Health-Care Reform and Innovation

A successful change isn't just a dream (or nightmare). It requires creative, energetic leaders who can engage a diverse workforce in taking on health-care challenges

Because no one can predict the final outcome of health-care reform, providers of all shapes and sizes are preparing for a wide array of possibilities. Health care has seen this uncertainty before, and we believe that looking to the past for insight helps to illustrate what the future could hold for health-care providers.

While the Clintons' reform efforts in the mid-1990s didn't even make it to the floor of the House or the Senate, providers anticipating reform unleashed a wave of proactive innovations including formations of large regional and multistate health-care systems, investments in financial and clinical information systems, radical changes in supply chains, and leveraging of scale to negotiate rates with commercial insurance companies.

These initiatives allowed providers to survive one of the most significant reductions in the growth of Medicare spending caused by the Balanced Budget Act of 1997—albeit not without some pain. During these and other inflection points, leading-edge providers successfully got in front of reforms. This time is no different, except that the stakes are even higher.

Thanks to advances in technology and medicine, we are living longer, and because we are living longer, we need more care. Yet there is a significant disparity in access to care based on socioeconomic, geographic, and a host of other variables. The case for reform is clear. While elected officials debate possible solutions, leading health-care providers prepare for changes, experiment with innovations, and get ready for whatever ultimately comes from Washington.

Payment Changes

For decades, health-care payments have been mostly on a fee-for-service basis, which rewards providers for the quantity of work they do. Today, however, we are beginning to see snippets of the possible future of health-care provider payments. There is nothing like discussing changes in payment to get people's attention. What if we can—or are forced to—cover a lot more patients, or maybe even everyone? Insurance companies will demand a significant reduction in the amount paid per episode of care. What if Medicare and other insurers roll out pay-for-performance, or other forms of payment change, faster than providers can anticipate? What if they won't pay for readmitted patients or for hospital-acquired infections? What if they want to negotiate a bundled payment for a specific set of procedural-based services like knee replacements? What if a rapid expansion in health savings accounts creates a significant retail-like segment for purchasing health care?

Regardless of the scope of the reform bill, many of the potential changes in payment systems will unfold. For example, a move from fee-for-service to bundled payments, an increase in more global payments, or another form of payment is likely. As seen in Massachusetts, covering more of our population will only accelerate needed changes in how we pay for services.

High-performing health-care providers are already anticipating the impact of payment changes and are aggressively creating innovative responses. Many are doing this while recognizing that in the current fee-for-service environment there may be negative short-term revenue consequences. These bold moves include:

• A passionate and intense commitment to quality and safety. Eliminating hospital-acquired infections, reducing readmission rates, and a host of Six Sigma-type efforts have improved quality and safety. Paying for performance will intensify and reward these efforts. Not only has the patient experience improved, but delivery of health care has improved as well. Physicians and hospitals have learned that by focusing on the patient, they can actually work together and rediscover why they entered the profession to begin with.

• Aggressive integration at the local level. This takes many forms including employment of physicians, creation of distinctive multispecialty group practices, and innovative nonemployment arrangements.

There is emerging evidence that the more locally integrated the care, the lower the costs and the higher the quality. At large, integrated multispecialty group practices, like the Billings Clinic and Geisinger Clinic, the physicians are employees who work under a set of common standards. These emerging integrated organizations are well-positioned for bundled payments.

• Achieving fundamental changes in efficiency. One thing is certain: The government and insurance companies won't be paying more for services than they pay now. So health-care providers are becoming more efficient and effective. Regardless of what the final health-care reform bill looks like, private insurers will be driving down costs. In our work at Hay Group with some of the nation's major health-care organizations, we are observing significant changes including effective implementation of new medical and surgical technologies that improve outcomes and conserve resources.

• Restructuring and redefining care teams. We're seeing fewer hierarchies and more matrix operations around service lines. In emerging models in transplant care, for example, traditional roles and departments are being reformed around transplant services and revenue is being shared within this new department.

• Leveraging existing technology. New processes are being implemented to address the patient-care continuum by preparing patients to go home with medications, discharge instructions, and follow-up to assure compliance with the discharge plan. Home-care environments are a challenge, but some are leveraging the power of the Internet to redefine monitoring. Patients can manage much of it as long as they are educated up front and understand the possible repercussions. Stimulus funds are already funding electronic record systems and very soon every hospital will have access to them. They will know a patient's history and will be able to communicate to specialists, therapists, clinics, and other necessary parties throughout the care process.

• Innovative business strategies. New nontraditional competitors could enter the mix if reform dramatically changes the margins. Been to a Wal-Mart (WMT) or a Walgreens (WAG) lately? University of Pittsburgh Medical Center just announced a partnership with General Electric (GE) to jointly operate a chain of imaging centers in Europe. We will be entering a time when the strategic decisions of health-care providers will really matter. Increased usage of Health Savings Accounts and high-deductible health-insurance plans will put an increasingly retail-oriented face on what has been a wholesale business. Creative providers have already included this potential thinking in how they are building new alignments and alliances.

Leadership Needs

Successful change requires creative, energetic leaders who can engage a diverse workforce. Leading an integrated health system does not feel like leading a hospital or a freestanding medical group. Influence throughout a matrix is going to feel a lot like a continuous political campaign. A fully engaged workforce, ready to accept new direction and deal with the ambiguity that major change brings, will test leadership and human resource staffs. As payment structures change, compensation systems will need to change.

Engaged boards have already led the way with the creative use of incentives to reinforce the importance of quality, safety, patient satisfaction, and improved efficiency. A picture of the 21st century health-care leader is only beginning to emerge. Looking outside health care to other industries that have already undergone major change, such as telecommunications or technology, may help with the identification and development of leadership talent.

For the optimists in the house, there is good reason for hope. Reform presents not only the opportunity to provide insurance to most if not all Americans, but to remake health-care delivery that focuses on patient needs and supports improving the health of communities without breaking the bank.

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