ACOs vs. HMOs: This Time It's Different

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Last week I came across this article titled, Balancing AMC Mission, in the New England Journal of Medicine. The article talks about how Massachusetts hospitals – specifically Mass General and Brigham & Women’s – have reduced costs in response to Massachusetts' healthcare reform bill passed back in 2006. As part of the reform, these hospitals participated in risk-based based contracts with commercial payers and Medicaid and Medicare. The contracts, covering 400,000 lives, have them share risk for medical expenses for patients who see primary care physicians (PCPs) in their network. If the cost of caring for the patients that see a PCP in their network exceeds that of a comparison group, they pay a penalty; if it’s lower than the comparison group, they share in the savings.

A lot of people have compared this approach – commonly known as an ACO (Accountable Care Organization) -- to the HMO failure of the 1990’s. The authors in the article point out a few reasons why this time it’s different that I thought were worth posting here:

  1. While the focus of the approach is on coordinating care through a PCP, specialists are much more involved in the coordination this time through automated referral management, virtual visits from specialists, team based care and home monitoring. As an example, they’re reducing costs for diabetes care by automating referrals to diabetes counselors and they’ve identified opportunities to do phone consultations with specialists, as opposed to face to face visits.
  2. They’ve added 71 “high-risk care managers”. These managers work closely with the PCP in coordinating the care for 200 high-risk patients. The additional investment in this population is a huge step forward. As we know, the 80/20 rule applies to healthcare – 20% of patients drive 80% of costs.
  3. They’ve consolidated all of their clinical and administrative systems into one electronic system – allowing for better, more efficient care coordination.
  4. Risk is now shared across their hospitals and their physicians group as opposed to centering risk and responsibility on the PCP.

These are significant differences that have resulted in some early signs of cost reduction. It’s refreshing to see super successful, massive hospitals getting on board and innovating as we move towards a system that manages health instead of manages sickness.

Sticking to Your Core Competency

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I've been thinking a lot recently about companies and their core competencies. The idea that a company with a few employees and only a little bit of capital that focuses on only one thing can do that thing more effectively than a billion dollar company with tens of thousands of employees is hard for many people to comprehend. Bijan Sabet wrote about this a while back when he pointed out that so many of the embedded iOS apps have been replaced by applications from tiny startups. From his post:

The default notes app has been replaced by Simplenote

The default messenger app has been replaced by Kik

The default calendar app has been replaced by Calvetica

The default music app has been replaced by exfm, soundcloud and rdio

The default mail client has been replaced by Sparrow

Granted, Apple wasn't necessarily competing aggressively in all of these areas.  But the reality remains that a small group of people that focuses on one thing will always outperform a large group that focuses on lots of things.

With some of this in mind, I came across a blog post by Paul Levy last week on the increasing trend of large health systems getting into the payer space. Due to the growing pressure on reimbursement rates and the increasing prevalence of population health, it only makes sense for health systems to be inclined to cut out a middleman (the private insurers) and become more horizontally integrated. Health systems are finding that they can organize and work directly with large pools of patients (employers, trade groups, unions, etc.) and, potentially, insure and care for them more cost effectively.

While on the surface this may seem like a great idea, Levy points out in his post that many large hospitals have enough problems improving their existing businesses in this complex and rapidly changing healthcare environment:

Here's what I think, based on unscientific site visits, surveys, and discussions with hospital leaders. The vast majority of hospitals--and especially academic medical centers--have barely begun to crack the operational problems that exist in their facilities. The quality and safety of patient care are substandard, compared to what they might be and what has been demonstrated in comparable facilities. The degree of patient-centeredness, likewise, needs major work. Finally, the engagement of front-line staff in process improvement efforts is scattered.

Despite this, 1 in 5 health systems intend to become payers by 2018. And this is where the notion of core competency comes in. Given the massive transition that healthcare is going through -- from managing sickness to managing health -- might some health systems be wise to focus on improving and creating a competitive advantage on what they already do well? As opposed to entering a complicated and risky new industry (health insurance company profit margins generally hover around a very low 4% and the industry is subject to paralyzing state and federal regulation).

Just like Apple has wisely decided to focus their best energy on building great tablets and smartphones and to allow someone else to build great mail and calendar apps (on top of their platform), it might make sense for health systems to continue to focus on improving the quality and efficiency of care and cutting the costs of their existing operations, and to let someone else be great at the underwriting and actuarial work.

Healthcare Blogs

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The other day a colleague asked me which healthcare blogs I read. I thought I'd capture them here.

I’ll check out KevinMD once in a while but I’ve removed it from my feed.  Too much stuff that isn’t relevant to me.

By the way, for all of my blog reading, I use Feedly on my desktop and the Reeder app on my iPhone. I recommend both.

What Healthcare CEOs Are Focused On

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A few weeks ago someone sent me a copy of a whitepaper that was recently published by Deloitte titled, A look around the corner: Health care CEOs’ perspectives on the future. It’s definitely worth reading if you’re into this type of thing. But the most interesting part of the paper for me was the survey that asked a large group of healthcare CEOs what they viewed as their top near term challenges. Here were the top 10:

  1. Facilitating physician alignment and integration into leadership roles
  2. Reducing operating costs to respond to cuts from payers
  3. Integrating non-acute services to become a system of care
  4. Managing in uncertainty as a result of health reform, payer consolidation, fiscal constraints
  5. Implementing health information technologies and integrating them into evidence-based care
  6. Building new/non-conventional relationships with commercial health plans to share risk and savings
  7. Engaging more directly with employers and consumers
  8. Redesigning current acute clinical programs to be responsive to innovations in diagnostics and therapeutics
  9. Engaging consumers in wellness, preventive health, and personal accountability
  10. Protecting or enhancing the brand and reputation of the system

The recurring theme in this list speaks to the substantial change that healthcare executives are focused on: financial changes, facility changes, technological changes, payment model changes, and a larger focus on the patient and patient experience. This is an awesome time to be working in healthcare. This list should give us all hope that big change is on the way.

The UP By Jawbone

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UpThe other day I bought a Jawbone UP, the popular health monitoring device that tracks steps, sleep and sleep quality. I’ve only been using it for a few days but so far so good. I mostly bought it for the sleep monitoring feature, and because I've been generally a bit anxious to test out a health monitoring device.

I’m slightly obsessed about the amount of sleep I get. Often there are nights where I get a good night’s sleep, but I don’t think I did so I worry about it. UP has begun to put my mind at ease – I’m actually getting more sleep than I had thought. The sleep part of the app monitors how long it took me to get to sleep, how long I slept and even deciphers periods of deep sleep versus light sleep.

I measure my daily workouts fairly closely and I use the MapMyRun app for my outdoor runs so the step measuring feature isn’t all that useful to me. Though I think over time it’ll be interesting to look back at the data to see how much I’m moving, and how I'm moving more or less during different periods. I also like being able to view my general activity levels in contrast to my rest.

The wristband itself is good. It looks decent on my wrist, seems durable, the controls are really responsive and it's easy to sync. The iPhone app is fabulous. It’s easy to use and has a seemingly endless number of ways to slice the data it collects.

There are a few more features I haven't used yet that I'll try out in the coming weeks. Lots of people believe that this kind of self-monitoring is the future of healthcare (particularly to help monitor various physiological statistics and behavior change for people with acute illness and/or high risk factors).

I'll write another post on my experience with the UP in a few months after I've compiled a bunch of data.

Patient Acquisition Segments

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I had a great conversation with a healthcare executive last week about segmenting and targeting new patients. When you think about acquiring new patients, you can bucket them into four segments. Patients that care about...

  1. Brand -- they want to see a doctor that is employed or affiliated with a prominent hospital or health system.
  2. Facilities -- they want nice, clean offices in a good neighborhood.
  3. Convenience -- they want easy access to good doctors near their home and to get in and out quickly
  4. Cost -- they want to pay a smaller co-pay, receive less expensive services, etc.

We agreed that very roughly 25% of patients prioritize brand, 35% prioritize facilities, 35% prioritize convenience and only 5% prioritize cost.

My personal take is that the fastest growing segments are the cost and convenience segments. Federal and state governments are providing a variety of incentives that are driving patients toward the lower cost providers, and I think we'll see that trend continue. And just like most industries that begin to move online (healthcare is a laggard in this area) consumers will begin to value convenience and ease of access more and more.

And I think it is the brand segment that is shrinking. As quality and cost become more and more transparent to patients, brands will become less important. If a patient finds a doctor online that went to a decent medical school, that has good reviews from other patients, and good availability, the brand that they're affiliated will matter less and less.

Changing Healthcare: Structure & Culture

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When we think about moving healthcare from a model that is focused on treating sick people (big buildings with lots of beds and lots of drugs and complex procedures) to a model that is focused on keeping people healthy (community-based primary care offices where patients can monitor and manage their health), we must consider two important questions:

  1. Will the public and our politicians allow our treasured hospitals to close or restructure, enabling large healthcare providers to re-position themselves for the future?
  2. Will patients actually pursue and engage in preventative care (e.g. get their annual physicals, cancer screenings, etc.) or will they continue to wait until they're already sick before seeking care?

Regarding the second question, I met with a healthcare executive last week that worked with the Saudi Arabian government when they were going through their transition from treating the sick to providing community based primary care. He told me that he warned people over there that, despite their best efforts, it wasn't going to work. Because even if you tell people they must come in for their annual check-up, they won't do it unless they're sick.

The Saudi Arabian government responded by saying, "oh, trust us, if we tell them to come in, they'll come in."

It turns out they were right -- patients do come in when the doctor tells them to come in.

Because an enormous part of the population over there receives their monthly paycheck from the government, they're much more engaged and compliant when the government (e.g. their physician) asks them to do something.

Obviously American culture is much different.

It's critical that we recognize the substantial structural and cultural change that must occur before we truly reform the U.S. healthcare system. This isn't going to be easy.

The Problem With Google Health

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Google Health, the self-managed patient portal that launched back in 2008, shut down on December 31st. According to Google's blog post, they made the move due to a lack of user adoption:

Now, with a few years of experience, we’ve observed that Google Health is not having the broad impact that we hoped it would. There has been adoption among certain groups of users like tech-savvy patients and their caregivers, and more recently fitness and wellness enthusiasts. But we haven’t found a way to translate that limited usage into widespread adoption in the daily health routines of millions of people.

Google Health faced the same challenge that EHR (electronic health records) faced in driving adoption among physicians: everyone sees the long term benefit of getting patient information online, but in the short term, it's a lot of work.

In order to drive wide-ranging engagement and adoption of a self-managed patient portal like Google Health, there has to be an instant piece of value in return for the patient's time and effort. That value can be money, time savings, or some other functional piece of value -- the greater the value, the greater the adoption. Case in point: EHR adoption finally picked up after the government provided high value, short term financial incentives to physicians that reached an acceptable rate of usage.

Because Google didn't offer some kind of immediate, tangible benefit to their users they weren't able to drive the wide-ranging adoption they expected. It may sound a bit simplistic to claim that companies have to offer some kind of tangible reward to drive real adoption of a patient portal. But in some cases, it really is that simple.

ACOs, Consolidation & The Cost of Healthcare

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There was a good article in Becker's Hospital Review the other day pointing out 8 key issues that hospitals and health systems are facing in 2013. In it, Tom Carson, a partner at Welsh, Carson, Anderson & Stowe talks about how ACOs are shifting more power to hospitals:

The biggest flaw with ACOs is that they are driving more power to hospitals — not to doctors. Very scary, and I am a hospital guy. The goal of ACOs was to organize doctors to focus more on patients and keep the patients out of hospitals. Instead, doctors are selling practices to hospitals in droves.

The start-up cost of a real ACO is probably $30 million and up in a midsize market — and doctors don't have that capital. So hospitals are pitching that they will be ACOs, and buying up practices. Ever meet a hospital administrator who wants to work to empty his beds? This means more power in expensive institutions, more consolidation of those giants — and more bricks and mortar and more costs. And with zero antitrust enforcement in the last 30 years in the hospital world, we are cruising for regional hospital-based oligopolies — not good for doctors, patients or our hopes for a more efficient system. And the well-intentioned concept of ACOs is feeding that fire.

This leads to a super interesting question. That is, will the regional pricing power that comes from the consolidation that is required to form an effective ACO actually offset the cost reduction that was intended when the model was formed? In other words, will ACOs actually increase, instead of decrease, the cost of healthcare?

Escape Fire

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I watched Escape Fire: The Fight to Rescue American Healthcare the other night, a documentary on healthcare that was a 2012 Sundance Film Festival Winner.  The film doesn't offer any revolutionary ideas but it’s very well done and gives the viewer an excellent picture of the challenges facing the U.S. healthcare system.  It’s also pretty entertaining.  The film's title was inspired by the Mann Gulch forest fire in Montana back in the 1940's -- a super interesting story in its own right.

The film also does a great job of laying out some interesting and powerful healthcare related statistics. I thought I’d capture some of them here:

  • The cost of healthcare is expected to hit $4.2 trillion annually within the next four years (20% of our GDP)
  • 20% of patients account for 80% of healthcare costs
  • 75% of healthcare costs are caused by preventable illnesses
  • Average cost of healthcare in the U.S. = $8,000 per person; versus $3,000 in other developed nations
  • There are only two countries that allow pharmaceutical companies to advertise directly to consumers: New Zealand and the United States
  • Since 2000, premiums for employer health plans have risen at 4x the rate of inflation
  • Smoking is responsible for 1 in 5 deaths in the U.S.

If you're interested in the U.S. healthcare system and where it's heading I highly recommend checking out Escape Fire.

Groupon, Chest Pain And Consumer Behavior

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It was unfortunate – but not very surprising – to see the news this week that Groupon laid off a portion of their 10,000 employees. If ever there was a predictable bubble, it was daily deals. But it was fun while it lasted, and you can see why there was so much overinvestment in the space. Groupon’s pitch to merchants was to ask them to take a loss by making a super compelling offer that consumers couldn't resist. The offer would generate tons of new customers that would come back and make profitable purchases for years to come.  On the surface, it seemed pretty compelling.

With the Groupon news in mind, I spent some time this week thinking about the problem of hospital readmission penalties in the healthcare industry.  For those that don’t know, the government is trying to improve accountability and the quality of patient care by imposing financial penalties on hospitals that have high rates of 30 day hospital readmissions.  Depending on the rate of readmission, the government will reduce Medicare payments by as much as 1%.  For an industry with very thin margins, this is a pretty big deal.

One of the major challenges with hospital readmission penalties is that now doctors have to not only care for the patient effectively during the initial encounter, they’re now responsible for changing the patient’s behavior after they leave the hospital.

Here’s an example: imagine an older man that doesn’t take care of himself.  He smokes, eats fatty foods, lives a sedentary lifestyle and hasn’t visited a doctor in years. One day, a pain in his chest becomes so severe that he is forced to check himself into the emergency room.  After spending a couple nights in the hospital getting treatment, he starts to feel better. When he’s finally discharged, the doctor recommends that he stops smoking, follows a cardiac diet, takes a prescribed medication, and visits a cardiologist for a checkup every week for the next 6 weeks.

But this is a person that is not used to doing any of those things. The problem that caused him to appear in the hospital – severe chest pain – is not an immediate problem for him anymore.  He feels fine.  So the hospital is being asked to significantly change the behavior of someone without the initial (and powerful) motivator in place. As a result, he’s very likely not going to follow the doctor’s orders and he’s very likely going to reappear at the emergency room.

It occurred to me that this is the fundamental problem with the daily deal industry.  Groupon has the same challenge that hospitals have.  Just like severe chest pain, their deals change behavior. Most of the people that buy half-off skydiving, or cooking classes, or services at the super expensive nail salon, weren’t planning to do those things until they saw the deal sitting in their email inbox.  But because the deals are so compelling (50%+ off) they bought them anyway and, as a result, Groupon was able to flood their merchant clients with lots of new business.

But it’s because the initial deal is so compelling that it becomes nearly impossible for Groupon to reliably deliver on their ultimate promise of bringing their merchants new, loyal and profitable customers.  Just like severe chest pain, the daily deal changes behavior.  It forces people to do something that they wouldn’t normally do.  But without a continuous and powerful motivator in place (like chest pain or 50% off) the doctor can’t get the patient to come in for an electrocardiogram and the nail salon can’t get the customer to come back for a second manicure.

Healthcare: Big Government Vs. Small Government

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James Suroweicki has a great column in the New Yorker this week laying out why he believes Romney’s healthcare plan won’t work. Regardless of your opinion on the matter, he calls out some important and unique qualities of the healthcare industry that should be considered when weighing both candidates’ plans; that is, weighing how much we should rely on the free market versus the government to solve the healthcare cost crisis.

I recommend reading the entire article but here are a few of the most notable things to consider:

  1. Unlike most consumer goods, healthcare consumers don’t have the expertise to properly value one treatment, hospital, or doctor versus another.
  2. Most major healthcare purchases are made by insurers, not consumers, so they lack a direct say on the price of a treatment.
  3. One way for a buyer to get a seller to reduce their price is to walk away and not buy the product at all.  In healthcare, consumers can’t just walk away from treatments like they can a new car or a new cell phone -- they have to buy the treatment to survive.

These fundamental realities of the healthcare industry make this issue far more complex than the simple big government/small government ideologies that many of us use to guide our political and economic beliefs.