While healthcare reform remains a topic of debate for the foreseeable future, the industry transformation from fee-for-service to alternative payment methods (APMs) continues to gain ground. Stories of organizations successfully evolving from a volume-based to a value-based model, though, are still rare enough to stand out as notable achievements.
As reported by the National Academy of Medicine, most Americans will probably be affected in the near or not-too-distant future by the emergence of accountable care organizations (ACOs) or other providers reflecting the expansion of care covered by APMs. But despite the promise and enthusiasm surrounding the changeover, “most participants in Medicare’s major APMs have not yet realized large savings…. Early APM results suggest that improving quality does not generally lead to better financial performance.”
Intermountain Healthcare, a Salt Lake City-based system of 22 hospitals and more than 1,400 employed physicians, has pushed ahead of the curve in effectively transforming itself from a volume-based, fee-for-service healthcare operation to a value-based model. In 2016, the hospital achieved its target of billing $700 million less by reducing the cost of total care. Here’s how they achieved such astounding success.
In a story for Hospitals & Health Networks magazine, Intermountain’s Joe Mott, vice president for population health and healthcare transformation, said they utilized a number of techniques, including:
- Medical home primary care, when appropriate
- Directing complex cases to multi-specialty clinics for treatment
- “Hot-spotting,” in which high-risk patients are identified through the analysis of medical data and measures are taken to help them stay out of the hospital
- Introducing behavioral healthcare into some patients’ primary care plans
Mott said that some of the most substantial savings were acquired through improved management of high blood pressure and diabetes cases. Pharmaceutical treatment augmented by nutrition and lifestyle coaching proved effective—and cost-effective—when integrated with primary care.
In the same article, Joanna Kim, vice president for payment policy with the American Hospital Association, said some key financial factors are not available to some providers. “Quality vs. cost depends to an extent on volume,” Kim said. “Some may not be able to move payment to quality-based capitation, because they don’t have the volume to average costs.”
Mott said, in the HHN article, that Intermountain considered the options available and structured a plan that would work: “We modeled the goal of reducing patient revenues by $700 million all the way through our financial statement, our operating statements, how we would have to manage volume and expenses and how it would flow through to our balance sheet.”
Intermountain made the decision to transform when most of its revenues were still coming from a fee-for-service payment method, but viewed the proactive move as a strategic investment.
Marc Harrison, president and CEO of Intermountain Healthcare, was recently interviewed by Eric Larsen, Managing Partner of Advisory Board in an installment for “Lessons from the C-Suite”. In this article Harrison discusses his plans for “taking Intermountain from a ‘horseless carriage’ to a Tesla” as a Physician Executive.
4 Volume to Value Business Cases
In an article for Harvard Business Review in October 2015, Laura Kaiser, chief operating officer for Intermountain, outlined four reasons that the medical group viewed its early-adopter stance as “not acts of charity but acts of strategy” and related the business case behind acting without concern for when the market would make the shift:
- Attracting new customers by providing higher-quality care and services at lower prices builds a base allowing for operational options requiring certain population minimums.
- The advantage of being among the first to learn the process of the full continuum of care, including prevention and intervention, and managing risk on a fixed budget
- Similarly, being at the forefront of building strong networks and relationships among other providers and social service agencies to efficiently and effectively address the complex needs of various populations; and
- The fact that providing high-quality care at lower prices is more likely to succeed as a long-term strategy than the opposite.
The Executive Master of Health Administration program through USC’s Sol Price School of Public Policy offers healthcare professionals a graduate-level education designed to prepare them to navigate the changing landscape of healthcare.