Business Imperatives of
Population Health Management
Winter Educational Conference | January 14, 2016
Rob W. York, Senior Vice President
© 2016 Kaufman, Hall & Associates, LLC. All rights reserved.
Today’s Topics
1. Introduction
2. Physician and Clinical Alignment
3. Contracting Strategy
4. Network Optimization
5. Operational Efficiency
6. Enabling Infrastructure
7. Concluding Comments
8. Q&A/Discussion
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1
Introduction
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2
Population Health Management Changes Business Fundamentals
To succeed, executives must rethink:
• The scope of their business(es)
• Where, to whom, and how their organizations provide
services
• Which services are most appropriate
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3
Five Interrelated Business Imperatives Need to Be Addressed
•
•
•
•
•
Physician and clinical alignment
Contracting strategy
Network optimization
Operational efficiency
Enabling infrastructure
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4
Physician and Clinical Alignment
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5
The Emerging Business Model Demands a Higher Degree of
Physician Alignment
• Transformation from volume to value
• An emphasis on coordination of care across the continuum
• Steady and increasing pressure on price
• Unpredictable utilization in medium term
• Improved IT connectivity between hospitals/doctors/patients
• Markets’ increasing preference for scale/essentiality
Physician alignment has always been important,
but in managing population health, it will be essential.
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Integration Models Vary Widely in Their Ability to Impact the
Value Equation
Realizing the
promise of
population health
management
will require the
application of
the most difficult
integration
mechanisms
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A Key Success Factor Is How Incentive Payments Will Be
Distributed
Key Questions:
1. What is the expected overall
financial performance and the
projected incentives?
2. What is the process for
determining the residual incentive
(less costs) that will
be distributed?
3. What is the methodology for
distributing those residual funds to
individual physicians?
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Best Practices:
1. Align goals with incentives
2. Seek transparency and fairness
3. Establish pools to foster greater
accountability (e.g., PCP, specialist,
ancillaries, acute, outpatient
diagnostics)
4. Develop detailed budgets and
deduct appropriate expenses prior
to determining distributions
5. Continually evolve the approach
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8
Contracting Strategy
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The Pursuit of Value-Based Initiatives Will Be Critical for LongTerm Sustainability
• Hospitals must: pursue value-based contracting strategies, face
exclusion from key networks, or play the role of a discounted vendor
• Many hospitals will: need to form strategic partnerships to execute
their value-based strategies or prevent network exclusion
Provider organizations able to manage defined populations across the
continuum will be more attractive to payers, employers
and consumers.
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10
One Size Will Not Fit All – Purchasers Will Use Various
Mechanisms to Achieve Greater Value from Providers
Limited Networks
Wholesale:
“House Money,
House Rules”
Direct
Contract
Service-Level Consumerism
Narrow
Network
High
Deductible
Reference
Price
Centers of
Excellence
Shift Risk to Providers
FFS
P4P
Bundled
Payment
Shared
Savings
Shared
Risk
Full
Risk
Shift to Exchanges
Retail:
Shift Plan Choice
to Consumers
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Public
Exchange
Private
Exchange
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Moving Across the Continuum of Risk Contracting Will Present
Unique Opportunities and Challenges
• The largest upside (and downside) potential is realized when moving to
the greater acceptance of risk
• Clinical and organizational integration will be a fundamental
requirement for the greater acceptance of financial risk
Small % of financial risk
FFS
IncentiveBased FFS
No risk
• Quality and
cost target
payments
• PQRS
• PCMH
Medium % of financial risk
P4P
• VBP
• Shared
Savings
• Bonuses
• Withholds
Limited Integration
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Case
Rates
• Episodic
• Bundled
payments
Moderate Integration
Large % of financial risk
Partial
Risk
• Limited
scope
• ACOs
Full
Risk
• Capitation
• PMPM
• Percent of
premium
Health
Plan
• Full
integration
• Health plan
and delivery
system
Full Integration
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12
Network Optimization
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Developing a High-Performance Delivery Network – Critical Issues
•
•
•
•
•
•
•
Network essentiality (size/scale)
PHM care continuum (breadth/depth)
Service distribution right-sizing
Network performance and outcomes
Overall “network adequacy,” as defined by regulators and/or payers
Delivery network growth strategy
Stakeholder engagement and distribution channels
These criteria and/or critical issues are not mutually exclusive, and each has
nuances that will require thoughtful evaluation.
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Providers Aiming to Achieve/Ensure Network Essentiality
Attributed Lives vs. CMI Adjusted Cost per Discharge by Network Systems
CMI Adjusted Cost Per Medicare Discharge
$12,000
$11,000
$10,000
System A
$9,000
System B
$8,000
$7,000
System E
$6,000
System C
$5,000
System D
$4,000
0
10,000
20,000
30,000
Membership Attribution
40,000
50,000
Note: Bubble size denotes net patient service revenue.
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15
Network Design to Include Continuum of Care
Tertiary/Quaternary
Acute Care
Patient
Acuity
Level
Short-Stay, Psych
Infrastructure and
Ancillary Services
•
Diagnostics
•
Pharmacies
•
Laboratory
•
Therapy
Ambulatory
Specialty Care
Public Health Resources
•
Community Health
Centers
Post-Acute and
Transitional Care
Rehab and SNF
Long-Term Care
Home Care
Hospice/Palliative
Assisted Living
Primary Care
(PCMH)
Longitudinal Care Episode
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Service Distribution Optimization –
CABG Case Study
CABG Distribution Across the Regional Health System
Statistic
Hosp 1
Hosp 2
Hosp 3
Hosp 4
137
127
126
250
1,297
1,136
1,196
1,886
Length of Stay
9.5
8.9
9.5
7.5
8.6
CMI
6.6
6.5
6.2
6.2
6.3
% Emergent Estimate*
60%
44%
33%
20%
n/a
Internal
Utilization
Discharges
Days
Total
640
5,515
* % Emergent estimated using % treated in the ED for discharges in each hospital’s PSA, Q3 2012 – Q2 2013
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Future Network Growth Requires Appealing to a Variety of
Consumers
Network
Assembly:
Employers
Network
Growth
Network
Selection:
Individual
Enrollment
Provider
Steerage:
Physician
Referral
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18
Operational Efficiency
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As the Sphere of Influence Widens, Focus Shifts to Total Cost
Management
Population
Health Focus
Traditional
Focus
Mental Health
Prevention
Acute Care
Urgent Care
Emergent
Care
Home Care
Ambulatory
Care
Wellness
Diagnostics
Physician
Clinic
Post-Acute
Care
Chronic Care
Retail
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Reducing Total Cost Demands a New Scope of Initiatives
Hard
Harder
Margin Improvement
Business (Re)Configuration
Hardest
Clinical Effectiveness
Clinical labor productivity
Corporate/market scale
Care processes
Nonclinical labor productivity
Geographic footprint(s)
Clinical variation
Overhead
Service offerings
Care utilization
Supply chain
Service line distribution
Care management
Revenue cycle
Physician alignment and optimization
strategy
Clinical integration
Facility planning/maintenance
New contracting/pricing models
Care transitions
Capital allocation
Consumer and retail strategy
End-of-life care
Nonoperating assets/liabilities
Innovation strategy
Patient education
Corporate risk management
Community investment strategy
Public health and wellness
Required cost focus areas under all business models
Required additional cost focus areas for value based
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A Long-Term Roadmap for Cost Transformation Is Required
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Enabling Infrastructure
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The Enabling PHM Infrastructure Is Critical to Success
• Management/governance structures that include a high level of
physician involvement and cover contracting, risk assessment,
clinical/operational decision making
• Delivery network of sufficient size and scope
• IT systems to support care management, common electronic health
record systems, clinical/predictive analytics, payment
receipt/distribution
• Care management tools and protocols tied to enterprise-wide decision
support and reporting functions
• Contracting and risk assessment and management capabilities,
including actuarial skills if assuming full risk for a population
• Patient engagement programs to build loyalty to the organization
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Overall strategy:
Integration with
broader Healthcare
Company
E XAMPLE
PHM Division Governance and Executive Leadership
PHM Division Operations
Centralized PHM
infrastructure:
Build, buy, and
partner options
PHM delivery hubs:
Physician orgs,
employers,
purchasers, medical
neighborhoods, etc.
1. Care Model Coordination/
Integration
3. Service Delivery and Network
Operations (the Continuum)
5. Financial Risk Management and
Modeling
2. Value-Based and Risk
Contracting/Products
4. PHM Analytics & Info. Systems
6. PHM Innovation, Training, and
Education
Local PHM
Network 1
Primary Engmt.
& Mgmt.
Care
Population
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Local PHM Network
3+
Local PHM
Network 2
??
Primary Engmt.
& Mgmt.
Care
Population
??
Primary Engmt.
& Mgmt.
Care
??
Population
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Risk Management
•
•
•
Strategic and operational risk
Actuarial or insurance risk
Financial asset and liability risk
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Concluding Comments
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Concluding Comments
• Population health management is a significantly new way of doing
business with broad and complex implications
• The changes span the entire organization
• The benefits — and risks — of managing population health are
proportional to the degree of risk assumed
• Successful population health management requires:
– Strong physician and clinical alignment
– Thoughtfully developed contracting strategy
– Optimization of delivery networks
– Operational efficiency
– Enabling infrastructure
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28
About the Speaker
Robert W. York
Senior Vice President
Kaufman, Hall & Associates, LLC
5202 Old Orchard Road, Suite N700
Skokie, Illinois 60077
847.441.8780, ext. 129
ryork@kaufmanhall.com
Rob York is a Senior Vice President of Kaufman Hall and leader of the Population Health Management
division in the firm’s Strategy practice. He provides strategic services for a range of healthcare industry
clients, including payers, physician organizations, academic health centers, large healthcare systems,
public/safety-net providers, and community hospitals. Mr. York’s responsibilities focus on developing
strategies to help providers remain relevant and viable in the new healthcare environment. Such
strategies are based on understanding required shifts to the overall healthcare model, rigorous market
landscape and organizational competitive position analysis, attributed population definition,
segmentation and demand analysis, value-based competency and network design requirements, and
strategic partnership evaluation.
Mr. York regularly speaks to boards and at meetings of professional societies, and has published
numerous articles in industry journals, including Health Affairs, Spectrum (a publication of the
American Hospital Association’s Society for Healthcare Strategy and Market Development), and
Strategic Financial Planning (a newsletter from the Healthcare Financial Management Association).
Prior to joining Kaufman Hall, Mr. York was a consultant with KPMG LLP’s West Coast and Midwest
Healthcare Practices. He has an M.B.A. from the University of Notre Dame and a B.S. in Business
Administration with honors from the University of Arizona.
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5202 Old Orchard Road, Suite N700, Skokie, Illinois 60077
847.441.8780 phone | 847.965.3511 fax
www.kaufmanhall.com
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