Reengineering the Playbook

Laying out key principles to drive healthcare industrialization

I recently read a fascinating draft white paper from the Health Care Payment Learning and Action Network, titled “Alternative Payment Model (APM) Framework.” The group has identified the U.S. healthcare system’s need to reform its payment structure to “incentivize quality, health outcomes, and value over volume,” and highlighted the importance of a framework to describe and measure progress. By helping to “establish a common nomenclature and set of conventions” to allow the industry to level set, the white paper attempts to baseline knowledge, language, and performance related to the migration toward population-based payments.

These efforts underscore critical needs healthcare faces as we move to an industrialized system. Through this white paper, the work group has identified some key assumptions that provide key context for this framework. Several of these principles resonate strongly with me—they almost feel like table stakes for healthcare leadership. They include the following:

• Payment reform is only one tool in driving patient-centered care: The work group recognizes that payment reform isn’t the only way to drive healthcare industrialization. While compelling consumers to choose high-value providers is fundamental to meaningful change, the arrested development of consumerism in healthcare means that buyers don’t have the power they do in other competitive industries. While this is sure to evolve in the future, payment reform is the here and now. The best way to change the system in the short-term is to have better, more efficient providers with aligned incentives.
• Driving a shift to shared risk and population-based payments is the goal: There’s a lack of consensus around this principle. Many stakeholders suggest that population-based payments (e.g., capitation or other forms of global or episodic budgets) don’t need to be the end-game focus. They believe we can change the system with shared savings or other half measures; I believe that the faster the system moves to global payments, the better. While global payments aren’t perfect, the pre-industrial state of healthcare means this path is the best way to quickly align the actors and amass the capital and talent needed to generate the momentum necessary to change the industry. Competitive industries don’t have guardrails; healthcare should be no different. I’m hopeful that Medicare will become even more aggressive in migrating its overall percentage of purchases to an at-risk, quality and performance-based revenue model.
• To the greatest extent possible, value-based initiatives should reach providers who directly deliver care: The best way to change behavior, on a broad stage, is to create strong financial incentives. Provider-led organizations—especially physician enterprises—need to aggregate cash flows that allow them to change their practices and focus on holistic health status improvement. It’s a lot to ask; pivoting to this business model requires capital to fund new decision support, analytics, and workflow tools, as well as operating cash flow to fund new talent and transform the care delivery workflow. Innovative entrepreneurs making investments have to have a clear line of sight to the return on their capital. Since in many ways the U.S. healthcare system is still a cottage industry, providers must to be open to upping the ante to secure the sophistication required to build a sustainable business—not just a lifestyle medical practice.
• The intensity of value-based incentives should be high-enough to influence provider behaviors: As we feel the momentum around value-based payments building, it’s important that purchasers continue to pressure provider networks to tie increasingly more of their payments to performance metrics in the areas of quality, results, access, and satisfaction. There has long been a debate about how to manage care delivery in climates with multiple payment schemes. For the transformation to be effective, we need value-based delivery to become the dominant strategy; the attributes of value-based care should permeate the business models of provider organizations everywhere. Historically, for a workflow to be adopted, the revenue tied to that workflow had to approach 40 percent or more of total revenue. Today’s landscape is no different. To the extent that population health payments advance and become de rigueur, system change will be a self-fulfilling prophecy. One of the hardest things for providers to do is to manage across the disparate requirements of various health insurers and payers. To the extent that payers can systematize payment methodologies, reporting requirements, and accountability measures, they will be fomenting adoption and helping themselves.
• PCMHs, ACOs, Centers of Excellence, and similar systems are all delivery system models, not payment models: We have gotten in the habit of using the ACO acronym in an all encompassing manner, to connote a new kind of integrated delivery model focused on managing care longitudinally, as well as a new type of payment model. However, sustainable delivery systems of all types will have to grapple with how to manage themselves under the various forms of population-based payments. These new payment types require the delivery business models to develop core competencies around managing chronic populations and an integrated supply chain of trading partners. These delivery systems should not be synonymous with value-based payment types, but their success will be predicated upon their management of the payments.

“The APM Framework” provides lots of good thinking, baseline assumptions and operating tenets. It’s a good read for any innovator that is trying to force industrialization in healthcare as the business becomes more susceptible to market-oriented change. There will those that say it’s too much, too fast, but that’s always been the refrain in this laggard industry, particularly for those in love with the status quo.