Managed care’s evolution is shifting the responsibility for improving quality, enhancing community health, and controlling the total cost of care for patient populations from payors to providers. Providers have more tools at their disposal to systematically identify high-risk patients and monitor those with chronic conditions. The ability to manage and coordinate these patients’ care helps maintain or improve their health status. Additionally, payment reforms have created greater incentives to focus on the quality of care rather than the quantity. All over the country, provider organizations are using information technology (IT) tools and financial incentives to improve quality and outcomes while reducing aggregate healthcare costs. This strategy is called population health management (PHM).
A PHM strategy is difficult to execute, however. Providers must move away from the traditional fee-for-service (FFS) reimbursement model, which incentivizes volume over value. This movement is transpiring through payment arrangements based on total-cost-of-care budgets, capitated payments per member per month (PMPM), percentages of monthly health insurance premiums, and bonuses for performance, among other models. Regardless of the payment arrangement, providers are directly impacted by attempts to manage the total cost of care by preventing unnecessary utilization. To mitigate the resulting decrease in revenue, they must seek to share some of the savings.
From our work helping organizations navigate this transition, ECG has identified four critical steps in making the shift to PHM: provider network development, clinical integration, advanced informatics, and risk-based contracting. This article details each of these steps toward starting your organization down the path to PHM. Also included is a discussion of the organizational structure needed to support this transition.
Provider Network Development
Organizations pursuing PHM need to develop a provider network that sufficiently addresses the health needs of its attributed patients. These needs span the entire care continuum, including primary, specialty, acute, and post-acute care; prescription drugs; and rehabilitation. Within these networks, some specialties and organizations (e.g., hospitals) are able to contribute more resources to PHM initiatives than others (e.g., skilled nursing facilities). Similarly, some specialties and organizations also play a greater role in managing the total cost of care for a population than others. ECG has created the following framework for a three-tiered provider network that accounts for the different roles, capabilities, and contribution levels of individual organizations in PHM efforts:
Tier I — Founders
Founders spearhead the PHM initiative and provide capital investments. These organizations tend to be hospitals or health systems and their employed physician groups. For instance, ECG supported a Midwestern PHM initiative to facilitate the creation of the Illinois Partnership for Health, an accountable care organization (ACO) whose founders include nine health systems and their employed physician groups. The Illinois Partnership for Health’s founders are heavily involved in the PHM initiative’s governance and are helping to develop the medical management infrastructure required for PHM. In PHM efforts, founders eventually take on downside risk, bearing a loss if the population’s healthcare costs exceed medical service budgets. Founders also reap the greatest rewards for successfully managing the cost of care.
Tier II — Affiliates
Affiliates do not provide capital investments in a PHM initiative. However, they are critical components of the network, participating in governance and providing input into infrastructure development. Together, affiliates and founders comprise the clinically integrated portion of the PHM network.
Tier III — Contracted Independent Providers
Contracted independent providers satisfy any network needs not met by founders and affiliates. Independent providers do not invest in the PHM initiative nor are they involved in governance or infrastructure development. Instead, their participation is generally limited to medical management.
To enter into joint contracts, organizations that do not share substantial financial risk must meet the legal standard for clinical integration. The Federal Trade Commission and Department of Justice define clinical integration as “an active and ongoing program to evaluate and modify the clinical practice patterns of the physician participants so as to create a high degree of interdependence and collaboration among the physicians to control costs and ensure quality.”
While organizations that share significant financial risk can technically perform joint contracting without being clinically integrated, they will struggle to manage risk. Therefore, it is imperative that providers in a PHM initiative invest in clinical integration core competencies, such as patient-centered medical home (PCMH) development.
Michael Zia, M.D., medical director of the Illinois Partnership for Health, echoed this sentiment. “Clinical integration is at the heart of population health management, but that integration must be organized in an efficient and effective care process,” he said. “In my view, the only way to be successful is through a care team working under a PCMH model.” This model allows uniform guidelines, protocols, and outcome measures to be implemented through a common development process. Data from multiple locations and providers is then collected and synthesized into a single comprehensive care plan, allowing providers to understand each patient’s goals. At the same time, Dr. Zia says, PCMH providers focus on population-level measures and goals that affect all patients.
To ensure that clinical integration efforts increase quality and reduce costs, PHM organizations need IT tools to exchange clinical information, support providers’ clinical decision making, engage patients in their care, and track performance. Often called “informatics,” the IT needs of a PHM organization can be summarized in three key competencies:
- Infrastructure and Maintenance – Electronic medical records (EMRs), ePrescribing capabilities, clinical decision support tools, and achievement of meaningful use
- Information Exchange and Integration – Data exchange between providers, electronic patient communication, and use of disease registries
- Performance Reporting – Monitoring use of protocols, clinical monitoring and benchmarking, financial monitoring and benchmarking, multilevel compliance monitoring, financial/risk modeling, and data transparency
Many provider organizations are struggling with the pacing of advanced informatics implementation. As such, providers are refining their IT strategies to balance the following:
- A long-term plan for accomplishing advanced analytics
- A practical implementation plan with analytics capabilities added sequentially as the clinical care model evolves and the organization takes on increased medical cost risk
On January 26, 2015, the U.S. Department of Health & Human Services stated its intent to distribute half of Medicare’s payment to providers through alternative models that include total-cost-of-care budgets by 2018. Two days later, six major health systems and four of the nation’s top health insurers announced that they had convened a new Health Care Transformation Task Force aimed at putting 75% of their business into value-based arrangements by 2020.1 This highlights the need for health systems to take the final critical step in transitioning to PHM by incrementally working toward population-based reimbursement. Providers cannot simply “flip a switch” and assume full risk immediately. It takes time to develop the skills and infrastructure needed to manage the total cost of care for a population. Our work with a fully integrated health system comprising over 20 hospitals and a medical group with more than 1,300 primary care and specialty providers led us to the phased approach to risk-based contracting depicted below. Such an approach represents a more prudent and sustainable evolution than shifting abruptly to full risk.
- Patient Satisfaction, Quality, and Utilization Bonuses – As a first step in the transition toward PHM, payors might offer bonuses to providers who meet targets for patient satisfaction, care quality, and/or utilization. Incentivizing patient satisfaction will encourage providers to engage patients in their care, and engaged patients tend to be healthier and less costly at the population level. Incentivizing quality could also reduce costs by increasing adherence to evidence-based care protocols that lead to improved outcomes. Bonuses for reducing utilization will almost certainly reduce costs, though these payments should be tied to quality measures to ensure that they are not earned simply by scrimping on care.
- Shared Savings – When patient satisfaction, quality, and utilization targets are achieved, next comes shared savings, which is commonly seen in ACOs. In shared savings arrangements, providers typically receive FFS payments but are also given a total-cost-of-care threshold for their patient population based on its historical costs (adjusted for inflation). If the providers’ FFS payments are below this threshold— and if the providers meet predetermined quality metrics—they are eligible to share in the “savings” achieved by keeping care below historical costs.
- Capitation or Percentage-of-Premium Payments – Finally, once providers have a strong handle on managing their patient populations, they are ready for reimbursement as a fixed PMPM amount or percentage of premium. The governing body for the PHM initiative will negotiate single-signature payor contracts, reaching agreements on behalf of all the participants in the provider network. Contracting in this manner ensures that these providers have the same incentive to manage the overall cost of care for the population.
Tying the Pieces Together — Governance Structure Development
Transitioning to PHM requires a governance structure for decision making and incentive design so that all parties involved in the initiative can provide high-quality, cost-effective care. Frequently, this entails giving physicians a greater role in governance than they currently enjoy, for two reasons: (1) they control much of the cost of care for the population and (2) they will likely be unwilling to change the way they practice and put their incomes at risk unless they have a significant voice in the PHM initiative.
A committee structure can effectively balance the governance needs of physicians, hospitals, and other parties in a PHM initiative. The initiative may be led by a governing board composed of C-level executives from its founders and affiliates, including chief medical officers (CMOs) and key affiliated independent clinicians for physician representation. The following are examples of committees that may report to the governing board:
- Contracting/Finance – Responsible for modeling the financial impact of the PHM initiative, contract strategy and execution, contract performance, and funds flow administration
- Clinical Integration/Leadership – Responsible for PHM protocol development and enhancement, utilization management, quality assurance, and selection of clinical initiatives
- IT – Responsible for EMR management, PHM IT infrastructure recommendations, PHM data sharing, patient engagement tools and performance reporting
- Provider Network Development – Responsible for provider network development, credentialing, provider relations, and disciplinary action
PHM — A Win-Win-Win for Providers, Patients, and PayorsThe transition to PHM is a challenging undertaking that allows providers, their patients, and payors to benefit from cost savings and improved clinical outcomes. Both commercial markets and governments are dictating that providers lower healthcare costs while increasing quality and outcomes. Fortunately, PHM can lead all parties toward these goals. For providers, PHM will create a new source of profits amid declining FFS reimbursement. For patients, it will lead to better health outcomes and more money in their pockets. And for payors, it can increase market share through the reduced premiums it offers employers. Transitioning to PHM, in other words, is simply the right thing to do, and providers can navigate the transition successfully if they focus on the four steps of provider network development, clinical integration, advanced informatics, and risk-based contracting.