17
Delivery System Integration

INTRODUCTION

With effects on costs, quality of care, and patient and provider satisfaction, the current fragmentation and disarray of the healthcare system present significant challenges to efficient and effective care (Stange, 2009; Wiggins, 2008). For example, with fragmented communication between providers, duplicate testing and the absence of vital information compromise both outcome and economic prospects, discontinuities that pose costs to both patients and society (Valenstein and Schifman, 1996). Highlighting the benefits of streamlined and harmonized health insurance regulation, payment redesign, and secure, sharable clinical records, the presentations in this session target delivery system integration and connectivity as methods of lowering costs and improving outcomes.

John Toussaint of the ThedaCare Center for Healthcare Value defines care fragmentation as the lack of the resources necessary for a patient to manage his or her condition in a timely fashion. He explains that the current care delivery system is not designed for consumers, but rather for providers and hospitals, and contends that this was the result of a lack of fundamental understanding of what constitutes value from the patient perspective. Elaborating on current initiatives to improve care coordination, he cites multiple examples of success. Group Health of Puget Sound reduced emergency room visits by 29 percent by redesigning its clinical services. ThedaCare’s Collaborative Care Unit lowered inpatient care costs 25 percent. Gunderson Lutheran’s care coordination process included a focus on end-of-life care, resulting in costs per Medicare enrollee that were



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17 Delivery System Integration INTRODUCTION With effects on costs, quality of care, and patient and provider satis- faction, the current fragmentation and disarray of the healthcare system present significant challenges to efficient and effective care (Stange, 2009; Wiggins, 2008). For example, with fragmented communication between providers, duplicate testing and the absence of vital information compro- mise both outcome and economic prospects, discontinuities that pose costs to both patients and society (Valenstein and Schifman, 1996). Highlighting the benefits of streamlined and harmonized health insurance regulation, payment redesign, and secure, sharable clinical records, the presentations in this session target delivery system integration and connectivity as methods of lowering costs and improving outcomes. John Toussaint of the ThedaCare Center for Healthcare Value defines care fragmentation as the lack of the resources necessary for a patient to manage his or her condition in a timely fashion. He explains that the current care delivery system is not designed for consumers, but rather for providers and hospitals, and contends that this was the result of a lack of fundamental understanding of what constitutes value from the patient perspective. Elaborating on current initiatives to improve care coordina- tion, he cites multiple examples of success. Group Health of Puget Sound reduced emergency room visits by 29 percent by redesigning its clinical services. ThedaCare’s Collaborative Care Unit lowered inpatient care costs 25 percent. Gunderson Lutheran’s care coordination process included a focus on end-of-life care, resulting in costs per Medicare enrollee that were 

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 THE HEALTHCARE IMPERATIVE 50 percent lower than the national average. Toussaint posits that a system redesign process grounded in continuous improvement methodology could enhance the value of care delivered to patients and be a complementary or additional tool to the realigned incentives of the bundled payment reforms previously discussed. Drawing on the work of the Medicare Payment Advisory Commis- sion (MedPAC), Mark E. Miller describes Medicare’s fee-for-service (FFS) as creating separate payment “silos” (e.g., inpatient hospitals, physicians, post-acute care providers) and failing to encourage coordination among pro- viders within a silo or across silos. When discussing evidence demonstrating that care coordination can improve quality, he suggests that Medicare must develop new payment methods that will reward efficient use of its limited resources and encourage the effective integration of care, such as reducing preventable hospital readmissions, increasing the use of bundled payments, and holding accountable care organizations (ACOs) responsible for the cost and quality of the care that their patients receive. Building on these ideas, Harold S. Luft of the Palo Alto Medical Foundation Research Institute out- lines alternatives to the current system that could facilitate coordination of inpatient and similar interventional care and both coordination and effective management of ongoing chronic care. Focusing on proposals for medical homes, bundling, and evidence-based practice, he explains that these initia- tives align incentives for value-enhancing care and facilitate the development and spread of the information needed by clinicians to deliver that care. Un- like global capitation, however, they retain aspects of fee-for-service where that payment approach is not problematic, thus reducing opposition from those resistant to change, avoiding the productivity problems faced in large organizations, allowing their application in communities in which highly integrated systems either may be infeasible or are an antitrust concern, and engendering flexibility as medical technology and knowledge change. Andrew M. Wiesenthal explores the potential for increased use of electronic health records (EHRs), coupled with effective, standards-based health information exchanges (HIEs), surmising that together they could counteract the powerful forces contributing to poor integration. Promoting EHR deployment and meaningful use is an appropriate first step for the country to take followed closely by targeting improved outcomes in chronic diseases, he elaborates. He estimates that improving system integration at an appropriate regional level will likely require 5 to 10 years once the work has started. National integration would be much more difficult and lengthier, and largely unneeded by most patients. He identifies the busi- ness and public health communities as crucial cofactors for this effort. At the same time, if integration is to be achieved, he asserts that regulatory and competitive barriers, along with patient fears of data misuse, must be addressed.

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9 DELIVERY SYSTEM INTEGRATION PROFILE OF SYSTEM FRAGMENTATION John Toussaint, M.D. ThedaCare Center for Healthcare Value Patient care is significantly fragmented in the United States. The results of this fragmentation are evidenced by patients waiting weeks for routine appointments, using emergency rooms for primary care, driving miles be- tween doctors’ offices for a single condition, and having little understanding of their disease condition or their plan of care. The outcomes of this fragmented system include major defects in care. These include 100 million medication errors per year (Kohn et al., 2000), 100,000 or more unnecessary deaths per year (IOM, 2001), high costs compared to other Western countries, and poor population health outcomes (WHO, 2006). Why is care so fragmented? Over time, the delivery of care has been designed around doctors and institutions, not around the patient. Further- more, doctors have splintered into specialties and subspecialties, and with the increase in technical skills, those doctors become more siloed and more highly compensated. While the level of technical skill has been rewarded, integration and team-based practice have not been valued. At the heart of this kind of system is the assumption that higher specialization leads to better health outcomes. Yet this assumption is false. Elliot Fisher along with others has shown that more specialists and more hospital capacity lead to worse quality, higher utilization, higher mortality, and much higher costs (Baicker et al., 2004; Fischer et al., 2003; Fowler et al., 2008; Sirovich et al., 2006). For example, the difference between the hospital referral region costs for Apple- ton, Wisconsin, and Miami, Florida, is more than 250 percent. Yet patients stay in the hospital much longer and see more physicians in Miami than in Appleton (Dartmouth Atlas). Again, while in most markets the care is designed to create value for the provider or hospital rather than the patient, in Appleton, we have been developing the care system around delivery of better value to the patient. A group of 16 forward-thinking organizations in North America has commit- ted to this principle and formed the Health Care Value Leaders Network. They have been redesigning care processes by looking at every step in the process of care and determining if it really adds any value to the patient. What the Network has found is staggering: in many cases 80 to 90 per- cent of all steps in the care process do not provide any value from the patient’s perspective. By removing the non-value added steps, the Network has been able improve quality and reduce costs and waste. The end result is much less fragmentation and better flow of services to the patient.

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20 THE HEALTHCARE IMPERATIVE As impressive as the findings of waste have been, the results have been far more dramatic. Group Health of Puget Sound has reduced emergency room (ER) visits by 29 percent and reduced hospital admissions by 11 per- cent, resulting in significant cost savings and improved quality (Reid et al., 2009). The University of Michigan has saved $23 million dollars over 3 years in the Physician Group Demonstration project administered by the Centers for Medicare & Medicaid Services (CMS) (2009). In Robert Wood Johnson (RWJ) funded pilot called “Transforming Care at the Bedside,” ThedaCare’s Collaborative Care Unit achieved zero medication reconcilia- tion errors for 2 years, and the cost of inpatient care dropped by 30 percent (Toussaint, 2009b). Gundersen Lutheran’s end-of-life care coordination process makes it 50 percent less expensive than the national average per Medicare enrollee. If this level of improvement was achieved by the industry as a whole, it would result in trillions of dollars of savings over the next 10 years (Toussaint, 2009a). These results are achievable by all healthcare organizations, and imple- mentation can begin tomorrow. Healthcare providers should be trained in the tools of continuous improvement using the methodology of “lean” ap- plied to health care. We have established a way for them to learn through the Health Care Values Leadership Network, a nonprofit partnership be- tween the ThedaCare Center for Healthcare Value and the Lean Enterprise Institute. At www.healthcarevalueleaders.org, providers can find resources to help organizations transform through education, assessment, facilitating accelerated learning, and measuring results. There is an imperative to change the system now. We have clear evi- dence of what works to remove waste, improve efficiency, and create bet- ter outcomes for patients. Now we need the will at the leadership level to actually do it. PAYMENTS TO PROMOTE DELIVERY SYSTEM INTEGRATION Mark E. Miller, Ph.D. Medicare Payment Advisory Commission (MedPAC) The healthcare delivery system we see today is not a true system: care coordination is rare, specialist care is favored over primary care, quality of care is often poor, and costs are high and increasing at an unsustainable rate. Part of the problem is that Medicare’s FFS payment system rewards more care, without regard to the value of that care. In addition, Medicare’s payment system creates separate payment silos (e.g., inpatient hospitals, physicians, post-acute care providers) and does not encourage coordination among providers within a silo or across silos. Yet evidence shows that care coordination can improve quality. Medicare must develop new payment

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2 DELIVERY SYSTEM INTEGRATION methods that will reward efficient use of our limited resources and encour- age the effective integration of care. In the Medicare Payment Advisory Commission’s recent Reports to Congress (MedPAC, 2008, 2009a, 2009b), the commission examined the issues affecting the Medicare program and made specific recommendations to Congress. Those reports explained that the Medicare program is fiscally unsustainable over the long term and is not designed to produce high- quality care. However, it found that fundamental payment and delivery system reforms could improve quality, coordinate care, and reduce cost growth. MedPAC has made numerous recommendations to accomplish these objectives, but the discussion here focuses on a few approaches to payment that would encourage greater coordination of care, resulting in higher quality and lower Medicare spending: • Reducing preventable hospital readmissions; • Increasing the use of bundled payments; and • Holding ACOs responsible for the cost and quality of the care their patients receive. Reducing Preventable Hospital Readmissions Currently, Medicare pays for all admissions based on the patient’s diagnosis regardless of whether it is an initial stay or a readmission for the same or a related condition. This is a concern because we know that some readmissions are avoidable and in fact are a sign of poor care or a missed opportunity to better coordinate care (Bernard and Encinosa, 2004). MedPAC recommends reducing payments to hospitals with relatively high readmission rates for select conditions. Penalizing high rates of readmissions encourages providers to do the kinds of things that lead to good care, but are not reliably done now. For example, the kinds of strategies that appear to reduce avoidable readmis- sions include preventing adverse events during the admission, reviewing each patient’s medications at discharge for appropriateness, and commu- nicating more clearly with beneficiaries about their self-care at discharge (Coleman et al., 2006). In addition, hospitals, working with physicians, can better communicate with providers caring for patients after discharge and help facilitate patients’ follow-up care. Spending on readmissions is considerable. MedPAC has found that Medicare spends $15 billion on all-cause readmissions and $12 billion if we adjust for preventable admissions and exclude certain readmissions (for example, those that were planned or for situations such as unre- lated traumatic events occurring after discharge) (MedPAC, 2007). Of this $12 billion, some is spent on readmissions that were avoidable and some

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22 THE HEALTHCARE IMPERATIVE on readmissions that were not. To target policy to avoidable readmissions, Medicare could compare hospitals’ rates of potentially preventable read- missions and penalize those with high rates. The savings from this policy would be determined by where the benchmark that defines a high rate is set, the size of the penalty, the number and type of conditions selected, and the responsiveness of providers. MedPAC recognizes that hospitals need physician cooperation in making practice changes that lead to a lower readmission rate. Therefore, hospitals should be permitted to financially reward physicians for helping to reduce readmission rates. Sharing in the financial rewards or cost savings associated with reengineering clinical care in the hospital is called gainsharing or shared accountability. Allowing hospitals this flexibility in aligning incentives could help them make the goal of reducing unnecessary readmissions a joint one between hospitals and physicians. As discussed in a 2005 MedPAC report to Congress, shared accountability arrangements should be subject to safe- guards to minimize the undesirable incentives potentially associated with them. For example, physicians who participate should not be rewarded for increasing referrals, stinting on care, or reducing quality. Increasing Use of Bundled Payments Under bundled payment, Medicare’s payment would be set to cover the costs of providing the full range of care needed over the hospitalization episode. Because we are concerned about care transitions and creating in- centives for coordination at this juncture, the hospitalization episode should include time post-discharge (e.g., 30 days). With the bundle extending across providers, providers would not only be motivated to contain their own costs, but also have a financial incentive to better collaborate with their partners to improve their collective performance. Ideally, this flexibil- ity gives providers a greater incentive to work together and to be mindful of the impact their service use has on the overall quality of care, the volume of services provided, and the cost of providing each service. In the early 1990s, Medicare conducted a successful demonstration of a combined physician- hospital payment for coronary artery bypass graft admissions, showing that costs per admission could be reduced without lowering quality. MedPAC recommends that CMS conduct a voluntary pilot program to test bundled payment for all services around a hospitalization for select conditions. Candidate conditions might be those with high costs and high volumes. This pilot program would be concurrent with information dis- semination and a change in payment for high rates of readmissions. Bundled payment raises a wide set of implementation issues. It requires not only that Medicare create a new payment rate for a bundle of services, but also that providers decide how they will share the payment and what behavior they will reward. A pilot allows CMS to resolve the attendant

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2 DELIVERY SYSTEM INTEGRATION design and implementation issues, while giving providers who are ready the chance to start receiving a bundled payment. The objective of the pilot should be to determine whether bundled payment for all covered services under Medicare Part A and Part B associated with a hospitalization episode (e.g., the stay plus 30 days) improves coordination of care, reduces the in- centive for providers to furnish services of low value, improves providers’ efficiency, and reduces Medicare spending while not otherwise adversely affecting the quality of care. The pilot should begin applying payment changes to only a selected set of medical conditions, but could be expanded over time. Additionally, if the pilot program met its objectives, the Secretary of Health and Human Services could expand the program nationally with- out the need for further legislation. In contrast, a demonstration program, such as the current CMS Acute Care Episode demonstration, would require statutory authority to be expanded. Accountable Care Organizations As part of a broader discussion of options for reforming Medicare’s healthcare delivery system, MedPAC and others have introduced the con- cept of holding a set of providers responsible for the health care of a popu- lation of Medicare beneficiaries (CBO, 2008; Fisher et al., 2009; MedPAC, 2008). In this model, an accountable care organization (ACO) would consist of primary care physicians, specialists, and at least one hospital. It could be formed from an integrated delivery system, a physician-hospital organiza- tion, or an academic medical center. The defining characteristic of ACOs is that a set of physicians and a hospital or hospitals accepts joint responsibil- ity for the quality of care and the cost of care received by the ACO’s panel of patients. The goal is to create an incentive for providers in the ACO to constrain volume growth while improving the quality of care. If the ACO achieves both quality and cost targets, its members receive a bonus. If it fails to meet both quality and cost targets, its members would face lower Medicare payments. These financial incentives may lead to slower growth of Medicare spending. The ACO model can take two forms—one in which providers vol- unteer to form an ACO and one in which participation is mandatory. To induce physicians and hospitals to volunteer to form an ACO, Medicare would have to provide the physicians with a significant upside reward and very little (if any) downside penalty. For that reason, the voluntary ACO model is a bonus-only design. The current Physician Group Practice (PGP) demonstration provides an example of how a bonus-only voluntary ACO design might work. The demonstration has achieved quality objectives, but whether it has actually generated savings for the Medicare program is

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2 THE HEALTHCARE IMPERATIVE debatable. Generating savings may require larger incentives to constrain capacity and volume growth. Implementation of a voluntary, bonus-only model would require bo- nuses large enough to offset the current incentive in the fee-for-service pay- ment system to increase volume. To fund bonuses of this magnitude, FFS rate increases would have to be constrained. By constraining FFS Medicare payment rates to fund larger ACO bonuses, Medicare would create an environment in which providers would want to form ACOs and would be rewarded when they constrained volume growth and improved the quality of care. A mandatory model could have both bonuses for good perfor- mance and penalties for poor performance. In this model, shared savings and penalties could fund the bonuses. In developing an ACO model, the commission concluded that ACOs would have to be fairly large (at least 5,000 patients) to make it possible to distinguish actual improvement from random variation on a reasonably consistent basis. Each ACO should have a spending target set in advance. One approach is to set the ACO’s spending target based on its past experience plus a na- tional allowance for spending growth per capita (e.g., a fixed dollar amount of $500). This proposal differs from some others in that the growth allow- ance is not affected by the ACO’s historical level of spending. Over time, us- ing a single national growth allowance could compress regional variations in spending per capita. An alternative approach is to set a lower allowance in high-service-use areas and a higher allowance in low-service-use areas. This alternative would place greater pressure to constrain volume on areas with historically high utilization. Savings would result primarily from ACOs’ incentives to change overall practice patterns and eventually constrain capacity. Therefore, successful ACOs would need to have a formal organization and structure that allows them to make joint decisions on capacity. To overcome incentives in FFS payment systems to expand capacity and volume, a large share of the patients in a physician’s practice would need to be in an ACO. To achieve this critical mass, private insurers may have to join Medicare in providing ACO-type incentives to constrain capacity. Under a mandatory, bonus-and-penalty model, the bonuses could be funded by the combination of true shared savings and a penalty assessed on poor performers. Under this model, ACOs with high cost and low quality scores would in effect receive lower Medicare payment rates. ACOs should be viewed as just one tool that can be used to induce change in the healthcare delivery system. The ACO’s role is to create a set of incentives strong enough to overcome the incentives in the FFS system to drive up volume without improving quality. The degree to which ACOs will succeed in counterbalancing the current incentive for volume growth is uncertain. However, there is no uncertainty in the need to create a new

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2 DELIVERY SYSTEM INTEGRATION set of incentives. The current unrestrained FFS payment system has created a rate of volume growth that is unsustainable. Conclusion The process of reform should begin as soon as possible; reform will take many years and Medicare’s financial sustainability is deteriorating. This deterioration can be traced in part to the dysfunctional delivery system that the current payment systems have helped to create. Those payment sys- tems must be fundamentally reformed, and the recommendations MedPAC has made are a first step on that path. They are, however, only a first step; they fall far short of being a “solution” for Medicare’s long-term challenges. MedPAC has begun to consider other options and will continue its evalua- tion of accountable care organizations. In addition, MedPAC will consider steps to alter the process by which payment reforms are developed and implemented, with the goal of accelerating that process. MedPAC believes that reform of Medicare’s payment systems is essential to help bring the healthcare delivery system into the twenty-first century. PAYMENT REFORM TO PROMOTE INTEGRATION AND VALUE Harold S. Luft, Ph.D. Palo Alto Medical Foundation Research Institute Healthcare services consumed in the United States do not yield as much value as they could. Precisely how much lower healthcare expenditures could be without adversely affecting quality is unclear, but much greater efficiency is possible. Whether a 10 percent reduction in expenditure can be achieved in a decade is questionable. That any significant reduction will require a restructuring of the care delivery system, however, is certain. Integrated delivery systems achieve high quality of care at costs no greater than average and often lower (Davis, 2009). Systems such as Kaiser Permanente offer excellent “platforms” for health information technology, the right mix of clinical expertise to meet the needs of their population, and appropriate internal payment and performance incentives. Kaiser and other highly integrated systems, however, have found it challenging to “spread” their approach. Bending the expenditure curve means changes in settings not ready to be fully integrated and, ideally, minimizing the needed changes in the way clinicians deliver and patients access care. We must develop new payment policies promoting clinical integration and value without requiring total organizational change. The classic payment model for “integrating care” is capitation—the fixed annual payment (preferably risk-adjusted) to a group of providers

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2 THE HEALTHCARE IMPERATIVE accepting responsibility for delivering all the care needed by their enroll- ees. Capitation gives the organization (1) the incentives to focus on those interventions yielding the highest value, and (2) the ability to provide those services regardless of whether they are compensated by fee-for-service pay- ment structures. To accept capitation, one requires sophisticated manage- ment, yet most physicians practice in groups of six or fewer. Fee-for-service is criticized for its incentives to simply provide more services, but few clinicians provide care they know to be of no value. With insurance that lowers the patient’s cost for services at the margin, the stage is set for increased use of relatively low-value services. Our current fee schedules markedly undercompensate time spent with patients relative to physician compensation for tests, procedures, and imaging that also involve additional costs for staff, supplies, equipment, and facilities. A rebalanc- ing of the payment for clinician thinking versus doing is an important first step. Integration of services, however, requires more than just neutrality—it needs incentives for clinicians to better coordinate care among themselves. In the real world of clinical care there is always uncertainty. If an extra test or specialist referral can reduce that uncertainty without too many adverse outcomes (e.g., radiation exposure), why live with the uncertainty? People typically accept risk in exchange for some reward; payment incentives can provide that reward. The challenge is to make the risk commensurate with the ability to manage it. Outside of large, fully integrated systems, such risk needs to be segmented—hence a strategy for partial integration. Integration is most readily achievable in inpatient episodes; these are high intensity and time-limited, usually requiring careful coordination among clinicians and staff. The “inpatient episode” should be broadly defined to minimize gaming; a procedure requiring a facility, anesthesia, and several hours of monitoring is hardly an “office visit.” Likewise, pre- admission tests and a certain amount of post-discharge follow-up should also be considered to be part of the episode. “Bundled payment” is the term now used to describe the compensation for such episodes. This should cover not just the facility, but also all the clinical services involved. Given the sometimes tense relationships between hospitals and their medical staff, payment should go to new entities that may be referred to as care delivery teams or CDTs. These would include the facility and those clinicians whose efforts are focused in that setting (i.e., not just the radiologists, anesthesiologists, and pathologists, but also the surgeons, hospitalists, and interventional cardiologists). Not all physicians practicing in the hospital need participate in the CDT, just enough to take responsibility for patients in the types of episodes for which it will receive bundled payments. Bundling payment is only one part of the transition to integration;

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2 DELIVERY SYSTEM INTEGRATION information is the other. Health information technology has to be more than just a substitute for pneumatic tubes sending paper orders throughout a hospital. The bundled payment should reward both better information and higher quality. It should foster a “learning system” with incentives for providing data and converting it to useful information. Instead of setting bundled payments at average cost, they should reflect the average costs incurred by CDTs with better than average outcomes, and those CDTs should be recognized for superior performance. CDTs will chal- lenge the available outcome measures. Those claiming better outcomes—for example, with respect to quality of life for elective procedures—and those claiming they care for patients who are sicker than average will begin to collect and submit detailed clinical data to buttress their case. If such data are pooled across all providers and made available for analysis by indepen- dent researchers, we will be able to see what interventions, techniques, and workflows lead to the highest-value care. Episode-based payments incen- tivizing quality and cost plus freely available data will generate provider demand for constantly better information. Bundled payment for inpatient episodes can be expanded to include re- sponsibility for readmissions. CDTs could choose to accept a “super DRG” (diagnosis-related group) with responsibility for not just all readmissions within 30 to 90 days, but also costs associated with exceptionally long and expensive stays. Hospitals or CDTs accepting such payments would take on significant risk associated with rare, but costly events, and will therefore demand reinsurance. The reinsurer, however, can both reduce its own risk and lower the premiums it charges by learning and spreading best-practice approaches to reducing complications and readmissions. Medicare could perform this function, but it is unlikely to have the necessary administrative resources and credibility with providers. Even more savings are likely from better management of chronic ill- nesses to keep patients from needing hospitalization. For ambulatory care, however, a formal CDT is impossible outside of a large group practice, but virtual, nonexclusive provider networks can be formed around each primary care physician. Paying separately for inpatient episodes markedly reduces the variability in chronic illness costs (Luft, 2008). A payment intermediary can further smooth costs at the primary care physician (PCP) level. After such smoothing, net premiums reflect the fees charged and practice patterns of the clinicians involved. Monthly chronic illness management costs will be widely spread across the population, but the marginal costs associated with differential treatment patterns of providers used by the patients of each PCP can be passed on to the patient. Income- based subsidies offset the burden on the poor. Patient-based incentives will switch from overly strong deductibles or overly weak coinsurance targeting individual services to the annual premium savings from a more

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2 THE HEALTHCARE IMPERATIVE cost-effective primary care provider. PCPs, in turn, will have incentives to choose wisely among the treatment options and specialists. Additional time spent with the patient can be rewarded; additional time and uncer- tainty associated with more selective recommendations and referrals will be even more highly rewarded. The primary care medical home (PCMH) model offers important coun- seling, coordinating, facilitating, and tracking functions. Electronic health records (EHRs) make these functions possible, yet require centralized sup- port. EHRs will yield the most benefit if data on best practices are shared across otherwise independent clinicians. Data can be linked across practi- tioners and patients, de-identified, and made available to multiple analysts to tentatively identify what appear to be best practices. “Stars” can be offered to those with “superior outcomes” who come forward to share the ways they achieved those outcomes. This will quickly expose those whose apparently good results arise from low-risk cases (or unnecessary care); more importantly, it helps spread best practice. Medicare can begin to implement such changes with demonstration and pilot projects offering various levels of bundled payments for selected sets of admissions and procedures. Preference should be given to organiza- tions that can eventually take on a broader range of cases. Medicare can also bundle payment for readmissions and outlier costs—such bundles could focus on all services or just Part A (inpatient care). For such trans- formational projects, CMS should recognize the substantial organizational costs involved. Those stepping forward are likely to be relatively efficient; Medicare should not condition their rewards on further savings. Offering initial payments closer to the average is warranted given the information to be gained on transforming the system. Most legislative proposals involve a choice of plans through an ex- change, but this requires a probably impossible level of risk adjustment. That burden can be reduced through a major risk pool (MRP) to spread the risk of inpatient episodes and chronic illness across all participating health plans that buy a new form of reinsurance at simple demographic rates (Luft, 2009). In turn, the MRP preferentially offers to pay CDTs directly for in- patient episodes on a bundled basis; physicians and hospitals not joining CDTs would eventually be paid Medicare rates. The MRP will pass back to health plans monthly amounts for the chronic illness management of their enrollees with such conditions. This form of reinsurance spreads the risk occurrence broadly (easing the exchange’s task) but leaves incentives to manage ambulatory care with the plans. The MRP also pools claims data from plans reinsuring with it and claims from Medicare and Medicaid. By making available for analysis such anonymized and Health Insurance Por- tability and Accountability Act (HIPAA)-protected data, the MRP allows both the creation of independently produced best-practice guidelines and

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29 DELIVERY SYSTEM INTEGRATION the ability of health plans to woo clinicians with high-value practice pat- terns with better-structured fees. Integration can bring greater value—higher quality at lower cost. Much of what integration yields, however, is better coordination of care and more effective use of resources. Improved payment incentives, coupled with ac- cessible data and extracting information from the data can also increase efficiency and value. This can be achieved through new payment policies that better engage clinicians in managing the technical aspects of care and premium-based patient incentives that reflect the resource intensity of the care typically delivered by their clinicians. HEALTH INFORMATION TECHNOLOGY TO PROMOTE INTEGRATION Andrew M. Wiesenthal, M.D., S.M. The Permanente Federation In the recent and ongoing discussion of healthcare reform, there is a recurrent assumption that the implementation of health information technology (HIT) will fundamentally change our care delivery systems into integrated, collaborative networks. Furthermore, the assumption is that integrated systems are in fact better for all involved, from patient to provider. Indeed, models of integration such as Kaiser Permanente and the Geisinger Health System, to name two, seem to support this assumption. Patients often feel better cared for in these systems, because their doctors know more about them and work more closely together, and their clinical outcomes are often better. Quality rises, outcomes improve, waste declines, efficiency grows, and cost of care decreases. An integrated system is one that focuses on the needs of the individual patient and on the needs of the population, which is exactly what doctors have to do. If integrated systems are such a commonly accepted movement in the right direction, then why are we not creating them everywhere? What is in our way? The answer lies in the barriers presented by our current health- care system, which hinders integration. The history, politics, and culture of our prevailing system—discussed at length by other presenters in this series—presents a formidable obstacle to reform that integrates systems. Is HIT the Gateway to Integration? Some look to HIT as the answer to creating integration and therefore all of the outcomes mentioned here. As policy makers and practitioners alike look to organizations such as Kaiser Permanente as examples of the power of integrated systems, they simultaneously acknowledge the benefits

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0 THE HEALTHCARE IMPERATIVE of the model and deny the capacity of their own systems to fundamentally transform in this way. It is said that most doctors simply will not organize in this way or that this kind of change is much too difficult and much too expensive. Instead, what has emerged is the notion that HIT will act as a disrup- tive force in existing healthcare systems. In this view, implementing HIT in any given system in the country will somehow force, enable, promote, or otherwise encourage integration. The Indianapolis health data exchange is cited as an example or model for how this could work. Because of HIT, doctors will begin to work and discuss patients together. Furthermore, the narrative has patients looking at their own health information and, in that transparent market, making choices about where to go for care based on outcomes data. The patient demand then becomes another force for driving integration and enhancing outcomes. So, does this narrative reflect reality? Does this really work? No. Un- like the assumption that integration builds and supports better systems and outcomes, which has been borne out in several places throughout the country, the development of integrated systems is not a natural by-product of introducing HIT. Again, the change process is much more complex. HIT is absolutely necessary to supporting the growth of integrated healthcare systems, but it is not sufficient. The key lever of reform is a com- mitment to change. A system can convert all of its old paper processes to automated information systems, but the result is not an integrated system. Instead, the result is that existing processes have been made more complex, more expensive, and less coordinated. To achieve the outcomes we see with systems such as ThedaCare, which dramatically improved and simplified care management for diabetics, healthcare systems—from practitioners to administrators—must commit to integration, commit to change manage- ment, and commit to (re)education. At Kaiser Permanente, we did not introduce HIT in order to integrate; we introduced HIT to take advantage of our integrated systems. Promote Electronic Health Records So, if HIT is not the magic bullet, then what is the strategy that will get our healthcare systems to become more like the integrated systems that produce better outcomes for patients? Even though it is not sufficient for reform, promoting HIT by deploying electronic health records is a wise course suggested by the American Recovery and Reinvestment Act (ARRA). To deploy these systems and to support the meaningful use of these systems to enable better patient outcomes is critical to making those connections within and across systems. These systems are not perfect, and they are very difficult to implement. They are better than the paper-based and discon- nected systems we have today.

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 DELIVERY SYSTEM INTEGRATION Target Outcome Improvements Whether by payment incentives or other government action, the health conditions best managed by integrated systems should be encouraged and supported. Targeting outcome improvements in the management of chronic diseases, where integration has the greatest impact, is critical to shifting the paradigm away from integration as an unattainable level of service to something well within reach of our system. In a real integrated system, working with the chronically ill in particular, primary care, specialty care, mental health, behavioral management, community outreach programs, social work, et cetera, are all critical components to be engaged collabora- tively in the care of a patient. The ARRA directs the Office of the National Coordinator of HIT to establish “extension centers.” These centers present a great opportunity to support integrated systems and meaningful use of HIT to drive outcomes. Agricultural extension centers exist today, which serve as resource centers for farmers to learn about what crops to plant, how to rotate crops, when to fertilize or not, and what to do if other problems should arise. This model is an ideal one for the proposed HIT extension centers. These centers should provide methodological and analytical support for practices, hospi- tals, and others who want to introduce HIT and who want to take those steps toward integration. Research is important, but it should be handled by academic medical centers. Extension centers should fill the critical niche of providing practical, on-the-ground assistance to help practitioners imple- ment EHRs to promote targeted outcomes. Payment Reform to Incentivize Integration If nothing else, it looks as though healthcare reform this year will yield some form of payment reform. To support integration, payment reform must target the kind of commitment necessary for this change process— commitment such as that demonstrated in systems such as Geisinger. Pay- ment systems should reward those doctors, practices, hospitals, and systems who make a commitment to transform—using technology or not—and penalize those that do not. Mark E. Miller and others have already dis- cussed at length what those kinds of structures might look like. Strategically Target EHR Deployment Electronic health information databases or exchanges are not neces- sary at a national level. Citizens are wary of nationally integrated health information systems, where the notion is one of a single repository of health information that could be violated, putting everyone’s data at risk. Instead, health information exchanges should focus on natural regional referral pat-

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2 THE HEALTHCARE IMPERATIVE terns, where they can be most useful. It does not often add value to have the capability of accessing information from California in Delaware, but it is likely to be helpful to integrate the records within a large metropolitan area. Even with a more targeted approach that looks at standard metropolitan statistical areas (SMSAs), for instance, the process is complex and likely to last a decade in implementation. Yet the potential benefits are important. In the face of public health threats such as H1N1 today, for example, we generally do not have systematic and real-time ways of collecting and relay- ing information about all of the cases of this disease in a logical geographic area. So, in addition to natural partners within health care, we can look to involving allies in the public health community and the private business community, to name two. Remove the Regulatory Barriers This area is another that has been discussed at length in this series. To underscore the point, part of reform must be to remove those regulatory barriers that reduce or eliminate coordination and cooperation and those that may even increase antagonism in the healthcare industry. In addition to removing those barriers, we should establish local independent entities, rather than asking local hospitals and clinicians, to maintain the infrastruc- ture for these information systems. Ownership of and/or access to the data cannot become an issue of competitive advantage or political connection. Perhaps the most crucial barriers to address are those that stem from citizens’ core fears about the misuse of clinical data. One such fear is that they will lose their jobs or be unable to find work if their health data are known. They may then be concerned that they will lose their health insur- ance coverage. If we can address these fears directly, through federal law or regulation (to avoid inconsistencies between states), then we remove a huge obstacle. In the absence of these concerns, patients actually want and like their doctors to have their health information and to know their history. Conclusion Health information technology is a powerful and necessary tool for reform in the healthcare sector. It can be used to support more cooperation among physicians, drive better care management and patient outcomes, and reduce waste and inefficiency that is costly in dollars and lives. Even so, it is not sufficient to drive the reform called for in today’s national de- bate. Integrated healthcare delivery systems are not born from HIT; they are developed from difficult, challenging, and long institutional change processes. By realigning incentives and technical assistance and support, we can start the movement down that road. We can shift from looking at

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