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For High-Risk Medicare Beneficiaries: Targeting CMMI Demonstrations On Promising Delivery Models


April 22nd, 2014

Medicare beneficiaries with multiple chronic conditions, certain types of serious conditions (e.g. heart disease, pulmonary disorders, mental disorders, cancer), and functional limitations have higher health and long-term care costs and more adverse outcomes than other beneficiaries.

One of the biggest opportunities for savings for Medicare, Medicaid, and beneficiaries themselves, is through reducing hospitalizations, readmissions, and institutional care, especially for these high-risk beneficiaries. Achieving these savings and serving this population will require innovative delivery models and a clear business case to convince organizations to implement those new models.

The Affordable Care Act set aside $10 billion for experiments in innovative care delivery and payment systems.  With these funds, the Centers for Medicare and Medicaid Innovation (CMMI) is launching and evaluating several initiatives, primarily Accountable Care Organizations (ACOs), bundled payment for care innovation, and primary care transformation.  These initiatives change financial incentives for health care providers so that while they bear some financial risk for the costs of providing care, they also stand to benefit from any savings produced.

Historically, it has taken additional legislative action to apply successful delivery models more broadly across the Medicare program. Now, the health care law has removed this barrier, giving the Secretary of Health and Human Services the ability to expand successful innovations that improve quality or lower costs.  While early results show improvements in quality and modest savings, most CMMI pilots and demonstrations to date are not specifically targeted on high-risk beneficiaries, where the biggest gains can be expected.

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Four Years Into A Commercial ACO For CalPERS: Substantial Savings And Lessons Learned


April 17th, 2014
 
by Glenn Melnick and Lois Green

Editor’s note: In addition to Glenn Melnick, this post is coauthored by Lois Green.

Background: In a very short period of time, Accountable Care Organizations (ACOs) have become an important and widespread part of the US health care landscape. A recent Health Affairs Blog post estimates the total number of public (Medicare) and private ACOs at more than 600 nationally, covering more than 18 million insured population. Despite their rapid and widespread adoption, relatively little is known about how ACOs actually work and how successful they have been. This is due in part to their relative “newness,” as many reported ACOs are just getting up and running. Others have been operational for short periods of time and have yet to produce meaningful or long-term sustainable results.

This Health Affairs Blog post helps fill some of this void by reporting on the operational experiences of one of the oldest (4+ years) and largest commercial ACOs in the nation. A previous Health Affairs Blog post reported on its initial planning and start-up phase, and a subsequent Health Affairs article reported on its early financial results.

In 2007, Blue Shield of California, along with provider and employer partner organizations, began exploring development of one of the first ACO-like programs in the country to serve Commercial patients. It launched in 2010 and, as reported below, has been generating savings to consumers throughout the period. Located in the competitive Sacramento market of northern California, the ACO is an example of an innovative shared savings model involving a large insurer—Blue Shield of California; a purchaser—the California Public Employees Retirement System (CalPERS); a physician group—Hill Physicians Medical Group (HPMG); and a hospital system—Dignity Health. The population served approximately 42,000 CalPERS employees and their families covered by Blue Shield.

In this Health Affairs Blog interview, senior executives from each of the partnership organizations, all of whom have operational responsibilities and oversight of this ground-breaking Commercial ACO, discuss key operational aspects of the ACO and its implementation. They discuss evolution of the culture, governance and essential “partnership” relationships an ACO requires to survive and thrive. In addition, they detail specific operational initiatives designed to coordinate and manage care, and report on how these initiatives have fared over the four-year period since the ACO’s launch. Empirical results show success in many areas, with challenges in some others. Of particular note has been overall cost of health care (COHC) savings reported at gross savings of more than $105 million, with net savings of $95 million to CalPERS members, since 2010. Finally, the partners illuminate the ACO’s future directions and offer lessons for other organizations considering development of an ACO delivery system for the Commercial market.

The interview was supported by funding from the California HealthCare Foundation.

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We’ll Need A Bigger Boat: Reimagining The Hospital-Physician Partnership


April 17th, 2014
 
by Francis J. Crosson and John Combes

Editor’s note: In addition to Francis J. Crosson, this post is coauthored by John Combes.

Change is underway in the delivery and financing of American health care, and it is manifested in the evolving relationship of hospitals and physicians across the U.S. These developments are most striking in California, but are appearing in various forms in almost all states. Physicians and hospitals are being both “pushed” and “pulled” together in new ways by a variety of market forces, including the development of Accountable Care Organizations (ACOs) for both Medicare and commercially insured patients, increased direct employment of physicians by hospitals, the emergence of new payment mechanisms such as global payments, and, in general, by the need for physicians, physician groups and hospitals to deliver greater “value.”

All of this presents the opportunity to redesign care to be more coordinated, efficient, patient-driven, and effective. These integration forces could lead to the kind of organizations envisioned 15 years ago in the Institute of Medicine report “Crossing the Quality Chasm”, resulting in the Triple Aim of better health, better patient care experiences and outcomes, and improved affordability — driven, in part, by new patient care models and payment methods including incentives for improving the value of health care services.

Many physicians are uncomfortable with the idea of physician-hospital integration for several reasons. The long tradition of “professional autonomy”– perhaps best described as “the need for physicians to be able to make appropriate and scientifically based patient-by-patient decisions in the best interest of those patients” — can raise fears among some physicians about becoming part of a larger practice or institution and losing that autonomy. Additionally, some physician groups have shown that they can develop a successful ACO without the need for hospital and insurance partners, preferring to manage the clinical and financial risk alone.

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Payment and Delivery Reform Case Study: Congestive Heart Failure


April 15th, 2014
by Darshak Sanghavi

Editor’s note: In addition to Darshak Sanghavi (photo and bio above), this post is coauthored by Meaghan George, a project manager at the Engelberg Center for Health Care Reform at the Brookings Institution. The post is adapted from a full-length case study, the first in a series of case studies made possible through the Engelberg Center’s Merkin Initiative on Physician Payment Reform and Clinical Leadership, a special project to develop clinician leadership of health care delivery, payment and financing reform. The case studies will be presented using a “MEDTalk” format featuring live story-telling and knowledge-sharing from patients, providers, and policymakers. The event series will kickoff on Wednesday, April 16 from 10 a.m. – Noon EST.

Introduction

Clinicians and hospitals across the nation struggle with providing and paying for optimal care for their congestive health failure (CHF) patients. However, there are opportunities to make care better. In fact, of the more than 10,000 pages in the Affordable Care Act (ACA) implementing regulations, the least talked about are the dozens of small experiments led by the Center for Medicare and Medicaid Innovation (CMMI) that test new ways to pay for medical services.

We use a case study approach to investigate and tell the story of what two academic medical centers, Duke University Health System (“Duke”) and University of Colorado Hospital (“Colorado”), are doing to innovate and improve CHF care while implementing alternative payment models offered by CMMI.

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Look At Consequences Of Rejecting Medicaid Expansion Leads First Quarter Health Affairs Blog Most-Read List


April 14th, 2014
by Tracy Gnadinger

Given their recent mention in Paul Krugman’s New York Times‘ column, it’s not surprising that Sam Dickman, David Himmelstein, Danny McCormick, and Steffie Woolhandler‘s discussion of the health and financial impacts of opting out of Medicaid expansion was the most-read Health Affairs Blog post from January 1 to March 31, 2014.

Next on the list was Robert York, Kenneth Kaufman, and Mark Grube‘s discussion of a regional study on the transformation from inpatient-centered care to an outpatient model focused on community-based care. This was followed by Susan Devore‘s commentary on changing health care trends and David Muhlestein‘s evaluation of accountable care organization growth.

Tim Jost is also listed four times for contributions to his Implementing Health Reform series on Medicaid asset rules, CMS letter to issuers, contraceptive coverage, and exchange and insurance market standards.

The full list appears below.

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Takeaways From The Aspen Institute’s Care Innovation Summit


April 10th, 2014
by Matthew Richardson

Back in February, The Aspen Institute and The Advisory Board Company sponsored the Care Innovation Summit in Washington, DC. With a keynote address from Secretary of Health and Human Services Kathleen Sebelius, the daylong summit featured some of the newest data and research on the rapidly evolving U.S. health care landscape.

Featured speakers such as Jeffrey Brenner of the Camden Coalition of Healthcare Providers and Claudia Grossmann of the Institute of Medicine in addition to others from State and Federal government, insurers, hospitals, and research institutions offered insights on higher-value care and improved health for individuals and populations.

Here are five most memorable takeaways:

1. Health Care Cost Inflation Has Slowed

Perhaps the most eye-catching data trend presented was the dramatic slowing of Medicare spending showcased by Patrick Conway, Director of CMMI (presentation available here). The collapse of annual per capita spending growth is important not only because it implies significant value changes are underway in the provision of ever more services by Medicare, but also because it can further mean many things to many people.

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Responding To ‘The Hidden Curriculum’: Don’t Forget About The Patient


April 3rd, 2014
by Rob Lott

Narrative Matters readers might remember Joshua Liao’s moving essay about the dangers of the Hidden Curriculum. Liao, a resident physician at Brigham and Women’s Hospital, wrote about the consequences of making a serious mistake as a medical student on an obstetrics rotation. He read the essay for the Narrative Matters podcast and it’s a great listen.

Liao’s essay, penned with Eric Thomas and Sigall Bell, also generated some compelling responses. It inspired Tim Lahey to write about his experience leading the curriculum redesign at Dartmouth’s Geisel School of Medicine. And when the Washington Post ran an excerpt of Liao’s essay last week, it led Franca Posner to remind readers about “one missing piece of this puzzle”: the patient’s perspective.

Posner was once in a similar situation, but it was she on the hospital bed: “I was that woman 20 years ago, only I was almost 40 and had a 5-year-old child and five miscarriages in my reproductive history,” Posner wrote in a letter to the editor published in the Post’s Health and Science section on March 31.

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Should Provider Performance Measures Be Risk-Adjusted For Sociodemographic Factors?


March 27th, 2014
by Christine Cassel

The National Quality Forum released draft recommendations on March 18 to change the way we assess the care that doctors and hospitals provide, and they are sure to cause a buzz in and beyond the health care community. That’s a good thing, because reflection and conversation are vital pieces of ‘getting it right’ when determining how measures can be used to gauge healthcare performance.

The recommendations come from a panel of 26 national experts convened by NQF at the request of the federal government. The question before them: Should the measures we use to assess providers’ performance be risk-adjusted to account for patients who are poor, homeless, illiterate, uneducated, or have other indicators of lower socioeconomic status? The panel’s recommendations are discussed below, and we encourage you to register your views by commenting on the report by April 16 and on this post.

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Implementing Health Reform: Allowing Noncompliant Policies; Benefits And Payment Parameters Rule (Part 2)


March 7th, 2014
by Timothy Jost

Editor’s note: Part 1 of this post discussed the Department of Health and Human Services March 5 bulletin extending until October 1, 2016 its transitional policy permitting the renewal of ACA non-compliant individual and small group health insurance policies. Part 1 also began examining the final 2015 Notice of Benefit and Payment Parameters rule, issued on the same date. Subsequent installments will discuss two final rules also issued March 5 by the Internal Revenue Service regarding reporting by insurers of minimum essential coverage and reporting by employers on coverage under employer-sponsored health plans.

Reduced notice requirement for new state exchanges. The final 2015 Benefit and Payment Parameters rule requires states that would like to begin operating their own exchanges to notify HHS of this intention by June 15 of the preceding year. Earlier rules had required a year’s notice.

Consumer assistance and privacy. States may permit web brokers to assist individuals, employers, and employees with enrolling in qualified health plans (QHPs) through their exchanges. Agents and brokers must comply with privacy and security standards protecting personally identifiable information and may not use it for marketing. The SHOP exchange, and not the web broker, is responsible for aggregating premiums and forwarding them to insurers. Web brokers must display information on all available QHPs, although insurers may refuse to provide non-appointed brokers with certain information. Web brokers must also provide enrollees with a disclaimer noting that they are not the exchange and may not have full information on all plans.

State exchanges must comply with federal personally identifiable information requirements, but may seek the approval of HHS to use this information to ensure the efficient operation of the exchange if they secure the consent of the individual whose information is to be used. Exchanges that disclose personally identifiable information to non-exchange entities (such as certified application counselors, in-person assisters, brokers, QHP insurers or others) must enter into a contract with these entities ensuring protection of this information. Non-exchange entities that must independently comply with Health Insurance Portability and Accountability Act data privacy and security requirements (such as QHPs) may be deemed to be in compliance with exchange requirements by virtue of their compliance with HIPAA as long as the HIPAA requirements are at least as protective as the exchange requirement and if the entities also comply with additional ACA data protection requirements.

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The Dangers Of Quality Improvement Overload: Insights From The Field


March 7th, 2014

Editor’s note: This post is also co-authored by Ksenia O Gorbenko, Catherine van de Ruit, and Charles Bosk of the University of Pennsylvania.

Quality improvement (QI) and patient safety initiatives are created with the laudable goal of saving lives and reducing “preventable harms” to patients. As the number of QI interventions continues to rise, and as hospitals become increasingly subject to financial pressures and penalties for hospital-acquired conditions (HACs), we believe it is important to consider the impact of the pressure to improve everything at once on hospitals and their staff.

We argue that a strategy that capitalizes on “small wins” is most effective. This approach allows for the creation of steady momentum by first convincing workers they can improve, and then picking some easily obtainable objectives to provide evidence of improvement.

National Quality Improvement Initiatives

Our qualitative team is participating in two large ongoing national quality improvement initiatives, funded by the Agency for Healthcare Research and Quality (AHRQ). Each initiative targets a single HAC and its reduction in participating hospitals. We have visited hospital sites across six states in order to understand why QI initiatives achieve their goals in some settings but not others. To date, we have conducted over 150 interviews with hospital workers ranging from frontline staff in operating rooms and intensive care units to hospital administrators and executive leadership. In interviews for this ethnographic research, one of our interviewees warned us about unrealistic expectations for change, “you cannot go from imperfect to perfect. It’s a slow process.”

While there is much to learn about how to achieve sustainable QI in the environment of patient care, one thing is certain from the growing wisdom of ethnographic studies of QI: buy-in from frontline providers is essential for creating meaningful change. Front-line providers often bristle at expectations from those they believe have little understanding of the demands of their daily work. Requiring health care providers to improve on all mandated measures at once—in an atmosphere of reduced reimbursements and frequent staff shortages—is a goal that risks burnout, discouragement, and apathy – all signs of initiative fatigue.

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The Payment Reform Landscape: Pay-For-Performance


March 4th, 2014
by Suzanne Delbanco

Editor’s note: This is the second post in a Health Affairs Blog series by Catalyst for Payment Reform Executive Director Suzanne Delbanco. Over the coming months, Delbanco will examine how different methods of payment reform are being employed and how well they’re working. The first post in the series provided an overview of payment reform; this post examines pay-for-performance.

One of our core beliefs at Catalyst for Payment Reform (CPR) is that we need to move away from fee-for-service, toward new models that pay for care based on value, not volume. And while our National Scorecard on Payment Reform shows these new payment models are spreading, we still don’t know if they are really delivering the value we hope for — higher-quality care at more affordable prices. So we decided to make 2014 a year “all about the evidence,” taking an in-depth look at different payment reform models and assessing whether they are proving to enhance value. We’re delighted Health Affairs Blog is our partner in this journey. This month we examine pay-for-performance.

What is pay-for-performance? Is it widespread?

A pay-for-performance (P4P) model provides what are typically financial incentives to providers to improve the quality of the care they deliver and/or reduce costs. In CPR’s terminology, pay-for-performance is an “upside only” method of payment reform. The model gives health care providers the chance for a financial upside – such as a bonus — but no added financial risk, or downside. Our 2013 National Scorecard on Payment Reform demonstrated that almost 11 percent of commercial payments are value-oriented; approximately 1.6 percent of commercial payments are fee-for-service with pay-for-performance.

Despite the small portion of dollars flowing through pay-for-performance programs, we know it is a relatively popular model of payment reform. According to a 2010 report issued by the National Conference on State Legislatures (NCSL), an estimated 85 percent of state Medicaid programs were expected to operate some type of pay-for-performance program by 2011. Provisions in the Affordable Care Act expand the amount of pay-for-performance in Medicare as well.

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When The Only Cure Is A Transplant


February 21st, 2014

On Christmas Eve 2011, protesters from a local church marched to the entrance of our hospital, Rush University Medical Center in Chicago. They demanded we provide organ transplants for sick members of their congregation. We invited them in and listened to their gut wrenching stories. George, twenty-two, was brought to the United States as a six-month-old. He developed renal failure at age sixteen while covered under the Children’s Health Insurance Program. Now he was uninsured, on dialysis and refused a transplant evaluation at the same institution that treated him as a child. Another undocumented immigrant, Martin, was twenty-six. He too was uninsured and on dialysis.

Chicago has six adult transplant centers. Initially none would evaluate George or Martin for transplantation because they were uninsured. In the Narrative Matters essay, “Undocumented Immigrants And Kidney Transplant: Costs And Controversy,” published in the February issue of Health Affairs, Vanessa Grubbs tells a similarly heartfelt story of a patient in need of a transplant: Mr. Rojas. George, Martin and Mr. Rojas are not US citizens, but it was their lack of health insurance that kept transplantation out of reach. Foreign-born immigrants always have access to a transplant evaluation (the prerequisite for organ transplant) if they have insurance or the cash to pay.

In theory, the organ allocation system in the United States is based on justice and equity. The National Organ Transplant Act (NOTA) was passed in 1984 to create a fair system of organ transplantation in the United States. A federal task force, created by the act, was charged to design an organ allocation system “based on medical criteria that are publicly stated and fairly applied.” The task force emphasized that organs should be distributed to those eligible “regardless of their ability to pay.” Both NOTA and the bylaws of the United Network for Organ Sharing, the nonprofit organization that manages the national transplant network, require that need, not financial or citizenship status, guide transplant allocation decisions. Undeniably, the system of altruistic donation is only viable if a donating individual believes organs are allocated fairly.

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To Pay For Medicare SGR Repeal, Build On Bipartisan Health Care Policy


February 20th, 2014

Something unexpected is happening in Washington. As most eyes track partisan battles over immigration and the Affordable Care Act, key Congressional committees have been quietly advancing truly bipartisan legislation to strengthen Medicare.

Since 2002, an outdated Medicare cost control called the Sustainable Growth Rate (SGR) has repeatedly threatened drastic Medicare provider cuts. After a decade of temporary fixes, SGR repeal appears within reach. A bipartisan, bicameral agreement by key Congressional leaders announced on February 6, 2014 goes a step further by pairing repeal with bipartisan reforms that pay physicians for the quality and value of care they deliver, not the number of tests and procedures they order.

When one of every three health care dollars is wasted on care that does not improve patients’ health, transitioning away from volume-based reimbursement would be momentous. Few policy changes are more fundamental to containing health care costs and protecting the solvency of Medicare.

The challenge in Congress has shifted from getting a bipartisan agreement on new cost controls to paying for the repeal of the old one. The Congressional Budget Office (CBO) estimates the cost of the Senate version of the bipartisan repeal bill at $149 billion over 10 years.

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Care Delivery And Coordination In The Accountable Care Environment


February 19th, 2014

Editor’s Note: This post is the fourth in a periodic Health Affairs Blog series on palliative care, health policy, and health reform. The series features essays adapted from and drawing on an upcoming volume, Meeting the Needs of Older Adults with Serious Illness: Challenges and Opportunities in the Age of Health Care Reform, in which clinicians, researchers and policy leaders address 16 key areas where real-world policy options to improve access to quality palliative care could have a substantial role in improving value.

As we enter the world of accountable care, palliative care programs bring tremendous assets to our health care system. Accountable care organizations (ACOs) seek to improve quality and reduce costs for a defined population of patients, and palliative care offers value on both the quality and cost sides of the equation.

Palliative care improves quality

Patients facing a serious illness value survival, quality of life, and minimization of suffering for themselves and their families. For patients with far-advanced disease, hospice care is the “gold standard” of care in meeting these goals. Palliative care achieves these goals for patients who are living with a serious illness but may not be at the end of life. Many studies demonstrate a panoply of improved outcomes for patients receiving palliative care: improved quality of life, reduced symptoms, enhanced emotional support, improved communication with physicians, earlier and more frequent use of hospice, reductions in family distress, improved survival, and greater satisfaction with care.

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A Call For A Deeper, Cross-Sector Examination Of The Hunger-Health Link


February 18th, 2014
by Sharon Feuer Gruber

Evidence continues to build that hunger should be approached in some measure as a public health issue, and Hilary Seligman of the University of California, San Francisco and co-authors contribute to this trove of research in the January Health Affairs journal article “Exhaustion of Food Budgets at Month’s End and Hospital Admissions for Hypoglycemia.” Hunger-relief organizations across the country can attest to the long-observed pattern of a rise in demand for food distribution at the end of the month. In fact, meal providers and food pantries tailor their decisions about purchasing, staffing, and program design around the uptick in client need as the month comes to a close. Seligman et al correlate this surge in demand with an increase in hospitalization among low-income individuals the fourth week of the month (a 27 percent increase in hospitalization among low-income individuals for hypoglycemia, according to their study). These findings suggest the profound need to devise food policies and programs with public health in mind.

However, to effectively address hunger as a public health issue in particular, hunger-relief organizations, community health organizations, universities, government, and others must take a collective impact approach. This cross-sector approach to complex, systemic social issues fosters coordination among such groups so they can have a greater positive impact than if they were to operate independent of one another; it is being turned to with increasing frequency to create large-scale social change. Policy can encourage a collective impact approach; it is already happening in the case of hospitals, which under Section 3025 of the Affordable Care Act, are penalized a portion of their Medicare reimbursement if they have a higher than expected rate of acute care readmissions within 30 days of discharge. (See 42 CFR part 412P.)

New community and regional partnerships are beginning to develop in part because of this incentive. The Atlanta Community Food Bank, for example, which distributed 21.8 percent more food and grocery items this past fiscal year than the last, is in early discussions with the Atlanta Regional Commission, the city health department, regional hospitals, and universities. Together they aim to confront the need for better health education and sustained access to nutritious food among low-income individuals discharged from hospitals for chronic, diet-related disease like diabetes, congestive heart failure, and associated complications. This is precisely the type of alliance that could help address the issues laid out in “Exhaustion of Food Budgets…” Policymakers need to build on this kind of ingenuity taking place in the field – especially if those in the field are expected to do more with less. That will certainly be the case, as the recently enacted Farm Bill imposes $8.6 billion in cuts to SNAP over the next 10 years, increasing demand on hunger-relief organizations even further.

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Encouraging Nonprofit Hospitals To Invest In Community Building: The Role Of IRS ‘Safe Harbors’


February 11th, 2014

Hospitals as public health actors. A notable development in public health policy is the growing emphasis on community health improvement as part of the community benefit activities required of nonprofit hospitals that seek federal tax exempt status under §501(c)(3) of the Internal Revenue Code. Key industry leaders, such as the Catholic Health Association, have sought to increase the role of hospitals as public health actors. A report by the Hilltop Institute recognizes the potential link between hospitals’ community benefit expenditure activities and community health and describes states that have sought to involve hospitals in health planning to improve public health.

Two important policy developments have breathed further life into the effort to emphasize public health investments as part of a community benefit strategy. This post reviews these policy advances and proposes that the Internal Revenue Service (IRS) establish “safe harbors” describing in advance certain evidence-based investments by nonprofit hospitals in their communities that will automatically count as required community benefit activities.

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The Changing Health Care World: Trends To Watch In 2014


February 10th, 2014
by Susan DeVore

While today’s news is bombarding us with headlines about Healthcare.gov, the Affordable Care Act isn’t just about insurance coverage. The legislation is also about transforming the way health care is provided. Consequently, it has ushered in new competitors, services and business practices, which are in turn generating substantial industry shifts that affect all players along healthcare’s value chain. Following are some of the top trends that our alliance is preparing for in 2014:

Chronic Care, Everywhere. It’s no secret that providers are moving quickly to implement accountable care organizations (ACOs). Recently, the Premier healthcare alliance released a survey of hospital executives projecting that ACO participation will nearly double in 2014. As providers work to improve their way to shared savings payments, look for a more intensive focus on the biggest health care consumers: those with multiple chronic conditions.

Since each chronic condition increases costs by a factor of three, managing this population is the sweet spot for the ACO, and the deepest pool from which to pull savings. To do it, an increasing number of providers will deploy Ambulatory Intensive Care Units (A-ICUs) or patient centered medical homes as part of their ACO, which will be charged with better managing chronic conditions exclusively within a clinically integrated, financially accountable primary care practice. As part of the approach, providers will develop care pathways for better managing chronic conditions and behavioral health needs, with an eye toward lowering hospital utilization, including inpatient bed days, length of stay, admissions, readmissions, and ED visits.

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Payors In Care Delivery: When Does Vertical Integration Make Sense?


February 5th, 2014
by Shubham Singhal

Editor’s note: In addition to Shubham Singhal (linked bio above) this post is authored by Rohit Kumar and Jeris Stueland. Rohit Kumar is a consultant in McKinsey’s Chicago office. Jeris Stueland, an expert in McKinsey’s Healthcare Systems and Services Practice, is also in the Chicago office.

This is the third in a periodic series of posts by McKinsey analysts on the landscape facing payors in the post-reform world. Read the first and second post in the series.

In recent years, much of the payor industry has transitioned away from a medically-underwritten to a guaranteed-issue, community-rated, risk-adjusted model. As a result, managing the total cost of care has become the dominant imperative for achieving competitive advantage.

As payors have sought ways to develop effective managed-care approaches for this new environment, interest in vertical integration has increased considerably. In the four years between 2005 and 2008, payors announced just 12 vertical integration M&A deals. In the subsequent four years, the number jumped to 26, and recent targets have largely been physician groups and integrated care organizations. These deals have not just been attempts to create competitive advantage—they have also been defensive plays to counteract potential challenges from provider consolidation and the acquisition of physician practices by hospital systems interested in vertical integration of their own.

Our research suggests that the economics of vertical integration makes sense for payors in only a minority of markets. For example, when we identified the markets in which the acquisition of physician groups appears to create economic value for payors, the total population included only about 80 million Americans. Furthermore, the significant execution challenges involved in integrating payors and physician practices at scale suggests that the markets we identified likely represent the outer limit of the feasible set.

We describe below the economic drivers of net value creation (or destruction) through vertical integration, the market conditions that indicate a given area may be fertile ground for positive value creation, and the execution challenges that must be overcome to capture the value.

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Connected Health And America’s War On Error


February 5th, 2014
 
by Joseph Smith and Michael Johns

Editor’s note: For more on connected health, see Health Affairs‘ newly published February thematic issue on the subject. The issue was discussed at a Washington DC briefing this morning, keynoted by the new National Coordinator for Health Information Technology, Karen DeSalvo. The Office of the National Coordinator and West Health Institute are cosponsoring a conference tomorrow on developing an interoperable health care system.


recent analysis, the annual losses are worse than any other war in our nation’s history, including the Civil War, World War II and our War on Terror. It is an undeclared “war on error” within our healthcare delivery system. It is the most deadly war we have ever waged, with errors and resultant harm in hospitals contributing to the death of nearly 1,000 people each day in the U.S., potentially more than 400,000 a year.

As with any other war, there is an enormous economic burden. The U.S. spent approximately $2.8 trillion on health care in 2012, with about 30 percent of total health care expenditures attributed to hospital services. That’s just over $800 billion annually, making America’s war on error not only the deadliest, but also the most expensive.

Until now, this war has often been waged in hospitals, where small, poorly outfitted groups of combatants have used simple, unconventional means like prompts for hand washing, autographing surgical sites and implementing ‘no interruption zone’ for medicine preparation – with limited success. But now, new technologies like integrated sensor networks, fully integrated electronic medical records (EMRs), clinical-decision support systems and algorithm-based care, all embedded in smart and learning systems, may finally provide the tools needed to win the war.

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Why Mayors Want States To Expand Medicaid: New Local ‘Coverage Gap’ Estimates


February 4th, 2014

Increasingly, whether or not to expand Medicaid under the Affordable Care Act (ACA) is being framed as a local issue. The mayors of Atlanta, Philadelphia, and Dallas, among others, are calling for expansion of the program in their states.

Now, the first-ever estimates of the number of poor adults being left out of Medicaid coverage in cities and rural areas shed light on why these mayors and other local leaders are speaking out.

The Dallas Fort Worth area is home to 357,000 poor uninsured adults who do not have access to Medicaid coverage because Texas has chosen not to implement the Medicaid expansion under the ACA; in Atlanta and Philadelphia, the numbers affected are 327,000 and 115,000, respectively.

A recent post on The Atlantic Cities blog lays out the challenges mayors of big cities are facing in states that are not expanding Medicaid under the ACA. The concerns of mayors go beyond their low-income constituents’ health care access and financial well-being to the inequities created by those with higher incomes having access to subsidized coverage, while their poorest residents will not.

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