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Health Care & Life Sciences / Life Science & Biotech

Misery loves company: Hospitals, newspapers in the same (sorry) situation

February 6, 2014
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 All of us draw analogies between our own experience and the experience of others. It’s a fundamental, if simplistic, way we make sense of the world.
 
So as I write about health care providers, it’s natural for me to think of their challenges as similar to the challenges of my own business—newspapers.
 
Turns out, I’m not the only one. I had a fascinating conversation last month with Frank Williams, the CEO of Virginia-based Evolent Health. Evolent has about 100 people working in Indianapolis to help the Indiana University Health hospital system figure out how to effectively (and profitably) manage the health of large groups of patients.
 
In plan English: Evolent helps hospitals figure out how to keep patients out of the hospital and yet still make money.
 
Throughout our conversation, Williams drew comparisons between hospitals and news media.

“If my payment arrangements are changing rapidly enough, I’m too risk averse,” Williams said. “It’s like newspapers trying to shift to digital.”
 
Both industries are in an “already-not yet” financial situation. For newspapers, the future is in digital publishing. That’s been obvious for at least 15 years, if not more.
 
There are more readers in the digital realm, but less money from advertisers and subscribers. As a result, at IBJ, roughly 80 percent of the revenue still comes from the old-school print product.
 
So figuring out how to transition to a new paradigm while keeping the lights on via the old paradigm is the daily challenge around the IBJ offices.
 
The same is true in hospitals. They know they are transitioning from a system that pays them for volume of procedures to one that pays them for the value of their services (a combination of quality, low-cost and convenience).
 
Hopsitals will see more patients, and yet receive less money per patient. (If the just-announced plan for Medicare payments to physicians is any guide, annual increases of 0.5 percent will be considered a victory.)
 
Yet for nearly all hospital systems in Indiana, the value-based portion of their revenue is miniscule.
 
Only two of Indianapolis’ major hospital systems have chosen to participate in the Medicare shared savings program—which promises the hospitals’ a bonus drawn from any savings they achieve through more efficient care of patients. And even those hospitals—IU Health and Franciscan St. Francis Health—still derive far more money from Medicare’s traditional fee-for-service model.
 
Three other local hospital systems—St. Vincent Health, Community Health Network and the Suburban Health Organization have formed the Accountable Care Consortium, hired an executive to run it and given it the tagline: “Solving the Healthcare Value Equation.”
 
But they have yet to announce a contract under the consortium.
 
Meanwhile, health insurers are still playing their old games with health care providers: beating them down on reimbursement rates at every turn and now trying to limit their patient volumes in blunt ways via narrow networks or tiered networks.
 
Indianapolis-based WellPoint Inc. is running 60 accountable care arrangements around the country, but none in Indiana so far. WellPoint does have 1,300 physicians participating in its primary care medical home experiment. But that’s less than 10 percent of all physicians statewide and less than one-third of all primary care docs in Indiana.
 
So it will be a long time, most likely, before hospitals are receiving enough money via these new forms of payment to really alter their old-school behavior: locking down referrals, chasing well-heeled patients with new facilities, gaming the reimbursement programs to maximize revenue.
 
“You have a lot of pilot programs. But it’s not at a level of scale to where it’s really going to make a difference,” Williams said. “We really have to push and get to a tipping point where enough of our patients are being treated this way.”
 
He hopes Evolent’s work accelerates the trend. I wrote previously about how Evolent’s work in Indianapolis could play out like it did in Pittsburgh, where the academic medical center (IU Health's counterpart there) is now directly challenging the Blue Cross Blue Shield plan there.
 
Williams said he hopes Evolent’s work doesn’t play out that way in all the markets where it’s active. Instead, he hopes changes in how hospitals and doctors operate simply speed up changes in how insurers pay them.
 
But Williams thinks the change must start among hospitals, because, as I’ve written before, that’s where the money is.
 
“Eighty-five percent of the spend is on the clinical side, so it makes sense to focus there,” Williams said.

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