The Next Health Care calls for very different strategies and tool sets. Many systems are acting as if they read a manual on how to do it wrong. How many of these critical strategic and tactical mistakes is your system making?

So I was beta testing FutureSearch, this cool new Google add-on app I’m writing with a coder, and I found an article that I wrote in 2025. My first thought was, “Cool! It works!” My second thought was, “I’m still working at the age of 75?” It was only then that I focused on the title of the article: “Fail: The 16 Steps by Which Hospitals Failed in the Post-ACA Risk Environment — An Analysis.”

The article detailed a dispiriting history from 2013 to 2020. More important, it listed the 16 most common mistakes that hospitals and health systems made while trying to navigate the new risk environment of the Next Health Care.

I found this interesting because of course right at this moment much of the health care industry, in many different ways, is trying to move away from the traditional fee-for-service payment system, which has given the whole industry adverse incentives, leading to much higher costs, poorer quality and restricted access. The rubric of the day is “volume to value.” And I see many different institutions and systems across the country making exactly these mistakes already in 2013.

Step-by-Step Instructions

As you read this list, ask yourself in what way you and your institution might be making the wrong decisions, and ask yourself what they will look like looking back from 2025.

Stick with fee-for-service. Though they included various incentives and kickbacks, most accountable care organizations and ACO-like structures built in the 2012–2014 period were based on a payment system that remained stubbornly fee-for-service. Systems continued to make more money if they checked off more items on the list (and more complex items), rather than solving their customers’ problems as well and as efficiently as possible.

Eventually, some systems, pushed by payers and employers, edged into bundled payments, various per-patient-per-month payments, warranties, on-site medical home clinics and various types of risk contracts. But many systems resisted any such movement. Anything that smacked of “capitation” remained the butt of jokes through much of the industry, despite its very successful implementation by some of the largest systems in health care.

Over time, though, the systems that remained more pure fee-for-service also remained the higher-priced outliers. In a market increasingly dominated by price-sensitive members of high-deductible plans and price-sensitive, self-insured employers, the strictly fee-for-service systems rapidly lost market share across most of health care.

Assume the outcome. Entering the ACO era, many systems based their ACO plans on the assumption that the model would work — that a higher level of coordination and hitting their quality marks for patient contact and satisfaction would automatically result in overall lower costs in which they could then share. Though those assumptions proved generally sound for many ACOs, there was nothing automatic about them. A successful experience depended on vigorous and skillful implementation — and on actually cutting the costs that better coordination allowed them to cut.

Do prevention with no business model. Many systems engaged in serious prevention efforts without constructing a solid business model based on scenarios planning and statistical modeling of contingencies. To the extent that systems were good at preventing unnecessary tests, surgeries and hospitalizations, they succeeded in throttling their own revenue streams — without strong, predictable new revenue streams to ease the transition, or serious programs to cut back the now unneeded acute capacity.

Misconstrue the new product. All business consists of acquiring or producing a product, then selling it to someone else for more than your total cost of ownership. The product changes when the way you are paid changes. In health care, the product has always been the answer to the demand: “Fix me. Do whatever it takes.” When you find yourself at risk for the outcomes, when you make more money if people don’t need so much expensive care, the product is different. It is “Help me stay healthy. Help me manage my health. Fix me when that doesn’t work.”

Fail to build a different business. The new product requires different skills, different organizations and different ways of thinking. The new product line puts you in a different business. Buy the hottest Indy car, take it down to Baja California, enter it in the Baja 300 off-road desert classic, send it ripping up the arroyo between the cows and the cactus, and it won’t make it past the first turn. It’s a different race, messier, more contingent. You can’t get there from here by doubling down on the old ways. In the post–Affordable Care Act (ACA) era, many systems failed to note this fact and attempted to construct the new business using old production models and existing skills.

Diminish the trust factor. The least understood and most mishandled concept in the entire new landscape also seemed simplest: trust. In the computer security world, a computer that accepts data from another directly, without any firewall or other barrier, is said to “trust” its source. Similarly, in human connections we only accept information that we can act on from sources we trust. The more important to us and the more intimate the information and required action is, the more deeply trusted the source must be.

Many studies published in 2012 and 2013 concluded that “disease management” programs simply did not work. But most of the programs studied cut costs by simply assigning nurses or less qualified personnel in call centers to attempt to change patient behavior over the phone, often by working from scripts. What is needed in helping the patient navigate chronic disease in ways that will lower their cost to the system and improve their health is behavior change: better compliance, different diet, different physical regimen. Do you change the way you live because someone calls you up on the phone and tells you to? Do you trust someone who represents the insurance company?

The best studies, clinical experience and the record of such programs as Nurse-Family Partnerships show that people trust someone

• whom they believe is on their side;
• who knows them and has a relationship with them; and
• has the credentials (for instance, an R.N., an N.P. or an M.D. after their name) to know what they are talking about.

Over time, effort to short-circuit such trusted relationships proved both expensive and fruitless. Real change in patient behavior happens only in the context of trusted relationships.

Fail to target top spenders. In a fee-for-service system, patients who continue to incur high costs over time are not a business problem; in fact, if the costs are reimbursable, such patients could be thought of as your best customers. If the costs are unrecoverable, or if you are at risk for the costs and outcomes of a population (as in a capitated contract, or a “mini-cap” per-patient-per-month payment for diabetes care or back care, for instance), the situation inverts completely: Those high costs become your costs, and the high-cost patients are a distinct business problem.

Over any given span of time for any given population, some 20 percent of the patients generate 80 percent of the costs, 5 percent generate 50 percent of the costs and 1 percent generate 20 percent. Of those high-cost 1 percent and 5 percent of patients, some may have just gotten hit by a bus and severely injured, or may have been diagnosed with pancreatic cancer; in a year they likely will have passed through the acute phase one way or another, and will no longer be high-cost patients. But a significant percentage stay high-cost patients month after month, even year after year, coming into emergency departments and occupying hospital rooms over and over again. These are largely people with poorly treated chronic conditions. For many of them, more constant attention and proper treatment would significantly improve their health status while lowering costs.

Numerous programs using long-term trusted relationships with real health professionals working in teams have proven the cost-effectiveness of such targeted care, including the Boeing Intensive Outpatient Care Program, the Camden Coalition of Healthcare Providers and the Atlantic City Special Care Center. The consistent results across similar programs showed a 20 percent to 25 percent drop in costs for the targeted populations, including the cost of the more intensive care program. Since they generate 50 percent of the total costs, dropping costs for the high-cost target populations by 20 percent to 25 percent should result in overall drops of 10 percent to 12.5 percent for the whole population.

Health systems that put themselves at risk for the costs of populations in the post-ACA era but failed to target the high-cost populations for extra help (even and especially the uninsured, whose costs would end up on the system’s books anyway) had significantly greater difficulty getting their systemic costs down as reimbursements fell.

Fail to engage physicians. At-risk payment structures require significant behavior change from physicians — changes in prescribing patterns, working in true teams, collaboration between specialists, rapid and constant exchange of information. Yet many systems set out on new payment structures without vigorously engaging their hired or networked physicians with new incentives, training or significant workflow help.

Some systems, in fact, merely disrupted their physicians’ work lives and customer patterns with greater reporting requirements and more complicated payment structures, without offering them clear direction, incentives or assistance. As it is largely physicians’ actions that create or control costs and outcomes, such systems vividly failed to achieve their goals.

Fail to engage patients. Similarly, most such at-risk structures required and even assumed new behaviors from patients — yet many built in no specific elements to generate or encourage such changes either through premium incentives or through constantly working the relationships. Many systems found themselves at risk for the health behavior of patients who could take their care wherever they wished, and even with whom they had no regular contact.

Stay techno-shy. As early as 2013, a wide variety of inexpensive smartphone and tablet apps and devices emerged that could be used to track, engage with and even treat chronically ill or at-risk patients wherever they were in their lives — simplifying, streamlining and lowering the cost of the constant close engagement such patients need.

So effective did these apps and devices prove, and so popular with patients, that as early as 2014 large market gaps emerged between providers who made full use of them and providers who resisted their use. The market opportunity offered by the ability to effectively manage the health of populations less expensively and more conveniently using apps and small devices meant that many markets saw completely new competitors emerge and take over significant portions of the primary, chronic and long-term care markets.

Similarly, wide market gaps emerged between organizations whose leaders who treated digitizing as a requirement to earn incentive payments from the government, and those who viewed it as a strategic opportunity to use data to drive their strategic choices, tactical decisions and process improvements.

Choose the wrong partners. During the 2013–2014 “gold rush” of consolidation and affiliation, many organizations took on partners just to stake claims in different market segments and to deny market share to their rivals, rather than to fulfill a clear strategic need. Many of these affiliations later had to be unwound or the acquisitions shut down, at great and sometimes fatal cost, as real strategic needs became clearer in the 2015–2018 period.

Use the wrong metrics. Even organizations with clear strategies often failed to correctly identify and acquire the metrics that would help them track success or dictate mid-course corrections. They might, for instance, affiliate with a lab that could charge less for blood tests, or get their surgeons to specify a lower-cost knee replacement implant without realizing that the correct metric is not the price but the “total cost of ownership,” which includes such externalities as the extra guidance to patient, the risk of failure of the less-expensive device or test, or the administrative costs of handling the outsourcing. Organizations using the wrong metrics had little ability to see their true costs as their structures and payment systems changed.

Go light on cost analysis. Traditionally, health care organizations did little true cost analysis. How much it cost to produce, say, a cholecystectomy or a total hip, was of little importance because almost no one got paid a lump sum for the product — they got reimbursed for the individual items (such as scans, anesthetic services or implants) that went into the product. Most costs were the costs of whole departments, supply streams and overhead categories that were simply allocated to specific operations, tests and other chargeable items.

When the way you are paid changes, suddenly it matters very much how much it costs you to produce a given outcome. In the post-ACA risk-bounded world, health care organizations that developed a robust analysis of their real costs at the case and practice-unit level proved much more competitive than those that took cost analysis lightly.

Overlook process controls. Health care at all levels is a series of processes. And processes can be engineered; in fact, they must be. Most processes in traditional health care were never engineered. They had not been thought through, tested, tried, results compared, refined, tested again. Rather, they had been thrown together out of bits and pieces to fit the convenience of the practitioners as well as the needs of the accountants and compliance officers.

As unnecessary cost came to the fore as a problem in 2010 and afterward, it became obvious that all health care processes need to be engineered with one goal in mind: bringing the highest quality and the lowest cost to the product, which is health, for the customer — the patient, the patient’s family, the patient’s caregivers, the patient’s community. Health care lacked the infrastructure to do serious advanced process engineering. Those organizations that failed to take the challenge seriously fell behind those that did in the later part of the decade.

Keep prices high. The major reason this market gap developed was as follows: Organizations that did not do robust cost analysis and process re-engineering in response to the new pressures found that they could not lower their prices. They had no evidence on which they could base such a decision. Some organizations had used the turmoil of the times to reinforce their market position, using their monopoly or semi-monopoly status to raise prices and increase volume. When new competitors arose to challenge the monopoly on pieces of their market, they had no room to maneuver.

Misunderstand cash flow. The new structures and payment regimes often involved significant new revenue streams. Even organizations that had pieced together sound development strategies that budgeted out often failed to notice how different those new revenue streams looked on a cash-flow basis.

Revenue streams that are dependent on meeting quality targets are less predictable than traditional volume-based, fee-for-service streams. (For example, what if you miss a target or the payer quibbles with your data?) They are also delayed: If you invest funds today in hopes of earning incentive payments, you may not see a return on that investment for 18 months or more. Finally, the claims on these revenue streams are significantly more complex if you are earning them through a network of affiliations and partnerships. The proper allocation of costs and revenues not only across the network but across time can help or doom an emerging organization.

Believing Our Own PowerPoints

Remember Dorothy’s response to the command, “Pay no attention to that man behind the curtain”? She opened the curtain and confronted the Great and Powerful Wizard of Oz. She called him a “very bad man” for confusing and misleading her and her companions — and demanded real answers.

Don’t believe your own PowerPoints with all the circles and arrows and phrases like “patient engagement” and “physician alignment.” Get in there and study the plumbing, the actual payment and incentive structures that you are building, the true lines of trust and loyalties and cash flow, and ask the hard questions. Ask yourself whether and how your organization is making each of these mistakes, how resilient your solutions truly are, and how you will know whether you need to do a mid-course correction.

The important thing to know about the future is the most obvious of all: It hasn’t happened yet. Which means that we can change it. I made a few adjustments to the search assumptions in my FutureSearch app, and the article I had found before was not there. In its place was one called “The Great Transformation: 2013–2020.”

This article first published in Hospitals and Health Networks (H&HN) Daily on May 28, 2013.

The progeny of the iPhone and the iPad will change the shape of your institution — and your balance sheet.

One of the more striking images to me, out of the online spew in the last few months, was from the inauguration. It was a wide view of an inaugural ball. There was the president waltzing with the first lady, and a crowd of several hundred watching them. What was striking about that image was that the several hundred people held several hundred small glowing rectangles in their hands. Practically every member of the crowd was carrying a smartphone and was photographing or videotaping the moment.

The scene was commonplace in its moment, remarkable only in the perspective of history — but such a short history. We could not have imagined so many people carrying smartphones at Obama’s first inaugural only four years ago. Four years before that, we could not have imagined any. The iPhone had not been invented.

There had been attempts at smartphones before the iPhone, and devices like tablets before the iPad. But the rampant success of iOS devices did far more than establish two profitable niches. It changed our relationship with the world.

The Apps Make the iPhone

Apple and Steve Jobs certainly have their fans. At the time, much was made over the iPhone’s clever design — and much has been made since over whether its competitors have outdone its clever design. But the most significant invention embedded in the iPhone was not the device. It was Job’s insistence that:

• the device would be home to multiple features encapsulated in small programs called “apps”;
• these programs would be relatively inexpensive and radically easy to use;
• they could be made by any developer who wanted to make one;
• the device would be able to sense, communicate and compute to serve the apps.

It was this series of tightly connected design decisions that was revolutionary. They set the shape of the mobile universe. They are what made the iPhone and its competitors and the iPad and its competitors so wildly successful. We are only at the edge of understanding how deeply that success changes the world. It means that everybody is walking around with extraordinarily powerful devices for sensing, recording, computing and communicating in their pockets — devices that, with the addition of the right apps and other plug-in devices, can be turned into more different machines than we can even imagine.

My iPhone has a guitar amplifier on it. It has the descriptions, calls, pictures and video of more than 1,000 birds. It has an app that captures every receipt and uploads it instantly into the cloud, and another by which I can deposit checks into the bank. Turn on one app, point the phone at a sign in Mexico, and there is the sign on the phone, same sign, same typography, except it’s in English. The possibilities are literally endless.

Apps in the Clinic

There are, of course, thousands of medical apps for both clinicians and consumers. But here again, I don’t think we’ve begun to imagine what the hyperconnected, app-enabled future of medicine looks like.

The great majority of the apps now available communicate information, everything from consumer health information and reminder nags to electronic health records and image displays for clinicians. These are extremely useful and change the workflow of the clinician and the relationship of the clinician to the patient. But the world of medicine begins to look very different with apps (and devices connected to the smartphone) that don’t just communicate information, but actually do medicine — diagnostics, telemetry and therapy — on the smartphone or tablet.

There are cheap dongles that can do sonograms good enough for office use; sensors and apps that can do blood tests, sweat tests and other chemical diagnostics. One type of pill has been developed that reports when the patient has swallowed it. When the pill encounters stomach acids, it sends out a tiny electronic pulse. The pulse is picked up by a small adhesive patch the patient wears on his or her abdomen. The patch, in turn, detects when the patient’s smartphone is on and close by, and sends out a Bluetooth signal. An app on the phone picks up the Bluetooth signal and sends an instant message to the clinician who is tracking the use of the drug.

More of these apps and dongles for practicing medicine on the smartphone or tablet are arriving every day. What difference will they make? Is this just another fad? Or will they fundamentally change the lives and workflow of doctors, their relationships to patients and the shape of your institutions?

Prescribing Apps

Here’s something that’ll help you start thinking about this: Dig up a recent videoof Eric Topol, M.D., on NBC’s “Rock Center.” He demonstrates a number of apps and gadgets. He mentions that already, as a cardiologist, he prescribes more apps than drugs. He demonstrates an iPhone device that derives an EKG from the pulse in your fingertips, as well as a wrist device the size of an iPhone that delivers all of the telemetry needed from a patient in an ICU. He mentions a pill and app combination in development that is expected to be able to predict your heart attack or stroke a week in advance.

There were several things to notice in this video once we get past the “Oh, wow!” reaction. One is the relationship between the patient and the clinician.

It is a common worry that technology increasingly will come between the doctor and patient. This technology, as demonstrated by Dr. Topol, clearly does the opposite: It allows the doctor to work much more closely with the patient during the exam. There is no need to send the patient elsewhere for an EKG or sonogram, then await the report and have the patient come in again to go over the results. The scan is just part of the conversation with the doctor. With such devices, the patient even could be sending the sonogram from home, while having a conversation with the doctor over the phone.

When we try to imagine what kind of impact apps and small devices will have on the future of medicine, this is a major thing to ask: Does it help the doctor work more easily and productively with the patient? Does it ease the doctor’s workflow?

Second thing to notice: At several points Dr. Topol mentions the price of the app or the device that is plugged into the phone. The prices he mentions are always low — in fact, absurdly low compared with the prices of the things they replace. So when we imagine doctors trying out these apps and devices and seeing how they fit into their practice, the bar is low and experimentation will be the order of the day.

Unlike a new clinical information system, which can take years and millions to billions of dollars to choose and implement before the doctors get to try them out in their actual practices, doctors will try out and discard apps and devices the way we are already used to trying out apps on our smartphones — easily and quickly, trying a number of them before we settle on one that really works for us.

Third thing to notice (and in some ways the most important): In discussing the EKG device, Dr. Topol mentions that we do some 20 million EKGs per year in the United States, and in his estimation some 80 percent of those could be done with a smartphone device in the doctors’ office.

Apps’ Efficiency

Hospitals and health systems are not just in the medical business, they are in the laboratory business and the imaging business as well. Just for argument’s sake, let’s imagine that Dr. Topol is correct. Imagine that small devices and apps used in the examining room by the doctor directly with the patient can substitute for the great majority of the lab work and imaging now done by your hospital, your health system and its affiliates. When we talk about health care shrinking, becoming more lean and efficient, cutting its workforce without cutting services, this is one of the ways we can imagine it happening.

As in other aspects of health care, the speed with which this change will take place depends not only on the ease of use of the apps and devices, and whether they help with the doctor’s workflow. It also depends on the underlying economics. In an old-fashioned, strictly fee-for-service system, doctors and health care systems profit from their inefficiencies. Every unnecessary test, scan and admission adds to the bottom line.

As more systems and individual clinicians come to be, in one way or another, at risk for outcomes, they increasingly will be in a position in which inefficiency is a cost, rather than a profit center. In this atmosphere, every avoided test helps the bottom line. Perhaps more importantly, in this atmosphere, a close, constant, informed and productive relationship with the patient is more profitable than another test for which you can charge.

This changed relationship and greater efficiency will be particularly attractive to clinicians as we edge into the Accountable Care Act era, and get tens of millions of new customers. In the past, the economic question for both doctors and hospitals was: How can we drum up more and larger reimbursements? There was an economic incentive to the extra test, as well as the return office visit.

But we don’t have enough doctors for the new era. Increasingly, even in a fee-for-service universe the economic question, particularly for physicians, will be, “How can I more effectively and efficiently serve many more patients without driving myself crazy?” If that is the question, then mobile devices and apps that can smooth the workflow, speed patient contact, and prevent the need for extra tests or extra office visits become a big part of the answer.

What Did We Do before Apps?

We are approaching a tipping point, after which the use of such apps and devices in the medical context will become so commonplace that we will have difficulty remembering how we did without them. At first they will just be used to supplement our usual procedures. But very rapidly they will supplant many of those old procedures and tests. When that happens, we can expect the demand for lab results and various types of imaging to drop off drastically, while our IT departments will not only expand, they will take on the larger and more varied mission of supporting, coordinating, providing backup and realistic security for an ever-changing plethora of mobile devices, dongles and apps.

It’s a different world, and it’s in everyone’s pocket.

The very forces creating a better, cheaper and more available health care industry also can be used to create monopolies, raise costs and degrade care. Which future strategic model will prevail?

Rapid change is engulfing health care across the United States, but the strategic responses of organizations to these changes are sharply divided. In the shift that has been broadly shorthanded “from volume to value,” many organizations across the country are deeply engaged in moving toward “value” by building new partnerships, affiliations, capacities and economic structures, striving to bring better health and health care to more people for less money.

At the same time, some organizations are using the chaos and fluidity of the moment to double down on the old way, aggressively seeking greater volume reimbursed at higher rates. For now, within their regions, some of these organizations appear to be “winning” at the game, building greater market share and margin and increasing their budgets. But is this in fact the wisest strategy to follow in the long run, not only for their institutions but for the good of their missions and the people they serve?

Moving toward Value

Virtually all serious attempts to answer the question, “Why do we pay so much more for health care in the United States?” have pointed to the competition for reimbursements under a commodified, insurance-supported fee-for-service system. If what you pay for is items off of a list, what you will get is lots of items, especially the more profitable ones. That’s how we end up with a system in which waste (stuff we could simply do without) is pegged by repeated studies at one-third or higher.

So the true measure of the much-touted “volume to value” move is not attitude or pronouncements, but frankly economic: How do you make your money? What proportion of a given organization’s income comes from fee-for-service reimbursement, and what proportion from other revenue streams that in one way or another measure and pay for the value received by the patient? Organizations that have a high proportion of such “value” revenue find themselves making their livelihood by competing to provide that value, rather than by jacking up the volume and cost of profitably reimbursable items.

Given how difficult and complex it is to move health care systems and payment systems into such frankly new territory, it is striking how strongly the movement toward “value-based health care” has emerged in actual structures, agreements, budgets and strategies. As a late 2012 Oliver Wyman report noted, as of that point some 25 to 31 million Americans, roughly 10 percent of the population, were already under the care of some broadly defined ACO or ACO-like organization, and some 45 percent lived in a primary care service area served by at least one ACO.

Not all of these ACOs are “real”; they are certainly not pure ACOs taking risks on the downside as well as the upside throughout all their revenue streams. But even if some of these are just dipping their toes in the water, the numbers still show a strong and early move to the value end of the spectrum.

The numbers of organizations that have signaled their intentions to participate in further rounds of Medicare ACO building are significantly larger, and comprise, on average, much larger systems. And we can add on the value spectrum a wide range of organizations that have moved to bundled payments for a number of major operations or chronic disease management, as well as organizations that are now making a significant amount of their income from such non fee-for-service revenue as prospective payments for patient-centered medical homes.

Private payers across the country have been building more and larger value-based arrangements with providers, such as Blue Cross Blue Shield of Massachusetts’ Alternative Quality Contracts, or Blue Cross Blue Shield of Illinois’ arrangement with Advocate Health Partners in Chicago, Aetna’s private-label ACO with Aurora Health, CIGNA’s with Tenet, or Optum’s many arrangements across the country.

In an excellent column published in the American Hospital Association’s H&HN Daily last September, Ian Morrison described “The Bridge from Volume- to Value-based Payment,” including the difficulties of what some have described as “stepping from one canoe to another in midstream,” and suggested a series of steps and bridges to make this transition manageable. But it is clear that for some the question at this critical moment is still whether to even attempt the transition, or whether instead to compete strongly, old-style, on volume.

Sticking with Volume

Health care is in turmoil, doctors are migrating to sign up with health systems, new systems are emerging, everyone is considering new structures and affiliations. In some markets, some players are using this chaotic environment to restructure their organization to win and win hard — by the old rules. In major reports in The New York Times and other mainstream media, in trade press notes, in my conversations with health care executives across the country, and in casual chatter at the bar at the scores of health care conferences I attend every year, the trend is clear: Many aggressive health care management teams are using increasingly hard-knuckled practices to grow their organizations and survive in these turbulent times.

The details of the drill are familiar: Corral as many docs as possible, buying practices, both primary and specialist. Do whatever it takes, including paying bonuses, to get them to refer to your hospital, your specialists, your labs, your imaging. Do whatever you can to increase admissions, tests, procedures, utilization of all types, while cranking up throughput and holding down length of stay by using quotas, economic feedback to the docs, jawboning and even “de-accessing” docs who don’t get with the program. Squeeze the other guy out of the market as much as possible.

Sounds like a beginner’s guide to survival in the health care world. It’s the way many health care organizations have always competed, but in the last two years the noise of such practices has grown to a crescendo.

Will It Work?

But will they really win? In today’s environment, are these moves strategically wise? These practices are, actually, a bet that the “value” strategy will fizzle, that ACOs and ACO-like structures, as well as bundled payments and other non-fee-for-service revenue sources, will play only a small part in their market. They are especially a bet that customers — individuals, employers, governments, unions, payers — will not find special value in these “value” structures; the “value” structures will fail in the attempt to deliver better health care for less money.

Each of these guesses about the future is probably wrong. The rapid growth, and especially the variety, of such structures and agreements across health care, their wide geographic spread, the economic pressure of the extreme cost growth of health care over the last decades, and what seems to be a near consensus across policymakers, payers and managers of health care that the only way that shows promise in alleviating that cost growth is to somehow get away from the pure fee-for-service system — all these argue that this trend is unlikely to fizzle.

There will be many mid-course corrections, but the “volume to value” trend is not going to go away. The early experience of the arrangements with the longest history (such as Massachusetts’s Alternative Quality Contracts) show that serious care coordination, prevention efforts and attention to quality can deliver services at significantly lower costs, delivering zero premium increases, or even decreases, even while everyone else’s costs continue to rise.

Meanwhile, individual customers are increasingly sensitive to price. It’s a good bet that trend will continue. Especially as the ACA is implemented, it can be expected that a large proportion of those newly insured through their employers or the state exchanges will seek out lower-cost plans with significant deductibles and co-pays, which turns beneficiaries into “shoppers.” Large employers especially are showing a newfound willingness to “shop” for the highest quality/lowest cost providers for such major items as surgeries, transplants and cancer care.

In programs like BCBS of Massachusetts’s “Blue Options” plan, the payer gives the patient plenty of choice: For any given item (a scan, a sleep lab test, a colonoscopy) the payer ranks all providers in the area by quality and cost. Choose a provider ranked low on quality, and you pay the whole fee yourself, as a patient. Choose a high-quality, low-cost provider, and the payer will pay the whole cost, with no co-pay. Choose a high-quality, high-cost provider, and your co-pay will be the entire difference in price. It is easy to see how great the incentive will be for the patient to choose a high-quality, low-cost provider.

Even if the first wave of such arrangements reaches only a minority of the market, that wave as it matures and demonstrates its value will have a hugely disproportionate effect on the rest of the market. It will provide, for the first time, true competition on the basis of cost and quality for the product that customers are actually shopping for — whether that is a particular procedure or test, or more commonly a return to health (“Fix me!”), or maintaining health (“Help me manage my conditions!”). This is the truly “disruptive innovation” in the future of health care.

The competition need not even be in your regional market, as some organizations will find when many of their most profitable cases are drawn off or forcibly directed off by payers or employers to distant providers who have strongly demonstrated their cost/quality value. Companies are increasingly willing to pay employees’ deductibles and co-pays, their air fares and hotel bills, and even kick in an extra bonus, if they are willing to have their operation at some high-quality center that specializes in that operation at a lower cost.

In your home market, it will become increasingly difficult to support any significant price differentials that are not supported by clear, demonstrable value, especially when both payers and employers get active with “shopping options” programs that put some or all of the cost differential on the patient.

As these things happen and the “value” strategies show their value and gain customers, the “volume” strategy will dry up. Late adopters then struggling to shift to the “value” strategy will find it exceedingly difficult. The “value” strategy requires deep organizational learning, staffing, instruction — on all of which the late adopters will be years behind. The strategy also requires new, complex, close affiliations with other providers, as well as payers and customers, many of whom will already have made those affiliations with the competition.

When change roils an industry as complex as health care, there is significant risk to being an enthusiast and early adopter. But there can be even more significant risk to being a late adopter. The early adopters take some chances, sure, but they also enjoy a large first mover advantage in any particular market, snatching up those affiliates, providers, payers and customers who are most ready to move in this new direction. Unless they fail spectacularly, they leave only the harder part of the market to the later adopters.

Is It Right?

There’s another question to ask, though: Suppose for the moment that either strategy would work, at least in the short run. Does our mission tell us anything about which strategy we should employ?

Broadly, across health care, as clinicians and as organizations, we have the charge to provide the best health care possible. I would argue that broadly, across health care, that means providing the best health care possible not just to the people who show up at our door and can pay for it, but to as many people in the regions we serve as possible. And since the high cost of health care is the single most important factor that keeps people from accessing the best health care possible, our charge extends to providing the best health care possible at the lowest cost possible.

As long as health care providers really had no choice in the matter, no way around the fee-for-service system, the question did not arise. But now that there is a way forward, a strategy being demonstrated that seems able to lead us toward better, lower cost health care that is more widely available, I believe that the broad mission of health care makes it incumbent upon us to try.

Hard to Be Hybrid

As difficult as it is to move an organization partially into using “value” revenue streams and participating in value-oriented affiliations and structures, it will prove more difficult to stay that way, in midstream with one foot in one canoe and one foot in another. It is systemically unstable to earn money from revenue streams that interfere with one another.

Revenue streams such as medical home payments, pay for performance bonuses, and shared savings are designed to reduce other revenue streams, especially large ticket revenue streams such as admissions, surgeries and procedures. To the extent that they are successful (and evidence so far is that they are often successful if done correctly), your ability to increase these revenue streams will decrease your fee-for-service revenues.

At the same time, focusing on these new revenue streams requires a serious and thoroughgoing reorientation of the organization toward primary care, prevention, chronic disease management and care coordination. As these revenue streams succeed, the systemic pull will be to move more and more of the business away from fee-for-service as fee-for-service becomes less profitable. Because of their complexity, some parts will always remain fee-for-service, but over time they will become a distinct minority of your revenues and your margins.

Where Is This Heading?

It should be obvious by now that the result of the “volume to value” move will not be bigger empires and more FTEs, but leaner organizations with fewer dollars and fewer FTEs for any given population, not because they are being strangled, but because they are providing smarter, earlier, more efficient and effective care, and have eliminated wasteful care that does not provide real value to the patient. This leanness is not a side effect of this change; it is the point of this change. Working to help your organization have a bigger budget and take in more revenue in caring for the same population is swimming against the tide, and is frankly not helping.

At the same time, this future pictures patients being cared for by more complex organizations, more highly integrated across the continuum of care. The “independence” of any given organization is of little value to the society it serves. Its seamless connectivity with other providers, its ability to coordinate care, is of great value. And the society is getting much better at paying for what it values.

The Difficulty of Mind

This is where the difficulty lies, and it’s a difficulty of mind: These new ways of working often require building super-organisms capable of taking on risk and spreading the labor, the risk and the revenue across multiple providers. These super-organisms must be created by those providers. All those currently independent organizations have to find new ways to cooperate, to surrender some of their autonomy and survivability to the super-organism. And all those current organizations, by definition, are run by people who are very good at the old way, at keeping their current organizations alive.

To make this shift happen requires great imaginal flexibility and boldness from the CEOs of all those independent organizations to see that there is a better way forward, a long-term strategy that will allow their organization to survive at the same time that it better serves the people they purport to serve. This rests most strongly with those CEOs of large medical systems who have the organizational capacity and market strength to lead a whole region in a new direction.

The people who run today’s health care organizations are not the passive sufferers of this process. They are in fact, of all the players involved, the ones who have the most ability to direct the pace and shape of change in their markets. It’s the job that’s been given us, and we need to take it on.

(First published by the American Hospital Association in H&HN Daily 2/14/13

Costs and revenue: This is the oxygen of any business, any organization. What are your revenue streams? How much does it cost you to produce them? Life is not just about breathing, but, if you don’t get that in-out equation right, there is nothing else life can be about.

Right now this enormous sector is turning itself inside out. It has turned the “transmogrification” setting to “warp.” Why? It’s all about the in-out. It’s all about increasingly desperate attempts to get that right — and the clear fact that we cannot know if we are getting it right.

Let’s do some school on the two sides of this equation. Let’s just go over the new weirdness, and the implications for you and your organization. Revenue first.

Hunting for True Revenue

In traditional health care (the way we did business until about five minutes ago) the revenue side was complicated in detail, but simple in concept: You do various procedures and tests and services, and you bill for them. You bill each item according to a code. You bill different payers; each has its own schedule of payments that you negotiate (or just get handed) every year. There are complications, such as people on Medicare with supplemental insurance, dual eligibles on Medicare and Medicaid, and self-pay patients who may or may not pay.

That’s the basic job: aggregating enough services that reimburse more than their real cost so that you can cover the costs of services that don’t reimburse well. This is cost-shifted, fee-for-service management. Cut back on those low-reimbursement services; pump up the high-reimbursement ones. Corral the docs you need to provide the services, provide the infrastructure and allocate costs across the system.

The incentives all point in the same direction. The revenue streams are all additive. The more you do of the moneymaking items on the list, the more money you make.

Hybrid revenue streams in the Next Health Care. Fast forward to five minutes in the future, and the picture becomes not only complicated, but complex, in some ways irremediably so. Now you’re not just thinking about the revenue structure of a hospital; more often you are thinking about a system, with not just multiple revenue streams but multiple types of revenue streams. You may already have had clinics, labs, ambulance services, imaging services, primary care physician groups — in fact, a whole array of different businesses. What’s different now is how you get paid for things.

You may still mostly be working fee-for-service, but maybe now you have an insurance arm, and maybe some percentage of your patients are capitated through it: You have an incentive to provide excellent care, but any unnecessary emergency department visits or surgeries, any preventable heart attacks or diabetic shock episodes are now simple costs, while before they were revenue opportunities as well.

You may have developed a new set of revenue streams in per-patient, per-month prospective payments for “medical home” services but, the more you do that and the better you are at it, the more you keep people out of your ED and your surgical suites. That’s what those payments are for — to lower the overall costs by taking better care of the patient up front. And the costs you are lowering are your revenues.

Similarly, your primary care arm may have an at-risk contract like the Alternative Quality Contract from Blue Cross Blue Shield of Massachusetts, which literally pays primary care providers to keep patients from needing to use EDs or needing surgery or other high-end services, while holding them to quality standards that assure they are getting excellent care. It’s a revenue stream, but it’s at the cost of other revenue streams. Or it may not be your revenue stream. It may be an independent primary care physician group in town that has the contract, paid extra to deprive you of fee-for-service patients.

Or you may have dedicated clinics servicing specific groups on a per-patient, per-month basis (like, say, a spine and pain clinic for a company’s warehouse workers) in which working efficiently and well cuts into what otherwise may have been fee-for-service operations and imaging services.

Unknown factors. These scenarios lie against a background in which it is likely that actual fee-for-service reimbursement rates from Medicare and private payers will be held tightly in check. The future landscape has a number of new opportunities for revenue streams, but most of them make money by cutting into your (or someone else’s) more conventional business. But we cannot know by how much, or how the interaction between different revenue streams will play out over time.

In planning for the new environment, this tells us three things:

• These systemic risks are not quantifiable, and so cannot be hedged. They are risks because we are entering new territory. We simply do not know how these different parts of the market will interact. Revenue estimates for most parts of the business have to be treated as “high-variance” projections, which were much harder to pin down in the past.

• If some types of risk contracts make money by cutting into other types of business, you want to own that contract. If some organization is going to make money by costing you money, you want to be that organization. It may be cutting into your ED, surgery and imaging business, but at least you get the revenue stream for doing that. If you don’t, someone else will.

• For any business that includes a hospital, bigger is better. At greater size, you can absorb more high-variance risk from a greater variety of revenue streams, and from different contracts serving different populations. You can spread the revenue base and try more alternatives. You have the space and breadth to try, fail forward quickly and try again.

If the revenue side is so hard to pin down, you need to create some space to try different options. The cost side can give you some of that space.

Getting Our Arms around Cost

Compared with revenue, the cost side of things seems relatively straightforward. So why can’t we get our arms around it?

When we are talking about the costs of health care, we are talking about two different types of costs. One is the cost of doing things, such as: How much does it cost to do a complex back fusion operation? Think of these as internal costs. The other is the cost of producing an effect, such as: How much does it cost to reduce back pain? Think of these as system costs.

If you are at risk for a population (as in, perhaps you have a spine and pain center with a per-patient, per-month risk contract), then both kinds of costs are true costs to you. If you can satisfy the patient and end his or her back pain through medical management instead of surgery, you have dropped a bunch of money to your bottom line.

On the other hand, if you are in a fee-for-service environment, the back operation is not just a cost, it’s also an income opportunity, and only the internal costs are actual costs to you.

More unknowns. In any environment, then, reducing your internal costs improves your bottom line. The problem here is that we typically do not actually know what our internal costs are, or what we could do to reduce them.

Some things obviously reduce internal costs — better coordination, reduced duplication, more efficiency in moving the patient through the system (not adding the cost of an extra inpatient day just because someone neglected to sign off on the discharge form, for instance), or fewer mistakes and infections.

But beyond these efforts, to truly reduce costs we need to drive our analysis to the individual patient and case level, differentiating between the general system costs imputed to the case, or the average costs that such cases are thought to generate, or the sunk costs of the facility and equipment, and the actual incremental costs that this case generated: How much did it cost us to replace Mr. Herndon’s hip? Much of the costs attributed to particular types of operations are averages, or imputed costs representing the whole organization’s overhead. These obscure the costs that are particular to Mr. Herndon’s case.

Fine-grained cost analysis. Why do we need such fine-grained cost analysis? Because if the team who handled Mr. Herndon’s workup, surgery, post-surgery and rehab did something different that actually cost less and worked better — a different kind of wound dressing, say, or a more aggressive schedule of getting him up and walking afterward — more general cost analysis would not let us pick up that difference, track it and replicate it.

Further, we need to track the costs by activity (how much did the post-surgical care actually cost, say) and across the entire care cycle.

Similarly, we need to drive the cost analysis to the team level: If a given hip-replacement team is able to find ways of doing things that are better and cheaper, we need cost analysis that can pick up that difference so we can find out what teams are doing differently, try the improvement with other teams, measure the improvement and propagate it.

Two things make this currently impossible in most of health care: Our cost aggregation software is mostly designed for billing purposes, not for discovering actual costs. It doesn’t ask the questions to which we need answers. And typically in health care, we do not work in persistent, dedicated clinical teams. We rotate people through various assignments. When there are no persistent teams, it is not possible to notice which variations of practice actually cost less and get better results. Having no teams obliterates the possibility of learning.

Still, though tracking real costs to the patient, case and team levels is difficult, costs are ultimately more discoverable than future revenue streams. With the right strategies, one can drive down costs much more dependably than one can predict revenue.

Cost and Revenue as Change Drivers

The struggle to get the cost-revenue respiration right is the prime driver of the enormous structural changes that we are seeing in health care. Recently, the head of health care for a major Wall Street bank told me that up to just a few years ago, mergers and acquisitions amounted to 5 percent of his practice. Today it is 67 percent.

Big systems, including for-profit systems, are expanding rapidly, acquiring hospitals and other health care services by the bunch. They see these acquisitions not as “revenue plays” largely, but as “cost plays.” The big systems believe they can create value and enhance their survival by mitigating the “high-variance” risks of the new environment through size and diversity, while wringing cost out of the services and hospitals they acquire through tighter coordination and more aggressive management.

These same factors make it increasingly difficult for small and rural hospitals to survive as independents. They need the scale, greater coordination, access to clinical excellence, ability to support experiments in driving cost and quality, and ability to rationalize high-variant risk across a larger system that only a partnership of some kind with larger organizations can provide.

The new era of costs and revenues likely spells the end of any notion of the hospital as a cottage industry. It is on the balance sheet and the cash flow sheet that the idea of “coordination across the full cycle of care” stops being a buzzword and becomes a structural reality.

(From the American Hospital Association’s H&HN Daily, September 25, 2012)

Doing more with less. Doing the most for the least.

Seems like the biggest magic trick ever. It’s invisible, people don’t seem to even notice you’re doing it. You do it every day. And every day it gets harder to pull it off. It’s called “serving the underserved.” Helping the poorest, the least reimbursable, the homeless, the undocumented, often the least educated, least compliant, most addicted. Doing it with fewer resources year over year. Doing it in a climate in which the elderly, the poor, even the children of the poor have increasingly become political and cultural punching bags — with you and your institution caught in the middle.

Despite the reform, the tide of the helpless will continue to grow, and the resources to help them will shrink. How will you manage it? You cannot manage the future of your institution without a good answer to that question.

There is an answer, but it doesn’t lie in cutting back, in spreading the same resources more and more thinly. The answer lies in changing the question from How do I scrape by one more year? to How do I own this? How do we get really good at this? What would it look like if we were to become best in the world at this? How do we “make a living” at this?

The answers are paradoxes, but they are happening now. Let’s talk.

Value Analysis of Serving the Poor

Any business plan that does not somehow pay its way is not sustainable and will continually sap the vitality of the whole institution. So we need a value analysis of the business of serving the poor. As with any business plan, the questions are How do you take in more money? and How do you cut costs?

The problem arises from trying to stuff the poor and underserved into our one traditionally dominant business model: acute care that is insurance-supported, incident-based, fee-for-service, paying for one doctor seeing one patient at a time. This business model simply doesn’t work when the clients have no insurance or not enough (so there are no fees), when there are not enough doctors to go around, and when their real problems are mostly not acute but chronic and behavioral.

“Think outside the box.” That’s the cliché. A cliché is a metaphor that is so dead its fingers have long since stopped twitching. So let’s not use it as a metaphor. We’ll use it literally here: Think outside the box — and the box is the hospital, with its four walls, foundation and roof, its special ventilation system, multimillion-dollar machines and bacteria-resistant floors. Think outside that box because it’s a very expensive box. Most of the core drivers of any good business plan for dealing with the poor and underserved drive the problem out of that box, drive the care out of the hospital, out of the ED and the surgical suites, and drive it upstream, earlier in the disease process, into the neighborhoods, convalescent homes and community centers, into the patient’s home and family.

At the same time, many of the specific business models drive both the cost and the income off the hospital balance sheet and into some larger risk-bearing structure. Many health care executives shrink from taking on risk, especially for these poorer, harder-to-manage populations. But if they are showing up in your ED and on your balance sheet, you are already at risk for them.

First, we must realize that we need to change the business model. Then we must realize that we are looking not for a single substitute for the traditional business model, but layered multiple business models, even in the same region and institution.

Who These People Are

To serve the underserved better and more profitably, first we have to be clear that “the underserved” is not one mass group, so we can’t serve them best with a single business model. I can think of at least five discernible groups of people, cases and services needed here:

Uninsured primary care: These are just ordinary folks who need basic care. Cheap and easy to provide, such basic care can prevent many problems that would put people in more expensive categories. This group calls for good triage at the ED to cull primary clinic cases (flu and strep and scraped knees) from the real ED cases. Even more, it calls for a strong, cheap or free primary care structure to make sure they never need to show up at the ED.

Behavioral problems: The number one underlying reason many people show up in the ED is that it is the one place it is guaranteed someone will pay attention to them. They are lonely, depressed, neurotic, psychotic, suicidal, paranoid, hallucinating, having a panic attack, whatever. Robert Frost once defined “home” as the place where, when you go there, they have to take you in. Many folks do not have a psychological or spiritual home — and there you are. Triaging such folks and providing them with real behavioral care, even long-term care, usually costs significantly less than checking them out and stabilizing them every time they show up in the ED.

Problem users: These are people who are using your facility for their own ends — most typically drug addicts who know that if they claim the right symptoms and give the right answers to the right questions, they can get their opioids and other scheduled drugs, either to take or to sell. What is called for are vigorous methods of bio-identification, such as iris scans, coupled with regional health information exchanges, to out anyone who is gaming the system for addictive drugs. These methods should be tied to serious “lean” process work to arm your ED professionals with the legal backing, guidelines and teamwork necessary to quickly and accurately triage out and turn away such patients, rather than simply getting rid of them by giving them what they want.

Frequent patients: When someone shows up in your ED (or any EDs in the region) 10 times in a year, it’s not because they are getting hit by buses and falling off ski lifts. They are suffering from unmanaged chronic disease. Almost all of these ED visits and the consequent surgeries and hospital stays can be avoided by better preventive and maintenance care, which is far less expensive.

Uninsured big cases: These are uninsured or underinsured people with cancer; accident victims; or expensive and difficult to treat, resource-consuming patients. The big cases cost money. There are not any easy ways around that, and you shouldn’t try to duck them or dump them, because they are not just lines on a balance sheet; they are humans. Your job is to get them the care they need — and then to find the funding necessary.

Good Ideas Abound

There are Medicaid at-risk contractors in this country who drive down utilization by a simple fiendish trick: They provide all the promised services, but at the most inconvenient places possible (far from bus lines, with the well baby care across the city from the OB or the ophthalmologist), with severely restricted hours and additional mazes of forms to fill out (and opportunities to tell the patient that they have to come back another time to get it right) and on and on. I am not sure how people who design such programs survive. One would think they would be eaten up in their sleep from an overwhelming sense of simple human shame.

More importantly, such designed inconvenience saves money only for the contractor, not for the health care system or the local and state governments, since these patients’ untreated problems do not go away; they simply show up in worse form later, in your ED.

The most fruitful ideas go in the opposite direction: Choose how much or how conveniently to treat different populations based not on how much they would make you if treated fee-for-service, but on how much they would cost you if you are at risk for the outcomes. This means that the more problems a patient has, the more you want to be their friend and partner in their care, the earlier you want to get to them, the more help you want to give them — whether they want it or not. If they are going to cost you money that could be better used to treat others, then driving down that cost is your problem.

First focus: Provide credible, convenient, affordable first-line clinic care for the most vulnerable populations, regardless of their ability to pay. Establish your own free clinics in partnership with doctors in your area. Partner with existing free clinics, providing them with funding, volunteers, paid staff, in-kind help or space to work. Find ways to help federally qualified community health centers in your area.

A large fraction of inappropriate and preventable ED visits and ambulance rides originate in convalescent homes with little or no onsite medical staff. In many towns (an example of which Ian Morrison detailed in a May 2012 column for the American Hospital Association’s H&HN Daily), these can constitute the great majority of all EMT use in a town.

Many of these patients are poor “dual eligibles” (covered by Medicare and Medicaid). Every time a resident feels dizzy or short of breath or is otherwise out of sorts, the standing policy is that the convalescent home staff simply dials 911 and ships the resident off to the ED. This practice not only costs vast amounts and overburdens local government, it’s bad for the patient’s health. At the same time, people who run convalescent homes often complain that they get no cooperation from the hospital at all, that dialing 911 is the only way to get the residents any medical attention.

A smart health system on an outcomes-based risk contract would do two things. First it would “forward-base” nurse practitioners in the convalescent homes from which they receive the most ED visits to triage patients’ problems on the spot and give them minimal treatment when that is all that is necessary, or to route them to treatment at the appropriate level of acuity. Second, it would establish or engage smart disease management programs with all of these patients.

The “smart” part is important. There are studies purporting to show that disease management does not save money. What they actually show is that so-called “disease management” programs conducted over the phone using scripts are worse than useless. Smart programs that use actual trained human beings in trusted face-to-face relationships with the patients, the patients’ caregivers and their doctors save a lot of money.

“Nurse-Family Partnerships” have existed in a number of places across the country for decades, usually funded by state and local governments. Nurses in NFPs aggressively seek out young pregnant women in the community for special help and fundamental education.

How fundamental? One article about a similar program was headlined, “Don’t put Mountain Dew in a baby bottle.” A recent long-term study showed that, over time, such programs reduce abuse, neglect, poisonings and accidents by half — problems that would end up in your ED. Counting those results as well as drops in arrests and other problems with both the children (up to age 18) and the mothers, the programs actually save governments considerable money. In fact, the return on investment (ROI) is 570 percent — every dollar a state or local government invests returns nearly $6 in savings.

Despite this high ROI, Nurse Family Partnerships have continually struggled to find funding. In the Next Health Care, in which health systems are often at risk for the health of populations, a smart health system would make a business out of it, finding a way to recoup some of that ROI.

Targeting the Sickest

In any population you serve, the top 5 percent of users of health care resources use half of all the resources. At any given moment most of those are in the grip of some powerful disease or have had some accident; they will die or get better soon, and will not be in that category next year. But 31 percent will still be there; they are mostly people with multiple, poorly managed chronic conditions.

The end of the tail is even steeper: The top 1 percent use 20 percent of all health care resources, and 14 percent of these are in that category year after year. If they are uninsured, or insured in a way that does not really compensate for all their care (such as Medicaid), you are in effect at risk for all the high-acuity care that their chronic conditions precipitate. If instead you put yourself at risk for their health by taking on a risk contract from the state for their Medicaid care (for example), you can actually profit from giving them far better care and attention.

You can form special case units specifically charged with caring for such customers. Call them Camden teams, after Jeffrey Brenner’s justly celebrated Camden Coalition of Health Care Providers, which showed that they could reduce the hospitalization costs of the “worst” patients by more than half by giving them constant attention. After years of trying, they finally won the right to some small portion of the tens of millions of dollars they were saving the state.

Other health systems, such as Spectrum Health of Grand Rapids, Mich., and AtlantiCare in Atlantic City, N.J., have established special clinics for these targeted populations of heavy users. Harvard’s Partners HealthCare is among the other systems piloting special at-risk programs for the heaviest users.

Using New Technologies

Cell phones, smart phones, tablets, apps — we tend to think of each new technology as it arises as the perquisite of high-end, tech-savvy users. Yet every communications ability has a far greater effect on the lives of poor people with fewer options. The Health 2.0 world burgeons with new devices and apps for connecting people with providers, bringing patients information and helping them help themselves.

Such devices can be expensive, and poor people may not be able to afford them, but consider this: If you are at risk for a population, preventing one unnecessary visit to the ED may save hundreds of dollars in costs; preventing several visits and hospitalization can save tens of thousands. Getting needy people networked with your organization may save you money, even if it means giving them smart phones or dedicated communication devices linked to your system.

The types of devices are rapidly proliferating. To take just one surprising example: The underserved are notorious for non-adherence, and the lack of adherence to drug regimens costs the system vast sums. The costs for HIV/AIDS, for instance, a disease that can be completely controlled with antiretrovirals, rise by an average of $30,000 per year per patient when the patient does not faithfully take the antiretrovirals. The antiretrovirals regimen has to be adjusted to fit the patient, but often patients just give up on them because of side effects, and multiple admissions and death can result.

Multidrug-resistant tuberculosis is completely curable, but the complete cycle of drugs must be taken. The only real solution up to now has been “directly observed therapy” (DOT) — the patient comes in, or the nurse goes to the patient, just to watch him or her take the pill.

The technology now being tested by the School of Public Health at the University of California, San Diego, is “wirelessly observed therapy” (WOT). The patient wears a patch. The pill contains a tiny, inexpensive, organic transmitter; when it is swallowed, it sends the patch a little pulse. Next time the patient’s cell phone is turned on and nearby, the patch tells an app on the cell phone, which then transmits the information to whomever the patient has selected, whether a friend, a caregiver or your nurse. If it’s your nurse, the nurse can track scores of patients and contact those (or the caregivers of those) from whom they have seen no pulse today.

New Sources of Funding

We can’t just give up and try to live off the crumbs that we are given by the present constricted climate. The key to finding new funding lies in the wastefulness of the current system: Failing to deal with the uninsured and underserved costs the health care system and its payers significantly more than doing it right. This waste turns into a cost not just for the programs dedicated to the poor and underserved, but for all payers, even private payers and employers. The payers include federal, state and local governments.

Master the methods and put together the infrastructure for doing it right, and put yourself in the risk position to profit from driving down the costs of this wasteful underservice. You should be able to attract risk contracts from those who pay for these populations directly (such as state and local governments). You should even be able to get some participation from businesses and health plans whose costs are indirectly affected by the added costs of not dealing smartly with underserved populations.

All health systems are in one way or another already at risk for the health and health costs of underserved populations. The Patient Protection and Affordable Care Act, when fully implemented, will cover the costs of some of those populations, but you will still be at risk for others. Health systems will be much better off if they stop being in denial of the problem, turn their chaotic at-risk situation into planned at-risk business models, and figure out how to turn the bottom line black on serving the underserved.

In Healthcare Beyond Reform: Doing it Right For Half The Cost I lay out the five strategies that healthcare must adopt, and is adopting in various ways and places, to make healthcare better and cheaper at the same time.

Strategy Five is “Rebuild Every Process.” It’s about “lean manufacturing,” smart standardization, measurement, “big data,” evidence-based design, teaching the innovation, all the detailed, rigorous, hard attention to intelligent process re-design that healthcare is so obviously lacking — and that is absolutely necessary if healthcare is to improve its abysmal cost/benefit ratio.

Now in The New Yorker writer/surgeon Atul Gawande has done a brilliant turn on this theme, by diving into, of all things, the processes of a restaurant chain, comparing them to the duplicative, chaotic, mistake-prone processes of traditional healthcare, and finally to some examples of smart, rebuilt healthcare processes that drive down costs while killing fewer people.

Gawande shows how The Cheesecake Factory manages to deliver 308 dinner menu items and 124 beverage choices to exacting standards, on time, from fresh ingredients, with only 2.5% wastage, in a linen-napkin and silverware environment, at lower cost, then compares that with the disconnected, uncoordinated, messy environment that is most of US healthcare. He details several examples of how new drives toward standardization and control of processes in the operating room and the emergency department, for instance, are making a difference, lowering costs and improving not only outcomes but the patient experience, all at the same time.

There are still voices in medicine decrying standardization as “cookbook medicine” and insisting that every medical decision and action must be made on the spot, on the fly, on the doctor’s judgment and say-so alone. Yet there are right and wrong ways to do most of medicine. There is no clinical justification for not elevating the head of the bed for a patient with pneumonia on a ventilator; or for not fully covering a patient during a central line emplacement; or keeping a patient on 100% oxygen for longer than absolutely necessary. As one of the docs engineering the standardization of a group of EDs told Gawande: “Customization should be five per cent, not ninety-five per cent, of what we do.”

The contrast in the diffusion of innovation is quite stark. The Cheesecake Factory changes some of its menu every six months, and all of its cooks throughout the chain must learn the cooking and presentation of the new items. The chain has a dedicated system for teaching the new items to managing, and then teaching them how to teach them, so that they can propagate the new items throughout the system. Healthcare has no such system at all. When some new fact or technique is established through research (whether the proper use of negative and positive ventilation flows in patient rooms, or a superior wound closure technique, or better post-op therapy after knee replacement surgery) there is no mechanism to propagate that discovery throughout healthcare. Studies show that the average medical innovation takes 15 years to reach even half of patients in the system. That is simply unacceptable. People die and suffer because of such resistance to doing things a better way. We must rebuild every process in healthcare continually, striving for better care, better results, and lower cost.

A hospital that spends more upfront on evidence-based design will soon reap the payback in better outcomes.

It was some doctor show on cable: Nurse McCarthy bustles into the hospital room, says “Good morning!” brightly, and crosses the brilliantly polished linoleum floor to the window. Humming to herself, she sweeps open the curtains to the view of the brick wall across the airshaft, then goes to the patient on the right and checks his dressing, clucking and offering encouragement. After a few moments she does the same with the patient on the left, makes a note on his chart, and leaves. She’s probably been there less than 10 seconds, and I’m thinking, She just killed two patients.

Consider this: During the remainder of this decade, health care providers will be building thousands of structures — building, re-building, re-purposing, infilling, for new and rapidly shifting purposes. Details matter.

Despite its continued use as a political bludgeon, health care reform will likely be implemented, at least in its broad outlines. The truly deep changes that are transforming us into the Next Health Care are proceeding apace in any case, with different business models and revenue streams, which means new physical settings.

In the next few years, we are facing not only tens of millions of boomers aging into their Medicare years, but tens of millions of others who are becoming newly insured. The rest of this decade combines vast and immediate new needs for efficiency, effectiveness, low cost, and getting close to the customer in ways we never even imagined before; a whole array of new data capabilities to help us get there; and for most of us new revenue streams, relationships and corporate structures — which means new buildings.

Buildings take time, so the time to start is now. But building for the clinical environment is extraordinarily complex, and getting it right is crucial to patient safety, efficiency and cost. How do you get it right?

What’s the Purpose?

Every building must meet its purpose. What are you going to build in the Next Health Care? How are you going to build it? What are you going to re-purpose? Is it a string of mini-clinics, or is it Tombstone Memorial? Do you imagine onsite clinics for employers, urgent care clinics, a nurse-in-a-box in the mall? How do they relate to the hospital, the med-surg floors, the imaging center, the labs, the ED? How do you go about designing these environments not only to meet the new business structures, but to take advantage of the emerging data environment, and to take patient safety to an unprecedented level?

What’s the process that works through this complexity? How do you spring from global strategy to geo-strategy to work flows and communication flows to space planning, site planning, architecture, and then to pouring concrete over re-bar and screw-gunning drywall? How do you do that in a way that takes into account all we have learned about designing physical spaces that don’t kill any more patients than necessary, and don’t run the nurses ragged and frustrate the doctors, i.e., spaces that actually promote healing?

These are complex questions, but they are questions most health care executives are not even asking yet, not at the level of detail they need. Answering those questions, and instantiating the answers in real buildings, is complicated and tough to do, and most health care executives really don’t know how to do it. Frankly, most architects don’t know how to do it. A physical environment built for health care is different from other environments literally from the foundations to the highly specialized ventilation systems; to the relationship with daylight and trees; to the energy systems; to the color schemes and the ceiling tiles — all not just for aesthetics, but for keeping patients alive, promoting healing and cutting cost, all at once.

Killed Her Patients?

Why do I say Nurse McCarthy killed her patients? Where is the hand-washing station in this picture, or even the hand-sanitizer? Certainly not between the two patients whose dressings she touched, or between them and the curtains, notorious for harboring C.Diff, MRSA and a host of other deadly pathogens.
Not Nurse McCarthy’s fault, but: Why were there curtains there in the first place, instead of other, more pathogen-resistant window coverings? Why did she have to touch a chart that is touched by all other clinicians that enter the room? Why a polished linoleum floor, which is as good as a skating rink for wandering patients trying to get themselves to the bathroom — and which harbors certain major pathogens more readily than carpet? Why are there two patients in the room, when infection control, sleep patterns, and many other elements of healing are much more manageable in single-patient rooms? Details matter. Done wrong, they kill people and cost money.

Designing a clinical environment for patient safety, lean work flows and low cost is a major field of study all on its own, with research extending back decades, with new understandings arising constantly, meshing with a rapidly changing futurescape. It’s not something anyone can master without serious study.

Most architects, and almost all health care executives, are not trained and certified in this study. I still have the experience of walking into major buildings built in the last few years and shaking my head in wonder at the mistakes, and listening to the nurses complain about its difficulties, and hearing appalling sound levels, and seeing long transports, and wondering how many millions to billions were just spent by people who didn’t get to the nub of the problem.

The nub of the problem: You’re building a building for highly complex purposes in a rapidly changing demographic, clinical and business environment — and you want that building to continue to be useful for decades into the future.

How Do You Find This Out?

So how do you get into this whole field? Where is the knowledge, the research, the expertise? For the last 18 months or so, I have been on the board of the Center for Health Design, founded to bring the fruits of research to architecture, planning, interior design, even landscaping in health care.
Since the 1990s, the CHD has sponsored research and completed a series of landmark meta-studies that surveyed the growing field and presented the findings of hundreds of studies in neat packages with their rationales: Make the bathroom door this wide, and here’s why. Solve the nurses’ supply problem in these five ways; here are the findings.

The first of these came out in 2004. CHD launched the Designing the 21st Century Hospital Project with backing from the Robert Wood Johnson Foundation. Researchers Roger Ulrich and Craig Zimring and their teams gathered thousands of studies, vetted them for sound research methods and good data, combed the resulting 600, and published “The Role of the Physical Environment in the Hospital of the 21st Century: A Once-in-a-Lifetime Opportunity.” It was a packed 69-page document — 26 pages of results and recommendations followed by 47 pages of references to the original 600 studies. In 2008, they updated it: “A Review of the Research Literature on Evidence-Based Healthcare Design” (on the CHD website).

As part of the same project, another team of researchers and architects affiliated with CHD built the Fable Hospital in 2004. This analysis of an imaginary hospital project had a somewhat different goal: demonstrating that there is a solid business case for evidence-based design. These were people who had done a lot of real hospital projects. They combined that experience with solid research from real health care environments to see how much evidence-based design would cost, and how much it would save.

Here we see another aspect of my major theme: Better health care is cheaper. Smart health care is leaner and less expensive than stupid health care.

Research: Phantom and Real Hospitals

Evidence-based design is more expensive on the front end. For instance, it calls for single-patient rooms, and larger ones; far better ventilation than usual; fully integrated headwalls and patient lifts; patient rooms with a view of nature and a day-bed for the family caregiver; and a host of other refinements. But the fewer accidents, shorter patient stays, fewer infections and other outcome improvements pay for the refinements over a relatively short period of time.

Let’s use the latest figures, from the updated 2011 Fable Hospital report. The refined figures, based on another seven years of experience and experiment, came to this: On a $350 million hospital project, the evidence-based refinements would cost about $29 million extra. Evidence showed that the savings engendered by these refinements would come to about $10 million per year. They would pay for themselves in just three years.

Some of the new information comes from actual new hospitals built to principles of evidence-based design. They are called the CHD’s Pebble Projects, as in pebbles tossed into a pond creating waves that change the whole pond. Health care organizations with construction projects sign up with the CHD for guidance, and at the same time agree to conduct specific new research on the facility after it opens, comparing accident rates or infection rates against those of the facility it replaced, or another facility of different design, or in different parts of the same new facility. Some three dozen facilities have participated since the program’s founding in 2000.

In 2008, the CHD began training and certifying architects, planners and interior designers in the principles and data, in a new Evidence-Based Design Accreditation and Certification (EDAC) program, which quickly expanded to hundreds of professionals.

This is heroic work. It is boring to all except those who are doing it. Most of it is invisible to most of the people it affects. But all this research, education and turning the data into actual buildings — hard, detailed, tough-minded, relentless labor — ultimately saves lives, reduces suffering and makes health care more available to all by reducing costs.

Time for some big learning.

This article first appeared in H&HN (Hospitals and Health Networks) Daily, a publication of the American Hospital Association, July 24, 2012.

What a cliffhanger! It is an historic decision, found on the narrowest possible grounds, with a majority agreeing on the result, but not broadly on the reasoning.

Effects: The principal effects of the finding, from the point of view of the system: They have just avoided enormous chaos over the coming years. The system is chaotic enough already, at a tipping point into an unclear future, with the huge shift in underlying economic factors. These factors include especially the various ways of shifting some economic risk from the payers and employers to the providers and the patients/customers.

Stabilizing: The Supreme Court finding stabilizes the future of the system. The affirmation, combined with the fact that a gridlocked polity in Washington is unlikely to come up with any major change or repeal of the law, and that the major parts of the law are self-funding, means that everyone now knows at least the general outline of what the rules are for the foreseeable future.

Permanent: The law is now likely permanent. To overturn it, you would need President Romney with a filibuster-proof majority in the Senate and a majority in the House. The major parts of the law are self-funding and not dependent on Congressional outlays. By 2016, most people will have experienced the results of the law, and found its benefits far outweigh its costs. Business owners will find that it is not as burdensome as some have feared. It will have become obvious that the experience of the actual law is far different and more benign than the fears that have been drummed up about it politically. Once people experience its benefits for themselves, it will be very hard to gin up a campaign to take it away from them.

Paying customers: The biggest effect of the law, from the system’s point of view, is not so much millions of new customers, as it is millions of new paying customers. The overall costs of the high users among the formerly uninsured will actually drop once they have insurance. This can be seen as a “save the hospitals” bill as much as anything else.

Major cost savings still to come: But the major cost-saving provision of the bill lies in the provision to reward “accountable care organizations” (ACOs) that in one way or another take on financial risk for the health of whole populations, rather than be paid strictly fee-for-service. The support for ACAs is actually small, only a small percentage of proven savings getting kicked back to the providers, and under very tight rules. That would not by itself have had much effect if it were not something that providers were willing to do anyway. But the concept — that savings and better care result when providers take on some financial risk for outcomes and overall health — is revolutionary. Many healthcare providers have been plunging ahead with versions of this idea well in advance of today’s finding, betting the future of their systems on the idea that, one way or another, being at risk for outcomes shapes the future of healthcare.

Healthcare beyond reform: The ACA reform law is not itself the change we need, it will not by itself bring us better and cheaper healthcare. But it is a catalyst and an underpinning to the deep changes gathering force, the forces I describe in Healthcare Beyond Reform: Doing It Right For Half The Cost. We may well look on today’s ruling as the tipping point toward the Next Healthcare, the moment that the pins were finally knocked out from under the deepest resistance to change, and things really began to move.

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[Press Release] Sausalito, Calif., June 20, 2012 — With the Supreme Court’s decision on the healthcare reform act expected within the week, both hope and fear are building that the Court will stop healthcare reform in its tracks. But a healthcare futurist argues that the real reforms in healthcare will survive with or without the law.

“The really big changes already happening in healthcare aren’t riding on the legislation. They are driven by economics,” according to Joe Flower, a healthcare industry analyst and futurist who has worked with the World Health Organization, the U.S. Defense Department, and many Fortune 100 corporations. “The big secret inside the industry is: Better healthcare costs less. It has to. Some in the industry have figured this out, and others are just hoping no one will notice.”

According to Flower, “We can expect a very different, and quite a bit smaller industry over the coming years. But this is not really about cutbacks or rationing. The industry is just now realizing that the only way to do healthcare for significantly less money is to do it better, smarter, leaner, to get to people with more help, earlier — especially the five percent of the population who consume half of all the healthcare resources,” he says. “The changes we are seeing are fundamental, they are growing, and there’s really no going back.” Flower is a frequent healthcare speaker and consultant for groups like the American Hospital Association, Blue Cross Blue Shield, and numerous hospitals, health plans, employers and pharmaceutical companies across the industry.

Flower’s new book, Healthcare Beyond Reform: Doing It Right For Half the Cost, tells the stories of aggressive experiments and rapid change in America’s largest industry. “The industry is huge. If it were a country, U.S. healthcare would be the sixth largest economy in the world. And it’s been very stuck,” he says. “With all the political noise, people have assumed that the only way to change healthcare is to pass a reform act in Congress. In fact, we are at a tipping point. Companies, health systems, states, Native American tribes, the VA, business coalitions, even some health plans, have been trying practical new ways of paying for healthcare, new ways of bringing it to people. And some of those experiments have been succeeding — driving down costs while helping people be healthier. These new programs are changing the industry from the inside out.”

Flower, who helps businesses and the healthcare industry prepare for change, estimates that the U.S. could get better healthcare for all Americans for half as much as it pays today. “That’s a conservative estimate. Smarter healthcare is so much cheaper. Do it right, and we could save $1 trillion per year. In fact, that is the only real answer to reducing the federal deficit.”

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I’ve been saying it for years now, it’s the theme of Healthcare Beyond Reform: Doing It Right For Half The Cost — and now it’s even hit the editorial pages of the NY Times: A June 2 editorial, “Treating You Better For Less,” trumpets the “good news” about a “grass-roots movement” using “already proven techniques” that “could transform the entire system in ways that will benefit all Americans.”

“It is a measure of how dysfunctional the system has become,” says the editorial, “that these successful experiments — based on medical sense, sound research and efficiencies — seem so revolutionary.” It goes on to describe several of the kinds of new ventures in efficiency and effectiveness that make up the core of Healthcare Beyond Reform, in different healthcare systems and health insurers across the country.

The news here is not that these things are happening, or that they are so widespread that they can be called a “grass-roots movement.” The real news here is that the movement has gained such momentum that big, mainstream media organizations outside of healthcare, well beyond the policy wonk orbit, have begun to surface what may turn out to be one of the the biggest stories of our times: The largest sector of our economy turning inside out, like some movie transformer, on the way toward providing all of us with far better care for far less than we could possibly imagine. Better healthcare for half the cost.

There’s a lot to it. This revolution may not be televised because of its very complexity, and the vast, subterranean, even tectonic nature of the structural economic changes causing the surface changes we are seeing. Nor will the movement stop if the ACA reform act is thrown out or gutted by the Supreme Court, or repealed by a new Congress and President, because the movement was not started by the reform law. It was generated by demographics and economics, the sheer unworkability of our current system, and the data power that allows us finally to see into it, to try new things, and measure their results.