Healthcare Payers and Providers: The Best System for Process Improvement
Throughout the healthcare industry, we hear a call to transform the way we deliver care and the way we do business. Complete transformation sounds like a tall order (although it’s a good goal to pursue). I prefer to speak in terms of improvement—the incremental steps that move us toward higher-quality care and lower cost. A strategic, systematic plan for continually improving processes is the key to reaching the ultimate goal of healthcare transformation.
In this commentary, I’ll give an overview of some of the new payer/provider arrangements that are motivating improvement efforts. Then I’ll briefly introduce the technology and processes that can help organizations drive continuous, incremental improvement.
Healthcare Process Improvement: 3 New Types of Healthcare Payer/Provider Financial Arrangements
Let’s face it. No matter how committed an organization is to providing the best care, it’s often difficult to take the steps necessary to kick off change without some kind of financial stimulus in the picture. Throughout the industry, payers and providers are formalizing financial arrangements that motivate providers to improve their processes—while benefiting payers, providers, and patients.
1. Pay for performance
The most basic of these arrangements is pay for performance (P4P). P4P is a straightforward incentive system that rewards improvement based on established metrics (and sometimes penalizes if the provider fails to hit the metric). For example, if a certain percentage of patients in a population get a particular kind of preventive screening during the year, the provider will receive the incentive payment. This kind of arrangement is a basic start that drives some improvement. But more elaborate shared-savings agreements are necessary to drive real, enterprise-wide transformation.
2. Bundled payments
In a bundled payment arrangement, a payer gives a single payment for all provider services that constitute an episode of care, regardless of how many providers were involved in that episode. Previously, each service would have been billed separately by the provider that performed it. This arrangement holds providers accountable as a group for their performance and motivates them to work together to eliminate duplication and waste.
What constitutes an episode of care—and which providers’ services are included in that episode—are well defined in advance. The Centers for Medicare and Medicaid Services (CMS) has outlined its bundled payment initiative and the type of care episodes currently eligible for bundled payment. These include conditions like congestive heart failure, urinary tract infection, sepsis, diabetes, a variety of orthopedics procedures, and much more. CMS announced 450 healthcare entities would be participating in this program which started in spring 2013.
Bundled payment arrangements are becoming more and more common for commercial payers. A coalition of employers, including Walmart and Lowe’s, announced that they have negotiated with four centers to perform hip and knee implant procedures. Employees who have their procedures done at those centers will receive full coverage including travel costs.
Bundled payments are a good way for organizations to ease themselves into a shared savings agreement. Because the bundled payment focuses on just one type of care, like orthopedics, the organization isn’t taking on as much risk.
3. Accountable care organization (ACO):
Establishing an accountable care arrangement with a payer means entering into a total-cost-of-care system that rewards or penalizes based on the total cost of a patient population. These complex arrangements are growing even faster than bundled payments. There were approximately 500 ACOs as of year-end 2013. CMS announced 123 new ACOs that would start in January 2014. According to a Premier survey, ACO participation has almost quadrupled since spring 2012, and should continue to grow with participation projected to double by the end of 2014 to 50 percent of all hospitals participating.
It may be wise for some organizations to ease into the ACO world incrementally by starting with P4P and bundled payments. Entering into shared savings agreements is one of the main strategies hospitals must pursue to survive in this environment.
Establishing a System for Healthcare Process Improvement
Several common threads run through the three types of arrangements summarized above. In each, payers and providers must figure out how to work together to improve processes. They must agree upon a set of quality, efficiency, and/or patient satisfaction metrics by which they’ll measure performance. And then they must adopt a system for implementing, measuring, and sustaining improvement.
The best system for driving, measuring, and sustaining healthcare process improvement involves three critical dimensions:
- Systematically integrating data and measurement—an analytics system. This system includes the technology and the expertise to gather data, make sense of it, and standardize measurements.
- Systematically applying evidence and standardization—a best practice system. This involves standardizing knowledge assets—systematically applying the evidence base to care delivery.
- Systematically changing processes and behavior—an adoption system. This involves standardizing organizational work—implementing team structures that will enable consistent, enterprise-wide adoption of best practices.
We refer to this as the “three systems approach” at Health Catalyst. These three systems, interacting constantly, drive the kind of sustainable process improvement that will lead to success in shared savings arrangements. Specifically, these three systems enable an organization to optimize and standardize clinical and administrative processes. The more you standardize, the more variation you can eliminate. The more variation from the evidence base you eliminate, the better care patients will receive. At the same time, your cost structure will improve, and you’ll find that you are able to profit from a larger chunk of your shared savings payments.
A health system’s success over the coming decade will depend on the ability and willingness to collaborate creatively with payers in order to get sustainably paid and deliver better care. The three systems approach gives hospitals the analytics, the best practices, and the adoption strategy to do this insightfully and sustainably.
Is your organization participating in one of the financial arrangements list above? What adjustments have you had to make to improve processes?
 Premier. “Accountable Care Organizations and Population Health Management Trends,” 2013.