The Transformation Imperative: Costs, consumerism driving innovation

Editor's note: This article was edited to appear in the print edition of Modern Healthcare. Experience the multimedia version of this special report.

One year of healthcare spending can buy 15 iPhones. Or, it can buy over 3,000 gallons of milk.

Or, if you want to look at it in relative terms, U.S. healthcare spending, which in 2015 hit nearly $10,000 for every person in the country, was 29% higher than the next most expensive country, Luxembourg.

No matter how you size it up, what the U.S. spends each year on healthcare is a lot of money. That's why there's near-universal agreement that, no matter what happens in Washington over the next few years, the pressure on healthcare providers to transform the delivery system into one that achieves better outcomes at lower costs in a more patient- and consumer-friendly way will only grow more intense.

As that pressure builds, a whole new “innovation” industry within healthcare has come into existence. It includes startups looking to help existing providers improve the efficiency of their operations; the quality, safety and outcomes of their care; and their patient or customer relations. Systems are also creating their own internal methods to achieve those goals.

Whatever it's called, there is now a system-wide consensus that the escalating pressure on providers to dramatically change how they organize and deliver care will continue in the years ahead. Bottom line-oriented employers, cash-strapped families and tax-starved governments will insist on it.

Healthcare costs in the U.S. for most of the past four decades have grown faster than the rest of the economy, hitting $3.2 trillion in 2015, nearly a fifth of gross domestic product. Parallel to this climb, the government has ratcheted down reimbursements, and employers have put their employees on high-deductible health plans. In 2016, more than half of insured employees had deductibles higher than $1,000, up from just 10% in 2006.

Insurers, too, are feeling the weight of ever-rising costs and have begun the arduous switch to value-based reimbursement, which puts further pressure on everyone else to change how care is delivered. But even as they embrace the regulations and value-based incentive plans like accountable care organizations, bundled payments and shared savings contained in the Affordable Care Act, many appear willing to adapt to a system where consumer-driven medicine—in which individuals and families have more “skin in the game”—plays an equal if not more significant role.

That will only heighten the pressure on providers to put the push for lower cost, higher quality and more patient-focused care at the center of their organizational mission and strategies. Their financial survival will depend on succeeding at new models of delivering care.

For years, these changes have remained tantalizingly just over the horizon. Healthcare systems promised transformation, yet they kept their day-to-day operations firmly planted in fee-for-service medicine. But payment models are gradually shifting to encourage quality over quantity. Patients are demanding friendlier treatment and better outcomes for their substantial personal investments in healthcare.

The shift to value-based care won't happen all at once. And as every healthcare system in the country is learning, change is difficult. “Any change, including change for the better, is painful and tumultuous and miserable for the people living through it,” said Dr. Thomas Lee, chief medical officer of Press Ganey, a patient satisfaction measurement firm.

The newfound focus on patients doesn't come from magnanimity alone—it comes from a push toward reimbursement models that pay for value rather than services. “If you want to focus on getting better outcomes at a lower cost, it can be helpful to get paid that way,” said Dr. Mark McClellan, director of the Margolis Center for Health Policy at Duke University.

The ACA shoved Medicare in that direction. Private insurers and their employer customers, punished by ever-rising costs, followed suit. They're turning to ACOs, bundled payments and patient-centered medical homes to not only rein in costs, but also to improve the quality of care.

The ACA authorized the CMS to institute the Hospital Value-Based Purchasing program to reward or penalize providers when they don't meet a set of quality metrics. The Hospital Readmissions Reduction program imposes penalties on Medicare providers whose patient bounce-back rates are above a certain threshold.

The CMS also instituted the Medicare Shared Savings Program, an initiative that encourages (though doesn't mandate) providers to organize in accountable care organizations to increase the value of the care they provide. In these arrangements, a group of providers is held accountable for the quality of the care they provide. The incentive, then, is for providers to work together, coordinating a patient's care across the continuum.

These kinds of models, McClellan said, “enable providers working together at the whole-person level to get reimbursed if they bring down the overall cost.”

“If the incentive is for all these parties to work together because they have a shared incentive in terms of patient outcomes,” said Joe Reilly, chief information officer of the Central New York Care Collaborative, “they'll be more intentional about making sure they're all on the same page.”

“It's the 'volume-to-value' transition coming to life,” Lee said of the focus on the care continuum. Now recent payment reforms are holding providers more responsible for outcomes and quality and pushing them to coordinate care to reduce variation and filling the gaps when patients move from one part of the system to another.

“Integrated care is better care, it's more efficient care, and it preserves resources for the entire system,” said former HHS Secretary Mike Leavitt.

Part of care coordination is cost comprehension. Systems like Danville, Pa.-based Geisinger Health System that are both providers and payers benefit from access to medical and pharmacy claims, which they can use to calculate the total cost of care for patients. “It's really important that organizations look at total costs of care in addition to outcomes,” said Janet Tomcavage, chief population health officer of the 12-hospital system.

When choosing medications, it might seem at first blush that giving patients the most affordable option makes the most sense. But by studying claims data, Geisinger determined it sometimes pays to spend more upfront, as was the case with multiple sclerosis drugs. Data revealed that a more expensive drug led to a lower overall cost of care than a cheaper drug, which was associated with more problems and a higher admissions rate.

By tracking patients across their entire time in the healthcare system, not just their stay in the hospital, Geisinger identified nursing home care as an area in need of improvement. After advanced practitioners and case managers began monitoring patients' progress in the homes in their network, the readmission rate for patients sent to nursing homes dropped to about 14% from 24%.

Lowering readmissions is just one part of the increased focus on quality and safety. Better medication reconciliation cuts down on adverse drug events. Teams of providers work together to treat high-risk patients. Patient navigators guide patients through the system, coordinating care with specialists and other providers.

Boston-based Partners HealthCare System's Integrated Care Management Program, for instance, pairs nurse care managers with high-risk patients to help coordinate care, which leads to both better patient outcomes and cost savings: The program saved $2.65 in healthcare costs for every dollar it spent.

This focus on costs isn't just about the bottom line. It's about patients getting higher-quality care. “Now we're starting to think about it from a patient perspective, which forces you to think about care delivery from a service line,” said Rob Demichiei, chief financial officer of UPMC, which operates more than 25 major facilities and 600 physician offices and outpatient clinics in Western Pennsylvania.

Rather than looking at individual units vertically, UPMC has begun comparing similar service lines and medical specialty practices across all its facilities in an effort to identify best practices and reduce both costs and clinical complications. “By understanding variation,” he said, “we can see which areas have higher cost than others and hold them accountable.”

To meet the overall imperative to deliver higher-quality, lower-cost care, providers are stepping up their focus on the patients they serve. Medicare has created incentives to promote this behavior, too, basing a hefty share of its hospital value-based purchasing rewards and penalties on patient responses to a post-discharge survey.

Hospital officials are quickly learning that patient-centric care is good for outcomes, too. In the value-based reimbursement world that is slowly evolving, that will be good for the bottom line. “People in healthcare are good people to begin with, but this is business strategy, too,” Lee said.

Greater patient satisfaction also builds brand loyalty for healthcare systems to hold onto patients. “Consumers don't want the same old same old,” said Matthew Chambers, CIO of Baylor Scott & White Health, whose app integrates with Apple's Healthkit. “They want to be delighted in the journey just like they would be with Amazon.”

Healthcare systems must therefore differentiate themselves to win over patients. “Medicine is a vastly different industry from retail, but we can learn from it and other industries to provide a more engaging and convenient experience,” he said.

“There's a convergence of hospitality and healthcare,” said Sarah Thomas, managing director of the Deloitte Center for Health Solutions. Getting that convergence right pays off, she said. “The hospitals with higher patient experience scores are higher financial performers.”

The rise of high-deductible health plans is driving patients to act more like consumers. “Patients paying more themselves out of pocket for their care might be invested in shopping for the hospitals with the best outcomes for the lower costs,” Thomas said.

“With consumers bearing an ever greater share of healthcare costs, they are much more engaged and are demanding more information about quality and costs and a better consumer experience,” said Ed McCallister, CIO at UPMC.

To measure how well they're performing at delivering that consumer experience, healthcare systems are using a net promoter score, a metric common in the retail industry (Apple uses it). It gauges how loyal a customer is to a provider by asking a single question: How likely are you to recommend our company, product or service to a friend or colleague?

To raise the score, healthcare systems should look beyond medicine itself, said Dr. Bob Kocher, a partner at Venrock who focuses on healthcare IT. “You can make your technology more elegant; you can make your parking better; you can have gowns that don't fly open in the back,” he said.

One way to improve experience, and to save money doing it, is to take a cue from the consumer world and go digital. “We're looking at converting a significant amount of our interactions with patients to being done over telehealth,” said Dr. Peter Fleischut, chief innovation officer at New York-Presbyterian Hospital.

Apps to open communication are another way healthcare is learning from other industries. “In healthcare, we have not exactly provided the most pleasing consumer experience,” said Dr. John Halamka, CIO at Beth Israel Deaconess Medical Center in Boston. But that's changing. At Beth Israel Deaconess, patients in the ICU and their families use the MyICU app to get updates and care plans. “The patient is becoming more and more the consumer,” Halamka said.

Still, digital health has its limitations. Doctors must be trained specifically for telehealth visits, for example. Sometimes access is a problem, as it is for some patients in rural areas who have dial-up internet. And sometimes patients don't want to use telehealth in the first place. “Some people are worried about privacy,” Thomas said. “They're worried about strangers looking into their homes.”

Cost is also a limiting factor. A recent study published in Health Affairs found that telehealth didn't save money. Though telehealth visits were usually cheaper than in-person visits, they were used so frequently that they canceled out the savings, and costs actually rose.

Data underlie nearly every change in healthcare, from analyzing the care continuum to negotiating value-based contracts. They also underlie care itself, as providers measure and use evidence to determine how and where to direct care.

This can happen at the level of a single patient, or it can happen at the level of an entire population. Precision medicine and population health, though different in scope, share the aim of personalization, which not only saves money, as resources are more accurately directed, but also saves lives.

That was the case for Kathy Halamka. When she was diagnosed with stage 3 breast cancer at the end of 2011, she and her husband—who happens to be Beth Israel Deaconess' John Halamka—turned to data to come up with a treatment plan, which included a reduced chemotherapy regimen. Using the Shared Health Research Information Network search tool, her providers went through 6.1 million records to look at similar patients' outcomes from various treatments and choose the one that would best serve her. Nine months after Halamka's diagnosis, she was cancer-free.

The approach Kathy Halamka's doctors took is precision medicine, but the underlying idea is the same as what guides population health management: Use data from specific populations of patients to improve outcomes.

For Oak Street Health, a Chicago-based system of 20 primary-care centers, that specific population is Medicare patients, most of whom are low-income. To shape care plans, patients are segmented by clinical and social data: The 5% of patients classified as “critical,” for instance, are seen every three weeks. No matter the tier, each patient has a care team that usually includes a physician, who handles just 500 patients, a nurse practitioner, registered nurses, medical assistants, a care manager (who's a social worker) and a medical scribe.

Mike Pykosz, CEO of Oak Street, thinks the model is successful in part because it was built from the ground up. “We're strong believers in technology,” Pykosz said. “But we think it has to be technology enabling a model, not a model enabling technology.” So though Oak Street uses plenty of data, it uses those numbers to support the patient-centric model it already has in place.

It also helps that Oak Street is fully at risk for all of its managed patients. “We can invest resources in all of those things that allow you to manage chronic illness more effectively and treat people in a better venue,” Pykosz said. “By doing that, you can actually lower the overall cost a lot.”

Population health management can be more difficult for providers who still use fee-for-service models. “Most of the payments and regulations we have are designed not for these transformed care models and are not about rewarding supporting the best outcomes at the lowest costs,” Duke's McClellan said. “If you want to focus on better outcomes at a lower cost, it can be helpful to get paid that way—more on a person level or at least an episode level. Then you can spend money on things that don't typically get reimbursed under fee for service.”

Lowering costs demands not only transforming patient care but transforming the administrative tasks that enable care. As value-based care takes hold, healthcare systems are feeling ever more pressure to increase efficiency.

“Healthcare keeps adding more workers, which is a big driver of cost growth,” Venrock's Kocher said. The industry adds an average 30,000 jobs per month. As systems feel pressure to cut costs, they're also going to feel pressure to slow down hiring. They'll have to turn to technology, rather than people, for certain tasks, much as airlines and financial services have done, he said.

Some tasks might be turned over to patients. Beth Israel Deaconess, for instance, is testing virtual assistant-facilitated self-scheduling. Staff who would otherwise be scheduling might tend to other tasks, like care management.

UPMC is beginning to use biometric scanners for patient appointment registration. “This gives our registration staff more time to spend with patients on higher value activities,” CIO McCallister said.

At Beth Israel Deaconess, nurses and physicians rely on machine learning to help them quickly get structured information, such as a patient's chief complaint. A nurse enters a brief triage summary into a patient's electronic health record, and an algorithm processes that text, using natural language processing and data from hundreds of thousands of patients. The system gives the nurse the top five predicted chief complaints, which the nurse can edit. The result is a structured and standardized description of the chief complaint that's used to trigger clinical pathways.

As useful as technology is, it's important for humans to stay part of the equation. “We have to be so careful to not assume the machines are thinking,” Halamka said.

Keeping the right humans around is important, too. “Every time someone leaves, it could cost you one and a half times their annual salary to replace them,” Lee said.

So healthcare systems are keeping employees engaged through leadership and support programs, like Brigham and Women's Center for Professionalism and Peer Support.

Care processes, too, can become less wasteful. Doctors at Sutter Health, for instance, cut back on blood draws by learning about their colleagues' ordering practices and by changing a button in its Epic Systems Corp.

EHR that instructed how often to take blood for labs. Previously, doctors were choosing to have the labs done daily, even when patients were doing well. After Sutter removed the button to have the tests ordered daily, repeat labs decreased from 21% to 13%.

Most systems developing lower-cost, patient-centered models quickly realize they have to move into realms that have traditionally been outside of healthcare but are key to helping some of the most expensive patients in their system. The so-called social determinants of health—food, housing, employment, social relationships and education—can defeat the best care plans.

Researchers estimate that individual behavior—often driven by these social determinants—accounts for 40% of the risk of premature death. Healthcare accounts for only 10%. “You often have to address these underlying issues if you want to get at the ones that are more direct cost drivers,” said Roy Rosin, chief innovation officer at Penn Medicine.

That can mean engaging with patients in unconventional ways that are also part of the transformation now underway. One example from Oak Street Health: A man who'd become a regular in the community room of one of its clinics failed to show up. The local staff noticed. He didn't come in the next day, either.

Someone from the clinic called. His foot hurt, he explained, and he couldn't walk the half mile to the center. Oak Street Health sent a van to bring him in—it offers the service to many of its patients—to treat a foot infection. “We were able to catch it, and it became a non-issue,” Pykosz said.

Other systems are also trying to get out ahead of health issues. Geisinger started a food pantry for patients with diabetes. Penn Medicine has a community health program called Impact, through which health workers help patients reach their goals, sometimes even working out with them at local gyms.

Such a care model requires leaving the hospital and interacting with patients more often. But it's time well-spent. “For the most vulnerable patients, that high-touch model,” Rosin said, “is actually high-value care.”

The transformations taking place in many corners of the healthcare system are far from universal. But unless the imperative to delivery higher-quality care at lower costs goes away—which is highly improbable—then every hospital and physician in their systems and practices will soon face both the promise and peril of innovative changes coming to their existing way of doing things.

“It's important for organizations to not think there's only one thing they need to do,” Duke's McClellan said. “It really is a set of steps to take together. That's what we've seen in organizations that have been successful in transforming care.”

“Organizing around patients, competing on creating and improving value for patients, and doing what it takes to efficiently meet the needs of patients—that's the core theme,” Lee said. “That makes me feel optimistic.”