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A National Strategy for More Affordable Healthcare

Posted with permission by the author, orginally featured in Premier Inc. Economic Outlook, Spring 2012.

One of the greatest challenges that our nation will face over the next decade is how to make the American healthcare system more affordable while maintaining and improving its quality. The high and rapidly rising cost of healthcare is the major driver of the federal deficit. It is making American businesses uncompetitive in the global marketplace, and it is increasingly unaffordable, even for families with health insurance. It’s not enough to “bend the curve.” Both a slower growth rate and absolute reductions in per capita spending will be needed.

Two myths have prevented creation of an effective strategy for controlling healthcare costs:

Myth #1: Reducing costs requires rationing care.

No one wants a solution that denies timely, quality care to people who need it. The good news is that healthcare costs can be significantly lowered without a hint of rationing. That can be accomplished by improving disease prevention; diagnosing and treating serious conditions at an earlier stage; avoiding unnecessary and potentially harmful tests, interventions, and medications; eliminating dangerous and expensive infections and medication errors;and educating chronically illpatients on how to manage their conditions to prevent costly hospitalizations.

Myth #2: There is a single national solution to reducing costs.

Although a simple, “silver bullet” solution would be nice, there are many barriers to achieving higher-value healthcare. No single policy change can overcome them all. Moreover, the significant differences across the country in the structure of healthcare and the diversity of cost and quality issues make it unlikely that any one-size-fits-all national solution will work. Comprehensive, community-based solutions will be essential.

Five elements needed for community-based healthcare transformation

Communities need five things to create higher-value healthcare systems:

1. Actionable information and analysis on cost and quality

It’s a well-known adage that “you can’t manage what you can’t measure,” yet today, it is virtually impossible for anyone – providers, purchasers, or patients – to understand what’s driving healthcare spending or how to change it. Physicians don’t know how often their patients are hospitalized; hospitals don’t know after discharge; and neither employers nor patients know which providers deliver the highest quality, most efficient care. It’s not a lack of data; it’s a lack of actionable information. While the increasing use of electronic health records (EHRs) will provide additional data, it won’t necessarily be the kind of information we need to fix the healthcare system.

In a growing number of communities, providers and purchasers are working together to analyze claims and clinical data to find win-win-win opportunities – changes that will lower purchasing costs and improve patient care without bankrupting healthcare providers. Other communities can do this, too, but only if providers and payors remove the veil of secrecy that has shrouded cost, quality, and price information.

2. Payment systems that provide both flexibility and accountability

Unfortunately, as soon as potential win-win-win opportunities are found, the current healthcare payment system usually turns them into win-lose scenarios. That’s particularly true for providers. Today, hospitals and doctors lose money when patients don’t receive an unnecessary procedure as well as when they prevent infections, complications, and readmissions. No one in healthcare makes any money at all when patients stay well. The issue is not loss of revenue per se, but the fact that the reduction in providers' revenues is typically greater than their reductions in costs. This is a major problem for hospitals, with their high fixed-cost structure and need to maintain standby services for the community.

The solution isn’t just providing more “incentives” to physicians, hospitals, and other providers to deliver higher quality, more efficient care. For example, although the “shared savings” model is being touted by many as a fundamental reform in payment, it’s really just a new flavor of pay-for performance based on the same, fundamentally flawed fee-for-service system. True payment reform gives healthcare providers the flexibility to redesign care and the accountability to ensure that treatment is delivered as efficiently and with the highest degree of quality possible while avoiding the insurance risks associated with treating sicker patients. The two basic payment reform concepts that can do this are episode-of-care payment (a single payment for all of the services associated with a single acute episode) and comprehensive care payment (a single risk-adjusted payment to cover all of the services a patient needs for a particular condition or set of conditions over a period of time).

While these payment models have demonstrated that they support better quality, lower-cost care, their success depends upon having the data and the information described earlier. Providers need to know that they can deliver quality care for the price being paid, just as purchasers and patients need to know they’re getting a better deal than they’re getting today.

3. Fundamental redesign of healthcare delivery

With both flexibility and accountability, healthcare providers can innovate in ways that have never been possible. For example, instead of a “patient-centered medical home” that requires the patient to make separate visits to a primary care practitioner, specialist, and testing lab, more flexible payment methods could enable providers to bring coordinated care to the patient’s home, workplace, assisted living facility, or similar location when they need it most. A better payment system would enable hospitals to stop trying to fill beds with unnecessary procedures to cover the costs of essential services, and, instead, to work with physicians to deliver the right care in the right place at the right time.

Most providers will need both time and training to make this transition. The techniques that other industries use to produce higher quality, lower-cost products and services can help, until healthcare providers are paid in ways that enable and reward value.

4. Meaningful patient engagement

Patients also need to play a major role by improving their health, following care instructions, and choosing the highestvalue providers and services. More patient-centered, coordinated care delivery will help by reducing the barriers that many patients face today. But patients must have insurance benefit designs that enable and reward them for supporting higher-value healthcare. In particular, patient cost-sharing rules need to make good preventive care affordable (e.g., low co-pays on chronic disease medications), while creating strong incentives for patients to choose providers that offer high-quality care at a lower price. Payment reform will help here, too, since episode-based and comprehensive care payments will enable patients to more easily determine and compare the total cost of care.

5. A neutral facilitator of change

All of these changes – better information, payment systems, delivery structures, and consumer engagement – are necessary to achieve higher-value healthcare, and they must be made in mutually accommodating ways. For example, providers can’t change the way they deliver care without a supportive payment system, nor can payors change the way they pay if providers aren’t ready to accept and manage new payment systems. Moreover, all payors and providers must embrace change in order to make payment and delivery system changes feasible. How do all of these changes get coordinated?

A growing number of communities are recognizing that Regional Health Improvement Collaboratives (RHICs) are an ideal mechanism for developing coordinated, multi- stakeholder solutions to healthcare cost and quality problems. A Regional Health Improvement Collaborative is a nonprofit, community-based organization that provides a neutral, trusted mechanism through which all of the stakeholders in the community – physicians, hospitals, employers, health plans, government, and patients – can jointly plan, facilitate and coordinate the many different activities required to successfully transform their healthcare system.

RHICs can only be successful, though, if the stakeholders in the community are willing to collaborate, and trust takes time to build. Sharing data is a good starting point, since RHICs can use that information to help providers and purchasers identify and capitalize on mutually beneficialopportunities.

Supporting community-based healthcare transformation

We can control healthcare costs without rationing, but only if we do it at the community level and only if we address all of the major barriers in a coordinated way with all of the stakeholders engaged. The best national strategy will be one that helps communities innovate, rather than one that imposes a one-sizefits-all approach.