **-** his paper on  motivating a workforce.pdf) would become the most widely read paper in the Harvard Business Review...ever. Herzberg's insights are often forgotten today, at a time when they are most relevant, especially as we design and implement new payment models (i.e. financial incentives) for physicians and hospitals. The carrot and stick approach, what Herzberg refers very cynically in his paper as the KITA method (for kick in the ass), doesn't work very well. Instead, he suggests an exercise in minimization of toxic environmental factors. We've grown accustomed to thinking that incentives can be optimized, that behaviors can be finely tuned to respond to the incremental adjustment in fee schedules or bonuses. They can't. What we must do is actively minimize misalignment of incentives - factors that lead to job dissatisfaction. If I encourage employees to seek care while penalizing physicians for delivering too much care, then I'm creating a toxic environment leading to dissatisfaction. If I put physician income at risk but only tell them after the fact what their budget was and that they blew it, then I'm creating a toxic environment leading to dissatisfaction. If we want physicians to develop and maintain an internal motivating generator (as  Herzberg refers to it.pdf)), we have to minimize the factors that are stopping them from achieving their potential.

_What this means to you_ **-** Physicians and hospitals want discretion on the resources to manage their patients, but payers want to control the use of resources as much as possible. Physicians want patients engaged in their health and following treatment recommendations, but most patients don't want to lose weight and exercise, or do anything else that doesn't have an immediate beneficial effect. The list goes on, and you get the point. Faced with these lists and understanding the inherent conflicts, most academics and pundits talk about "aligning incentives". And they can keep talking about it for a long time, to little or no effect. Because the goal shouldn't be to align incentives, but rather to systematically reduce the misalignments. It's not the same thing. Aligning incentives presumes there is a unique and ideal point of convergence where all interests can be aligned to achieve a common goal. Reducing misalignments means focusing on the pairs mentioned above, a pair at a time, and putting in place mechanisms that significantly decrease the conflict in interests. Importantly, we must start with providers and patients, making sure that what we're encouraging on one side is not discouraged on the other. However heretical this might sound, we need to stop interfering and making the pursuit of doing a good job a PITA (for pain in the ass) by focusing constantly on the KITA. That's partially why global capitation and bundled payments have so much appeal to providers and payers: the docs get a budget and are left to their devices to manage it. And if they do a good job, they get financial benefits in addition to freedom to practice as they see fit. As for the payers, they get to stop the constant KITA, which, even for them, has mostly turned into a PITA.

Rebalancing Costs And Benefits

July 6, 2012

Joey Chestnut's win offers us a lesson on the power of intrinsic and extrinsic incentives **-** it took 68 hot dogs and buns to win, and the crowd went wild. The other contestants faded away and the championship belt and $10K check went to Joey. It might be interesting to look at the fate of the champions and runner ups of prior years, although we can offer a guess....they're probably stented to the hilt and stomach stapled, and that's for the lucky ones. If the long term outcome of such egregious behavior is so clear, then why do so many choose to ignore it? In Joey's case, the answer is pretty easy. In the short run, winning means fame and fortune, far beyond the $10K prize, and the long term cost is uncertain and far away. In addition, there's no short term cost that might counter the short term gain. As such, the intrinsic incentive is to eat as many hot dogs as possible in order to win, and it's reinforced by an extrinsic incentive that rewards the eating. For all (or most) others, there's no reinforcing extrinsic incentive, but there's no countervailing one either. And that's a problem we need to fix.

_What this means to you_ **-** there are many conditions, illnesses and even injuries for which there are few, if any, negative short term effects, and yet for which some lifestyle behavioral change is required. Diabetes is a good example, and it's not the only one. Failure to manage the condition well in the short term might go unnoticed for a while, and yet the long term consequences are negative. Behavioral lifestyle change is tough, very tough. And without an extrinsic incentive that either reinforces the need for that change, or creates an offsetting short term cost for doing nothing, the average consumer-patient will push off the needed change. It's human behavior and the yearly 4th of July hot dog eating contest reminds us of the power of these incentives. Most employers now have a smoker's penalty in their health insurance premiums, but what about all the other behavioral changes that are needed? We can't expect costs to get under control unless we tackle consumer incentives with as much gusto as provider incentives, and that includes incentives for Medicare beneficiaries. In the meantime, I think I'll have another beer with that cheeseburger and fries.

Encouraging Bad Behaviors

August 10, 2012

It's tough to be good when you're encouraged to be very very bad \- and two investigative reports highlight the very very bad behaviors of physicians from coast to coast. In  California, the supposed mecca of ACOs, a creative entrepreneur, self-proclaimed a "Robin Hood of physicians", decided that the best way to negotiate with "greedy plans" was to not negotiate, and not contract. As such, they get paid out of network charges minus the plan member's co-pay. The result: they're getting paid - yes, the "greedy plans" are actually paying - 200% to 400% more for a simple orthopedic procedure than any other contracted physician or facility. The physicians that are performing the procedures are getting a windfall, and they're attracting patients by waiving the co-pays. In  Florida, some cardiologists are performing cardiac imaging and procedures on completely asymptomatic patients, extracting excess payments from Medicare and private sector payers. In a fabulous twist of fate, the crookster in chief of yesteryear, now turned manager in chief of the state, has the dubious distinction of investigating the organization in which he perpetrated his previous craft, and that is back to its old ways. Yes folks, HCA, which Rick Scott raised to infamy, is again the perpetrator of fraud in its favorite hunting ground, Florida, while other crooksters disguised as benevolent bandits are poaching in California.

_What this means to you_ \- crooks, disguised or not, are still crooks, and any incentive program that encourages anyone to be very very bad, will invariably bring out the worst in anyone. So at this point, it's difficult to figure out what's more shocking, the stupidity of those who pay the crooks or the extent of the crookery. It's probably a toss-up because the recipes to stop these crooks are pretty simple. Let's take the California bandits. They've gotten away (and presumably are still getting away) with thievery because payers have failed to implement simple reference pricing for common procedures for all providers, in network or not. If plan members were notified clearly that any payment for these procedures would be limited to the published reference price for that procedure, then the crooks wouldn't be able to steal, at least not from the payer. Of course that would mean making changes to benefit designs and creating better incentives for both providers and plan members. Let's consider Florida. The answer there lies in a program recently designed by the ACC to encourage the appropriate use of imaging and procedures for asymptomatic patients. Basically, it's a bundle that covers all cardiac-related resources (including procedures) for those patients. The expected cost would reflect current average use. As such, overutilizers, like the Florida crooks, would be heavily penalized by their overutilization and have a natural incentive to curb it instead of growing it. Of course that would mean that Medicare and private plans implement bundled payment arrangements for something else than procedures. These solutions are ready to roll out, yet they're not. So which behavior is worse? That of the perpetrator of the fraud or that of the ones who allow the fraud to be perpetuated?

Activating Consumer-Patients

December 22, 2011

Consumers understanding that avoidable complications are costly, ever-improving information on the quality and cost of care, and smart apps that help consumers find the care they need **-** If these are on your Christmas wish list, then Christmas has come early (and you can ask for more routine things that won't have your family shaking their heads). Our friends at the Consumer-Purchaser Disclosure Project held an audio conference during which Shoshanna Sofaer presented some  findings on a project that she, and our good friend Judy Hibbard, have been working on relative to consumer attitudes to cost and quality signals. The upshot is that when presented with a breakdown of episode costs that showed how much of a physician's average cost of caring for a chronic condition was spent on avoidable complications, consumers understood that higher cost was not better quality. That's about 180 degrees from the customary perception that higher costs equal better quality. At the same time, the Commonwealth Fund unveiled a revamped WhyNotTheBest.org site, offering an interactive map that helps consumers and communities understand the variations in quality, and how their area compares with others. And Aetna announced the acquisition of an  application developer that takes the mountains of data held by plans and makes it easy to use by consumers trying to find providers that will give them the care they need.

_What this means to you_ **-** There's no question that the benefit buy-downs and increases in plan member responsibility for health care costs are awakening the single biggest force in market transformation: the Consumer-patient. And in a world of smart phones and tablets with millions of apps that make pretty much everything easy, the healthcare industry will have to respond and shed its byzantine infrastructure to accommodate a more fluid and adaptive market. And for all this to really work well, we also need payment reform. Why? Because when consumers log onto their app to find a team to manage their chronic conditions, or to operate on their knee, they will demand to know the extent of their financial liability up front, not on the back end when all the FFS bills are paid and they've made dozens of co-payments. And they won't want to pay for avoidable complications and other waste. Bundled payments help power these important consumer decisions, in addition to creating clear clinical and financial boundaries for provider teams. Globalization and the informed consumer have revolutionized every other market, and these forces are upon us in healthcare and should lead to the same results: lower costs and higher quality. What a wonderful present for all US families.

Reducing Gaming

June 22, 2012

Sometimes it's useful to consider the theories of Nobel Laureates \- in his seminal work on Game Theory, John Nash exposes a situation in which an equilibrium can be reached where neither party can gain more than the other. The  Nash Equilibrium should be what we strive for when considering the design of new payment programs, a situation in which neither the payer nor the provider of health care services can gain more by further "strategizing". In other words, shifting from the equilibrium would create harm to one or the other. If we consider the contract between a payer and providers a situation in which the benefit of one can be maximized at the cost of another, then seeking the Nash Equilibrium is important. One of the main reasons to shift away from fee-for-service is that it sets up the payment "game" as a net loss to the payer because there is no loss to the provider, only gain. As such, over time, Congress has seen fit to create restraints on the potential gains by instituting a variety of control mechanisms. One such set is the many regulations that prevent providers from amassing too much market share. Yet is it possible to restrain the inexorable forces of business and economics? Not really, but Congress oftentimes chooses to ignore reality. So here's one example of gaming creativity to circumvent the rules on referrals: a specialist practice in a high FFS field (therefore where the potential gain from producing more services is highest) "rents" space from a practice in a low FFS field. There's no official quid pro quo, and of course there's no real office space being rented, but suddenly the flow of referrals is going into a new direction. Guess where. In their efforts to pilot new payment models, the CMMI and many health plans should carefully consider these lessons.

_What this means to you_ \- while we applaud the move to a better equilibrium in gains and losses between payers and providers, we have to carefully consider that this shift will be carefully analyzed by those who are now going to be at financial risk. They should and will look at the elements in the new deal and ponder ways to tip the scales in their favor, being concerned that the deal offered might tip the scale too much in the payer's favor. To stop the games, we must move fast to the Equilibrium, and one way to ensure that is to reduce the potential for playing the probabilistic set of dice. The guidance offered by CMMI to applicants for the Bundled Payment for Care Improvement has, unfortunately, some gaming elements that can and should be reduced. For example, including outliers can lead to providers simply picking DRGs with lots of outliers in one year, betting that there will be fewer the next. Do we really want meaningful payment reform to focus provider attention on gaming options? We can't eliminate all gaming, but we can get closer to the point where shifting strategies won't really net much of a benefit. Payment reform should be about minimizing wins and losses for both payers and providers, so that the patient benefits because everyone is focusing on them for the right reason - good care - instead of the wrong reason - playing the odds.

The Power Of Episodes

October 21, 2011

It's taken more than 30 years, but Jerry Solon must be smiling from heaven **-** In 1967, Dr. Solon published a paper in which he describes a novel way to measure the use of services, one that would be more consistent with the way physicians treat and manage a patient's condition or illness. He called it the analysis of an episode of medical care. Two years later he published another paper in which he relates the results of a measurement experiment, comparing the analysis of population use measures with episode measures. Between then and now, others, including Kerr White, Mark Hornbrook, and our own Doug Emery, expanded Dr. Solon's framework of measurement to a framework for payment. Countries from as far as Indonesia, to as close as the Netherlands adopted this framework, understanding that a medical episode of care is a relevant unit of measure and payment for physicians and hospitals alike, and a relevant unit of purchase for consumers. Today, in the US, Dr. Solon's insights have made it to the mainstream. In an  editorial in Modern Healthcare, Valinda Rutledge and Nancy Nielsen, eloquently state: "Patients experience care based on episodes of illness. Why can't providers deliver and be paid on episodes too?" And in the  September 2011 issue of the Harvard Business Review, Profs. Kaplan and Porter explain how analyzing costs of an episode of medical care could help providers squeeze significant inefficiencies from current care processes. They call it their Big Idea. And Big it is, albeit not exactly theirs.

_What this means to you_ **-** Payment reform is a means to an end. Dr. Solon's insight was that meaningful feedback loops would help physicians and hospitals understand the amount of resources that they were deploying to care for a medical episode....by medical episode. Instead of grappling with an incoherent statistic like total bed days, or total readmissions, what mattered was to understand the variation in these use measures by medical episode type. Only then could the physician-scientist take action and understand the direct effect of that action. Paying physicians and hospitals with a single risk adjusted fee for a specific medical episode of care, simply focuses the provider's attention on Dr. Solon's insight. And as Profs. Kaplan and Porter explain, from that insight comes an understanding of marginal cost and contribution of a health care "product" - an episode of medical care such as a total knee replacement, or a year's worth of chronic care - and a focus on optimizing resources instead of wasting them. Yes, Dr. Solon is smiling, and so should you, because the real transformation of healthcare has begun.

Effective Management

December 2, 2011

A Perspective by Bohmer in the NEJM identifies four habits of successful high value health systems, that can be summarized into two management principles **\--** organizations (large and small) need relevant and timely feedback loops on their performance, and effective managers are provided with clear boundaries for their management, accounting and accountability. These principles have been in place in successful companies in all other industries for several decades and are, in large part, the reason for their success. And these principles apply at all level of the organization, not just the top. For example, a plant manager for GE Aircraft Engines in Durham, NC, has ample timely feedback loops about the key products made there and delivered to customers. She has line of sight on and responsibility over all of the key processes that will impact her ability to deliver high value products. She knows the cost of delivering each of the very complex, hand crafted products delivered to customers, and she's responsible for every of her engines failing. And the stakes are high, for a failing engine can cost the lives of well over a hundred people. She is not, however, responsible for what happens in the Cincinnati plant. Nor is she responsible for what happens with GE Healthcare or GE Power Systems, even though a part of her compensation might be tied to the performance of GE as a whole. A high value health system works the same way. An ortho service line leader is responsible for the surgeries that are delivered in that department; she has line of sight on and control over all the processes that are essential to the high-quality delivery of the surgeries and the costs of producing each. She has an accounting system that helps her track the input costs for each surgery and the margin per procedure. She motivates the surgical teams with compensation not just tied to production, but to outcomes. However, she is not responsible or accountable for oncology care. And her compensation, while partially tied to the performance of the health system, is tightly linked to the profitability of the ortho department. This is all about creating clear and manageable boundaries for each manager's locus of responsibility in delivering a high value product or service. If the boundaries are too wide, then it's very difficult to create that accountability. And if they're too tight it will lead to duplication of effort, bureaucracy and lack of value. Today's delivery system is mostly in this latter category.

_What this means to you_ **\--** one can count on two hands the number of provider organizations that function as high value systems, and yet there is virtually no publicly traded company outside of healthcare delivery that doesn't use the two management principles outlined. So why is that? Partially it's because in the rest of the economy, companies have to deliver value or they go out of business. And what makes delivering value a mandate is the transparency in price and quality of products and services offered by these companies, as well as the warranties offered. In fact, they can no longer compete unless they offer value. That's what bundled payment is all about, and that's what makes it so challenging. It fundamentally changes the business, management and structural designs of today's provider organizations. And it also provides consumers, payers and purchasers with meaningful pricing information. In other words, it creates a market for health care services at a level that is relevant to patients --- the customer. That market is finally emerging thanks to the courageous efforts of all who have agreed to embrace the goal of delivering high value healthcare services. Join them.

Positive Deviants

August 19, 2011

Positive deviants can be defined as organizations whose results are significantly and positively better than others \- and a study published in the Annals of Internal Medicine by Leslie Curry and colleagues at Yale, identifies some key characteristics of these positive deviants. The study focused on hospitals that had shown to be in the top 5% of performance in AMI survival rates for at least two consecutive years, and contrasted them with hospitals in the bottom 5%. They conducted a series of on-site interviews to gauge what made these folks tick. The conclusion is that it's all about leadership, commitment, a sense of urgency from all involved, teamwork in a learning environment, and a willingness to do the right thing even if it hurts a bit financially. This list matches up exactly with the attributes of successful organizations in our pilots. Another finding by Curry and colleagues is that the top and bottom organizations all had care protocols and processes and systems....stuff. But having stuff on shelves and in computers doesn't change behaviors and doesn't make organizations focus on being at the top. Money does, especially for all those who aren't positive deviants.

_What this means to you_ \- If all we needed to get hospitals and physicians to chase the top performers - to aspire to become positive deviants - was to share best practices and show them how to improve, the job would be done. So for those of you who have drunk too much of the "Triple Aim" Kool-Aid, stop reading. For all others, we have to wake up to the realization that there should only be one aim at this point: to fix the environment of financial incentives. It's delusional (at best) to think that a $500 million investment to create "learning networks" of best practices will be enough to counter a $2,500 billion steady stream of counter incentives. The top 5% in Curry's study are at the top despite the odds, and only because the C-suite is completely committed to a culture of continuous improvement. The other 95% will stay where they are until it hurts. And it won't hurt until CMS and other payers shift away from FFS. Have you ever noticed that the Kool-Aid drinkers only mention controlling costs as the third aim? As a result, the amount of money paid by CMS for value hasn't changed much from last year's level. An entire year has been wasted again, frolicking around about sharing best practices, instead of focusing on the one thing that will force best practices to be adopted and create a chase to the top, a chase to positive deviancy, instead of the current chase to mediocrity: Payment. It's not too late, but the clock is ticking and the cliff is getting closer.

Chapter 4 Practical Advice

And now for the good news. There are dozens of hospitals and hundreds of physicians across the country that are experimenting with effective methods of delivering safe, timely, effective, efficient, equitable and patient-centered care. These are the shining lights we look at, copy and use to inform others. Similarly there are many health plans and employers that are trying out new ways of paying for care, reducing bad incentives for both providers of care and patients.

Our work with these organizations spans a decade and we've learned a lot about what makes a difference. First and foremost are feedback loops – knowing whether what you're doing is having a positive impact. And second is the removal of toxic incentives that stop clinicians from always doing the right thing. It's a simple formula, and it's very effective.

Procedures With Warranties

December 16, 2011

PepsiCo  announced that it would waive employee costs for having certain surgeries done at Johns Hopkins. Perhaps it should consider Stockholm as well **-** Employers are increasingly designating Centers of Excellence for more routine elective procedures such as total knee replacements (TKR) and minimally invasive cardiac procedures. And some are establishing reference prices for preventive procedures such as colonoscopies, because they see the unjustifiable variation on total episode price and are refusing to pay $2.5 for something they can get for $1.

 Click to View a Comparison of TKR Episode Prices

These employers are finally deciding to act with the health care delivery system in the same way they do with all their supply chains: demanding value. We suggest they expand the term to "global supply chain". And here's why: PepsiCo, Lowe's, Hannaford Bros. and any other US employer can buy a TKR for $8,500 in Stockholm instead of $25,872 on average, in the US. In other words, they can get three Swedish TKRs for the price of one in the US. Adding a round-trip ticket and local accommodations, they'd still come in at about half the US cost. Our chart also shows another interesting "disparity" - the same hospitals that are getting close to $26K from commercial insurers are getting $22.6K from Medicare. And we know from the current participants in the CMS Acute Care Episode demonstration that they're making good margins on those Medicare TKR episodes. So why are employers paying $3 for something that Medicare gets for $2.66 and the Swedes get for $1? Especially when you consider that the Swedish hospitals and physicians are including a .... 5 year warranty !!!

_What this means to you_ \- The Stockholm pilot's results are hugely important today as the US embarks on a significant effort to move away from fee-for-service. The bottom line is simple: the true production costs of many procedures in the US are far lower than their ticket price, and could be lowered still if we focused on a true global supply chain for health care services. Employers are already paying, on average, 15 cents more for every dollar spent on the exact same procedure than Medicare (and in case you're wondering, Medicare patients are sicker than commercial patients, so it's not the severity of the patient that's driving the premium price - it's simply because there's no true consumer-based market competition and the providers can get away with it). And Medicare is paying $1.65 more on a no-warranty TKR than the Swedish government is for every $1 spent on a 5-year warrantied TKR. Oh, and one more important point from Stockholm: **Bundled Payments to Curb Health Care Costs Not So Difficult To Realize.**

Recognized Physicians

August 17, 2012

It takes a bridge to cross a chasm, and that's why we named it Bridges To Excellence \- In 2002, a group of employers that included GE, Verizon, UPS, Ford, P&G, and Raytheon decided to take the  IOM's report on the Quality of Health Care in America to heart. In _Crossing the Quality Chasm_ , the authors of the report pointed to the toxicity of the payment system as one of the main impediments to improving quality, and large employers responded within a year. We created Bridges To Excellence with a simple recipe: measure physician quality objectively, in a way that would engage clinicians in quality improvement, and reward them with a per employee bonus. At the time, we couldn't find a single health plan to execute this simple program. So we did it ourselves. And it grew and grew. We started with a couple of recognition programs focused on common chronic conditions, and followed up with the country's first program to measure "systemness" in physician practices. We called it the Physician Office Link. The NCQA, who consulted for us in the development of the Physician Office Link, then took this recognition on, named it the Physician's Practice Connection, and, subsequently, the Patient-Centered Medical Home Recognition. Yes, this small group of employers, through Bridges To Excellence, invented, launched and field-tested what is now the broadest recognition program in the country. Since then we've added to the arsenal, building recognition programs for other chronic conditions, including Depression, always collaborating with experts along the way. Recently, with the American College of Cardiology, we launched the  Cardiology Practice Recognition program, and in collaboration with the American Gastroenterological Association, we launched the IBD Care Recognition program.

_What this means to you_ \- recognizing and rewarding continues to be the most effective method to motivate professionals to reach for excellence. The feedback loop provided by the chronic condition recognition programs enables clinicians in practices to understand, almost real time, how all their patients with a specific condition are being managed. This year alone, hundreds of clinicians from coast to coast have joined the ranks of BTE-recognized. Large physician groups such as iPN in Colorado, Baylor-affiliated Health Texas network, and University of Texas Southwestern have all been recognized for high quality care in Diabetes, many at our highest level of Recognition. Cardiologists in Maine (Heart First), Connecticut (Thompsen), Florida (Heart and Vascular Institute, Central Florida Heart, Orlando Heart), Wisconsin (Wisconsin Heart and Vascular), Texas (Cardiovascular Specialists), Utah (Mountain West), and New Mexico (New Mexico Heart Institute) have all achieved Recognition through the comprehensive Cardiology Practice Recognition program. They have achieved these recognitions because of their dedication to actively managing patients. They deserve to be recognized and rewarded, and employers and health plans across the country are making sure they are. It's a simple recipe, and like most simple recipes, it has stood the test of time. And we'll keep building more bridges until we can all walk over the quality chasm.

Powering Medical Homes

March 16, 2012

Dr. Hammond, like many independent physicians, is trying to do his best to make ends meet and continue to serve his patients **-** And unlike many physicians, Dr. Hammond has received several Bridges To Excellence recognitions, attaining level 2 recognition for Diabetes and Cardiac care, Level 3 for office systems and, as a result, a BTE Medical Home recognition. There are very few doctors in the country that have achieved this level of excellence. Yet,  as reported in the WSJ, Dr. Hammond is not being adequately rewarded for his hard work. And it is hard work. To get to a level 2 BTE recognition in Diabetes and Cardiac care, you need a very effective EMR system; you have to track patients most at risk for hospitalizations; and you have to manage them. That takes time and people...both of which are expensive. More than two years ago we  published a report that illustrated how new payment models could financially sustain real medical homes. That model, if applied for Dr. Hammond, would solve his problem. The good news is that we've embarked on that process with the support of the Colorado Health Foundation and are working with the Colorado Business Group on Health's self-insured employers to write new contracts with physicians that will truly reward them for better management of patients with chronic conditions. Not by providing them with a meager pmpm, or by hoisting onto them unmanageable insurance risk, but by providing them with significant upside tied to reductions in potentially avoidable complications.

_What this means to you -_ Field work is essential to understanding the way incentives can positively or negatively impact patient care and physician behavior. And so far, despite rumors to the contrary, that field work is proving the case. In New Jersey, Horizon Healthcare Innovations' efforts are starting to pay off, and the surgeons involved in their new payment effort are providing more effective and efficient care to patients. Across the country, physicians and hospitals are starting to understand the benefits of managing "technical risk" and that managing that risk can bring rewards, if you're careful in how you contract for that risk. To help physicians navigate this new world of risk contracts, the  AMA has published a guide that payers and providers should use as reference. Each party to a risk contract views costs differently. Dr. Hammond' costs of providing good care to his patients have increased. As a result he needs either a higher payment per unit of service delivered, or a better payment model that will cover his costs and provide him with a reasonable margin. For payers, that higher unit price, prima facie, seems like higher cost, but  our research suggests it isn't when you measure cost of care appropriately. Understanding the difference is essential and  RWJF has published a report that attempts to reconcile these potentially conflicting points of view. We've known how to solve Dr. Hammond's financial problem for at least two years, and we're going to. But we can't do this alone, and there are many other Dr. Hammonds in the country that need the same help. It's really time to stop the tinkering at the edges and to get serious. Many have started. We welcome all.

Feedback Loops

June 24, 2011

Turning data into actionable information is hard but essential in the effort to transform practices **-** and many times, it doesn't take a huge organization to do it. A case in point is the work  Dr. Brenner did in NJ to identify "hot spots" - areas in the community that were responsible for the majority of ED and other hospital admissions. Similarly, our continued work with practices across the country to achieve Recognition, and our work in pilot sites with hospitals and physicians to adapt to value-based payment always comes back to having  effective feedback loops. There are thousands of physicians across the country that have achieved Recognition from a base of a few hundred when we started in the early 2000s, and there is a growing number of hospitals and physicians involved in value-based payment. And every time they submit a new batch of data, we see improved scores and performance. Getting to these data wasn't easy and took time initially, but it takes less and less time in every new implementation and almost no time for the second submission. There are important lessons in this for all of us.

_What this means to you -_ We've rarely, if ever, witnessed the transformation of a practice or seen the implementation of new operational processes take less than 18 months. And that's after the design of the implementation, the data requirements, and the specific transformation have been agreed to. The 18 months get you to some level of stability and repeatability, and help work most of the kinks out. But after that, the acceleration of the transformation is far greater than simply linear because the feedback loop gets to be faster and faster. In addition, toolkits (like the one we've assembled on episode of care payment) can greatly reduce the 18 month cycle time for implementations, and the associated frustrations. There's always a tendency to look for shortcuts, and sometimes it makes sense, but most of the time it doesn't. Because taking shortcuts is what has gotten us to our current dead end. If Dr. Brenner had taken a short cut, he wouldn't have found Camden's hot spots. And if we collectively take shortcuts, we'll never find a stable and repeatable way to improve the system. It's a hard road, but the thousands of physicians who have already become Recognized, and the thousands more who are hard at work today to transform their practices are paving it. Employers and plans that are deploying the right incentives are helping to fuel the drive. For all the others, step aside, because the person who says it cannot be done shouldn't interrupt the one doing it.

Reengineered Care

July 13, 2012

Two recent books summarize the massive potential for improvement in the delivery system and lead to this observation: It's the incentives, stupid! The Pittsburgh Regional Health Initiative and the ThedaCare Center for Healthcare Value have each published a set of best practices from delivery system reengineering. In  Potent Medicine, John Toussaint illustrates the real measurable improvements in cancer care, primary care, orthopedic care, and other areas of medicine in and around Appleton, WI. In Moving Beyond Repair, Karen Wolk Feinstein assembles a series of case studies showing massive reductions in unnecessary C-sections, central line infections, medication errors, emergency department overflow, and COPD readmissions, among others. These are real case studies, not made up, and the achievements illustrate how phenomenal the US healthcare system could be, and how it fails the American patient day in and day out. The sponsoring organizations of these two books aptly point out that the training in total quality management principles is sorely lacking in most healthcare organizations and that this training has to become a prime focus for improvement to stick. Yes, but it's really about the incentives. The bottom line folks is that it's pretty tough for people to do good when they're encouraged to do bad. And FFS payment encourages provider organizations to do bad, not good. Readmissions, for the most part, generate revenue. Central line infections, ditto. C-sections are reimbursed at a higher rate than normal vaginal deliveries, and a NICU is a real cash machine. As such, healthcare organizations have optimized dysfunction as a primary way of continuing to generate top dollars from payers.

_What this means to you -_ Business schools don't teach their MBA candidates about Lean Six Sigma, other than to illustrate how it's used in certain companies. To an extent we shouldn't expect medical schools to teach Lean to its students. When companies like GE launched their Lean Six Sigma efforts, it was in response to international competitive pressures \- deliver value or see your markets and margins erode. There is no such competitive pressure yet for health care organizations. They can continue to deliver defect-ridden services and get paid as much, and sometimes more, than those that deliver defect-free services. Moving Beyond Repair's case study on reducing COPD readmissions illustrates the point starkly. The facility embarked on a classic reengineering process that led to a 40% reduction in readmissions of patients who had a prior admission for acute exacerbation. The net effect: $270K in annual savings for the payer....and less money for the provider. Granted, under the new Medicare rules on all-cause readmissions, the incentives game is changing, but not fast enough. These two books are a must read for those who doubt that the US can deliver world-class defect free care almost every day to every patient. And it should leave you with the same impression: It's about the incentives, Stupid! So let's stop futzing around at the edges and get serious. Mind you, the hand-wringers will exalt the virtues of patience, or incremental change lest we get it wrong, and we have to ignore them. Incremental change is fine if you're sitting at the top of the food chain, but it sucks when you're at the bottom. And today, most patients in America are at the bottom of the healthcare value chain. The time to change that has come.

Team Sport

June 3, 2011

There's an interesting contrast between what most of us think is right and what consumers want \- Atul Gawande's 2011  commencement address to the graduating class of the Harvard Medical School perfectly encapsulates what most of us know to be true: that practicing medicine the right way is a team sport. The number of known treatments corresponding to the number of known diagnoses has grown so significantly in the past decades, that no single clinician can hold the information in their heads. Nor should they be expected. However, most consumers have not yet caught up to this notion, perhaps still basking in the nostalgia of the sitcoms most of us grew up with. A series of focus groups conducted by GYMR for a RWJF project provides important insights on how plans and employers should communicate with consumers when it comes to payment reform and the importance of "teams". The upshot is that most consumer-patients don't want to be treated by teams. They still want to rely on their physician, the one they have a relationship with. Of interest, while the price-sensitivity related to physician choice is low for women, it's relatively high for men. As such, men might be a good initial target for moving market share to high-value providers - for screening colonoscopies for example.

_What this means to you -_ We forget to be patient-centric at our own peril. And that means putting that patient not simply at the center of the delivery system and payment incentives, but also at the center of our communications. Markets work only when consumers make them work. So as much as we like to focus on provider-centric approaches to reform (think about ACOs and PCMHs), we really need to change that thinking to being patient-centered if we want to be successful. To help you in communicating new payment concepts to consumers, we've put together a couple of simple videos, one on diabetes care and another on an elective knee replacement surgery. We refer to teams, but only as a support mechanism to the physician with whom the patient has a relationship. It's always humbling to read through focus group reports because it reminds us of how far Main Street is from the Ivory Tower. Here's hoping the Ivory Tower dwellers read the RWJF's Main Street report.

Higher Quality And Lower Costs

May 4, 2012

It's good to know that sometimes things work out like you hoped they would **–** In a  report we show that practices recognized under the NCQA Patient-Centered Medical Home recognition program, and those recognized under BTE's Diabetes recognition program have lower overall costs of care per patient than their non-recognized peers.  We've shown this before, but not with a study sample as broad as this one. So let's put this baby to rest and finally declare a small measure of victory. There are some words of caution that are important to note: first, we don't know if future recognized physicians will have the same performance as these, and second, the magnitude of the savings might be different using a different method of counting them. However, let's be clear: better quality costs less. We've known this for a while and industries across the globe have proven the point without a shadow of a doubt. Why then would it be any different in healthcare? It isn't.

_What this means to you -_ while we know better quality costs less, we also show in this  report that what you measure matters. Physician quality improved in the clinical domains for which they were reporting data, not in the others. And therein lies a crucial lesson. Those advocating parsimonious measure sets for quality accountability have it all wrong. We need the opposite. Physicians should have comprehensive dashboards filled with clinical quality measures on all the domains of care they're focusing on in their clinical practice. Accept nothing less because a patient's well being is at stake. We also know that savings can be elusive and that betting on the come is a dangerous game. As such, incentives for recognized physicians should be tied tightly to actual savings achieved relative to budget. That's the only way we can make these incentive changes sustainable. Yes, in this case, what we hoped for turned out to be true. Let's make sure we put the odds fully in our favor, or risk losing it all.

The Right Design (Part 1)

April 27, 2012

What happens when you use a product for a purpose other than the one it was designed for? If you're lucky, it might work. But most often you get bad results. There are two current examples that offer important lessons in that respect. First are DRGs. They were designed and introduced for a very specific purpose - to cap the facility costs for hospital stays. And the designers had an option either to create a cap for every possible stay, or to group like stays together and create a single payment for all those like stays. They chose the latter, which makes a lot of sense and hence came the diagnosis-related groups. In August 2011, CMMI launched the Bundled Payment pilot, focusing the first phase on episodes that start with a hospital stay. The Bundle, however, includes professional services in addition to the stay, and can include post acute care costs in addition to costs associated to the admission. There are, however, significant differences in the mix of patients that are admitted for a particular stay and there are important reasons why they shouldn't be lumped together. For example, a patient admitted for the placement of a stent can have simple coronary artery disease or could have had a prior heart attack and perhaps early stages of heart failure. And while the facility costs might be similar and not vary much based on the underlying diagnoses of the patients, the same is not true relative to professional services needed to manage the patient during and after the stay. As such, extending the logic of the DRG, the product if you will, to something for which it was not designed, is a bad idea. Second are physician office system surveys, most currently known as the PCMH survey. In 2003 Bridges To Excellence commissioned the NCQA to work on the first version of that survey, which was called the Physician Practice Connections survey. It was designed to be used in conjunction with other measurement tools, and in particular tools focused on measuring the clinical markers of chronic conditions. The design was meant to link systems with patient management. Today, the PCMH tool is used autonomously, almost as a sole way of measuring quality in a practice, and that use is problematic, at best. Next week we will release a study that shows to what extent what you measure really matters.

_What this means to you -_ we're always looking for shortcuts because it makes life easier, but the easy life is what has gotten us into the bog. After all, is there anything easier than FFS payment? But that doesn't mean it's right, quite the contrary. Products designed for one purpose, especially in our complex health care world, are most often not appropriate to use for another purpose, however simple that might seem. PCMH surveys were designed to measure the systems and processes in physician practices, not to measure the quality of care they deliver. It's not an appropriate shortcut to infer that a PCMH-recognized practice has high quality care. It has good systems and processes, but we don't know whether those systems are being used to generate good outcomes. Similarly, DRGs were used to group certain stays for the purposes of paying hospitals for similar stays. They should not be solely used as a basis to group patients for the purposes of bundled payments that include professional services and post acute care. Avoid the bogs because it's a lot harder, and take longer to get out of them, than taking the slightly longer road.

The Right Design (Part 2)

August 31, 2012

Ready? Set?....Whoa, hold on, and think before you sign on the dotted line **-** Two months ago, at the end of June, hospitals, health systems and other organizations submitted applications to the CMMI for the Bundled Payment for Care Improvement (BPCI) pilot. The program was launched a year ago, and, since then, hundreds of potential applicants have received two years' worth of Medicare claims for their market area, and performed various analyses to determine if they want to file a formal application. Many walked away after pouring through the numbers, but many stuck through the process. In  an important report we summarize significant issues in the design of the BPCI. Taken together, they can lead to applicants or Medicare winning or losing simply based on the luck of the draw. The amount of probability risk introduced in this pilot, if the design is not modified (or certain conditions and terms aren't negotiated in the agreements between CMS and the applicants), might very well cause evaluators on the back end to conclude that the pilot's effects on reducing costs of care are uncertain. That wouldn't simply be a shame; it would be a phenomenal setback for the value-based purchasing movement. And it doesn't have to be.

_What this means to you -_ our  report identifies several problem areas. **First** , case mix shifts can cause providers or Medicare to realize gains or losses, irrespective of any clinical improvement. That's because, so far, CMMI has refused to allow applicants to distinguish the bundled price based on the underlying diagnosis of the patient, or based on the specific procedure performed. And that's contrary to the principles of bundled payments and all the implementations done in the private sector. **Second** , high and low cost outliers are included in the bundled price, and a shift in the number of those cases can also lead to gains or losses irrespective of clinical improvement. There are easy solutions to mitigate the outlier problem, and we propose a few that are pretty standard in private sector bundled payment contracts. **Third** , and unique to academic medical centers, the exclusion of mission-related add-ons from the episode price can cause a net reduction of these subsidies as the centers reduce the number of readmissions and improve cost and quality. This one falls into the category of "no good deed goes unpunished," and can also be mitigated. So the good news is that these design problems are all solvable if CMMI is willing to solve them. As such, applicants should insist on fixes before signing on the dotted line, and officially joining the pilot. We've said before that this pilot has the potential to fundamentally shift the value of US health care in a positive direction, and we say it again...provided the design flaws are corrected.

Conclusion...For Now

Yes, healthcare is full of jargon, and this book is no exception, but I'm hoping you got past that and get the message. It's all about incentives. I wish it weren't, but wishing it doesn't change the facts. And the facts are that we can't hope to reduce medical costs or improve the quality of care until we eliminate the bad incentives that are causing the bad behaviors.

There are a few simple action steps that anyone can take and that, if you do, will make a big difference:

• **Demand to know, up front, the price of your episode of care and the quality of the providers in the network.** This is particularly important for elective surgeries or for those who have chronic conditions. If plans and providers were forced to give this information to consumer-patients at the point of need, transparency would sweep through the industry. Consumers could finally shop around for the best combination of cost and quality, and providers would have to compete on the value of the services delivered, like in any other industry.

• **Only sign-up with health plans that demonstrate they are paying providers under arrangements other than fee-for-service.** And we're not talking here about pilots and experiments. There's simply no reason whatsoever why a health plan shouldn't be using value-based payments for at least 50% of the total bills they pay.

• **Lobby your state legislators to ensure that patients are afforded the same protections as diners.** If your state has a program in which health officials monitor the safety and cleanliness of restaurants, then demand they do the same for hospitals and other healthcare facilities (like nursing homes). Federal agencies require the reporting of patient safety and quality measures from hospitals every year. So it wouldn't be that hard for local state officials to validate the reporting, inspect the facility, and award a grade, which the hospital would be forced to put on its front door, just like restaurants have to.

Collectively we can transform this industry for the better. I hope you'll join us.
