By Tom Wilson

Physicians reading the news about U.S. healthcare policy may wonder about the fate of their profession amidst the backdrop of highly-charged healthcare policy debates in Washington, D.C., and attendant media coverage often focusing on the political stories rather than the practical realities of delivering medical care to patients.

Behind the headlines, behind the political battles, behind the avalanche of media coverage, there are reasons for physicians to feel encouraged by actual healthcare policy implementation.

Health and Human Services Secretary Alex M. Azar II, in a recent speech, outlined an aggressive agenda intended to speed long-standing efforts to reform healthcare by empowering the consumer, improving transparency, encouraging innovation and challenging vested interests. In the details of this effort is very positive news for independent physicians.

Azar, speaking before America’s Health Insurance Plans meeting in March of this year, laid out his agenda with a focus on four areas of reform. They include:

• Giving consumers greater control over health information through interoperable and accessible health information technology.
• Encouraging transparency from providers and payers.
• Using experimental models in Medicare and Medicaid to drive value through the introduction of market forces into healthcare, shifting control from large healthcare systems to the consumer.
• Removing government burdens that impede this value-based transformation.

For independent physicians, each of these four focus areas has important implications.

Health Information

Giving consumers greater control over health information means, in part, that consumers will take possession of their own electronic health records, carrying their EHRs with them on their nearly ubiquitous mobile devices, or making them available via downloads at the request of a patient.

“Patients ought to have control of their records in a useful format, period. … [T]he healthcare consumer, not the provider, ought to be in charge of this information,” Azar noted.

Having healthcare records in a pocket or purse will open new options for patients, driving healthcare consumerism and empowering consumers to shop for and evaluate healthcare services. With almost every consumer facing significant out-of-pocket expenses associated with any major healthcare event, it is inevitable that healthcare consumers will focus on cost management in healthcare, just as they do in every other aspect of their economic lives. Recognizing this, Azar pragmatically advocates aligning policy with the technological and financial realities of modern healthcare consumption.

According to Azar, unless this technology is in the hands of consumers, “the benefits may never arrive.” Further, Azar noted, “[E]mpowering consumers and individuals has been key to the advances of the Information Age.”

Supporting healthcare consumerism is seen as a means of controlling and driving down unsustainable healthcare costs, just as consumerism has had the same effects in other market sectors.

Transparency

Here Azar is equally direct, stating, “I believe you ought to have the right to know what a healthcare service will cost — and what it will really cost — before you get that service.”

Consumers know with certainty what they will pay for goods and services in every other area of their lives, save for healthcare.

Recognition of this reality by forward thinkers in the greater healthcare community, including physicians, insurance companies, regulators, payers and thought leaders, has led to the successful creation and implementation of bundled payments as a means of providing complete episode-of-care services to a patient for a predetermined fixed price, provided to the patient prior to the outset of care.

While there are ongoing efforts to promote across the board price transparency in healthcare, bundled payments remain the only proven, reproducible packaging of healthcare services that provides true transparency for consumers.

Experimentation

Here, Azar is most clearly intent on unlocking larger market forces to drive down healthcare costs.

“We want to move to a system where we can be agnostic about ownership structures, a system that will allow independent providers to group together to drive innovation, quality and competition,” Azar noted.

The key here for doctors is Azar’s support for independent physicians and organizational flexibility that supports innovation, which in turn yields higher quality and drives competition to lower healthcare costs overall.

In the end, such an effort will yield value to the marketplace.

Azar intends to power this change with the financial and regulatory clout of Medicare and Medicaid. Here physicians can expect experimentation that will touch them directly with new payment and incentive models, reduced regulatory burden (already under way with MIPS) and incentives to streamline and improve the effectiveness of electronic health records and the sharing of health records with patients and other providers.

Finally, Azar wants to ease the collection of outcomes data and open the way for sharing that data to inform innovation and engage consumers with meaningful, relevant, timely healthcare metrics they can employ in their own healthcare decision making.

Government Burdens

“The fourth key engine for transformation,” Azar noted, “[is] addressing any government burdens that may be getting in the way of integrated, collaborative and holistic care for the patient.”

This call for deregulation may be most welcome by physicians, who, as a group, have been the focus of increasing regulation by both government and payers in an effort to control healthcare costs at the point of care.

Among the four proposed focus areas, the easing of the regulatory burden on physicians may be the most welcome of all.

Change Is Coming

According to Azar, the administration will not be deterred by special interests as it moves to implement marketplace changes to drive down the cost of healthcare.

As he noted at the close of his speech, “Change represents opportunity, and I exhort all of you to take advantage of the opportunities represented by what I’ve discussed today. Because I assure you: Change is possible, change is necessary, and change is coming.”

By Tom Wilson

The gauntlet has been thrown down: Healthcare in the U.S. is too expensive. Fix it.

Caught in the crosshairs of this challenge to the healthcare industry as a whole are healthcare’s indispensable players: physicians.

Working with, around and sometimes seemingly against physicians to answer the challenge of fixing healthcare and creating a medical disruption are a host of players with little or no experience in the field. However, what they lack in experience these new players make up for with market power, financial power, technological sophistication and successful track records at disruption. Think Amazon, Apple, Google, Microsoft, Uber and a host of others less familiar, but no less formidable, corporate and nonprofit entities.

What does this mean?

Never in the annals of healthcare has so much innovative firepower been directed at an industry notoriously resistant to the kind of productivity and technological changes that have been accepted as standards for operations and product improvement for other industries. Think banking and finance, communications, transportation, and manufacturing.

In the face of this tsunami of medical disruption prompted by the increasingly urgent search for cost savings in healthcare, doctors often face stark choices: Will they choose to practice medicine as independent physicians or work for a hospital foundation? Will physicians stick with the way things have always been done or embrace the new technologies and techniques sweeping the healthcare industry? Think digital medicine, big data, artificial intelligence, telemedicine, bundled payments, outpatient surgery, remote patient monitoring, the focus on health rather than care.

Taken together these medical disruption forces represent a new form of competition in healthcare. Doctors are challenged to embrace the newly competitive healthcare marketplace or risk their ability to compete at all.

What exactly is the cause of these increases in healthcare costs?

There are compelling numbers that point to consolidation among traditional healthcare service providers add to increased costs, along with reduction in competitive pressures that operate so effectively in other markets to moderate cost increases.

“Prices are high and vary in seemingly incoherent ways, yet quality of care is uneven, and the system lacks the innovation and dynamism that characterizes much of the rest of our economy,” noted Martin Gaynor of Carnegie Mellon University in a white paper on healthcare consolidation. “The dearth of competition in our healthcare markets is a key reason for this dysfunction.”

Driving this dysfunction are the numbers that show a healthcare provider marketplace undergoing considerable consolidation that has had a surprising impact underlying higher healthcare costs.

• Hospitals operating in markets with no local competitors charge about 16% more on average than hospitals with four or more competitors.

• Even in markets where there is competition, dominant players — hospitals with significant market share — charged nearly three times more than their competitors.

• Group practices with nine or fewer physicians declined from 40.1% of all practices in 2013 to 35.3% in 2015. During the same period, large practice groups, with 100 or more physicians, increased from 29.6% to 35.1% of all practice groups.

• The American Hospital Association reported that, during roughly the same period, the number of physicians and dentists employed by hospitals increased by 56.7%. Physicians employed by hospital foundations use more costly hospital facilities to provide outpatient care.

• A recently released report on the impacts of consolidation in the California Healthcare market found “a strong correlation between consolidated hospitals, physicians and insurance markets and higher prices.”

Often overlooked in this analysis of the decline of competitiveness is the rise of what has become a proven alternative to expensive fee-for-service in-patient hospital surgical care: ambulatory surgery centers (ASCs) and bundled payment models, both of which have proven to lower costs and improve outcomes, particularly when surgeries are bundled in an ASC setting.

Even as healthcare consolidation continues, the number of ASCs operating in the U.S. has grown dramatically. According to the Ambulatory Surgery Center Association, there are currently more than 5,600 ASCs in the United States. This is up from approximately 1,000 ASCs in operation in 1988.

California leads the nation in the number of ASCs with 794 as of June 2017.

So while there’s has been a marked increase in hospital consolidation, there has been parallel growth in ASCs as outpatient surgery centers act as an effective counterweight to the higher costs resulting from the consolidation of hospitals.

At the same time, the application of bundled payment models has increased dramatically with the focus on payers contracting directly with doctors rather than hospitals.

As reported in Becker’s Hospital CFO Report, “Payers are increasingly contracting with physicians, and not hospitals. And why physicians? Because they view the physicians predominantly as decision makers … Under these arrangements, physician groups pay out the hospital facility fee, saving the insurer from a more complicated three-party agreement. However, this type of arrangement means only the physician groups, and not the hospitals, receive a share of the savings created by the bundle.”

While competitive and disruptive forces are unsettling healthcare and physician practices with doctors facing increased pressure to adapt or be left behind, innovation in the form of ASCs and bundled payments is alive and well and contributing to the unrelenting efforts to create medical disruption and reduce healthcare costs in the U.S.

PAYERS, PROVIDERS AND PATIENTS EMBRACE LOWER COST MEDICAL MEASURES IN 2017

By Scott Leggett and Sohrab Gollogly, MD

For all its uncertainty in other areas, the past year in healthcare may well go down as a watershed in the transition to more cost-effective healthcare.

Players big and small moved decisively toward ambulatory surgery centers in 2017, continuing the shift away from higher-cost hospital settings. More of the same is likely ahead in 2018 as the industry prepares for what many see as an inexorable realignment of healthcare relationships and financial incentives.

“Right care, right place, right time, for the right reason, at the right cost,” Mizuho Securities analyst Sheryl Skolnick told the Wall Street Journal. “High-cost inpatient facilities are the loser, oftentimes, in that scenario.”

The transition could prove pivotal. Insurers and other healthcare payers are increasingly turning their back on hospitals’ fee-for-service reimbursement model, and instead are embracing risk-based financial models such as bundled payments. This will allow surgery centers to compete more evenly, on the basis of cost, medical outcomes and patient satisfaction.

Notable Developments for Outpatient Care and Bundled Payments in 2017

EXPANDED USE OF BUNDLED PAYMENTS EXPECTED WITH SHIFT TO RISK-BASED REVENUE – American Medical Group Association (AMGA) members indicated in a survey released in December that they expect nearly 60% of their Medicare revenues to come from risk-based products by 2019. This shift is expected to expand the use of bundled payments, in which independent physicians working in outpatient surgery centers offer competitively priced treatment packages covering everything from pre-operative work to rehabilitation.

HOSPITALS INVESTING IN OUTPATIENT CARE – Hospitals are themselves investing in outpatient settings. Faced with a continuing decline in hospitalization rates, they too are benefiting from technology that makes ambulatory surgery centers more and more capable of performing advanced medical procedures.

OUTPATIENT CATEGORIES ADDED TO BPCI MODEL – The Centers for Medicare Services, under its Bundled Payments for Care Improvements (BPCI) Initiative, announced BPCI Advanced, which added three outpatient categories to the BPCI model.

View full article

By Scott Leggett

• Forty-nine percent increase in employed physicians translates to $2.7 billion increase in costs.
• “The cost per patient absolutely increases” in healthcare settings where the physician is employed by a hospital system.
• Independent physicians working in unaffiliated outpatient centers are more efficient.
• Cost increases are shifting attention to the benefits of outpatient surgery centers combined with bundled payment models.

Medicare costs for certain common procedures have risen sharply as hospitals employ more physicians, according to new research observers say highlights the benefits of doctors working independently in outpatient centers unaffiliated with large healthcare systems.

The study, commissioned by the nonprofit Physicians Advocacy Institute (PAI) and conducted by Washington, D.C.-based consultancy Avalere Health, showed that a 49% increase in hospital employment of physicians between 2012 and 2015 coincided with an increase of $2.7 billion spent on services for four specific cardiology, orthopedic and gastroenterology services.

Meanwhile, costs to Medicare patients rose by $411 million, or 21%, the study found.

Many hospitals indirectly employ doctors through a pseudo-independent foundation model. Avalere found physicians working under this kind of arrangement tended to order and bill for more services than those providing services independently in unaffiliated outpatient centers.

“Hospital consolidation pushes healthcare costs upward,’ PAI President Robert Seligson said.

Kelly Kenney, PAI’s executive vice president and CEO, added that the study “underscores the fact that independent physicians continue to provide patients with affordable, quality care every day.”

The hospital-affiliated outpatient centers Avalere’s researchers focused on are allowed to bill Medicare at a higher rate than independent surgery centers — even though there is no clear evidence hospital outpatient centers deliver higher quality care.

“Medicare is paying hospitals more for the same services because (the federal healthcare program) thinks it costs (physicians) more to provide the same service due to higher overheads,” said Bhagwan Satiani, MD, professor of clinical surgery at Ohio State University’s College of Medicine. He added that doctors working in such settings seem to have an incentive to do more medical procedures.

Independent physicians, on the other hand, tend to be more efficient and have greater through-put, Dr. Satiani said. A better model, he said, would be a system in which hospital-affiliated and independent physicians alike compete “for the same quality, matched services, and then the winner will be the lower-cost entity.”

Kristof Stremiki, director of market analysis and insight at the California Health Care Foundation, said that although he had not reviewed the Avalere study, its conclusions seem to be very consistent with earlier, peer-to-peer studies concluding that “the cost per patient absolutely increases” in healthcare settings where the physician is employed by a hospital system.

He referred to a study published in 2014 showing that hospital-owned physician organizations incurred costs per patient that were 10.3% greater than those billed by physician-owned organizations.

Stremiki noted it has been difficult to compare the two approaches in terms of quality because they are regulated differently by distinct government agencies. But in cost measures, the comparison is clear, he said: Independent physicians are the better deal.

The Avalere study is likely to shift attention to a competing model in which independent physicians working in non-hospital-affiliated ambulatory surgery centers package treatments under what is known as a “bundled payment” system.

With bundled payments, teams of physicians and other medical providers treat patients from pre-operative work all the way through rehabilitation or their final home-health visit. Together these collaborations compete against other programs in their region on the basis of cost, medical outcomes and patient satisfaction.

Stremiki said bundled payments create a powerful incentive in that they typically come with a kind of “30-day warranty” giving patients access to post-op care that’s part of the total price.

Although he hesitated to declare ambulatory surgery centers superior overall, simply because the data is lacking, he said it wouldn’t surprise him if these independent settings are more efficient generally. That’s because these facilities generally specialize in and rack up a higher volume in certain procedures.

“Their quality for that particular procedure goes up,” he said.

Written by Thomas D. Wilson

The traditional fee-for-service system of healthcare in the United States is being challenged by a “bundled payment” structure, supporters say it has the potential to increase transparency, lower costs and improve medical outcomes.

The idea is to set prices for treating various conditions, adjusted for factors such as age, and let medical providers compete for customers. Instead of being paid according to the volume and type of services they provide, hospitals and physicians would receive a fixed amount to deliver a full cycle of care, from tests to medical devices to follow-up.

Already bundled payments are in use domestically for joint replacement surgeries and other procedures. These initiatives have been shown to reduce costs even as they improve outcomes.

Medicare Savings Average 20%

A recent study examining 3,924 lower extremity joint replacement procedures at Texas-based Baptist Health System found bundled payments saved an average of $5,577 per episode. Procedures with no complications saved Medicare 20.8% on average, while those with complications netted average savings of 13.8%. Costs for those requiring a prolonged hospital stay dropped 67%.

Bundled payments are not universally favored, partly because they would disrupt what many consider a flawed system of financial incentives. Large insurers tend to favor the leading alternative: capitation, in which medical providers receive a fixed amount per patient monthly regardless of condition. Capitation shifts financial risk to providers while offering limited accountability for inadequate care.

Supporters of bundled payments contend capitation reinforces the trend toward consolidation of providers as hospital systems strive to deliver services in-house. They say this could pressure insurers to merge, as well, to counter hospitals’ bargaining power.

Published Price, Defined Goal

By contrast, Harvard University professor Michael E. Porter and professor emeritus Robert S. Kaplan wrote in a 2016 article in the Harvard Business Review that bundled payments draw on an approach used in other industries: pay a published price to arrive at a defined goal.

To maximize the benefit to patients, they proposed five conditions for bundled payments: cover the full cost for a given condition, make payment contingent on good outcomes, adjust price for risk, allow a fair profit and relieve providers from responsibility in catastrophic cases or unrelated care. Porter and Kaplan also suggested using “stop-loss” provisions to shield providers from outlier cases.

The authors insisted bundled payments can work not just in the case of acute conditions but also chronic disease management and primary care “because of the huge benefits that result from coordinated longitudinal care by a multidisciplinary team.” And while they acknowledged prices may initially increase to pay for better care, “even these prices will fall as providers become more efficient.”

A Rand Corp. analysis of bundled payments concluded such systems can indeed eliminate unnecessary spending — assuming the system is designed properly.

“If bundled payments do not take severity of disease into account, providers may not want to care for sicker patients because of the risk of financial losses,” Rand’s analysis found. “How well this aspect of the bundled payment system is designed will affect potential savings.”