Pacing Change to a Tolerable Level

Blog posted by Nancy Rehkamp (retired)

Recently I read an interview of David Cutler, PhD, Harvard University, and a senior white house health care advisor, with Richard Clark, president and CEO of Health Care Financial Management Association in the Healthcare Financial Management Journal. The interview talked about payment reform as evolutionary not revolutionary, and was insightful on how to achieve cost savings in health care through payment reform. Too bad there isn’t a better way to get to payment reform than through trial and error.

Pacing the rate of change toward a new payment system is going to be critical for most organizations. The recent turmoil of the 2008–2009 economic downturn has resulted in significant change for most health care organizations. Add to these changes the electronic health information exchange initiatives and the large numbers of organizations who are scrambling to integrate with physicians and you have senior management teams with a lot on their plates. With a shift to bundled reimbursement or value-based purchasing many leaders may find their organizations are on overload.

During the 1990s when mergers between hospitals and integration with physicians were occurring to create the integrated health system, Modern Healthcare magazine ran an article asking whether our health care organizations were clinically depressed. The article was really fascinating and for many of us working in hospitals, long-term care or home care settings, and physician clinics, we would have said we were approaching a catatonic state some days. My prediction is that if we do not begin the transitions required for new payment reform, regardless of what form it takes, the amount of work and the timeline to accomplish it all with too few resources will undo us all. Taking a wait and see attitude for most organizations will not be a great strategy. What’s your prediction?

Posted by Janey Kiryluik at 02/11/2010 10:51:41 AM |

I ardently believe that reform in pay is needed within our health care system to cut out waste. However, we must not discount or ignore the elephant in the room, and that’s the behavioral patterns that cause people to end up in medical institutions. Myriad studies demonstrate that health care facilities, by in large, are inefficient. This has ignited the growing interest and body of research supporting the implementation of successful manufacturing concepts into the realm of health care (e.g., Steve Spears, of the Institute of Health Improvement has written several outstanding articles on the topic).

However, pay reform in isolation can prove to be severely problematic. If you think about it, reform of any kind operates in the same fashion as a Rubik's cube. That is, when you change one aspect for a specific purpose you invariably end up changing something else which may have adverse consequences. For example, pay-for-performance is a standard in most industries and is pretty straight forward. You reward those more who are meeting or exceeding a pre-established metric. However, failure to take into account that everyone is not playing on the same field undermines the goal set forth (e.g., inner city populations tend to have more unhealthy populations than suburban population so hospitals say in Detroit, have a more difficult population to care for than say Long Island). To combat this, one may suggest a reform packaged based on a fee-for-service pay scale so providers are paid based on the level of care administered. This ostensibly ensures fairness in reimbursed care by paying health facilities with sicker populations more due to the more rigorous level of services they must administer to their residents. But one must take into the account that if a health facility is getting paid more and more for services there is a tendency for increased wasteful services. Then to combat the problem caused by fee-for-service, a reform package based on capitation might be introduced under the premise that if health facilities’ payments are capped, they will have to be more efficient to maximize earnings. Well, a naturally corollary shown in studies is an inadequate level of care administered to patients as health institutions try to retain as much of their capped pay as possible by providing less. We end up with sick patients needing more services because their condition was resolved the first time around.

I guess my point is that pay reform is inherently dangerous because you will always have winners and losers if you don’t take into consideration a number of factors. But even if, hypothetically speaking, pay reform did cut waste entirely, “What good with that be if behavioral patterns of patients remain the same and we continue to have people heading to health facilities whose visit can be avoided in the first place”? All savings are cannibalized. So really we must not only focus our reform efforts on pay, but on behavioral patterns as well in hopes of reigning in on costs.
Posted by: Sonny Vernard ( Email: ) at 2/16/2010 8:40 AM

Thanks for the response to the blog.....you are correct that payment reform in and of itself will not be the solution. However, embedded in payment reform are a number of changes that will be required to achieve the maximal payment under payment reform. One of the visuals we use internally to depict payment reform is a PowerPoint slide that describes the concepts embedded in payment reform, the key tools that will be required, potential models of payment and the demonstrations currently occurring to test the approaches....to care coordination, value based incentives, patient engagement, etc. If you would like a copy of the visual I can send it....

Some of the key concepts for payment reform include:
- Care Coordination/Case Management
- Disease management
- Medical Home
- Patient centered care
- Patient engagement
- Care transitions
- Performance incentives
- Comparative Effectiveness
- Accountable organizations
- Increased informal caregiving

Some of the key tools required include:
- Electronic information exchange
- Software to support care delivery
- E-communication tools
- Patient grouper software, diagnoses,severity & episode
- Performance metrics
- Best practice guidelines
- Compliance monitoring
- MS-DRGs/APR-DRGs/CPT Coding, etc

This next week's blog will highlight what Fairview is doing to prepare for payment reform and as you know they have been using LEAN manufacturing methodologies for about 4 years. They currently have a target to be a top quality performer as measured by Hospital Compare and at 79% of the community mean for costs/pricing of services. So if they can achieve that it will be remarkable....they do have a number of strategies that include patients and other key customers in their care model and in planning the changes.
Posted by: Nancy Rehkamp ( Email: | Visit ) at 2/16/2010 12:19 PM

Pacing Change to a Tolerable Level

Pacing Change to a Tolerable Level

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