With the industry-wide shift to accountable care and value-based payment models, many provider organizations are entering the population health management space. Using a comprehensive business design approach that takes into account the interlinked parts of an organization to develop successful population health programs aligned with organizational strategy could deliver positive economic value while improving health outcomes.
The industry landscape is changing with greater emphasis on value-based payments replacing traditional fee-for-service reimbursement models. Doctors and nurses who had responsibility for helping sick patients get better are now expected to focus on keeping people healthy. Hospital administrators who were measured on financial metrics such as hospital days now can now realize greater returns if they can keep people out of hospitals.
Traditional healthcare involved dealing with sick people who came in to hospitals and clinics. In the future, healthcare will be about proactively engaging with healthy people and encouraging them to adopt behaviors that keep them healthy. This will involve outreach and engagement in entirely new ways with which the modern healthcare industry is not yet accustomed. This shift has led the industry to turn toward population health management programs as a solution.
As providers develop programs to address this shift, most programs are currently underpinned by specific technology solutions such as risk stratification tools or a financial model with specific incentives for achieving quality outcomes. However, most of these programs are not assessing their complete business model and by merely focusing on a few aspects such as technology or financial incentives, they run the risk of developing programs that are either not scalable or do not prove sustainable as they fail to achieve the quality, clinical or financial goals that are sought.
Today, many initiatives are primarily driven to achieve specific financial results. For example, provider organizations plan their population health program starting with a revenue number in mind. Payers like this approach because it allows them to quantify their cost savings, meet their financial targets and measure the cost of improving their STAR ratings, readmission rates and other key performance indicators.
Many population health management programs prove to be ineffective in achieving their goals because of an overemphasis on a single aspect of their business model, such as risk stratification or clinician workflow tools to support their entire population health management business.
As a result, there is a significant risk that well-intentioned population health management programs end up delivering negative economic value or not achieving the desired quality outcomes and further compounding the economic challenges that many providers face. For instance, 13 of the 32 original Pioneer ACOs have dropped out of the federal program.
Creating an Aligned Business Model for Population Health
The figure below shows a high-level business model framework. It starts with an outside-in perspective, understanding the nature of the target market and the opportunity to provide value before identifying target customers (notice the initial emphasis is on customers, not patients) and only then defining the business capabilities required to serve them effectively. This view could ensure that an offering is focused on meeting customer needs. Business capabilities include the skills people need, technology for collecting and reporting data in a meaningful way and the underlying business and clinical processes for achieving outcomes.
Throughout this process, a financial model should be developed in concert with business and clinical capabilities to ensure incentives are aligned and total costs have been factored in to reach financial sustainability. Historically, the healthcare industry has lacked transparency into the cost of providing care, and often the financial model is not well defined. Being proactive in clearly articulating all the costs and value from a population health program early is a prerequisite to ensuring that the program can avoid the challenges of the past and become financially sustainable.
For example, in developing a program that is designed to reduce the cost of a chronic condition for a payer, quantifying the benefits on a per-member-per-month basis from the payer’s perspective is valuable because it provides a view into the size of the economic opportunity and the notional “price” that a payer may be willing to pay.
Providers often take a bottom-up approach to developing cost estimates. For example, while developing a program for reducing re-admissions, the cost is estimated by adding up the cost of future plans for home health aides, care coordinators and other clinicians and multiplying by a standard hourly cost. This cost estimate can be validated against the expected “price” in the market and if the estimates are not in line with prices, then the operating model can be adjusted accordingly by investing in technology for improving efficiency, experimenting with new models of care delivery such as telehealth and improving productivity by ensuring clinicians operate at the top of their licenses.
Developing an aligned financial model allows iterative development and easy modification of the entire business model. In a recent analysis for a major provider, we found the need to achieve a 10-fold reduction in cost of care to meet the expected price. Such reductions are only possible by revisiting the care model assumptions and leveraging technology solutions, such as highly precise risk stratification, remote monitoring and telehealth.
Defining the capabilities that a program will need requires careful planning upfront. The figure above shows the high level list of the dimensions along which the capability requirements need to be defined. Considering each of these elements as distinct business capabilities makes it easier to determine core versus non-core areas of focus and which capabilities to develop in-house versus ones to obtain from the market.
Each of these elements is interlinked and the various choices in one area have an impact on the rest. For instance, an obvious opportunity to reduce cost of care coordination is to increase the patient census for each care coordinator. But to successfully do that, it is necessary to invest in additional technology to enable a higher level of productivity by care coordinators or better risk stratification so more care is focused on sicker patients to have meaningful impact.
Benefits of a Business Design Approach
Taking this approach provides many benefits:
Study elements in context. Often programs tend to be too focused on only one aspect of a business model, such as technology. Using a business design approach ensures sufficient focus on all of elements. For example, having the best risk stratification tool will be meaningless if the care coordination processes and protocols are not worked out with each care delivery organization in the network.
Consider people, processes and technologies as business capabilities that are necessary. This would ensure making effective build versus buy decisions.
A financial model should not be seen just as an after thought. Instead, developing it in parallel with the capabilities definition allows evaluation of build versus buy decisions and makes immediate adjustments to the model for financially unviable outcomes.
Ensure incentives are aligned to achieve desired outcomes. For example, if post-acute care providers are paid on a fee-for-service basis, then motivating them to reduce number of services rendered might be difficult.
In an environment where most healthcare providers are facing financial pressures, a failing program could significantly exacerbate such challenges. By tying together operational capabilities with technology and aligning incentives based on the entire organization’s achievement of financial results, leaders can create an aligned business model that ensures their population health management programs are successful now and into the future.
In summary, population health management programs offer much promise for healthcare providers and payers as they seek to improve quality while reducing cost and ensuring access. In these challenging times, leaders can ensure that these programs are able to achieve their full potential without impacting the financial health or healthcare quality ratings by taking time to design an effective business model upfront that provides clear visibility into the operational and financial requirements to ensure long term sustainability of these programs.
Nilesh Chandra is a healthcare expert at PA Consulting Group
To find out more about the future of healthcare, please contact us now.