How To Manage A Population Health Management Network

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1 CENTER FOR INDUSTRY TRANSFORMATION MAY 2015 LARGE SCALE NETWORKS NEXT WAVE OF CLINICAL INTEGRATION Authors Michael Strilesky Principal, DHG Healthcare

2 DHG HEALTHCARE CENTER FOR INDUSTRY TRANSFORMATION Healthcare provider consolidation has been occurring at a steady pace over the past decade as health systems and physicians increasingly look for ways to reach more patients with measured quality services while operating as efficiently as possible. Many providers have maintained their independence as long as possible to avoid losing control over clinical and operational decisions as well as the overall change that consolidation might mean to their local community or patient base. Just as these relatively mature providers have become comfortable, and in some cases proficient in the current state environment, the reality of sustaining this success on a go-forward basis remains unlikely. Many of these challenges require providers to consider joining or creating larger networks that can effectively manage the operational complexities of post-reform healthcare while competing for market share and ultimately preparing for taking on true population health management contracts. In the last five years, clinical integration emerged as a strategy to align multiple providers into an organization focused on delivering value to patients through improved quality, better coordination of care and lower costs. This approach could be accomplished without financial integration of the related hospitals or physicians. In the clinically integrated models that emerged over the last five years, smaller independent physician groups had the opportunity to participate in a network with the infrastructure and resources to support their practice and adapt to the market challenges without joining large multi-specialty groups. Developing a clinically integrated network (CIN) became one vehicle to ensure value could be achieved for the patient and the provider without the barriers associated with financial consolidation or misaligned incentives of remaining entirely independent. hospitals, academic medical centers and focused centers of excellence. Challenges occur when patient information needed to efficiently coordinate care is unavailable because the patient care was delivered at a location that does not share common integrated information systems. Community hospitals in outlying markets and large hospitals in competitive urban markets often do not integrate their technology in this manner, and the development of Health Information Exchanges (HIEs) to bridge the gap between providers is not meeting the timeline expectations to be risk capable and deliver enhanced value to the patient. As CINs are formed to more effectively coordinate patient referrals in a given market, exclusion from larger networks could lead to an unstainable business model that cannot effectively coordinate out-of-network care.. Realizing that the status quo may no longer be viable, integration and continued growth of existing CINs into large-scale networks may be necessary to survive in the value-based environment. Navigating the changing landscape that is producing shifting referral patterns, declining inpatient admissions, lower fee-forservice reimbursement and rising costs represent a real challenge for some entities and significant opportunities for others. Strategic organizations are realizing the value of collaborating with other aligned organizations across the continuum of care and outside their service areas to lower their collective costs, enhance their clinical and operational performance and more quickly transition into the new era of population-based healthcare and value-based reimbursement. The Large Scale Network in Healthcare Partnerships between hospitals and health systems that fall short of financial mergers have been around for some time, often revolving around service line affiliation agreements and group purchasing networks where there is a single-threaded value proposition for each participant. The emerging challenges outlined earlier call for new network models built around the concepts of the Institute for Health Improvement (IHI) Triple Aim: Improving the patient experience of care (including quality and satisfaction); Improving the health of populations; and THE IHI TRIPLE AIM Population Health Development of a CIN that strategically aligns a health system and its independent physicians in one market should be viewed as a precursor to understanding how to tackle the larger challenge of coordinating care for a population across a region, state or country. Across the nation in physician offices and hospitals, patient referrals are made to and from physicians, community 2 Reducing the per capita cost of health care. Experience of Care Per Capita Cost

3 Emerging models that are taking on this concept fall into one of three categories: 1. Regional Alliance/Collaborative: These models are typically agreements between health systems or virtual organizations that do not have a legal entity. Organizations come together to share best practices, leverage unique strengths and collaborate around innovative care delivery and population health strategies. These approaches fall short of clinical or financial integration and therefor do not include jointcontracting. In some cases, they could be sought out as a preferred or high performance network convener for a payer desiring to develop a narrow network product. 2. Regional ACO/CINs: These models often evolve out of existing ACOs or CINs that consolidate their physician networks under one parent organization or a newly created entity. They are designed to provide a comprehensive solution for population health management through the deployment of core capabilities to coordinate patient care, measure performance and standardize best practices across participating members. These organizations are more formally aligned than Regional Alliance/Collaborative organizations, but do not include integration at the hospital level. Each hospital or health system contributes shared resources and capital required to operate the new regional network and integrate physicians in local pods. 3. Statewide or National CINs: Similar to Regional networks, these networks manage large populations through contracts with payers or large market-based employers and in some cases assume contractual liability for Medicaid in a defined geographic area. These networks can achieve financial and/or clinical integration between hospitals and with physicians, thereby allowing the network to pursue joint-contracting with payers. Statewide or National networks ensure that appropriate access can be provided across a larger geography with multiple referral centers providing more choice for patients and their referring physicians. These networks need to follow the FTC requirements for clinical integration as a precursor to joint-contracting, however the scrutiny around these types of networks will be much greater than that of CINs or Regional CINs. These three network strategies are fundamentally designed to create disruptive innovation around patient care delivery in the market while lowering operating costs and facilitating the flow of information across organizations. Access to preferred contracting relationships with payers can also enhance the volume and reduce barriers for access to patients relative to out-of-network competitors. Each of these models will work towards competing on value and achieving the objectives outlined in the IHI Triple Aim. Drivers for Integration The best way to get a good idea is to get a lot of ideas. - Clayton M. Christensen Providers that participate in large-scale networks must be individually and collectively committed to improving the way care is delivered by openly sharing information to create meaningful changes and reduce unnecessary variation across the patient care continuum. As these networks mature, stakeholders will work together to secure payer contracts based on sufficient clinical integration and optimization of how resources can be shared. Those who participate effectively will be rewarded while those who fail to support an integrated culture may be asked to leave the network. As value-oriented networks become successful, their ability to create enhanced rewards for their members while enforcing appropriate penalties based on poor performance will differentiate themselves from the majority. These network will be those that demonstrate Risk Capability, defined as an organization that demonstrates the following three components: Clinical Enterprise Maturity: the structure, governance and alignment of providers to deliver value Enterprise Intelligence: having sophisticated analytics to understand trends in the population, utilization, quality and cost of care provided Revenue Transformation: the intentional development of a value-based reimbursement portfolio and funds flow distribution philosophy to reward participants Risk Capable networks that are positioned to manage large populations will clearly have an advantage over other providers as reimbursement penalties increase and payers reward providers who can clearly demonstrate superior value over their competitors. The following five categories of organizational benefit stand out as reasons to consider larger-scale networks as a strategic advantage. 3

4 DHG HEALTHCARE CENTER FOR INDUSTRY TRANSFORMATION CLINICAL INTEGRATION Health system collaboration, following the parameters of clinical integration between physicians and hospitals, creates a unique opportunity to standardize care across service lines, facilities and markets. Implementing evidence-based guidelines, standards for performance, and measures to hold providers accountable are proven strategies to improve the quality and efficiency of care provided to patients. Aggressive and forwardthinking networks are learning to model the benefits of clinical integration while stopping short of financial integration in the traditional way that large integrated delivery systems have been structured. Achieving clinical integration, obtaining narrow network contracts, or sharing expensive resources represent tangible benefits to each participating hospital and health system in such a network. This is a step all providers should consider to be successful for their patients and their practices or organizations in a value and performance-based revenue model. COST OF TECHNOLOGY AND RELATED RESOURCES Rising expense pressures associated with the increasing cost of emerging technology coupled with a call for more caregivers to deliver the complex services required for higher acuity patients can often be too significant for a community hospital or small health system to absorb. The benefit of size contributes to the reduction in perpatient cost for such services as the number of similar type patients multiply. In many cases, community hospitals and small CINs will not have the economic resources to sustain the continued investment in information technology and human capital with the unique skillsets required to focus on population health. Payers will look for larger risk capable networks that can document the ability to reduce variation across a large population that ultimately leads to higher quality at a lower cost, representing significant savings to the payer or employer. SPREADING FINANCIAL RISK Financial penalties and economic challenges in the delivery of tertiary care for the sickest patients increases risk for all providers. The size and composition of the pool of patients that are at risk are important elements in sustaining risk capability. George Halvorson, former CEO of Kaiser Permanente, wrote in his book that spreading risk is critical. Appropriate risk sharing, not avoiding risk, is the key to success in the future of healthcare. Large-scale networks will have an advantage in their ability to spread risk based on the attribution of lives to the network, mitigating the importance of each individual provider s financial strength and cash reserves. In the state of Alabama, hospital-sponsored Regional Care Organizations (RCOs) are being established in five districts across the state to manage the entire Medicaid population. RCOs will accept capitation payments from the state Medicaid agency beginning October 1, To manage this risk, RCOs will include multiple providers in each district who work together on the coordination of care for their population and ultimately share in the annual economic shortfalls or surpluses realized for this population. This is just one example of the progressive movement markets are making to more effectively deliver high-quality, cost-effective care. 4

5 INNOVATION IN OPERATIONAL PERFORMANCE One of the key innovation tenants is to rapidly iterate improvements that ultimately reveal the benefits associated with well thought out process change. It is proven that larger organizations can support more innovation through affordable test tube experimentation initiatives. Innovation capability is an inherent advantage of large-scale networks that are able to successfully reduce their cost structure by collaborating around the coordination of resources and facilities. This will provide an advantage when competing for contracts with payers, particularly in narrow network arrangements that are becoming increasingly prevalent on the insurance exchanges and with self-insured employers. Advantages of innovation in operational performance include: True innovation and at an accelerated pace Lower overall cost structure on a per-patient-served basis Enhanced coordination of care Reduction in overlapping or redundant facilities Improved ambulatory access and primary care provider access Common quality metrics and reporting requirements Simplified contracting, billing and administrative functions Greater ability to manage future funds flow requirements of bundled and risk-based contracts Evaluating Large-Scale Integration in Your Market Integration as we ve outlined in this article does not need to include a merger, sale or acquisition to ensure success in a valuebased environment. A Regional Alliance of health systems that share common objectives and unique capabilities can begin to take proactive steps to ensure the success of network participants by reacting more effectively to market changes. Achieving financial and clinical integration is certainly not a requirement in the beginning, and in some cases these networks may simply prove to be effective at accelerating the provider capabilities and readiness to work collaboratively. If and when large-scale networks become clinically integrated, a reasonable outcome would be joint-contracting that certainly would intensify the legal scrutiny around these network models. It is important to recognize that the same parameters and guidance for clinical integration that protect the ability for a hospital and its aligned physicians to jointly negotiate contracts will apply to these large-scale networks, however the degree of interdependence will be much more challenging to prove if the parties do not have a deliberate plan to follow. These factors should be considered as part of the organizational responsibilities to ensure providers are working interdependently with common resources and protocols while leveraging best practices that can all be measured and monitored. It is also possible that early entrants into this space will provide further definition from the FTC, but to date there are no advisory opinions that address all of the issues related to large-scale integration. We recognize that every market is moving at a different pace. Understanding integration drivers will help determine the best approach for large-scale integration, the best partners to include and the pathway to clinical integration. The ability to accelerate or anticipate how payers may drive value-based payment through these networks becomes a tangible benefit for participation. Failing to participate could lead to having to accept payment models in a defensive posture as an attempt to keep patient volume and market share. Every hospital, health system and established network should rapidly define their strategic parameters as they prepare for risk-based contracting and population health management. This is equally important in a rapidly-paced population health and value-based reimbursement world as it has been for many years in the much slower evolving traditional fee-for-service world. 5

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