What’s Happening at MCOL – Changes to HealthQuest Publications and HQ Online

By Claire Thayer, April 16, 2012

This week we’ve launched the new HealthQuest Publishers web site and renamed the online subscription HQ Online!

HealthQuest Publishers offers critical market intelligence for those doing business with the managed care and other health care business sectors.  The directories and databases provide leads, contact information, mailing lists, profiles and tools for those involved with marketing, recruitment, business development and others involved with health management and managed care.

HQ online provide searchable, on-line, 24/7 access to three continually updated databases: The National Managed Care Leadership Directory, Health Care Executive Profiles, and MCOL's Health Plan Directory.

More info at: and   


Three ‘Brutal Facts’ That Provide Strategic Direction for Healthcare Delivery Systems- Preparing for the End of the Healthcare Bubble

By Nate Kaufman, April 10, 2012

In August 2005, David Lereah, chief economist of the National Association of Realtors stated “All of the doom-and-gloom forecasts of a housing debacle are not only irresponsible, but downright  wrong” Lereah was not alone,  economists from Goldman Sachs, National Association of Home Builders and the Mortgage Bankers Association all stated similar opinions. Wall Street firms such as Lehman Brothers and Bear Sterns bet their companies on the strength of the housing market. Eventually the lack of financial sustainability inherent in sub-prime mortgages burst the housing bubble and the industry collapsed. (shilling)

 The lack of acceptance of the housing bubble by industry leaders is a clear example of “cognitive dissonance”.  The theory behind cognitive dissonance is “the more we are committed to believe something is true, the less likely we are to believe its opposite is true, even in the face of clear evidence that shows that we are wrong.”  (Marshall Goldsmith)  Refusal to recognize new market realities is a fundamental strategic flaw that has lead to the demise of many organizations. As Admiral Stockdale noted in his discussion with Jim Collins:  “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be” (see Collins web site)

The recent passage of the Patient Protection and Affordable Care Act (PPACA) has created uncertainty about the future of the nation’s healthcare delivery system.  Regardless of how PPACA is implemented, or funded or modified, there are certain ‘brutal facts’ regarding the future of healthcare delivery in the United States.  In order to prepare for the ultimate impact of these ‘brutal facts,’ healthcare organizations must begin today to modify both their core beliefs and clinical practices.  By focusing strategy on these new market realities (regardless how brutal they may be), a healthcare organization can begin to position itself for success in the future.

Our Healthcare Bubble Will Eventually Burst

In their open letter to the American people published in November 2010, several months after PPACA became law, the bi-partisan Debt Reduction Task Force:

“The federal budget is on a dangerous, unsustainable path. Federal debt will rise to unmanageable levels, which will push interest rates up, endanger our prosperity, and make us increasingly vulnerable to the dictates of our creditors, including nations whose interests may differ from ours…. we must take immediate steps to reduce the unsustainable debt that will be driven [in part] by the aging of the population and the rapid growth of healthcare costs...”

Even the Congressional Budget Office (CBO) appears to be skeptical about PPACA’s ability to reduce the deficit as was reflected their original ‘base line’ projections. As a result, the CBO produced an “alternative fiscal scenario” using the more realistic assumptions that: 1) tax revenues would remain at historical levels (i.e., 19% of GDP) and 2) cost control features of the new law would only have a moderate impact. (Frakt)  This more realistic scenario further supports the Debt Reduction Task Force’s assertion that healthcare costs will contribute to the destabilization of the economy.

 Richard Foster, the Chief Actuary for CMS supported this concern when he testified before congress that the new law will increase the nation's overall spending on healthcare by $289 billion through 2019. (Modern Healthcare)

The State Budgets are in no position to absorb the cost of PPACA.  According the Wall Street Journal,

“PPACA puts cash-strapped states in a tenuous position, forcing them into one or more unattractive policy choices: cut spending in crucial areas, such as public safety and education, to compensate for the additional health care costs, raise taxes to fund the new spending, or borrow money to pay the bill and sink further into debt. (WSJ)

Thus it is a brutal reality that we are in an economic healthcare bubble that will eventually burst.  Out of necessity, both State and Federally-funded healthcare programs will intensify their pressure on providers to reduce the per capita cost of care. In the immediate term this pressure will take the form of draconian reductions in fee schedules (as we are currently seeing from some states Medicaid programs.) Over the longer term, government-funded healthcare will move from the fee for service reimbursement methodology to either bundled/episodic or population based payments. Given the historical pace with which government implements changes in payment methodologies, one  can expect these new payment systems to be phasing in between 2016-2018.

Both the Shared Savings ACO Program and ‘First Generation’ Clinically Integrated Networks Will Not Produce Desired Results - Buyer Beware 

An Accountable Care Organization (ACO) is a group of providers (physicians, hospitals etc.) that share accountability for the cost and quality of care they provide. PPACA established a “ Shared Savings Program” for Medicare fee for service patients in which ACO providers would share in cost savings should the ACO meet certain quality and cost benchmarks.

The ACO concept has been pilot tested under the “Physician Group Practice Demonstration Project.” (PGP.)  Ten of the nation’s most integrated medical groups participated in the PGP demonstration. The demonstration provided groups the “opportunity to earn performance payments derived from savings for improving quality and efficiency of delivering health care services through better coordination of care and investment in care.” (CMS fact sheet)

After four years, these ‘all star’ group practices achieved a 40% success rate. That is, during the first year only two groups received a shared savings payment. By the fourth year five groups received a payout. Ultimately, over the four years, only sixteen shared savings payments were distributed out of a possible 40. (i.e., 10 groups times 4 years.) Among the brutal facts from the PGP demonstration project are:


  1. It is difficult for even the most integrated medical groups to generate significant savings on Medicare fee for service patients
  2. When a group received shared savings payments, the magnitude of these payments were not sufficient to cover the infrastructure cost associated with operating an ACO.

The Center of Studying Health System Change recently noted:

"the economic and market rewards [for ACOs] may not materialize for a long time, if ever,"… "None of the organizations [in the PGP] indicated positive return on investments related to improvement activities,"  (Modern Healthcare)

There is little hard data documenting the primary source(s) of the cost savings that generated the shared savings payments. Both the PGP participants and CMS reported anecdotally that the savings came from reductions in both admissions and high cost procedures e.g., imaging. It is a brutal fact that ROI for the ‘successful’ PGP participants was negative even before accounting for the loss of admissions and procedural revenue.  From a financial perspective, the PGP participants would have been much better off not participating in this ACO-like demonstration.  From the PGP experience it appears that the only parties that will receive financial benefit from the establishment of a Medicare-ACO are the lawyers and consultants retained for this purpose- buy beware!

Many physicians and hospitals have formed ‘clinically integrated’ networks which they believe will evolve into ACOs. While these networks have noble goals and some have positive results, few have demonstrated the competency to significantly lower the cost of care. Even Advocate Physician Partners, a joint venture clinically integrated network in operation for over 15 years could not document “medical cost savings” in real green dollars but stated that improvements in the cost of care are “inferred.” (see health affairs)

One could argue that even though it is unlikely that ACOs and first generation clinically integrated networks will fail to achieve cost saving benchmarks, these ACOs will eventually evolve into an effective delivery model. However, as the noted futurist Jeff Goldsmith points out, the track record for past efforts for physician-hospital collaboration has been ‘dismal’ and there is no reason to assume that this time it will be different. (goldsmith)

Based on the brutal fact that ACOs and ‘first generation’ clinically integrated networks’ will not generate sufficient cost savings to be relevant, it is recommended that healthcare organizations skip the first generation models and move towards the creation of ‘second generation clinically integrated networks’ capable of managing risk and targeting the 20% of the population that consume 80% of the cost. The most current research on reducing the per capita cost of treating Medicare patients conclude:

Health reform policies currently envisioned to improve care and lower costs may have small effects on high-cost patients who consume most resources. Instead, developing interventions tailored to improve care and lowering cost for specific types of complex and costly patients may hold greater potential for “bending the cost curve.” (Reschovsky)

 Also, rather than pilot test an ACO model on Medicare and/or commercial fee for service patients where reductions in admissions will impact the revenue of the health system, it is recommended that these networks ‘cut their teeth’ on the self-funded pool of hospital employees and dependents, where a reduction in admissions/cost results in savings for the organization.

Critical elements for a successful ‘second generation’ clinically integrated network include: primary care-based medical homes, digitally connected electronic medical records with point of care protocols, disease management programs and a culture committed to improving the cost and quality of care for a population of patients vs. maintaining individual provider income and autonomy. (Kaufman)

Physician Autonomy and the Organized Medical Staff Will Become Less Relevant

On January 13, 2011 CMS published the proposed rule for the Value-Based Purchasing Program for Medicare inpatient services (VBP.) Starting October, 1 2012, hospitals can earn incentive payments based on the care they deliver to Medicare inpatients. These incentive payments will be funded by a one percent reduction in the base DRG payment. Thus hospitals that underperform will see a relative reduction in their Medicare payment rate. The VBP incentive will be based on adherence to clinical processes, (e.g., Aspirin prescribed at discharge for AMI patients) and patient experience ( e.g. communication with doctors, responsiveness of staff etc.) CMS will eventually include mortality-related measures in VBP as well. In addition, as part of the National Patient Safety Initiative, by 2015 9% of a hospital’s Medicare reimbursement will be “tied to public reporting of errors and provision of safer more reliable care with particular focus on hospital acquired infections and readmissions.” (cms proposed regs)

Traditionally the  medical staff had the responsibility for monitoring and maintaining high quality care within a hospital. While hospitals have always borne the financial risk for the cost of care ordered by its physicians, VBP now puts a hospital’s revenue at risk for their physicians’ clinical practices and communication skills. The evidence is clear from Geisinger, Thedacare, Virginia Mason and others that the standardizing care through thoughtful process redesign can improve efficiency, quality, safety and patient satisfaction. Most medical staffs have been unwilling to tackle an issue associated with the variability of cost and quality of care unless it exceeds broad limits.

It is a brutal fact that hospitals can no longer afford to delegate the responsibility and accountability of the cost and quality of care to the independent medical staff composed of physicians practicing and promoting the traditional autonomous, highly variable model of care. Hospitals will have to develop a work with the members of their medical staffs to:

1) modify bylaws to require conformance to patient safety, patient satisfaction, process and quality metrics as a condition of keeping hospital priveleges, and

2) develop the clinical infrastructure with a new breed of physician leaders in which medical directors will have the authority and accountability for cost, quality and patient satisfaction in their serviceline.

Not If But When

The nation’s rate of spending on healthcare is unsustainable. As with the housing bubble, the fundamental economics cannot support the status quo and yet many healthcare thought leaders and politicians dismiss claims of a healthcare bubble as “doom-and –gloom.” Others choose to ignore the brutal fact that AAPACA may exacerbate the cost crisis rather than moderate it.

Those that recognize the existence of a bubble and prepare for its brutal realities can actually benefit when the bubble bursts. This was clearly the case with the housing bubble where Michael Burry and his investors earned hundreds of millions of dollars betting against mortgage-backed securities (Wikapedia.) Healthcare organizations that believe in the brutal realities of the healthcare bubble can also position themselves for success when the bubble bursts. These organizations will dismiss the incremental approaches such as Medicare Shared Service ACOs, first generation clinical integration, physician co-management and focus on meaningful transformation into a provider system that is comprised of data driven, digitally connected, physician-lead TEAMS consistently delivering  evidence-based, patient-centered health care, able to treat higher volumes of patients, at lower predictable costs per episode, demonstrating measurable high quality and providing an exceptional patient experience.. As Don Berwick stated Healthcare is hungry for something truly new, less a fad than a new way to be. (VA Mason) 



A Different Way to Fix Medicare

By Kim Bellard, April 5, 2012

Two recent public statements made me both smile and despair about saving Medicare.

The first was President Obama’s recent attack on the budget proposal put forth by Rep. Ryan and passed by the House.  The President has no shortage of issues with that budget, but one of his specific attacks was the way Ryan proposes to reform Medicare, by turning it into a premium support program.  The President and many other leading Democrats charge that the approach would be the end of Medicare as we know it. 

“Ending Medicare as we know it” is a curious bogeyman.  The benefit design is overly complicated and archaically incomplete (forcing most senior to buy Medigap policies), the program is hyper-regulated, it has a terrible track record on combating fraud and abuse, and it is one of the biggest fiscal time bombs for the country.  This is what we are fighting to keep?  The thing Medicare does uniquely well is its near universality, and the existing program structure is not the only way to accomplish that goal.

The critics don’t seem to recognize that the Ryan proposal wouldn’t impact existing beneficiaries, and doesn’t really look all that different from the way they plan to have the under-65 obtain coverage through the health insurance exchanges under the Affordable Care Act (ACA).  By the same token, Republicans shouldn’t be too smug, because it’s hard to rationalize their support for delivering Medicare for all through the private market via public premium support with their bitter antipathy for ACA.  They are two sides of the same coin.  In both cases, the important question is whether the premium support/subsidies would actually be realistic – as opposed to becoming balancing items for future budget cuts. 

Short of a single payor system, it’s hard to see a long or even moderate-term future that doesn’t end up looking like something built on the Ryan-Wyden frame.  Medicare can only limp along so long in its current form.  It’s too bad the partisan politics cannot recognize the areas of commonality and work towards compromise. 

More encouraging was the recent call by nine physician specialty societies to reduce the use of many common tests and procedures.  Each society offered up five such tests or procedures.  “More isn’t necessarily better,” said Dr. Christine Cassel, president of the American Board of Internal Medicine.  “There are a number of things that not only aren’t necessary and potentially costly, but also have a risk of harm for the patient.”  The specialties are launching a “Choosing Wisely” campaign to encourage the various stakeholders to discuss potentially unnecessary care.

Well, kudos to the various specialty societies for finally admitting this, although one has to wonder: why now?  Perhaps they were worried that the IPAB, the review board charted by ACA to recommend ways to slow Medicare spending, would do this for them.  It would have also been nice had the call been accompanied by some teeth.  I.e., are they going to monitor the use of these tests and procedures?  Are there any consequences to physicians who continue to use them unabated?    

Which brings me to fixing Medicare.  We need to recognize that not all care that is delivered is appropriate – and not all physicians are equally good at delivering it.  Yet we continue to pay providers while largely ignoring those facts.   There are “value-based purchasing” approaches in ACA, but are far too modest to have significant impact.  Accountable Care Organizations may well be “the” answer, or at least part of an answer, but they still beg the question of how to identify more effective providers.  This is an area where the federal government can help:

  • Quality measures: Give the various medical specialty societies one year to propose how quality should be measured for each specialty, subject approval by CMS.  The societies would most likely object to both the mission and the timeline, but, honestly, they’ve had decades to think about it.  Whatever measures they propose would have to be quantifiable, be based on patient outcomes, and reflect at least in part patients’ views about their care.  They also must not discourage physicians from seeing sicker patients.
  • Measuring quality: once the measures are established, there should be a year to collect the applicable data for each physician.  Obviously, obtaining the data through EHRs would most likely be most accurate, but inability to collect data from a physician practice would not be an excuse.
  • Tiering physicians: Medicare payment levels would be based on tiers of performance.  I.e., the top thirty percent of physicians would be paid, say, fifty percent above the fee schedule for E&M codes, and perhaps an extra twenty percent on procedure codes.  The next thirty percent of physicians might get an extra twenty percent on E&M.  The next thirty percent would face a reduction of twenty percent on both E&M and procedure codes, and the bottom ten percent (and practices not reporting) would also receive the twenty percent cut, but also would be on “probation.”  Two continuous years of bottom ten percent performance would cause them to be ineligible for Medicare payments.
  • Public disclosure: The performance results and tiers of physicians would be readily available and disseminated to Medicare beneficiaries, who hopefully would use them to seek out better performing physicians.  Ideally, Medicare would change its coinsurance so that beneficiaries using higher tier providers pay lower copay amounts (since the payment levels – and thus the corresponding coinsurance amounts – would be higher). 

Of course, the same approach could, and should, be applied to hospitals and other Medicare providers.  There is an implicit assumption that higher quality providers are not also higher cost providers, although that has not been solidly demonstrated.  Cost/benefit could be part of the metrics, but with the specter of rationing and “death panels,” we may not be ready for that. 

Personally, I’d also wipe out the Part A, Part B Part D distinctions and institute a more modern, comprehensive design with unified deductibles and coinsurance, as well as the unlimited maximums ACA imposes on private plans.  The advisability of Medigap policies has to be questioned as well.  Those policies reflect seniors’ desire to limit their exposure, but may end up protecting them a little too much.  Having consumers face some direct financial consequences to health care choices is not a bad thing, as long as those consequences have appropriate limits. 

I have no doubt that such a change would be a tsunami for our health care system, with both intended and unintended consequences.  We probably would not get it entirely right straight out of the gate.  I also have no doubt such proposed changes would meet with fierce opposition from lobbyists and Medicare loyalists.  It’s hard to argue against pay-for-performance in principle, but they could fairly point out that we have neither the desired measures nor effective mechanisms with which to collect them.  Those may be valid points, which simply underscores the point: why not? 

American politicians like to brag that we have the best health care in the world.  It may well indeed be available here, but no one can plausibly claim it is uniformly distributed or easy to find.  Proximity and familiarity cast a rosy glow over local providers.  We can and should do better.  So let’s use the big Medicare stick to finally start measuring and paying for better performance.  


What’s Happening at MCOL – Predictive Analytics, MSSP & Star Webinar 

By Claire Thayer, April 3, 2012

On Thursday this week…we’re hosting a webinar event that explores how the Medicare Shared Savings Program and the Medicare Advantage Part C “Star” rating program relate to one another. During the session, we’ll look at what types of Medicare members are less likely to be compliant under these programs and therefore require more targeted communication or intervention. 

Did you see the Zombie lists on healthsprocket?  On April 1st, several selections were added:

  • Impact of Zombie Apocalypse or Supreme Court Decision on Affordable Care Act
  • Proposed Outsourced Regulatory Oversight of Key Healthcare Components
  • Meaningful Use Requirements in 4,000 BC
  • Provider Time-Travel Provisions to Negotiate in Value Based Purchasing
  • Top Five Dental Coverage Concerns for Vampires
  • Out of Network Coverage Issues for Extra-Terrestrials
  • Strategies to Minimize Zombie Coverage under Health Plan
  • Secret Individual Broccoli Mandate Provisions Included in Affordable Care Act
  • Read all the selections at:


Changing Economics in an Era of Healthcare Reform

By Nate Kaufman, April 2, 2012

Health systems are beginning to prepare for healthcare reform.  Significant resources are being focused on developing Accountable Care Organizations, medical homes, and preparing for bundled payments and population-based reimbursement.  However, current economic trends combined with an analysis of the impact of key healthcare reform initiatives, will require health systems to take significant cost out of their system in order to maintain positive financial performance. Few organizations have the culture or the expertise to implement a cost reduction effort of this magnitude.

These are the Good 'Ol' Days (For Cost Shifting)

Since the late 80’s the hospital industry has subsidized losses from Medicare and Medicaid by demanding premium rates from commercial payers. In 2008, the hospital industry’s aggregate payment to cost ratio from Medicare was 90.9% ;  88.7% from Medicaid and 128.3% from commercial payers.[1] The impact of cost shifting will be diminished as a result of the new healthcare reform law, the aging of the population, continued compression of government/ private reimbursement and increased patient responsibility.  This will require most health systems to reduce their current operating cost structure by 10-15%. The following is a discussion of the key factors driving the need for more focus on efficiency.

Change in Payer Mix

Over the next five years there will be a significant shift in the number of people covered by highly profitable private health plans to deficit-generating government-sponsored plans.  Expanded coverage for the uninsured will not be sufficient to mitigate the negative impact of this shift.  CMS estimates that by 2016, as a result of the new healthcare reform act (PPACA) and the aging of the population, the number of beneficiaries covered by the relatively high margin private insurance will decline by approximately 9 million.  These profitable patients will be lost to government-sponsored plans with non-negotiable provider rates (i.e., Medicare, Medicaid and exchanges.) The financial benefit of providing coverage for the 25.3 million uninsured, most of whom will receive government-funded insurance, will not be sufficient to offset the deleterious effects of the shift away from commercial health plans[2]

Declining Medicare and Medicaid Margins

Future payment increases from Medicare and Medicaid will not keep pace with the historical trend in hospital cost inflation. This will further suppress the margin contribution from government-funded reimbursement making the cost shifting hurdle for private insurance even higher than in the past.  In their 2010 Report to Congress, Medpac acknowledged that since 1996, hospitals margins from Medicare have declined by approximately 1 percent per year.[3]  Their data shows that the average hospital lost 7.2 cents on every dollar of care provided to Medicare patients in 2008. (Note: the Medpac methodology is different from AHA.)  Even before the $155 Billion hospital payment reduction in PPACA, Medpac expressed its intention to force hospitals to operate more efficiently by continuing to provide updates to hospitals at rates that are significantly below cost inflation. Medpac believes that it is possible to provide quality care and breakeven on Medicare:

Medicare margins are low and expected to remain negative… however...a set of hospitals has been able to maintain relatively low costs, while maintaining relatively high quality of care. Roughly half of these providers are [currently] generating a profit on their Medicare business.[4]     

With respect to Medicaid, the Kaiser Family Foundation reports that for FY 2010, a total of 33 states restricted hospital payment rates including 14 states that froze rates and 19 states that reduced rates. For FY 2011, 17 states plan hospital rate freezes and 13 states plan hospital cuts for a total of 37 planned rate restrictions.[5]

Increased Patient Responsibility Will the Limit the Ability to Cost Shift

As patients are forced to pay a greater percentage of their healthcare costs, higher provider charges will result in increased bad debt and lower utilization rather than increased income.  The fastest growing component of bad debt in hospitals is unpaid co-payments and deductibles from patients with insurance.[6]  One health system studied by McKinsey reported that their unpaid balance for patients with insurance was growing by 30% per year, much faster than bad debt from patients without insurance.

 Enrollment in high deductible employer-sponsored health plans climbed from 9% in 2009 to 11% in 2010. Low-income families with high deductibles are more likely to “delay or indefinitely postpone medical procedures.”[7] The increase in patient financial responsibility combined with the poor economy have contributed to the year over year decline in physician visits[8]  and  an unprecedented decline in admissions to not-for-profit hospitals.[9]

Increased Regulatory Oversight on Private Health Plans Will Create Downward Pressure on Provider Rates

The healthcare reform environment has not been kind to the private insurance companies. A number of states have laws or are preparing legislation to enable their insurance commissioners to block or reduce proposed premium increases.  In addition, PPACA gives the HHS Secretary the authority to regulate excessive rate increases.  Last year in Massachusetts, when proposed rates of increase in private insurance premiums were rejected by the Department of Insurance, the insurance companies proposed freezing or reducing payments to hospitals and large physician groups.[10]

The Cost of Physician Integration

The mad dash towards the development of ACOs will only exacerbate the cost issues in most health systems. The infrastructure costs associated with forming and operating a high-functioning ACO are significant and return on this investment is uncertain at best. The law stipulates that ACO’s will be rewarded for improving quality and reducing cost. The majority of these cost reductions will come from reductions in the volume of specialty consultations, high-end procedures and hospital admission.  There is no evidence that the health system’s “shared savings” payments from its ACO efforts will offset the infrastructure costs, the loss in volume, revenue or the political capital being invested in this effort. 

If You Keep Doing the Same Thing, Don’t Expect Different Results

Many health systems continue to operate as though cost-shifting will remain a viable strategy in the long term. Their primary focus is fiddling with ACOs as their organizations begin to bend under the stress of flat to declining revenues.  A new radically-intense focus on the cost of care is essential if a health system is going to succeed in the future.  Getting in shape for 2016 will require the following:

  1. Define the efficiency targets for the organization and stick to them. Leadership is critical for setting the course for the organization.
  2. Engage the physicians and hospital staff in discussions about the need to significantly reduce the cost of care in the organization.
  3. Hold all members of the organization (including medical directors) accountable for:

    1. non-negotiable, performance based, cost budgets based on industry best practices and
    2. attracting profitable growth in their service lines
  4. Develop a plan to reduce the cost structure of the organization to breakeven on Medicare rates. Note: Private payers will continue to pay at rates above Medicare but the ability to absorb declining Medicare margins through cost shifting will be limited.
  5. Rationalize your portfolio of services and facilities, eliminating duplication and divesting of services that generate deficits  the organization can no longer afford to absorb.
  6. Workforce reductions will not generate sufficient savings. Employ established redesign methods e.g., LEAN to eliminate waste and unnecessary variability of care.
  7. Use objective critical analyses to ensure optimal performance of IT, revenue cycle, supply chain and clinical documentation systems. This usually requires an audit by an independent third party
  8. Using physician leaders,  create a culture within the employed physician group that is aligned with the objectives of the health system.
  9. Begin a process of true clinical integration with your physicians focusing on the basics of  redesigning the delivery of care, but don’t try to be an ACO by 2012. Most health systems will not be ready by 2012.  The only thing worse than not having an ACO, is operating an ACO that fails to achieve desired results.  Eventually  every health system will be held accountable for their cost and quality, either on a per episode or per capita basis but most current models of clinical integration involving retrospective review will not be sufficient.  Becoming an effective clinically integrated organization will take time, discipline and ultimately a cultural change among members of the medical staff. Critical success criteria for  clinically integrated  delivery systems must include the following:

    1. Physicians in critical specialties must participate and be willing to standardize their clinical practices based on the best science in medicine.
    2. All providers must be able to share an EHR that includes hardwired point of care protocols.
    3. There needs to be sufficient primary care capacity using extenders as the first line of care.
    4. Engaged physician champions must drive the process.
    5. There should be a programmatic approach to chronic diseases such as diabetes, CHF etc.
    6. Hospitalists, intensivists and other key physicians in the care process must be trained in the latest care delivery techniques and be evaluated based on cost, quality and service metrics.
    7. Physicians that do not meet key cost and quality metrics must be sanctioned.
    8. There must be an infrastructure able to manage the delivery system, monitor metrics and report outcomes.

The healthcare delivery system will not change overnight. Organizations that begin repositioning today can phase in the cost reduction strategies necessary to succeed under the post-reform environment.  Transforming a health system will be expensive.  Healthcare leaders will need to optimize income in the fee for service delivery system in order to fund long term investments in their physicians, IT systems, process redesign, clinical integration, etc. The irony is that the primary source of the dollars to fund this transformation will come from cost shifting... get it while it lasts.

[1] AHA; Trend Watch Chartbook 2010, Table 4.4

[2] Center for Medicare Services (CMS);  Richard Foster Memo | Apr 22, 2010, Table 2

[3] Medpac; Report to Congress: Medicare Payment Policy| Mar 2010; Hospital Inpatient and Outpatient Services, Assessment of Payment Adequacy, Updating Payments,  pp 41-66

[4] Medpac; Report to Congress: Medicare Payment Policy| March 2010; Hospital Inpatient and Outpatient Services, Assessment of Payment Adequacy, Updating Payments,  pp 60

[5] Commission on Medicaid and the Kaiser Family Foundation;  A Look at Medicaid Pending Coverage and Policy Tends Results for a 50-State Medicaid Budget Survey for State Fiscal Years 2010 and 2011; Prepared by Vernon K. Smith, Ph.D., Kathleen Gifford and Eileen Ellis, Health Management Associates; Robin Rudowitz and Laura Kaiser,  | Sep 2010

[6] Mckinsey Quarterly; The Next Wave of Change for us in Healthcare Payments| May 2010,  page 2

[7] Reuters; Cost-Sharing Health Plans Lead Poor to Make More Tough Choices | Nov 23, 2010

[8]; American Medical News | Sep 20, 2010

[9] Moody’s; Flat Admissions Put Pressure on Not-for-Profit Hospitals | Oct 20, 2010

[10] Boston Globe, Insurers May Slash Rates to Hospitals | May24, 2010