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 / Autumn 2011 / Issue 64(originally published by Booz & Company)


Transforming Healthcare Delivery

Transformation of the care-delivery system on a scale that will generate the cost savings necessary to revitalize the medical system will require myriad initiatives. In each one, the collaborating hospitals, physicians, and payors need to define and commit to an overarching vision and clear objectives. A vision defines what, in essence, the initiative is trying to achieve, whether that is cost reduction, improved quality, a better experience for patients, or some combination of those factors. Objectives define specific goals, such as targets for cost reduction or market share. Moreover, there must be overriding principles that stakeholders can use to resolve the conflicts that inevitably arise when trade-offs must be made. And all parties should understand what’s in it for them — that is, what rewards they can expect to reap for meeting their targets. These elements are the foundation for mutual trust and genuine engagement on the part of all stakeholders.

Once the stakeholders in care-delivery transformations have a clear understanding of where they are headed, they can address the three major components of potential models: delivery, payment, and consumer engagement.

Delivery. Collaborative care-delivery approaches vary widely in both the level of integration and the degree of collaboration they require. Many other variables, such as provider mix and the underlying IT structure and capabilities needed to share information among all those involved in a patient’s care, also play into the choice and development of a care-delivery approach.

One of the approaches generating the most interest among providers and payors in the U.S. is the accountable care organization (ACO), which is a coordinated network of provider partners, such as hospitals, primary care physicians, and specialists, who work together to improve care delivery and control costs, often in association with a healthcare insurer. Typically, ACO provider partners assume responsibility for meeting care quality and cost goals, and earn a share of the savings they produce. Another intriguing approach is the patient-centered medical home (PCMH), in which primary care physicians manage all aspects of patient care, serving as team leaders and care coordinators when patients require specialist services, and seeking to involve patients as active participants in their own health and well-being.

Payment. Getting the payment scheme right is especially complex and is the most data-intensive part of the collaborative process. Because practice follows payment, however, it also holds the most potential for transforming healthcare systems.

In designing a payment scheme, participants must first decide how healthcare services will be priced. New, more collaborative models are often based on bundled case rates (fixed payments for a full episode of care, such as the aggregated set of procedures and services involved in a coronary artery bypass) or global payments (single, risk-adjusted payments coupled with quality metrics designed to discourage the withholding of care, encompassing all the care needed for a specific patient population, such as diabetics). Global payments offer the opportunity to cap the healthcare cost trend, but do not necessarily reduce absolute current spending.

All payment scheme designs come with implications regarding how cost increases will be controlled, quality will be managed, and patients will be engaged. In the U.S., the payment schemes of the future are likely to take cues from the consumer goods industry, adapting increasingly sophisticated pricing methodologies. For example, payors and providers may move toward tiered pricing based on controllable variables, such as length of stay or quality of service. Other future schemes may embrace more dynamic, varied pricing to improve care-delivery economics. For instance, providers might charge less for using an MRI machine 30 miles from a patient’s home where demand is lower than for using one that is closer but busier.

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