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Association of American Medical Colleges Tomorrow's Doctors, Tomorrow's Cures®

Viewpoint: Cracking the Great Reluctance

AAMC Reporter: July 2011

By Neal C. Hogan, Ph.D., Managing Director, BDC Advisors

In December 2008 (the year of the market crash) I wrote “The Third Bubble,” a white paper examining the history of bubbles and the economics of health care. It posited that health care would be the “third bubble” of our era, after the dot-com and housing bubbles. While the health care bubble would not burst, I predicted, it would slowly deflate like a child’s helium balloon in the weeks following a birthday party.

In the 30 months following that paper, a great deal has happened. Despite much discussion of the Affordable Care Act, the real action has been in the commercial market and among health care providers. What is most remarkable is that, despite a great enthusiasm for the idea of leveraging this moment to improve efficiency of care (and thus control costs), and for the idea of improving the quality of the care delivered, there is a great reluctance to execute that idea.

The Great Reluctance Real attempts have been made to deflate the “third bubble.”

First, cash-strapped state governments are tampering with Medicaid more aggressively. From Texans who are discussing walking away from Medicaid to the many states seeking to emulate the North Carolina model that provides primary care doctors a set monthly cost per Medicaid patient, new approaches to care delivery are being explored.

Second, commercial health plans in much of the country have shifted their stance on payment. For the past decade, many payers have been reluctant to alter the fee-for-service model, and primarily act as contracting agents for employers. However, in the past several months, even the most conservative plans have begun offering pay-for-performance programs. More progressive plans, like those in Minnesota and Illinois, are entering into shared savings contracts.

Finally, the delivery side of the industry is once again embracing the path to integration. Today, we see a much more logical approach to health system employment of physicians and a much-needed focus on clinical (not economic) integration of private practice physicians.

But despite the fact that there is movement toward the future, fundamentally there is a great reluctance to cross the crevasse from the current fragmented system to the integrated system of the future. There are four overarching reasons for this great reluctance:

It’s the Money, Stupid. While decrying the current payment system, health systems and specialists have figured out ways to find profits. Everyone can see how a new, more integrated payment and delivery model could benefit primary care, but some are concerned payment reforms and utilization reductions will empty specialist waiting rooms and hospital beds.

Dislike of Measurement. Quality is like apple pie, but when push comes to shove, and real quality metrics are being discussed, there is concern that the autonomy physicians currently enjoy will be threatened by measuring their performance against standards set by others.

Fear of Risk Contracts. Whether their organization built for capitation and did not get it, contracted for it and failed to manage it, or succeeded at it and it was taken away, many in health care have a bad taste in their mouths from 1990s capitation. There is a real concern that “shared savings” is a wolf in sheep’s clothing.

Concern over Control. If there is going to be “shared savings” or a “bonus pool” or even a capitated payment—who is going to decide how to divvy it up? Doctors believe that the hospital wants a piece of their professional fees, and hospital CFOs are more concerned about dollars going the other way.

Cracking the Great Reluctance No organization is more reluctant to shift to the new model than the academic medical center. Much of their business is predicated on tertiary and quaternary care. Their tenured faculty dislike performance measurement, and faculty and community physicians sometimes have a reluctance to work with one another. Capitation can imply a draining of patients and funding, and a power shift from specialists (faculty) to primaries (community physicians).

I recommend three strategies for moving forward:

Set a goal of community health management. The majority of an academic medical center’s business comes from the local service area. There needs to be a real focus on that local market and on the transition from demanding referrals to managing the health of the community. This means a financial modeling of the impact this will have on the business.

Engage community doctors. Medical schools and teaching hospitals cannot simply go down a path of giving community physicians lower-tier faculty appointments. Neither should we seek to solely use a new employment model. Instead, these institutions must use clinical integration to join in value-based contracts with payers. This integrated model will cross the independent practitioners, employed physicians, and faculty. An effective clinically integrated network requires that medical schools and teaching hospitals give community doctors increased governance within the organization, and not fall victim to arguments that community doctors offer inferior care.

Manage the Timeline. Value-based payment is imminent. Rather than wait and hope it comes as late as possible, build for it. Prepare for increasingly bundled payments by developing a solid network that includes faculty, the hospitals, and community doctors all working together. Engage the payers in developing pay-for-performance contracts. Learn to be effective at this, then migrate toward shared savings, and global payments. Don’t let others determine your timeline.

July 2011 Home


Neal C. Hogan, Ph.D.

Neal C. Hogan, Ph.D.