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In the last article I introduced a scenario model for the US based on emerging reimbursement and payer environments. One of quadrants in this model (see Figure 1), is the UK Style Healthcare Quadrant. This is the quadrant that may also be associated with the “Medicare for All (M4A)” healthcare environment that is part of the political platform of some Democratic presidential candidates. This is the environment that is most frightening to the current Medical Industrial Complex (MIC) as it would disrupt the current power of the payers, providers, pharmaceutical companies, pharmacy benefit management companies, group purchasing organizations, and diagnostic laboratory companies over the pricing controls they have over the industry at this time. While the US may not move toward a single payer/government controlled healthcare delivery system such as we see in the UK, Australia, New Zealand, or Canada, in the near future, insights into this quadrant may provide guidance on approaches to better control healthcare delivery costs while also improving care quality. Remember, all the countries just mentioned score higher on the WHO healthcare rankings than the U.S.
Figure 1
Successful providers in this quadrant will focus on delivering healthcare services under federal payment/budget constraints. To be successful in this quadrant, provider organizations will likely focus on:
Ø Implementing activity-based costing to understand cost levers associated with all services.
o Less than a handful of US provider organizations have conducted activity-based costing (ABC) to evaluate their service costs. Those that have completed this process have a true understanding of their service costs and all the factors that impact these costs (e.g. direct, indirect, variable, etc.). How do we know we can’t survive on Medicare prices? Over a decade ago, many providers went through a zero-based budgeting process to evaluate all their costs because they believed there were going to be forced to accept Medicare prices. Several providers cut staffing and services in preparation for this perceived reality. In other words, they tried to truly evaluate how to operate and survive in a world of single payer pricing. When I hear a provider executive say they can’t survive on Medicare rates, my thought is that we have become complacent and lazy relative to innovating our healthcare services to reduce costs and improve quality.
Ø Contracting with suppliers who are identified as the lowest cost for supplies and medications.
o Supply chain management is a great example of where high cost low value middlemen could be disrupted. Are group purchasing organizations (GPOs) or pharmacy benefit management (PBM) companies providing optimal benefits for providers? Senator Grassley has been analyzing GPO performance for years. A recent report[1] from the Senate Finance Committee challenges the benefits GPOs deliver to the industry. A report[2] from the Pacific Research Institute highlighted the challenges PBMs cause for the market; creating medication pricing uncertainty related to rebate programs; discrepancies between list prices and transaction prices causing higher patient co-pays; imposing large and unknown fees creating revenue uncertainty; increasing gross expenditures at the expense of pharmacies and manufacturers; and control of the drug formularies, impose undue influence on the medicines patients can access. Providers need to focus on identifying and partnering with ethical low-cost suppliers to drive down their healthcare delivery cost. This may require direct supply chain management linkages with manufacturers and drug companies.
Ø Managing labor costs and turnover.
o When evaluating the labor associated with care delivery, are providers using the most optimal clinicians for the service? Can advanced practice providers (APPs; nurse practitioners and physician assistants) take on more medical care functions from physicians? Are nurses being utilized at the highest level of their licenses? Can telehealth services be implemented to reduce clinician and patient impacts? The challenge for this process is to determine how to retain an acceptable level of compensation for the physicians as their workload is hopefully reduced. This leads us into the culture aspect of these transformations. Does the provider organization have a culture that supports and encourages clinicians to assist with transforming care delivery? If not, clinician turnover will be significant challenge and cost for organizations if this quadrant model emerges as the new healthcare reimbursement model.
Ø Driving clinical system interoperability to better share patient data across all modalities of care and to acquire patient monitoring data from digital devices.
o The IT/data environments of provider organizations are still a mingling of several different vendor solutions that touch all financial and clinical operations. Health Level 7 (HL7) Fast Health Interoperable Response (FHIR) is positioned to standardize data sharing between IT systems. The standardization of data sets for patient information will become increasingly important as more patient focused applications are created for smart devices (e.g. phones, home assistants). The ability to create timely patient notifications and other treatment management processes via smart devices should increase patient compliance and lower treatment costs. Another factor for lowering services costs with interoperability and standardization is in the ability to more easily and effectively normalize patient data collected across disparate healthcare applications. This will significantly impact artificial intelligence applications relative to the timely identification and notification of important changes in a patient’s healthcare status.
Ø Using data analytics to analyze the cost of high volume and high margin services.
o Most organization have acquired business intelligence and/or enterprise data warehouse solutions to evaluate quality and outcomes performance, or to identify high risk patient populations. These analyzes will need to be extended to include cost data as well as Social Determinants of Health (SDoH) data to provide a more complete picture of healthcare costs based on patient populations.
Ø Implementing robotics to reduce workforce expenses.
o A few provider organizations have implemented robotics for medication distribution, supply distribution, and even for remote surgery. A few organizations have tested robots for delivering items to patients such as meals and personal care items. While robotics is in its infancy for market adoption, it is a technology that can significantly reduce labor costs that should be considered in a M4A healthcare reimbursement environment.
Ø Expanding and extending patient self-service with bots.
o Patient engagement will be key for driving down healthcare costs in fixed reimbursement environments. The ability to provide compelling healthcare application tools that help patients better manage their care and remain compliant with their care plans will likely have a significant impact for driving down healthcare delivery costs. Bots are being developed to capture and assess a patient’s data from chatbots or medical devices to better manage chronic disease. Bots with AI capabilities are emerging to better manage diabetes, chronic heart failure, enhance medication compliance, and provide general healthcare guidance. The focus of care delivery moving to ambulatory and home care services will be a necessity to survive an M4A reimbursement environment.
To identify which scenario quadrant healthcare reimbursement will move toward, it is important to pay attention to the media headlines. The following headlines are a blend of current/real headlines, and what future headlines might look like. Can you tell which are the real headlines?
v Bernie Sanders’s Medicare-for-all plan, explained
v Why Arizona's suburbs are telling for healthcare in 2020
v Uber Health System closes a quarter of its hospitals and adds additional telehealth services
v San Jacinto Healthcare contracts with Amazon for all supplies
v St. Skippy hospital implements robots to assist with patient care tasks
v CMS requires data interoperability between all US healthcare providers by April 2021 with significant penalties for non-compliance
v UK to implement Alexa for common illness advice for citizens
The real headlines are the first two and the last two; if you couldn’t tell. Media headlines will provide the initial nuances for market direction on reimbursement. Pay close attention to headlines issues from commercial insurance companies, as these companies have significant influence over US politicians which could impact the initial incremental modifications seen for reimbursement models.
The key factor for the US moving to the M4A reimbursement quadrant are the US citizens. If the citizens vote in politicians who are committed to M4A and able to resist the power of the MIC, M4A could be a reality sooner rather than later. Providers who prepare for M4A will likely survive the market turmoil. Remember, the industry has already survived two major reimbursement challenges that were slated to drive the industry to ruin; TEFRA/DRGs and ICD-10. I’m confident the US can survive and thrive under any of the quadrant models if we continue to innovate healthcare delivery processes.
[1] https://amac.us/wp-content/uploads/2018/03/empirical-data-lacking-in-gpo-savings.pdf
[2] https://www.pacificresearch.org/wp-content/uploads/2017/06/PBM_Lit_Final.pdf
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