Simplifying the Healthcare Landscape for Healthcare Innovators and Technology Solutions

Yesterday, I led a webinar hosted by the UCSF Rosenman Institute , where I shared insights and learnings on what it takes to build and scale a successful healthcare #startup .

I’ve worked in the healthcare industry for 3 decades, and I still find it complicated at times. So I can empathize with those who are newer to the work we do.???

I began my presentation with how healthcare entrepreneurs, innovators and influencers can get the knowledge they need to best position themselves for value and the ever-evolving payment landscape. Payment streams in healthcare are different from your typical B2C model, and selling to a provider organization is different from selling to an individual. It’s a totally unique setup with various pain points, and the reality is, good ideas aren’t always successfully sold and implemented – and more frustratingly, sometimes go nowhere.??

More solutions are available now than ever in healthcare, with new ideas and capabilities being introduced daily. It can be difficult for innovators to break through the noise – no matter how elegant a solution may be. That’s why it’s best practice to be able to define the key audiences you’re trying to solve for and understand the uniquely nuanced, complex landscape of the healthcare industry, inside and out.????

In order for innovators to best position their solutions for value, they first need to answer the following, as these entities are often not the same person:?

• Who is the customer???
• Who is the purchaser??
• Where is value created and to whom does it accrue???
• How is your solution connected to and across the healthcare ecosystem???
• How do you define your unique ROI???

It’s important to keep these questions top of mind as we explore how we arrived at our current healthcare financing structure, the continual evolution of payment models and the shift to value-based care.??

History of Healthcare in the U.S. and Today’s System?

A lot has happened in healthcare in the last 100 years, to say the least! And within the last decade, even more with an increased focus on transparency in pricing and contracting.???

So, where does that leave us today???

In 2020, the U.S. spent a total of $4.1 trillion on healthcare, with the largest portion of that going to hospital care. The impact of COVID, supply chain pressures, wage increases and ongoing human resource costs have greatly contributed to that spend and includes costs for federal relief programs, COVID vaccines and public health information. Three years ago, healthcare spending constituted 19.7% of U.S. GDP – and continues to grow.??

This growth continues to add to the complexity of our industry. A few quick healthcare worker statistics to keep in mind as we think about all of the players across the healthcare ecosystem:?

• Total employment exceeds 16.4 million people?
• 5.98 million work in ambulatory settings?
• 4.7 million work in inpatient hospitals and 3.13 million in post-acute facility settings?

As it currently stands, with all of the people and dollars in the mix, healthcare delivery and financing does not function as a rational network designed to work together. The system is a kaleidoscope of financing, insurance delivery and payment mechanisms that remain loosely coordinated and extremely complex.??

This kaleidoscope of players in the healthcare industry includes a variety of payors, including insurance companies, state and federal governments, employers and more recently, a growing number of out-of-pocket payments by individuals.??

This matters to innovators and solutions providers as each of these “revenue streams” is structured differently, promotes different payment methods and has different motivations.??

For those external to these payment streams, the goal is to understand where there is alignment, where there are areas of differentiation and how to structure the provision and implementation of solutions effectively across these varied streams.??

Payment Model Evolution?

Inpatient Hospital Services?

Fee For Service (FFS) payment for healthcare services have been in place for thousands of years. Healers throughout history were paid for the services they provided (and in some cases, even bartered for services).??

Prior to the advent of Medicare in 1965, hospital services were paid from charges by private insurance for those who had it or were provided as charity care. With the introduction of Medicare, complex cost-based reimbursement methodologies were introduced, with the focus being to capture as many eligible costs as possible.??

In 1982, in an effort to curb growing healthcare spending, the prospective payment system was implemented that ushered in the DRG system we use today.??

Physician Services?

Prior to 1990, physicians have been typically paid off of billed charges based on 1 of over 7,000 Current Procedural Terminology (CPT) codes that define a discreet service.??

In 1990, the Resource-based Relative Value Scale (RBRVS) payment system was introduced to provide rigor around the “value” of each service provided; and in 1997, the Sustainable Growth Rate (SGR) was implemented to control rising costs in physician services by capping the year over year increases.??

Since 2003, the SGR has been suspended because of the negative impact it would have on physician payment under the FFS system. In 2015, the Medicare Access and CHIP Reauthorization Act (MACRA) was introduced and changed the way physicians are paid – thereby introducing the Quality Payment Program that incentivized quality through a Merit-based Incentive Payment System (MIPS) and paving the way for additional value-based models that provided financial incentives through Alternative Payment Models (APMs).??

From Volume to Value: Value-Based Payment Models?

When thinking about the shift from volume to value, let’s first look at Fee for Service (FSS) Payment Models – what they are and how they fit into our current system. FFS payments are payments made for each service provided and are issued after services are rendered.??

Limitations we face with this model include incentivizing volume, which may lead to unnecessary or a greater use of high-cost services and continue to promote and support a fragmented system. FFS takes necessary focus away from the total cost of care and high-cost patients, misses the opportunity to provide care coordination across services and sites of care, and leads to higher overall costs across healthcare.??

So, what are Value-Based payments, and how do they address these limitations???

Simply put, Value-based payments refocus the financing of healthcare on improving experience, impacting quality and care outcomes and reducing costs.??

Value-based payments models allow for the wholistic view of a patient and have the potential to lead to great innovation in care delivery models. In terms of the impact on total healthcare costs, they provide a unique focus around patients’ and populations’ total cost of care, enable and incentivize coordination of care across settings and lead to better use of resources across systems.??

For healthcare influencers and innovators, this approach to healthcare opens up a world of new possibilities. Value-based models, while an improvement on FFS models, are complex and require capabilities in the provider space that will need development.??

Final Thoughts ?

If you’re an entrepreneur, innovator or influencer within the healthcare space (or even just one of my dear readers), I hope you take away from this what additive value solutions might look like in the complex world of healthcare.??

Healthcare finance and reimbursement are very intricate, diverse and ever-changing, and payment models will only continue to evolve in order to maximize value.??

It’s not enough to simply have a good or “elegant” solution to a problem, as these types of solutions are often expensive to implement, fund and operate. To be sustainable and valuable long-term, I recommend what I call “failing fast and failing forward.” We will always need new ideas, innovative thinking, and the ability to be creative to serve our communities and bring value. I would encourage you to start simple and work to adapt your solution as needs continually evolve.??

A few things to consider as we try to strive for a better future of healthcare:??

• Access to integrated, actionable data in our day-to-day workflow will provide the greatest benefit of all??
• Understanding and incorporating community-based social drivers of health into our models will be necessary?
• Greater focus on health equity and identifying interventions that reduce disparities will become standard work?

In our industry, you have to ask the right questions, understand what we do and why we do it and then work to solve the right problems – that is how you can make your solution impactful in our complex world and best position yourself for value.??

Until next month. ?

- Ruth ?? ?

Have an idea for a future topic or questions in the world of healthcare? I’d love to hear from you!?