The Fight for Accountable Care

The medical community and the Department of Health and Human Services are currently embroiled in a fight over the makeup of regulations that will frame the Accountable Care Organization model for Medicare. If this were the NFL players’ union negotiations, observers would describe the parties as being “far apart.” In fact, The Wall Street Journal went so far over the weekend to editorialize on the “Accountable Care Fiasco.”

There are many ways to view this dispute between the health industry and its regulator. It’s a fair argument to say that the 429-page, proposed ACO rule represents an aggressive effort by the government to micromanage ACOs as they develop. Over-regulate ACOs at the beginning, critics argue, and they will never voluntarily materialize.

One can also argue that the proposed rules are simply an early attempt by regulators who are more familiar with the regulation of fee-for-service health care than the regulations of integrated-care delivery systems. The Obama administration, which made ACOs a cornerstone of its Medicare cost- containment strategy, will almost certainly react to the pushback that’s happening with a revised set of regulations that are more accommodating to industry’s concerns.

No matter how you view this tug of war, we can’t afford to let accountable care organizations fail to get off the ground. Developing integrated health systems that effectively deliver population-based health care is a linchpin to improving health and managing costs. This is true whether we focus on Medicare, Medicaid, or the private market. Today’s fragmented deliver system, created to treat acute care needs and fueled by fee-for-service financing models, is ill-suited to manage a population in which chronic diseases drive 75 percent of our costs.

Whether ACOs take hold in Medicare is largely a function of will power and economics. Will health care leaders be willing to risk taking their organizations into the ambiguity of an ACO model without knowing all of the details? Will payers, especially Medicare, be willing to engage industry in a collaborative process in which adjustments are made as we learn more about what’s really important?

It’s often said, and for good reason, that Medicare and Medicaid are the 500-pound gorillas that drive health-care delivery. After all, they account for the lion’s share of revenue for many hospitals and health systems. Medicare and Medicaid policies also drive decisions that affect commercial insurance programs. For that reason, we should all hope that the government and industry can settle on an approach that works reasonably well for everyone. If they can, this framework can help shape and mold private sector, ACO models.

If reasonable Medicare ACO regulations can’t be agreed upon, the private sector lift is harder, but not impossible. Most important, the health-care industry can’t afford to use the failure to come to agreement on Medicare ACO regulations as an excuse not to press forward. The stakes are too high, and the alternative–the status quo–is unsustainable.

We are at a crossroads. The leadership capacity of the health-care industry will be tested as never before. Collaboration is becoming more important than competition. Accountability and determination must replace finger pointing and denial. Innovation and risk taking must be promoted and celebrated, even when it results in well-intended failure. Most important, we need to cultivate and support health-care leaders willing to embrace ambiguity and lead through it. We won’t always have perfect information or clearly-defined rules of engagement.

Let’s hope that six months from now, we can look back on the current Medicare ACO draft regulations as nothing other than an honest attempt to move the ball forward, and that we’ve advanced the model further down the road. Whether Medicare drives the development of Accountable Care Organizations or the private sector develops accountable care organizations outside the rubric of regulation, we need to bring to life the promise of accountable care.

Obama's Gift to the Heritage Foundation

For the past 30 years, the Heritage Foundation and many conservatives have advocated the virtues of a reformed health care market in which individuals take ownership of selecting their health benefits. The Obama health care reforms may deliver just that result to millions of Americans. At least that’s the outlook described in a study released by McKinsey & Company early last week.

McKinsey suggests that employers will stop providing employer-sponsored health insurance (ESI) under health care reform at a much greater rate than previously assumed. Earlier government studies estimated that, beginning in 2014, up to 9 million Americans would shift from employer-sponsored insurance to insurance purchased through Health Insurance Exchanges. McKinsey estimates that as many as 30% of employers will definitely or probably stop offering ESI in the years after 2014.

A core finding of the McKinsey analysis is the recognition that employers have a built-in incentive to capture the government subsidies made available to individuals earning less than 400% of the federal poverty rate and for whom their health insurance premiums exceed 9.5% of their income. By facilitating a scenario in which premiums for low-income employees exceed 9.5%, employers can reduce their health care costs, even after paying a government-imposed penalty.

The McKinsey study identifies a number of ways employers can facilitate this strategy, but the net effect of each approach is an outcome in which highly-paid employees retain employer-sponsored insurance and lower-compensated employees migrate toward purchasing health insurance through the Exchanges. In the process, employers can effectively cap their health insurance liabilities at a fixed amount.’

If McKinsey is correct in its analysis, the implications for the health benefits industry are significant.

1. The health benefit marketplace will be more “retail” than ever before. Health Insurance Exchange purchasers will perhaps represent the “lions share” of the commercial health insurance market. Health insurers will need to effectively segment their customers on a basis other than medical costs to be successful.
2. The purchasing considerations of employers will likewise evolve. Employer-sponsored insurance may become a more pronounced tool for attracting and retaining highly-skilled employees. If this is the case, employers may become less fixated on the total cost of the product and more interested in the value-added product features that in the past have been left on the “cutting room floor.”
3. The health improvement and wellness sector can also be expected to undergo change. Employers have never been completely sold on the ROI of health improvement and wellness programs. As significant portions of employees move into the Health Insurance Exchange market where employer costs are fixed, it is unclear whether employer-sponsored health improvement and wellness programs will be as highly valued as a cost containment tool. Health improvement and wellness program providers will have to sell employers on a different value proposition, one that emphasizes the ability of these programs to improve workforce satisfaction, engagement and productivity.
4. Finally, it would be shortsighted to think that the government would see such an influx of subsidy-eligible employees without reacting. If McKinsey is right in its analysis, the government’s cost estimates are woefully low. It will not take long for the government to react, most likely by increasing the penalty employers pay when their employees opt out of employer sponsored coverage.

Ironically, it may be the Obama health care reforms that move the country further than it ever imagined toward an individually-driven consumer market.

The New Health-Care Cost Equation:Individual Accountability + Cost Cutting = Better Futures for All of Us

If personal incomes in the United States doubled every nine years, health care would not be a national concern. That’s the implied message of the 2011 Milliman Medical Index that measures the total cost of health care for a typical family of four covered by a preferred provider plan (PPO). The cost for a PPO plan in 2011 rose to a staggering $19,303, an increase of $1,319, or 7.3% over 2010.

According to the U.S. Census Bureau, the median U.S. household income was $50,211 in 2010. Even though the total cost of health care is not born solely by households, the proportion of household incomes spent on health care still remains significant. In fact, employees’ share of the total cost of health care has reached an all-time high and accounts for reaching almost 40% of total health care spending in 2010.

If health-care costs aren’t brought under control soon, the U.S. health care system can look forward to even more drastic changes as we wrestle with how to get costs under control. Our country’s economic future will require that we contain health-care costs before they crowd out an even larger portion of personal spending and the economy.

Implicit in the MIlliman study lies a fascinating story.

Of last year’s health-care cost increase, most of the increase–about 90%--resulted solely from increases in the unit cost of health care services. In contrast, only 10% was driven by increases in the use of health-care services. The price of hospital inpatient services rose 8.3%; outpatient services crept up as the price of physician services increased 4.4%.

Given this scenario, it’s fair to conclude that at least for the moment, private sector health-care spending isn’t propelled by a population of increasingly unhealthy individuals.

What’s more, price increases levied by the health-care system are driving commercial health insurance premiums higher.

In the zany U.S. health-care financing ecosystem, cost shifting from other payment sources is always an issue. And given the Milliman findings, we’ll surely see a significant amount of cost shifting at play. In today’s fiscal environment, Medicare and Medicaid are not increasing the prices they pay for health care. If this continues, providers of care can be expected to increase the prices they charge to commercial patients at a faster rate.

So is there any hope left for a reasonably well-performing, private health-care delivery and financing system? Maybe, but only if we collectively develop a mindset that focuses on health-care cost reduction--not containment or control--as our single most important priority.

For generations, we’ve thought of health-care expenditures as national “investments” in the health of our society. The problem is if past spending was an investment in the health of today’s population, it has produced dismal returns. As a society, we’ve never been in poorer health than we are today.

We need a mind shift in how we think about health care. Each of us must accept an individual accountability for improving our health and a collective commitment to lowering the cost of treating ourselves when we get sick.

If we don’t, we’ll face economic and social consequences no one wants.

Jim Tressel’s Firing, and What it can Teach Health Care Leaders

Jim Tressel, the now former head coach of Ohio State, is the latest college coaching celebrity to lose his job because of an NCAA inquiry into rules infractions. In the aftermath of Coach Tressel’s Memorial Day decision to resign as Ohio State’s head football coach, many pundits are already offering what have become familiar refrains.

“The NCAA rules are arcane and unfair,” say some.

“Coach Tressel’s real failing was in trying to cover up the original offense,” say others.

There is truth to both points of view. The lasting lesson, however, that each of us can take from this latest tragedy is this: Jim Tressel’s biggest and most important mistake was in letting the interests of a small handful of his players become greater than the interests of his team.

In trying to shield his star quarterback, Terrell Pryor, and a handful of other players from the scrutiny of possible NCAA violations, Jim Tressel paid a huge price--one of the best head coaching jobs in the country. He also sacrificed the interests of his entire team which will now play for a new coach, in a new system, under what will certainly be NCAA-imposed sanctions.

More than anything else, Jim Tressel lost sight of the values embedded in the Ohio State fight song and sung by over 100,000 fans every home game Saturday. "Our honor defend, we will fight to the end, for OHIO!"

What’s true for football coaches is also true for health-care leaders. By their very definition, organizations exist to pursue goals that they cannot achieve by individuals acting alone. As in sports, rules aren’t meant to be broken, they’re meant to be followed and enforced. And in health care, more so than most other industries, rules are the norm.

How many health-care leaders do you know who’ve fallen because they didn’t live up to the compliance standards their organization must meet? Like the conversation now swirling around the Jim Tressel resignation, it’s not hard to envision a conversation that goes something like this: “Everybody knows those rules are a joke; who can live up to those standards anyway?”

As health-care managers face complying with regulations that are often burdensome and ineffective, it’s tempting to take the bait and excuse compliance transgressions. As leaders, however, excusing transgressions of any type is organizational suicide, and can never be tolerated.

I’m not suggesting that every compliance violation requires a firing. I’m recommending strong allegiance to compliance with the rules, no matter how arcane, and whatever the consequences.

Otherwise, your organization–your team–will begin to accept the big compromise that the players at Ohio State came to: That rules don’t matter; that different rules hold for different players. And that, my friend, is the beginning of the end for every organization that seeks greatness.