The Writing Is on the Wall. Have You Read What’s Coming?

In this month’s edition, I talk to Ryan Graver, Terumo Business Edge’s new VP of Market Access and Commercial Development, about the current headwinds facing hospitals and more specifically, the cardiovascular (CV) service line. Together, Ryan and I have worked with dozens of facilities, and talked to numerous payers and ambulatory surgical center (ASC) stakeholders. The challenges are clear, and Terumo Business Edge can provide knowledge and solutions directly targeted to address these challenges. We offer solutions that are meaningful, quantifiable, and aimed at increasing efficiencies and reducing costs.  —  Gary Clifton, Vice President, Terumo Business Edge

Gary Clifton: Ryan, you have been with Terumo Business Edge for a little over six months and participated in a number of customer interactions.What is your overall observation?

Ryan Graver: Thus far, 2019 has been a significant year in terms of healthcare; it continues to be the number-one issue in virtually every poll and most Americans are seriously concerned with the current state of our healthcare budget and the value we get in return for our spending. Of course, the 2020 election will likely drive the main news coverage as it relates to healthcare: Medicare for all, Affordable Care Act (ACA) reform, how does the country afford what we have or what is being proposed? However, I am focused on three major trends that I believe have the potential to drive significant disruption in our current healthcare system.

First, the Center for Medicare and Medicaid Innovation (CMMI) has publicly stated its goal to have 100% of providers taking downside risk by 2025.¹ We have talked about value-based payments for over a decade and yet a significant majority of providers still operate under a fee-for-service model. If Centers for Medicare and Medicaid Services (CMS) is going to achieve its stated goal, I anticipate that we will see more mandatory programs that include significant downside risk for providers. Despite the years of movement toward risk-based models, provider organizations, specifically hospitals, continue to report they are not prepared, either lacking the data and governance, or lacking the infrastructure to truly manage the risk they are bearing.

Gary: I don’t disagree. I remember CMS Administrator Seema Verma telling an audience at this year’s Healthcare Information and Management Systems Society (HIMMS) conference that it all needs to start with payment innovation, and the ability to better align financial incentives for providers and tie it back to quality outcomes.² CMS seems committed to driving change and using technology to achieve their goal.

You mentioned that there are three trends that might drive disruption in our healthcare system. Number two would be what?

Ryan: The second trend is the movement of self-funded employers to direct contracting. A recent article published by Modern Healthcare³ focused on employers finding new ways to collaborate with providers. The author noted a survey from Towers Watson’s which reported that 22% of employers are considering direct contracting with physicians and healthcare systems in 2020. In 2018, it was estimated that 180.7 million Americans or 55.1% of the U.S. population received health insurance via an employer. If nearly a quarter of these employers begin to direct contract, providers better be ready to engage or risk losing access to the largest pool of patients in the United States.

The third trend is the shift of sites of service. With the FY20 Outpatient Prospective Payment System (OPPS) & Ambulatory Surgical Center (ASC) Proposed Rule laying the groundwork for CMS to approve procedures such as hip replacement and percutaneous coronary interventions (PCIs) to be reimbursed in the ASC, 2020 could see the beginning of a significant trend of procedures shifting out of the hospital. We are seeing hospital groups like Universal Health Services (UHS) moving toward this trend with the announcement of a joint venture with Regent Surgical Health and even payers such as United Healthcare’s purchase of Surgical Care Affiliates, which now operates more than 250 ASCs across the United States. To further illustrate how the market is driving this shift, United Health Group recently announced⁴ that it will prior authorize procedures by not only verifying coverage, but now also determining if the procedure should be performed in an ASC or a hospital, thus providing tremendous cost savings to United’s beneficiaries.

Gary: There is no doubt that we need some of these changes, but how will it play out for the various stakeholders in healthcare?

Ryan: You make a great point that payers, physicians, and hospitals are unlikely to feel the effect of these shifts in policy equally. I believe that hospitals, due largely to their physician group acquisition strategy of the last decade, are most likely to feel the impact of these changes. Most estimates continue to point to more than 70% of cardiologists being employed by a hospital system and more than 85% having a financial interest in a hospital service line, primarily through managed service agreements. I would argue entering 2020, hospitals are facing the most risk on multiple fronts. First, again because of the increases in physician employment, hospitals now control both the professional and facilities fees; thus, hospitals have the most exposure as reimbursement models shift toward value-based or total cost of care payment models. Second, as employers shift toward direct contracting, hospitals will face the most pressure to reduce costs and improve quality, and finally, as policies such as the list of CMS-approved procedures that can be reimbursed in the ASC continues to expand, again hospitals will be faced with mounting financial headwinds. Studies have shown over and over that when hospitals employ physicians, quality decreases and costs go up. Hospitals are going to have to address this challenge or face industry shifting policies and payments to direct as much care away from the hospital setting as possible.

Gary: I agree. Throughout 2018 and 2019 we saw a consistent theme in the market that hospitals are at the greatest risk. The potential for out-migration of procedures to a lower cost site of care is real. United’s new proposed pre-authorization process is a perfect example that things are changing and if hospitals don’t respond, they risk the biggest negative impact.

We saw an aggressive and concerted effort from hospitals all over the country to acquire their physician practices, which in my opinion was an effort to control costs. Was it successful?

Ryan: In my opinion, the single largest issue facing the U.S. healthcare system can be distilled down to the alignment of incentives. As I mentioned earlier, most hospitals are still paid largely fee for service and thus their incentive is to provide more care, drive more admissions, and do more procedures — and they have largely invested in physician services to achieve this goal. Of course, most physician compensation is tied to relative value units (RVUs), which is volume based. Frankly, we can talk about cost, quality, and satisfaction as the key components of value, but all three major sectors of our U.S. healthcare system are operating exactly as they are incented to behave: focusing on driving revenues through the expansion of healthcare services.

However, it’s not just the provider organizations. If we go back to the 180 million Americans that receive their insurance from their employer, the Kaiser Foundation estimated that more than 60% of employers are self-insured.⁵ This means that insurance companies make money as a third-party administrator processing claims; thus, their incentive is to pay more claims for more care so they can grow their revenues. At a recent conference, a health insurance purchaser for a state’s health plan shared that on average in this particular state, commercial insurance pays hospitals 280% of the Medicare allowable, illustrating the disconnect between the employer’s desire to bend the cost curve, and the insurer and provider’s desire to grow their revenues.

Gary: We have hit the big-picture items, but what are some specific examples that might further illustrate the misalignment of quality and cost?

Ryan: Surveys among large numbers of hospital executives continue to demonstrate the primary focus remains on growing volumes⁶, both in terms of volume and/or revenue growth. However, I would argue that volume growth is often not achievable, because what I typically have observed is that hospitals are at or near capacity, and it is hard to grow volume when you are constrained by capacity. This is particularly important as it relates to the cardiac cath lab (CCL) and how the CCL is impacting constraints arising from low same-day discharge percentages, and overall length of stay opportunities to optimize care delivery and throughput. Additionally, we often hear of opportunities from a quality perspective that include higher-than-predicted acute kidney injury (AKI) rates, high rates of bleeding complications, high readmissions rates, and in some cases, higher than predicted mortality rates. Each of these is an example of an opportunity to align quality and financial cost efforts between hospital and providers.

It’s a bit of a tangent, but a major compounding factor in all of these challenges is coding and billing. The rate at which provider organizations are defaulting or using unspecified codes⁷ has reached an untenable frequency. Defaulting or using unspecified codes not only decreases reimbursement rates due to under-representing the severity of the patients being treated, but in the move to risk-based models, coding and billing issues will further place unnecessary and unmanageable risk on the provider organization. Documentation and coding must be improved dramatically in the short term in order to help steady the financial health of organizations and prepare for the more complicated payment models that are coming.

Gary: It’s a given that healthcare is complex and delivering healthcare has become increasingly challenging, especially doing so in a cost-effective manner. How should organizations prepare and what actions can they begin to take?

Ryan: There are so many aspects to our entire system’s transition toward a more value-driven healthcare system that it at times can seem overwhelming. That being said, I would encourage organizations to consider the following:

1) Start down the quality and risk path. Find partners and organizations that can help develop a plan. There are organizations already taking risks: they are developing advanced payment models, optimizing care delivery, and even developing data capabilities to identify and manage risk.

2) Set goals for your organization. Start with high-volume, high economic impact areas. The cath lab is a great example of an opportunity area for most organizations. There is significant care variability that drives different outcomes and rates of utilization, which drive cost. The cath lab also represents an opportunity to look for significant cost drivers within your organization, such as reduced length of stay, reducing complications like AKI, improving coding and documentation, and avoiding unspecified coding.

3) Begin a plan to shift away from volume. If CMS is successful in putting 100% of providers in downside risk programs, systems will be forced to manage risk in a new way and revenues will be tied to managing total cost, not just getting paid for procedures or admissions. Look for innovative ways to partner with employers and commercial payers as a core strategy to develop new revenue streams.

Organizations can optimize their care delivery today, reducing internal cost while improving quality, outcomes, and patient satisfaction, all while preparing for and developing strategies to capitalize on down-side, risk-based payment models. The time to act is now. Terumo Business Edge is actively working with programs to address these very issues. We would welcome the opportunity to discuss partnerships focused on aligning your organization toward a more value and quality-driven model. 

1. Government moving to more risk arrangements based on quality. Relias Media. October 1, 2019. Available online at: https://www.reliasmedia.com/articles/145055-government-moving-to-more-risk-arrangements-based-on-quality. Accessed November 6, 2019.
2. Speech: Remarks by Administrator Seema Verma at the 2019 HIMSS Conference. Centers for Medicare & Medicaid Services (CMS). Available online at https://www.cms.gov/newsroom/press-releases/speech-remarks-administrator-seema-verma-2019-himss-conference. Accessed November 6, 2019.
3. Delbanco S. Employers finding new ways to collaborate with providers, in search of quality, lower costs. Modern Healthcare. October 26, 2019. Available online at https://www.modernhealthcare.com/opinion-editorial/employers-finding-new-ways-collaborate-providers-search-quality-lower-costs. Accessed November 6, 2019.
4. Livingston S. UnitedHealthcare outpatient surgery policy threatens hospital revenue. Modern Healthcare. October 17, 2019. Available at https://www.modernhealthcare.com/payment/unitedhealthcare-outpatient-surgery-policy-threatens-hospital-revenue?utm_source=modern-healthcare-daily-finance-thursday&utm_medium=email&utm_campaign=20191017&utm_content=article1-headline. Accessed November 6, 2019.
5. 2016 Employer health benefits survey. KFF. September 14, 2016. Available online at https://www.kff.org/report-section/ehbs-2016-section-ten-plan-funding/TB_inline?1=1&width=800&height=580&inlineId=exhibit-10_1. Accessed November 6 2019.
6. Hospital’s top priorities swing to growth over costs for 2019. June 12, 2019. Available online at: https://www.businesswire.com/news/home/20190612005135/en/Hospitals-Top-Priorities-Swing-Growth-Costs-2019. Accessed November 6, 2019.
7. Miller E. Getting specific with the unspecified. Code Cracker. A Journal of AHIMA Blog. February 14, 2018. Available online at https://journal.ahima.org/2018/02/14/getting-specific-with-the-unspecified/. Accessed November 6, 2019.