Why rural health care providers should invest in value-based solutions
Carl E. Couch, MD, MMM
Most of us would agree that controlling costs while providing high-quality, coordinated health care is a financial and moral imperative. This is especially true in rural markets, where household incomes are approximately four percent lower than urban areas and about 13.3 percent of families live below official poverty thresholds1. But creating health solutions infrastructure to deliver value and provide an exceptional level of care comes at a cost, often requiring hard choices on where to invest precious dollars for efficiencies, gains, and reduced waste.
Equally challenging is the slower-than-desirable return on investment. Results don’t happen overnight, but those of us who have embarked on the volume-to-value journey know the rewards are worth it – especially when positioning your health care organization for a future where value-based care is the norm, not the exception.
In many urban markets value-based health care has already arrived, so the time is now for rural health care providers to get on board. Taking even small actions is your best assurance that you won’t be left behind when the shift to value-based health care directly impacts your organization.
NRHA partner nThrive will host a webinar on value-based care, lowering health care costs, and improving quality and outcomes at 2 p.m. CDT Nov. 6.
In simple terms, value equals quality over cost. Despite an increased focus on quality improvement for nearly the last two decades, we still see serious problems that drive poor outcomes. For example, 90,000 instances of hospital-acquired infections resulting in several thousand deaths occur each year, and the U.S. is ranked 26th in mortality among industrialized nations2. With poor clinical solutions, we encounter problems resulting from too much, too little, or incorrect care, which also drives up costs.
It is important to recognize that value means different things to different stakeholders. For providers, it’s about controlling operating costs, while patients are concerned with out-of-pocket expenses. Payers care about per-capita costs, with self-insured employers in particular viewing what might once have been a minor expense as a potential profitability issue.
Impact on patients
For patients, rising health care costs can be crushing. Health care amounts to roughly 40 percent of today’s average household income, which is approximately $55,000 in urban markets and $52,000 in rural areas3. Most authorities agree this negates any raises workers may have received over the past 10 years. As a result, we often see patients challenging or delaying care. It is not unusual for patients to ask, “Do I really need that CAT scan? Do I really need that MRI?” Often, the cost of these procedures is coming right out of their pocket, an increasing problem due to high-deductible health care plans.
Patients are equally concerned about the quality of outcomes. Economic expert Michael Porter divides these concerns into tiers, with the first being survival: “Is what you are doing a risk to my life?” At the second tier, which Porter calls disutility, patients want to know, “Will the treatment result in delays, errors, or unexpected costs?” The third tier concerns sustained improvement: “Is what you are proposing going to provide long-term benefit?”
Value to payers
Like patients, payers are also concerned about quality, with the Centers for Medicare and Medicaid Services and commercial and employer insurers demanding quality standards be met for compensation. Another concern is the total cost of care, or global cost, which applies to groupings of individuals such as the insured population for a large company or an entire Medicare population.
For payers, the bottom line is about cutting costs to less than the projected total. In many cases, a portion of the profit goes into shared savings, incentivizing providers to reduce the cost of care.
What value means to providers
Most providers never see global costs for the populations they serve. Instead they are focused on office visits, surgical procedures, and hospital admissions – all of which are related to episodes of care. Most episodes have a fixed reimbursement, with margins largely predicated on whether operational costs are less than reimbursements.
Providers also know their outcomes are being judged, and competition is steep to achieve superior results. In many ways, moving toward value creates a perverse incentive for fee-for-service. The greatest impact on global cost comes from avoiding hospital admissions and reducing emergency room visits, which are integral to controlling costs in today’s fee-for-service model yet also reduce revenues.
While some cost factors are uncontrollable and others are related to complex societal challenges, approximately 40 percent are considered pure waste. According to former CMS head Donald Berwick, approximately $1 trillion of today’s $3.5 trillion in health care costs is due to five things: failures in care, fraud, lack of clinical integration, overutilization, and administrative/regulatory waste.
The menu of health solutions to positively reduce waste is extensive, including addressing things like hospital-acquired infections and unnecessary procedures, as well as shifting from a fee-for-service to fee-for-value model, which is focused on prevention.
Making the shift
What does it take to shift toward value? To achieve comprehensive results, population health essentials fall into four categories:
- Physician leadership
- Physician alignment
- Vision and strategy
- Common EHR
- Population segmentation
- Comparative data to physicians
- Clinical integration
- Patient-centered medical home
- Evidence-based medicine
- RN disease management
- Benefit design
- Achievable targets
- Actuarial accuracy
While all are important, three stand out as critical, especially if you are just getting started:
- Population segmentation: It is imperative to know the population you serve and identify the sickest patients who drive the majority of health care costs.
- Clinical integration: Anyone who falls ill knows health care is not as integrated as it needs to be. We are set up to be islands of excellence and don’t always communicate effectively.
- Disease management nurses: Integrating disease management nurses is probably the most underutilized component of health care today. At much lower cost than doctors, these professionals can help drive the success of any population health initiative.
When investing in value-based care, it is important to take the long view. CMS is now in the fifth year of its Medicare Shared Savings Program, and the literature indicates that the first three years did not save money. Rather, it required a $535M investment over the first three years, with $152M of savings occurring in year four. Year five is expected to yield even greater savings, with participating providers reaping the benefits. These results will increase over time as medical organizations fundamentally change care delivery.
What does success look like?
I had the privilege of leading a value-based care program at Baylor Scott & White Health in Dallas, Texas. Our accountable care organization, which was launched in 2012, served an employee population of 34,000 with the cost of care per member starting at $470 per month. As we approached 2017, this number had not increased; in fact, it was one dollar less. Compared to our target spend, which was projected to go up monthly to approximately $550 per patient, we saved more than $100 million by keeping costs flat over this five-year period.
These savings are particularly remarkable when you consider what happened in the commercial market. While we maintained a monthly cost of $470 per patient, commercial costs rose to more than $600 per month. Other employers are beginning to take notice and ask, “If you can do this for your own employees, can you do it for us?”
The choice is yours
Health care organizations have three choices when it comes to value-based care. First, you can choose not to invest in population health, instead trying to make a profit out of episodes of care. Second, you can dive into population health and develop capabilities for capitation and direct contracting. Third – and this is what most organizations are choosing – you can begin experimenting with alternative payment solutions and assuming partial risk.
For rural health providers, building a strong primary care network and aligning with physicians is especially important. The more you are able to attract primary physicians who are knowledgeable about population health, the more successful you’ll be at keeping patients out of your emergency room and preventing hospital readmissions. Coming together through clinical integration will also make a big difference for the populations you serve.
Where are you along this spectrum? Are you ready to begin making investments in value-based solutions to create a better future for your health care organization and your community?
1United States Census Bureau
3Independent Health Association
NRHA commissioned the above piece from nThrive, a trusted NRHA partner, for publication within the Association’s Rural Health Voices blog