Health Systems Spending Billions to Prepare for the Last Battle

A Forbes cover story reported on the billionaires at Cerner and Epic created by the HITECH Act. This was the $30 billion portion of the stimulus bill that is providing billions of subsidies for the adoption of electronic health records. When this kind of money is being spent, it begs the question whether health systems are making the best use of that investment in modernizing the U.S. healthcare system.

On the one hand, it’s hard to argue with modernizing the record-keeping in healthcare that isn’t far beyond how medicine was recorded in the time of Hippocrates. Many thousands of lives are saved as a result of this modernization (e.g., avoiding deadly prescription errors) and it is why there is strong support from the current and past administrations to modernize systems. On the other hand, most companies benefiting from the stimulus have two significant shortcomings that will need to be addressed for health systems to thrive in the new environment they are facing.

1. The core design principle of these systems was optimizing the rapidly fading “do more, bill more” reimbursement model where the “patient” isn’t much more than a vessel for billing codes. For entirely logical reasons given the old reimbursement model, their success was measured by their ability to get as big of a bill as possible out as fast as possible. The shift to a value and outcome based model of reimbursement literally flips provider incentives on their head (e.g., hospitalizations are penalized rather than rewarded). For example, those successful in population health management recognize that the EHR is just one of several components that needs to be brought together into a view for nurses delivering proactive care.
2. The legacy systems were designed for a healthcare system in stasis with a technology architecture not known for its nimbleness. For example, systems such as Epic are very customizable, however once customized, they are quite rigid. If there is one area of consensus about the future of the U.S. healthcare system, is that it’s destined to go through radical transformation. Nimble systems will be imperative to respond to a rapidly changing landscape.

I spoke with Dr. Jim Bonnette, Chief Medical Officer of Oliver Wyman, about this. He relayed the shock that is hitting health system leaders who spent hundreds of millions on software projects only to realize they aren’t built to address many of the new requirements. Former HHS Administrator and founder of the Institute for Healthcare Improvement stated in a Washington Post interview, “We could automate the status quo. And that would be automating defects and I don’t want to go there.”

Already healthcare providers are realizing that what they thought was going to be their 100% solution is really best optimized for just 25% of where healthcare dollars are spent (hospital-based care). Indeed, 75% of healthcare spend is directed towards chronic disease. Systems such as Epic and Cerner have their strength in automating internal workflows of hospitals and other clinical settings. In those high intensity settings, healthcare providers make the decisions that drive the patient health outcomes. However, with chronic disease, it’s an entirely different story. The decisions an individual (or their family) make drive the health outcomes. For example, does the patient fill a prescription and take it properly? Or do they make the necessary lifestyle choices to optimize their health?

One of the leading thinkers in healthIT, Shahid Shah (aka The Health IT Guy) laid out why legacy EHRs are ill-prepared for the era of accountability that is rapidly transforming healthcare.

“The EHR systems and IT required for MU is a quite different from what will be required for ACOs,” Shah continued. “It will be nowhere as easy for existing legacy EHRs to simply retool their current platforms, like they did for MU.”

With that said, Shah outlines nine ways future EHRs need to support ACOs.

1. Sophisticated patient relationship management (PRM). According to Shah, today’s EHRs are more document management systems, rather than sophisticated, customer/patient relationship management systems. “For them to be really useful in ACO environments, they will need to support outreach, communication, patient engagement, and similar features we’re more accustomed to seeing, from marketing automation systems than transactional systems.”

Read full article here.

Throwing Rocks or Birds at a Target: Manufacturing vs. Service Orientation

The healthcare providers who have demonstrated dramatically positive results with challenging patient populations recognize that there are two main care approaches. In a setting such as a hospital, many leading hospitals have adopted a manufacturing-based model borrowed from Toyota. Proceduralist-driven medicine (which our flawed reimbursement model has favored) lends itself to a manufacturing model while cognitivist medicine is different. With chronic disease, a service-based, cognitive approach is necessary to effect behavioral change. In a manufacturing setting, with enough practice a machine will do what it is intended to do and doesn’t have a mind of its own. However, as anyone who has been in a service-based business knows, human interaction and a partnership-oriented approach leads to the best outcomes.

Let me draw an analogy (hat tip to Dr. Douglas Eby). Think about throwing a rock at a target. Like a manufacturing scenario, with enough practice a well trained professional can hone their craft and hit the target most of the time. Now imagine rather than throwing a rock, you are throwing a bird at a target. Perhaps you can impact 10-20% of whether that bird hits the target. However, the other 80-90% is going to be driven by understanding the motivations of the bird. Perhaps putting food or the bird’s babies at the target would be necessary to drive the bird’s behavior.

As with the bird example, doctors push patients toward a desired health target. However, only those organizations that have systems and processes optimized for engaging patients have had significant success with chronic conditions. SeeDIY Health Reform and Massachusetts and Alaska for more.

[Contact me via LinkedIn if you'd like a copy of the full seminal study on the Direct Primary Care model - excerpts will be published on Forbes]

Disruptive Innovation in Care Delivery Must Have Rapid Iteration

“Necessity is the mother of Invention” Aesop

Read “David Clause” in Obamacare Ready to Slay the Healthcare Cost Beast for a great example of how a new care delivery and payment model has driven health outcomes and reduced costs more than any other model I have seen. As market research for my startup, I scoured the country talking to organizations that have driven the most impressive outcomes. Nothing I have seen has been as impressive as these.

As highlighted in Nimble Medicine Changing the Face of Healthcare, the organizations driving breakthrough results aren’t tweaking an existing model. Rather, they have developed new models that get rapidly iterated. As one who has implemented traditional healthIT, the process is very involved with many months of planning before go-live. During that process, there is a ton of process planning and re-engineering before configuring the system to reflect what has been decided. Roughly speaking, process is weighted 80-90% toward pre go-live with 10-20% focused on post go-live to deal with go-live issues and some further training.

In highly dynamic environments, the pre and post live weighting needs to be flipped on its head (i.e., 20% planning, 80% analyzing, refining, testing, etc.). While some areas of healthcare will be stable, the most critical area to manage is where the greatest costs reside — chronic disease. Some best practices have begun to emerge, however one can expect a high degree of iteration to address the various areas of chronic disease management. One of Epic’s strengths has been its ability to address different workflows after significant customization. However, healthcare providers report that if they need to reorder workflow, the system has to be reconfigured with considerable time and expense involved.

Russell Benaroya (EveryMove CEO) has shared his experience doubling the national average for outcomes related to sleep disorders when he owned sleep clinics. He and his co-founder described their experience as one that involved constant testing and re-ordering of steps in the process. Sometimes, the changes were made day by day. I expect that rapid iteration will become the norm for the leaders of the next generation of healthcare delivery as they hone their craft.

In a piece for the New Yorker, Dr. Atul Gawande outlined how, early in the 1900s, more than 40% of household income went to paying for food and food production consumed roughly half the workforce. Beginning in Texas, a wide array of new methods of food production were tested. After many pilots, tests and information dissemination, food now accounts for 8% of household budgets and 2% of the workforce. As a wide array of small innovations ultimately led to the transformation of farming, so too is a rapidly building wave of innovative new care and payment models leading to similar breakthroughs in healthcare. I call this Nimble Medicine.

Human Centered Design Will Trump Procedure Centric Design

“Listen to your patient, he is telling you the diagnosis” William Osler, M.D.

Health systems have begun with modest efforts to weave in the individual into the care process. Even simple secure messaging has been held up as a great breakthrough in medicine. That a technology (email) that has been around for 40 years is held up as a breakthrough, in and of itself, is a statement. I liken the limited efforts to invite the patient into the process to seeing a muddy puddle of water in the Sahara Desert — it’s a welcome improvement but far from the promised land. The healthcare organizations that will thrive (not just survive) are recognizing that a tweak to systems (both healthIT and business process) that were designed around the patient as billing vessel will fail miserably. As we’ve seen in many areas, tweaks to an architecture designed around a different model never succeed in the new paradigm. If they did, AOL would be the leader in social media and Siebel would be leader in CRM. Before long, you will see the equivalents of Facebook and Salesforce.com emerge in healthcare.

Deflationary Economics Will Drive Healthcare

All men are prepared to accomplish the incredible if their ideals are threatened. -Maya Angelou

Underpinning virtually every business model in healthcare delivery has been an assumption of ever-increasing healthcare inflation. It’s not hard to predict that deflationary economics will drive healthcare in the future given the local, state and federal budget situations that are largely driven by healthcare costs (more on that here). While one expert warns of health care bubble another calls the upcoming period The End of the Third Bubble (PDF). It’s worth noting that those who thrived after past bubble bursts were those with lower costs structures and systems that were nimble.

Meanwhile, cost-cutting isn’t limited to the government. After all, it is employers who foot most of the healthcare tab and are starting to flex their muscle. For example, IBM has shifted from thinking about healthcare as an employee benefit to a large cost driver that will impact their profitability. IBM recently made a decision as to where to locate 4,000 new hires based on their analysis of where they received the best value from their healthcare expenditure. Consequently, they determined that Dubuque, Iowa was the best location to expand their employment. With wide cost differentials, it’s conceivable that CFOs and CEOs will believe that their fiduciary responsibility to shareholders will necessitate the kind of analysis IBM acted upon. This is a scary prospect for communities that are high cost locations for healthcare.

This may shift how communities think about economic development. It turns out that having a great ROI for healthcare may be of greater benefit than a tax break. Conversely, communities with expensive healthcare have what amounts to a healthcare “tax” that will push businesses away.

Many health systems operating at a loss or a razor thin margin, may wonder how they can deal with these changes. Smart healthcare providers are takinglessons learned from the newspaper industry’s colossal mistakes. The few newspaper organizations that have thrived realized that it can still be profitable to operate on a lower cost structure. With 62% of hospitals operating as non-profit, mission-based organizations, they should have a relatively easier time making the transition. They don’t have to explain to shareholders why a flat or declining top line revenue figure can be a good thing (assuming they get costs optimized for the new normal). Nonetheless forward-looking organizations have already bucked conventional wisdom such as thinking they need to acquire practices to develop an accountable organization. For example, I have seen both non-profit and for-profit health systems recognize it is more capital efficient to create strong physician networks via open software solutions than acquiring practices and mandating a closed system.

As Zina Moukheiber reported, the proper cost structure and delivery model can be highly effective at providing care to groups of patients that many view as unprofitable (Medicare). However, those “unprofitable” patients are only money losers if providers stick to their old ways.

The New Normal

Most health system optimization has been focused on hospital-based care. Even there, the new incentive framework takes into account what happens after a patient leaves. That is, there are now stiff penalties for hospital readmissions. Previously, hospitals have been rewarded when someone was readmitted. Consequently, there was little focus on addressing post discharge patient engagement.

However, the biggest changes are coming with the shift from a reactive to proactive model when it comes to chronic disease management. In the past, health systems waited for someone to present themselves at the hospital and that was viewed as a new revenue opportunity. Going forward, health systems will be responsible for people even when they leave the facility, and so will face an entirely new set of information technology demands.

To sum it up, to support the array of new demands, systems will need to be nimble, affordable and person-centered. These aren’t the adjectives typically applied to traditional healthIT systems. Just as we have observed the military frequently spending money on capital built for the last war such as aircraft carriers and other slow moving military tools. Over time, the military learned that it was as much or more important to focus on the hearts and minds of those they were trying to work with and that remote intelligence tools have been highly effective at winning battles. When it comes to managing chronic disease, winning the “hearts and minds” of patients and remotely monitoring health are similar skills not factored into systems developed for the legacy reimbursement model.

Facing all the new requirements in a dynamic environment, health systems should leave some dry powder around in their healthIT budgets. It’s only logical that an entirely new reimbursement model and set of requirements will create new categories of software.

This post originally appeared in Forbes in 2012.