Entries in DeMarco, William (14)


The Impact of Accountable Care Organizations During the Next Few Years

by William J DeMarco, April 27, 2010

I was asked to address the following question for the current issue of MCOL’s Thought Leaders newsletter: "How large of an impact will the emergence of Accountable Care Organizations have during the next few years, and what are some of the implications we might expect as a result?”  

I supplied a brief summary statement for Thought Leaders. Here are my expanded thoughts on this topic:

We believe that ACOs will have a tremendous impact on lowering costs and improving quality long term because these initiatives will be operated at the local level and therefore make quality improvement an ongoing process versus a short term discount approach to value improvement.

The concept of having local providers competing as integrated systems has long been a scholarly supported and business researched model that theoretically should work. The problem has always been in the reimbursement at the practice level. Money and care delivery have been separated from the care coordination making payment a barrier versus the bridge it should be to better patient management.

We have spent millions of dollars as health plans, medical groups, and hospitals to come up with reporting systems that are just now yielding some patterns of care that we know offer positive solutions in the area of chronic care and general prevention.  However, the savings from this more effective care outcome has always gone to the payers. The providers, patients, and most employers never really see these savings in the form of better benefits or lower premium costs so there has never been an incentive for physicians and hospitals to work together to better coordinate inpatient and outpatient care.

We think that the bundled payment opportunities will change this and, as Medicare continues to reduce or flatten its fee increases, bundled payments will become more attractive.

By having risked adjusted patient care guidelines tied to payments for hospital, physician and drug costs for each episode of care, well planned care management protocols will yield a margin IN ADDITION to billed charges to Medicare.  Therefore, there may be a way for many providers to actually see Medicare revenue start to come closer to commercial revenue.

Managed care companies handling commercial payers would also have an interest in seeing hospitals and physicians work together to improve everything from coding to clinical outcomes in order to secure a share of the savings created by their innovation and discipline. There is talk that delegated models of medical management as seen in Florida and California may offer an even more lucrative opportunity to participate by taking 85% of premiums through global or bundled payment structures. This would represent an outsourcing of medical management to hospitals and physicians who, we have always thought, should explore this as a business opportunity to leverage care AND management of care. Health plans and insurance companies would pay a nominal fee to have this management done, but that would only enhance the ability of the caregivers to hire navigators to assist people within and outside the care system so discharges are followed up and preventive services explored before admissions.

The ACO structure will truly be following the integrated care guidelines to improve care with an incentive versus just avoiding anti trust issues. Perhaps we will see different physician driven governance and locally based quality and utilization feedback to physicians and hospital staff whose compensation is dependent upon not just delivering more services but delivering more of the right services at the right levels within the delivery system. We reaffirm this point by saying if physician are incented to deliver top quality and share the savings but the hospital staff operates business as usual to load beds and get paid based upon gross revenue, we have created a monster in terms of two factions in the delivery system going in opposite directions. This happened under early bundled and capitation payments where doctors were starting to see serious gains in income while the hospital’s losses were mounting due to reduced lengths of stay.

Finally, the long term impact here will be collaboration between hospitals in an area where they were competing against one another in a small market. The larger delivery system and its primary care referral system offer great coverage of a larger Medicare and commercial population. This allows PCPs and specialty practices to grow and align better benchmarks and communication with other MSO services that share expense and allows a network of small practices to operate as a large multi-speciliaty group practice. This group without walls can achieve some of the economies of scale but would need to be linked by Health Information Exchange making patient records, ordering of tests, and recommending follow-up care more efficient than much of the paperwork and patient chasing by phone done now.

Assuming the demonstration projects give CMS some good feedback on key performance indicators and that many hospitals and physicians arrive at the conclusion that indeed there is an opportunity to perform better and be paid better under this ACO framework, we would say the government’s estimate of savings from ACO development is largely understated.  The costs curve will bend regionally which will create even more savings than projected for Medicare.

Even now states are talking about ACOs for Medicaid and some employer coalitions are attempting to encourage ACOs around centers of excellence to push providers to compete more on quality and less on discounts.  We have told these large, self funded employers that they need to stop being passive players in the health insurance arena and take an active interest in designing benefits that offer incentives to patients who see the ACO aligned doctors versus the non aligned doctors, who may be part of a discount network but have no real accountability when it comes to performance. Then the employer or health plan must also offer some sort of shared savings plan to continue to incent doctors and hospitals to improve quality and outcomes. This additional amount shared from savings costs employers and health plans nothing more than what they normally pay, but it opens the door to seeing waste removed from the system permanently and better coordination of services for the employee. This levels off premiums and reduces employee out of pocket costs.

We are excited about the ACO opportunity.  While there will be a large education process needed to implement these approaches in some markets, most agree this beats the alternative of price controls and further mandates on payers and providers.


The Reimbursement and Value Based Purchasing Revolution 

By William DeMarco, December 21, 2009

MCOL asked me to respond to the following question for their current issue of “Thought Leaders”: Outside of pending national health care reform legislation, what trend(s) or issue(s) do you think will have the greatest impact on health care for 2010?" My abbreviated summary response is included in the newsletter, but what follows is my detailed response.

I think the entire revolution of reimbursement and value based purchasing is changing health care with or without reform.

First, consider the shift to for profit for so many organizations: Blue Cross plans that are consolidating under Well Point; not for profit hospitals that are aligning with or being bought by for profit hospitals;  and finally physicians who came out of the Physician Practice Management ( PPM) environment only to find they did need to invest in other for profit businesses or sell out to the hospital. Ambulatory care centers or buying a bone density scan to make revenue to keep ahead of the rising cost of managing the practice is new for most doctors. These were unheard of a decade ago.

All of these enterprises are having difficulty getting the asset valued that would permit them in some way to get some meaningful equity out of their hard work. That equity could be turned into cash or at least a cushion for future transactions. The new reality is bond houses are just as stingy as traditional investors and financing cost centers like facilities is increasingly difficult

At the same time reimbursement is shifting to a more sophisticated level with ICD 10 and MS DRGS and additional changes that will reveal just where the care and dollars are going. New innovations for treatment at less cost is a hoped for outcome but the ability to police more services and eventually go to a bundled payment system will put both doctors and hospital at risk for living on a budget for each episode.

This new integration is more cohesive than before and as more consolidation occurs collaboration not competition will be a key to survival. How the detail in each of these new expanded payment codes must be reported and tracked. This will be impossible with our current machines that barely report receivable and payables even for the most sophisticated practice. Collecting for managed care, now the majority payer has spawned a new business of revenue cycle management but now a new dimension of reporting utilization is also a requirement under pay for performance.

This disremediation of the old payment and billing systems physicians’ practices and hospitals used is making many rethink their “falling apart” systems.

The “new integration” brings this billing and payment all together again but not through a centralized structure. “Meaningful use” has arrived and that means web based connections to physicians hospitals employers insurance companies and even patients  is a requirement to get at bundled payment, report episodes of care and invoke some accountability into the definitions of necessary and unnecessary care.

Our point is that without the data, the payment will be reduced and where insurance companies had all the data for years its now time for providers to also invest in data driven strategies to better their reimbursements but , more importantly , begin to innovate and test methods to improve quality without increasing costs. This means permanently removing wasted effort and procedures that are inconsistent in their outcomes from the practice, but also, and this is what physicians and hospitals are most afraid of, changing behavior to make a living through more precise and frugal use of insurance and consumer dollars.

This underlying structure is shifting all at the same time reform is being discussed. Like two tectonic plates that shift causing an earthquake and then settle until the next large change. The results are unstable sections of land, tsunamis and new opportunities for growth What we see is slowly the components of value based purchasing are becoming a clear and present danger to the provider that waits too long to take action.

The providers waiting out the rules of reform right now are behind. That means for them 2010 will be remedial instruction on integration. Organizations that have the discipline to prepare the plan A and plan B of strategy are already ahead.

They are not waiting for rules to develop strategies to get around rules they are already making their own rules and slowly and consistently changing all their substructures to accommodate change with intelligent human capital, strong organizational culture and the confidence that their growth plans will eventually succeed.

Others are still cost cutting to make money. They are waiting for a bail out and telling their boards they will respond to the market AFTER an event has occurred. Henry Kissinger would often say that a crisis is a group of untreated issues that people knew they needed to change but did not change and now the cumulative effect is a crisis.

The reason we did not change them is often times because if fear or denial. We kept saying the health care delivery system is falling apart, the Institute of Medicine gave us evidence as to what was falling apart and then offered us a solution to bring these parts back together. But the understanding of what integration was supposed to look like was not clear and many organizations failed in an attempt to use it as a strategy to control doctors and or control managed care.

We now have a second chance with or without reform to re engineer our business process, right size our medical staff organizations and join together reimbursement and quality initiatives to get to the point of being able to reward superior performance with better payments and differentiate ourselves in the marketplace as providers and health plans with distinction. This may be a long road back for some which is why getting started now is the best strategy for 2010.


What Changes To Health Care During The Past Ten Years Have Had The Most Profound Impact

by William DeMarco, October 28, 2009

MCOL asked me to answer the following question for their current issue of their Thought Leaders e-newsletter: "As this first decade of the new millennium draws to a close, what change(s) to health care delivery, financing or structure that have occurred during the past ten years have had the most profound impact, and why?"

My abbreviated response appears in the newsletter, but what follows if my expanded thoughts on this matter.

To review the entire decade I think would fill a library of changes but to get it down to a few changes I would have to say first that moving physicians groups from the small cottage industry of one and two man practices into multi-specialty groups that share a model of care would be something few would have thought necessary or even possible.

In the days of early medicine many physicians worried more about the patients and the noble calling of medicine. There was an entrepreneurial spirit that led many practioners to brave the lack of equipment and resources using their diagnostic skills accumulated over a life time.

Teaching medicine still focuses on watch one, do one, teach one but now we have a narrower funnel of certainty we deal with trying to use diagnostic tests, many of which we are finding have a high false/ positive outcome, and relying on larger complex hospital, clinic and university centers that in the words of medical students “made medicine into a business”.

Driving much of this was a change in reimbursement when insurers and the government stepped in between the patient and the physician offering to handle the payment and coding review and many doctors thought this was great as patients often time did not pay on time if at all and now we can bill these service bureaus claims processors for more and more volume.

That allowed practices to purchase equipment that here to fore was a hospital revenue stream. When Medicare A and B separated the fight between hospitals and doctors turned into a turf war ending with hospitals buying doctors as a bonding strategy. Integration disintegrated except for many providers who owned their own health plan and therefore could control with some precision the model of care and the type of care provided.

Our physician friends and advisors often comment on their observation of new graduates being technically savvy but unwilling to be that entrepreneur to start a practice or work 7 days a week to build a following. Instead working three days a week and having family time is a priority and it often takes 2 doctors to make up one FTE.

This same outline applies for hospitals getting bigger. Hospital systems offering tertiary care even in smaller hospitals is driven to a great extent by reimbursement where more income per patient and high volumes of complex patients are the keys to success according to many managers.

Hospital networks formed to squeeze even more reimbursement out of HMOs and Insurance companies and have succeeded in many markets to chase insurers away or demand 250% above Medicare fees for specialty care as the sole commodity in a given geographic area. This morning I heard the argument that many of these community based not for profit hospitals would eventually have to become for profit in order to survive the health reform legislation. Right now 70% of our nations hospitals are not for profit and although there is a solid economic argument to take equity out of the hospitals to refinance growth and sustainability the opposing argument is that will a for profit hospital focus on the needs of the patients or the needs of the financial enterprise that the hospital would be based upon.

Many not for profit hospitals already act like for profit hospitals forcing projects to have a economic ROI but not really be able to measure their investments in Human return on investment. Do we need tertiary care in every community? Can we even staff these needs with newly minted doctors? Are we driving our own costs up by looking at revenue gain instead of expense of this care? Will our community trust us as the local hospital? Will our physician see us as part of the noble mission or just a workshop and bank?

One only needs to look at the transition of the trusted HMO movement of the early 70s when most plans were built around a community need to inject competition and offer better benefits at traditional major medical insurance plans. Then the government allowed insurers to become HMOs and also the government stopped funding HMOs so many went to the for profit side of the equation. We see more and more consolidation of Blues plans and provider based plans as premium income and utilization go opposite directions. Over time the physician and many consumers lost faith and trust for these plans as money people took the reins of these health plans and the social entrepreneurs left to build medical management and disease management companies.

Consider then the largest single issue that has followed this evolution is the trust of the patient, well or ill, the trust of the community that helped fund and support the not for profit an the fact that as insurance executives bonuses could fund the deficits of a small country that this lifecycle in medicine of moving towards a for profit mindset has eroded peoples respect for insurers perhaps the continuous move by hospitals and even for profit physician structures is not , in itself, a solution but could be the biggest change in a decade that will erode confidence in the healing profession, reduce mutual respect for the leaders of hospitals and insurance companies and stifle the very innovation we now need to carry out the re engineering of our health system to emerge as the admired system of the future.

So loss of some levels of trust is the trade off for moving to an exclusively for profit model too quickly. I fear this more than government run insurance because it is the worst form of rationing that will eventually discriminate between profitable patients and those who restrict earnings per share.


Doctors and Hospitals Revisit a New Definition of Clinical Integration 

By William DeMarco, August 25, 2009

I was just asked to provide a brief comment on the question for MCOL’s Thought Leaders newsletter on the question - "Have you observed any emerging trends, developments or initiatives of note with Integrated Health Care Delivery Systems?"

Here’s my more complete response:

In my travels observing workshops and client work and in my general reading I am seeing a change in the definition of what was once called integration.

Early on integration was defined as a means for physicians and hospitals to deal with capitation as a joint inpatient/outpatient service center versus having insurance companies pit providers against each other. This step towards a joint PHO framework involved legal issues of antitrust and market power and community benefit, but once structured, people had the idea that demanding more money because they offered comprehensive services was the goal. What was NOT discussed was reimbursement and gain sharing, which would have led to discussions on what we now call lean engineering to make sure that what the PHO charged the insurer was higher than the actual cost to provide services. In other words they were able to share savings with the insurance company. But integration usually stopped at the legal step and many PHOs failed as capitation was not the norm and hospitals got out of the risk business.

Now I am seeing a resurgence of interest in this, partly brought on by the scrutiny of the Federal Trade Commission who is reviewing many false PHOs who are operating under the assumption that they can still collectively bargain with payers without taking risk. This is an incorrect assumption for both PHOs and IPAs who must either be financially at risk or clinically integrated to proceed with any kind of collective negations with plans. Any other options may be seen as non competitive behavior and there are still IPAs and Super PHOs losing out because they do not have a fundamental understanding of what the federal government means by integration.

This reason, along with several others, is now motivating doctors and hospitals to revisit a new definition of clinical integration.

For example:

Payment Integration  

Many of these hospitals are reading the recent MedPac report that is recommending physician and hospital payments be combined like a Global payment based upon diagnosis. Medicare is going in this direction, as are some of the newer Pay for Performance models being developed. . By using episodes of care versus fee for service or traditional capitation, providers can start matching populations and identify gaps in process. To accept this global payment means there needs to be payment integration and a billing capability for both hospital and physicians as part of their managed care agreements.

Clinical measurement and reporting  

There continues to be discussion that P4P programs can be considered by the FTC as partial clinical integration and will make an organization exempt for an antitrust challenge as long as they are participating in Clinical measurement programs. This is also a platform for lean engineering by, again, allowing savings for the efficiency and effectiveness improvement to stream back to the providers IN ADDITION to their normal pay.

Value Based Purchasing

As employers begin revisiting direct contracting or discovering benchmarking information from “Leapfrog” and/or “Bridges to Excellence”, these larger employers are looking for reports on quality and safety from the health plans. Providers want to make sure their efforts are not mis-reported so they are preparing basic reporting data for employers to see as well as using HealthCare Compare data to begin their internal Performance based contracting efforts. Smart Health plans are helping the providers achieve the goals in basic process compliance for diabetes and heart treatments but are also able to report to hospitals valuable data on readmissions and other normative data based upon regional paid claims data.

Probably the biggest change is the understanding that most of the IT information systems in hospitals are obsolete under the new “ meaningful user” definition. Meaningful user requires web based practice management and hospital billing to permit payers and providers to do immediate real time link ups for billing and reporting. Current systems are closed systems, meaning they are designed to create data in-house only and do not connect to the community at large.

Patient and community demands

Many of us believe that the biggest trigger will not be in physician EMRs but consumer Personal Medical Records (PMRs). As more and more patients ask for their x-rays on digital CD and their medical records be put on a thumb drive, and ask that the doctors use the internet to correspond lab values and other updates to their medical history, doctors are truly beginning to understand that the real definition of integration is connecting with the patients and outside community, not just data reporting in their practice. As Health Vault and Revolution Health sell these services through insurance companies and provider organizations, we see this will change the use of data and redefine the relationship between providers and payers who have this capability versus those who are behind the curve in adopting integration as a community value.


Health Reform: What Should Pass or Run Out of Gas

by William DeMarco, June 25, 2009



I was asked to provide a brief answer to the following question for the current issue of MCOL’s Thought Leaders newsletter: “Which specific component of various current major health care reform proposals do you feel is most likely to be adopted before the end of the year, and which component is least likely to be adopted?"



What follows is a more thorough discussion of how we view the outcome of some key provisions that have surfaced in the national reform initiatives.


We believe the public plan and the exchange will be adopted although not in its current proposed form.


We envision Federal Board very similar to the Federal Employees Health Benefits program that governs structure, benefits levels and perhaps some consumer complaints. However we do see this Board overseeing each of the states to implement the public plan in their own fashion.


This would meet current insurance commissioner laws and interstate commerce laws for licensure and would also follow consumer protection with existing insurance departments. Such things as post claim underwriting/recessions would be outlawed nationally and the fed may require the states cap to place a on margins as there are in some states already.


The exchange is vital to distribution channels for this and other plans and would reduce and perhaps eliminate the need for brokers and brokers fees which would reduce costs by 10% or greater. Again these exchanges would need to follow state licensure laws but would be overseen by the Federal Board to make sure they meet the rules of selection, open enrollment and fair disclosure.


Least likely to pass are the Comparative Economics CER legislation. Not because it is not needed but only because people do not understand yet that quality and process are uneven and in a state of flux. This means Dartmouth Atlas and Health Grades and others will do well to show distinctions in the delivery system and tiering and profiling will continue.


We believe MedPacs recommendation to move to ETGs and bundled reimbursement tied to severity follows our early concepts for integration. Many hospitals and physicians continue to fail because they cannot get the reimbursement and utilization data to track together. Given the opportunity to combine these two will support further Information technology and advance web based connections between provider’s, plans and employers.


This will create a new interest in hospitals and physicians working together to form their own product especially as the public plan forces consolidation of local plans thereby giving a handful of plans incredible bargaining power.


Provider sponsored plans have a distinct advantage in the market as the owners control the means of production. Using this bundled reimbursement we see that providers who do well can harvest their reward for their improved care outcomes and , in doing so, apply these savings to more benefits at less cost competing effectively with insurance companies that are unable to control volume and quality and therefore cannot control price.


What this means is that launching things state by state may take a year but once uninsured and underinsured have an option and small business can hire without worrying about this overhead of insurance we will see a spark in hiring and productivity. Without a public plan this will not happen and extend the recession far beyond next year. This time the recession has, and will continue to affect health care employment and this affects service quality and availability so we are truly in a historic moment in history.


William J De Marco MA CMC

De Marco and Associates