Value-Based Payment: The Rush is On!

The most opportune time to jump off a bandwagon is just before the next person jumping on tips it over. If the accelerating movement toward value-based payment (VBP) models in healthcare could be metaphorically thought of as a bandwagon, then its passenger weight increased dramatically this week with two major announcements.

First, on Monday HHS Secretary Slyvia Burwell announced that within four years half of all Medicare spending will be VPB oriented (e.g., bundled payments, ACOs, capitation models). Then yesterday several of the country’s largest healthcare systems and insurers announced the creation of a Health Care Transformation Task Force whose stated goal is to shift 75% of their business to VBP type contracts by 2020 (as in 5 years).

I have been an acknowledged student and disciple of Michael Porter’s work on value in healthcare and have written about that subject here in the past. Porter and colleague Elizabeth Teisberg wrote the seminal work, Redefining Healthcare, which buttresses much of the practical theory that has been espoused in support of VBP. In my study, however, I came to believe the underlying structural challenges of our current delivery system would take a great deal of time and effort to overcome before value could work the magic as intended. And so when I read these two announcements I had to wonder whether fools are rushing in where angels fear to tread.

In other words, it’s not the direction of the bandwagon I find concerning but the pace of acceleration. There is so much unknown and so much to be learned regarding the organizational dynamics of healthcare delivery that putting deadlines on the pace of that knowledge-building is pure folly. To illustrate, let’s just look at Porter’s strategic agenda for creating a value-based healthcare delivery system and consider each in context of what we are witnessing today.

1. Organize care into integrated patient units around patient medical conditions.
Porter has travelled the world lecturing and observing healthcare delivery systems in other countries. He provides examples of structural reorganization for patient conditions (e.g., the West German Headache Center) that have achieved substantial improvements in patient outcomes at lower cost. The concept isn’t entirely new (e.g., MD Anderson Cancer Center reorganized its outpatient care services in the early 90s under the auspices of an IPU), but still rather rare and so not very well understood.

2. Measure outcomes and cost for every patient.
Another way of saying this is be able to measure cost and quality/satisfaction at the patient level. This is without a doubt the most difficult and controversial aspect of Porter’s agenda.
In June of last year I wrote a post that addresses the inherent subjectivity of patient outcomes and its impact on the value equation. If this cannot be worked out in a manner and fashion that achieves broad understanding and acceptance across patients, providers and insurers – well, see bandwagon discussion above.

3. Reimburse through bundled prices for care cycles.
When Porter talks of bundling his focus is on tying the bundle definition to the value achieved on behalf of the patient – e.g., the patient’s experience, impact on family, lifestyle functionality, etc. What I hear about mostly are efforts to define, articulate and divide up processes and procedures related to a diagnosis and/or condition, put some probability bookends around that understanding and then compare projected average payment to cost. The ability of value to be successful as a catalyst for aligning incentives has already been lost because the focus is on process – not the patient.

4. Integrate care delivery across separate facilities
The many challenges of integrated clinical care notwithstanding, improved performance through specialization is really the key concept here. Research has shown that volume in a particular medical condition is positively correlated with patient value. This runs counter to the notion that all healthcare is local. While every day we culturally become more comfortable with this notion – e.g., international medical tourism – there are still substantial social and political obstacles to overcome.

5. Expand areas of excellence across geography
We are seeing systems like the Cleveland Clinic, Geisinger and the Mayo Clinic exporting their knowledge and expertise across geographies. But the expansion has been primarily revenue-driven (relatively more patients with the financial ability to afford services). If value is to be the driver of alignment, then eventually those organizations will also have to demonstrate how knowledge exporting not only improves outcomes at the local level but also lowers costs (much harder to achieve).

6. Build an enabling information technology platform
Hoo boy, right? The challenge here, of course as I have written before, is properly utilizing IT to facilitate and enhance the productive value of human processes. If the underlying organizational structure and processes aren’t in alignment with the goals and objectives manifested through the five agenda items above, then all we will be doing is automating a system that we said we wanted to change.

I realize some of these concepts are above my pay grade, and I continue to believe the value concept – Patient Outcomes/Cost – is the key fundamental principle of structural system reorganization. But when I step back and compare the payment and care delivery models being pursued in the name of “value” against the strategic agenda that Porter laid out I worry greatly that we are not willing or prepared to take the time or effort to understand and address fundamental areas of concern.

It’s like building a pyramid. The more time you take to create a solid and expansive foundation, the higher you will ultimately be able to build. As much as I have supported the value driving structural change paradigm I would encourage all industry stakeholders and participants to be both pragmatic and cautious in advancing on VBP models. Take the time to observe, learn and adjust – and don’t let your timeline be driven by outside sources with no vested interest in your organization – or your patients!

  ~ Sparky

Much Ado About Value

I was recently honored when Greg Scandlen took time to consider and write about some of the work I shared with him that has been produced by Michael Porter on value-based healthcare delivery. Mr. Scandlen is a regular contributor for the National Center for Policy Analysis’s Health Policy Blog, and in his article,  Value Based Payments, he argues that attempting to use the concept of value to drive systemic improvements in the US healthcare delivery system is misguided because of the inherently subjective and multidimensional nature of patient outcomes (Porter has used the equation of Value = Outcomes/Cost as the basis of arguing for industry transformation).

Michael Porter, “is generally recognized as the father of the modern strategy field, and has been identified in rankings and surveys as the world’s most influential thinker on management and competitiveness.” He has extensively researched and written on healthcare, establishing a comprehensive body of work that supports the need for reorganization of our healthcare system framed around value-based delivery.

After collaborating with Elizabeth Teisberg on their seminal work, Redefining Healthcare, in 2006 Porter wrote an article in 2010 for the New England Journal of Medicine: What is Value in Health Care? This is the article Mr. Scandlen references in his article. There are several additional contributions from Porter that add meaning and understanding to the value paradigm discussion, and these include:

Measuring Health Outcomes: The Outcome Hierarchy, a supplementary appendix to the above-referenced NEJM article;
How to Solve the Cost Crisis in Health Care (with Robert Kaplan) in the September 2011 edition of Harvard Business Review; and
The Strategy That Will Fix Health Care (with Thomas Lee) in the October 2013 edition of Harvard Business Review

There are a couple of areas where my perception of value as a catalyst for delivery transformation differs from Scandlen’s.

First, while I agree it’s true individual value is a subjective reality, my understanding of Porter’s work does not advocate for creating objective measures of value on behalf of the patient. In the October 2013 article referenced above Porter writes, “in healthcare, the overarching goal for providers, as well as for every other stakeholder, must be improving value for patients, where value is defined as the health outcomes achieved that matter to patients relative to the cost of achieving those outcomes.”

Second, Scandlen takes issue with Porter’s claim that, “in any field, improving performance and accountability depends on having a shared goal that unites the interests and activities of all stakeholders,” arguing that is counterintuitive to how competitive markets function – which Porter himself advocates for and has written about extensively. But I think Scandlen has too narrowly applied this axiom. Using his own example of how difficult it would be to imagine IBM, Apple and Microsoft having a shared goal, I would argue the goal they shared was to develop and provide lower-cost personal computing capacity and technology to individual consumers.

This wasn’t a coordinated or collusive effort to limit competition or share profits – it was a market-driven opportunity that each corporation recognized independently to bring value to consumers and be rewarded accordingly. Porter recognizes that in healthcare, in order for providers and organizations to transform delivery models based on value they must all recognize – and act upon –  the perceived economic benefits of creating value for the patient.

The graphic accompanying this post provides the six steps outlined in the October 2013 HBR article that Porter argues healthcare organizational leadership, patients and health plans/employers must pursue to achieve a high-value care delivery system. The key concepts embodied include integrated care delivery, transparency, outcome-measurement, accountability and geographic expansion of specialized capabilities (e.g., what the Cleveland Clinic has been doing through affiliations such as their recent minority interest in Akron General Hospital).

Finally, I do not believe measuring outcomes (the ubiquitous challenge facing Porter’s value equation) is a long-term effort in futility. Porter’s outcome hierarchy was an attempt to recognize and address the multidimensional nature of outcomes that Scandlen identifies. Many other such similar efforts are ongoing across the world. With the continual advancement of Big Data, the ability to monitor, analyze and report on patient-related data and information across the full spectrum of an outcome will continue to become more and more useful: to providers, insurers – and most importantly, patients.

Where the concept of outcome measurement runs into its biggest theoretical challenge is when payment models such as ACOs and episodic payment bundling seek to use such data to objectify achievement of patient value as a measurable statistic (i.e, benchmarking) used as an incentive to influence provider behavior. But the old adage of not being able to manage what you cannot measure is a critical element of value-driven performance improvement that I believe Porter effectively argues is at the heart of transforming our delivery system.

Value-driven payment models are in their genesis. Any type of industry transformation at this juncture is going to endure understandable resistance and criticism.  The train has left the station. Industry transformation based upon value-driven performance is already well entrenched as represented by organizations such as St. Joseph Mercy Oakland Hospital (Pontiac, MI), Adirondack Medical Home Pilot (NY) and Dignity Health, Hill Physicians and CalPERS.

There is legitimate concern that data and analysis on outcomes will be used to supplant patient choice. I don’t believe that is what Porter and colleagues had in mind when writing about value-driven healthcare delivery. Of course that doesn’t mean their intentions won’t be bastardized in the interest of bureaucratic ignorance and expediency. This risk must be carefully guarded against, but it does not in and of itself change the important role value must play in transforming our healthcare delivery system.


The Healthcare Value Equation

Prior to leaving for Denver and the LeadingAge Annual Meeting & Exhibition last week I posted here in the Pub several questions I was anxious to have answered by LeadingAge members.  I was not disappointed by the vibrant and impactful discussions and sharing of ideas that has come to epitomize that event.  Indeed, I learned a great deal of incredibly valuable insights, as usual.  But it was what I did not observe that – while not terribly surprising – has me nonetheless concerned about many member organizations’ futures.

Overall, I would characterize the leadership view at most organizations toward Healthcare Reform and its attendant ramifications as being acutely aware, justifiably concerned and yet still very uncertain about what types of organizational changes will be required to survive.  And where there is a greater level of certainty, the perceived changes needed tend to be of a more tactical and pragmatic nature, rather than transformational.

I realize this is to be expected because change is anathema to our human psyche.  Even changes that bring about sought after and desired results in our lives are usually disruptive, requiring adaptation, resiliency and an unplanned exertion of focus and energy.

The dynamics of organizational change are such that if you take the individual energy required to adapt to change and then multiply that by the number of individuals comprising an organization, the product will be exponentially higher.  This is primarily owing to differences in the means and speed at which individuals accept and adopt to change.  And the process by which an organization reconciles these differences is a function of effective organizational change management.

Whenever I give a presentation on Healthcare Reform I share what I have learned as a student of Michael Porter’s work on Value-Based Healthcare.  I seek to convey the singular concept that will serve as the platform upon which all future performance improvement efforts must be based.  I refer to this concept as the E = mc2 of future healthcare delivery: Value = Outcomes/Cost.   This is also the formulaic basis upon which leadership teams at organizations that provide healthcare must base their organizational change efforts.

This may seem like a simple enough concept, particularly when we compare its application in almost any other industry in which a product or service is exchanged for currency (or another product or service).  In healthcare, as we know, our delivery system has largely obfuscated the applicability and worth of this formula – first through employer-provided insurance beginning during World War II and then several decades later and subsequently through complex provider payment designs developed by Medicare, Medicaid and commercial insurers.

As Porter asserts, today healthcare providers compete on bargaining power, volume and control of the patient, rather than value.  The demographic and economic realities of this 21st century require a paradigm shift in the competitive model of healthcare delivery, where market advantages will be achieved through actual and perceptual positions of value created for the patient.  Such a shift cannot be achieved through incremental improvements in cost reduction and process improvement – however grandiose the means of pursuing such goals may be.  It requires a transformational shift in how the healthcare organization views itself.

It also requires a new way of thinking about how we understand and define Outcomes; and how we track, analyze and report on Costs.  I will write more on these topics in the future.  But for now, my message is that those senior housing and care organizations that embrace this way of thinking – and determine how to manifest an organizational strategic positioning based on value – will be much more likely to survive and even thrive in the future.