Beyond ACOs: Who will get to true sustainability?

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Don McDaniel
CEO
Sage Growth Partners 

A recent Op-ed piece by Clayton Christensen, Jeffrey Flier, and Vineeta Vijayaraghavan in The Wall Street Journal discusses the potential, or more accurately in the authors’ minds, the limitations of the Accountable Care Organization model.  They argue that the presence of the ACO alone does nothing to sufficiently change the behaviors of physicians and patients.  While ACOs and other proposed delivery system redesigns are important for starting the conversation about transformation, ACOs are, at best, a starting point.  As Christensen, et al suggest, ACOs do not align financial incentives across the burgeoning ecosystem and actually cap financial rewards for improving the health status of the community they serve.  I believe that in the rearview mirror ACOs will be viewed as slightly evolutionary, certainly not revolutionary; training wheels on the risk-based population health bike of our (near) future.

One model that might ultimately change how healthcare is delivered in the United States is something I call a Sustainable Physician-led Enterprise (SPE).  Some are in place today, spearheaded and led by smart, entrepreneurial physicians with the right global mindset and vision for how to rapidly move the health care business into its own much-needed industrial revolution.  I believe these entities will grow in numbers and stature, based on early success, traction in the Medicare Shared Savings program, and the broadening recognition that the same physicians that command and direct the super majority of consumption in the system have to be at the center of fixing it.

Moving forward, SPEs will be governed by those committed to an “at-risk” financial model, and dedicated to evidence-based medicine.  Given all of the imperfections of today’s health care marketplace (or as some would say, “lack of” a market) the enterprise alignment compelled by end-to-end financial risk will make it the preferred financial model. In fact, it might be only a matter of time before SPEs are asking themselves if they need to become, gasp, a health plan!  The core elements of the SPE business model are:

  • Strong governance and leadership by physicians dedicated to the model,
  • A strong understanding of “supply chain economics” that reinforces a network adequacy mentality and a focus on care coordination and continuity of care,
  • A corporate approach ensuring proper governance, decision making, and strategic planning for the organization, as well as building the right kind of talent – SPEs are focused on “professionalizing” their teams,
  • An organizational focus on the intersection of enhanced population health and managed costs – what we call “value” – will have physicians “thinking like a health plan,”
  • Commitment to innovation and technology. Physicians will need to be adaptable to new delivery systems, process improvements, decision support tools, information management, workflows, and other types of industrialization that healthcare desperately needs.  Further, SPEs represent the convergence of payer and provider requirements and need to be able to pivot from the revenue cycle to the claims cycle seamlessly,
  • VERY consumer focused – This requires a new mindset – a “retail” mindset – no longer directing patients to come in for an appointment only to wait to see the clinician.  This new mentality will require that SPEs think proactively about access, convenience, quality and safety in a way that accommodates the varying tastes and requirements of consumers.  Christensen mentions the example of primary care retail clinics, such as MinuteClinic. These retail primary care venues are more convenient – and cheaper – for consumers, and they better align the cost and intensity of supply with the requirements of demand.
  • Strong bias toward at-risk payment models – As I mentioned above, pay for population or other at-risk arrangements provide the best financial incentive for the type of alignment we need for improvement. This type of payment comes in many forms, including capitation and bundled payments; however, the end goal is the same – to force SPEs to think about value, quality and costs at the same time.  Further, aggregate payments help to address one of the flaws our System has historically dealt to physicians, the difficulty that physician-innovators have had raising capital.  Capitation operationalizes “cash flow capitalization;” assuming financial risk-based payments obviates the need for huge capital stock, and in the era of cloud computing, virtualization, and sourcing, legacy capital investments can be smoothed to align with the cash flow from operating an at-risk business model.

SPEs can take direction from the triple aim, originally defined by the Institute of Medicine, and later revised by Don Berwick, MD, former head of the Centers for Medicare and Medicaid Services (CMS). Sustainability will be measured by entities that can provide:

  • Better care – the system needs to produce optimal individual outcomes, regardless of condition. There are in excess of 100,000 medical errors each year that disrupt lives; harm, maim or kill; and cost the system millions of dollars.
  • Better health – as in better health status of populations.  SPEs will focus on proactively managing health status, and engaging consumers in ways that will leverage their involvement to drive better outcomes.  SPEs will develop tools to identify and baseline the health status of their population in quantifiable terms and build telemetry to monitor activity.  Provider organizations are learning that while it’s tough to track active patients (those that have regularly consumed health care services), it’s much tougher to monitor consumers that haven’t had much interaction with the health care system.
  • Better value – SPEs will drive for transparency as it relates to capacity, prices, cost, outcomes and ultimately quality.  Despite the fact that reporting quality to a consumer market is still a very immature art, the sustainable models will launch head first into quality measurement and reporting, even if the metrics are limited.  SPEs will use transparent demonstrations about quality as their differentiator, and will socialize those messages as broadly as possible.  Value is the currency of the SPE.

As the U.S. health care system meanders through the next 10 years or so, undoubtedly a period of tumultuous and disruptive change, I believe entrepreneurial Physician-Led Enterprises can create a path of innovation and improvement that is so desperately needed.  The notion that we will wake up one day in 2020 and our health economy is comprised of several hundred behemoth hospital systems is not only boring, it’s depressing.  If that outcome occurs, I posit we will also be in a world of continued outsize spending of questionable value, exaggerated price discrimination, and a marginally safe system.  I hope we forge a different path.